Fintech Qapita secures USD15m in Series A round to build private stock market

QAPITA, a fintech that offers software to manage a company's equity and employee share schemes, secured US$15 million in a Series A round just six months after its previous fundraise. The startup is hoping to capture an early slice of the fast-growing private markets in South-east Asia and India.

The round was led by East Ventures (Growth Fund) and Vulcan Capital, the investment house of late Microsoft co-founder Paul Allen.

Existing investors MassMutual Ventures, Endiya Partners, Alto Partners, partners of Northstar Group and K3 Ventures also took part in the round, along with new investor NYCA.

The round comes on the heels of the startup's earlier fundraise in April, where it raised US$5 million to hire talent and build its product.

It is now looking to establish a private online marketplace where investors and employees can buy and sell secondary shares in high-growth private companies across South-east Asia and India, much like the Nasdaq Private Market in New York.

This is reflective of how platforms that manage equity and employee stock ownership plans for startups have grown in more mature markets. For instance, US-based equity management platform Carta - now worth about US$7.4 billion - moved into the secondary marketplace space in December last year when it launched private stock market CartaX.

Building a database of private startups' cap tables and financial information can assist startups to capture a picture of firm financials more accurately, in turn allowing them to parlay that position in a private exchange. Transparency is something that traditionally limits demand in secondary markets.

"In private markets, there is a lot of information asymmetry," chief executive and co-founder Ravi Ravulaparthi told The Business Times. But he added that since Qapita is already helping companies manage their equity, it has a view of the inner workings of these companies.

"Stakeholders - investors, employees and founders are already engaged on our platform. What we're doing now is just an incremental approach to enable liquidity transactions."

Nevertheless, he believes that eventually, the firm has to be involved in some form or another for secondaries to take place at scale. "You can build a secondary platform aimed at shareholders, but key information - such as share prices or valuations - will still have to come from the company."

Private exchanges have not quite caught on in South-east Asia yet, but appear to be gathering steam in the US.

Tensions between ageing startups in the US and employees who hold large chunks of their wealth in stock have fuelled private secondary markets, where an estimated US$30 billion in shares change hands annually, as per US private market research company Sacra.

Qapita reckons it can ride the growing momentum in fast growing markets like South-east Asia and India to capture the flows of a growing private market, since scalable digital solutions will be "critical" for such an ecosystem to thrive.

It estimates that the private markets across India and South-east Asia are on track to reach US$1 trillion to US$1.5 trillion in four to five years, and about a quarter of this value is held by early investors and employees.

Tommy Teo, managing director of Vulcan added: "Capital formation is at a major inflection point in our markets and Qapita is poised to go from strength to strength as a key enabler in this rapidly expanding ecosystem."

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