The stock exchange is an organized market for demand and supply of capital. On one side are people who want to invest their money, and on the other side are companies with their managers and owners who need this money to finance new projects and business growth. In the developed world, the stock market is a symbol of capitalism because it enables anyone who desires such, even with a small amount, to become part of big businesses. And because it requires attracting a public resource from the general public that is then spent by a narrower circle of individuals, the market is highly regulated, and its trust is built on transparency.
Public companies are therefore required to disclose any important information that concerns their activities - the more often it is disclosed, the greater the trust in it, and hence the attitude of investors. Which, in turn, should translate into more profitability from its shares due to an increase in their price. Disclosure and transparency are even more important when you have attracted people who have never invested in the stock market before.
At least that's what 750 individual investors and a Belgian fund expected, having invested in the investment company Webit Investment Network in 2022. The company founded by Varna entrepreneur Plamen Rusev then managed to raise BGN 5.87 million through the market for small and medium-sized enterprises (BEAM) of the stock exchange with the promise to invest it in "the next Amazon and Google".
The capital raised from the stock exchange was supposed to be used for equity investments in developing companies, which Rusev called scaleups, and on several occasions he stated his ambition to further increase the capital via the stock exchange. The condition for funding was that applicants had entered The Founder Games, part of the Webit Games, an event also organized by Plamen Rusev. At last year's edition, the finalist companies chosen by a selected jury were to receive an investment award. On July 5, 2022, Rusev announced that BGN 5 million were being invested in five companies: CAKE 0 (Sweden), EcoTree (Denmark), 360VUZ (UAE), WechselGott (Germany) and Alver World (Switzerland).
It was reported that each of them was to receive an investment of EUR 500,000 with an option for further investment of EUR 1 million at a later stage. The companies were awarded on stage, and Webit sent a message to the stock exchange about the investment made.
A year later, the situation looks a little different. Webit Investment Network published its annual report for 2022 on March 31, and the data in it show that by the end of the year, the company had invested only about a third of the funds raised, with the rest remaining as free funds on the company's balance sheet. The invested capital - about BGN 1.8 million (USD 0.9 million) - is directed towards only one of the initially announced companies: 360VUZ from the Arab Emirates. The remaining four have not received their checks.
The Emirati company creates video content for the metaverse, and according to Crunchbase, it received a $500,000 grant from Founders Games on July 6, 2022, with another $400,000 added subsequently. In Webit Investment Network's reports, a specific share is not mentioned, but only an estimated valuation at which the investment was made, of 70 million dollars.
According to the Crunchbase database, the other four companies have also received a grant. However, there is no investment information for them in the report, and according to the balance sheet, apparently there has been no investment in them. It is indicated for two of them that there will be an investment if certain conditions are met. In the last year, however, no public information was disclosed by WIN to the stock exchange that a large part of the investments did not go through in reality. Instead, in the first quarter of 2023, the company announced several new investments.
On January 27, it announced via the stock exchange that BGN 3.6 million had been invested "in 6 companies from 4 continents within the framework of the World Economic Forum in Davos". Two of them: Pomelo (Argentina) and InoBat (Slovakia) were announced as the "big winners" and it is believed that they must have shared BGN 2 million, at least according to WIN's stock exchange announcements.
Later, in April, another $200,000 was reported in the US-based Elephant In A Box. WIN's official website currently lists only two investments - those in Elephant In A Box and 360VUZ. There will be greater clarity from the half-year reports. The reporting requirements of the market for small and medium-sized enterprises have been relaxed - there must be a half-yearly report, which must come out by the end of July, rather than every quarter.
Much needed verification
When asked about the discrepancies in announcements and actual investments, Rusev explained them with the need for subsequent due diligence. "The company, which is publicly traded on the Beam market of the BSE - Webit Investment Network, has so far made 2 investments in 360VUZ and Elephant in a Box," he said.
He added that "WIN invests financial resources only after final due diligence" - a process that starts only after the finalists are clear. Rusev also pointed to the high criteria they follow when choosing companies, as he attributed some of the decisions to the shrinking funding in the venture capital sector.
"Lack of fresh capital in growing companies leads to loss of competitive positions and restructuring of competition. In this complex environment and the new paradigm that artificial intelligence imposes in all fields, the correct investment decision becomes even more important. This is how we approach the investment of WIN's public resources. That is why the investments made so far are precisely in companies that meet our extremely high criteria, consistent with the reality of the market," he commented.
It turns out then, that only after announcing the winners does WIN begin a process of financial analysis of the companies, during which the investments may not materialize.
EcoTree, a tree investment platform from Denmark (listed in the 2022 report as French) was one of the cases that didn't. According to Thomas Kangillem, co-founder of the Danish company, a few days before he won the investment prize of 500 thousand dollars, his company closed a financing round for 12 million euros, which, according to him, hindered the investment. However, his award was presented in front of everyone present at the Founders Games event, announced to investors - on the BSE website, as well as online according to databases such as Crunchbase. WIN's annual activity report states that the investment will be made once concrete results are achieved for 2022. The same is stated for Switzerland's Alver, where a lead investor is also required for the deal to materialize.
"Our goal is not simply to invest the money of WIN's shareholders (among which I have a significant share of personal funds), but to bring a very large return to our shareholders - unmatched in magnitude by any other asset class, which is the characteristic of risk capital," Rusev said. "That's why, especially in these market realities, we make a very careful and informed selection. Both companies in which we have invested so far with WIN prove it."
The market will obviously want more time to evaluate the company's actions. Otherwise, in one year, investors' money in Webit have shrunk by nearly 30% - that's how much the share price has fallen.