The collapse of crypto darling FTX has shaken the tech industry. Over the past few weeks, the exchange has lost its $32bn valuation, filed for bankruptcy and its leadership is now being investigated by numerous regulators. The implosion of the fintech firm has also put the future of new laws for cryptocurrencies in doubt. However, legaltech startup StructureFlow believes it could have helped the chaos from happening.
The London-based venture has just raised a $3.5m pre-Series A funding round to prove that boast. StructureFlow will use the capital from the deal to further strengthen its platform, which is designed to model corporate transactions. The platform helps lawyers visualise the key parties and entities, jurisdictions, funding flows, tax obligations and ownerships in any corporate transaction.
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“Basically, it’s a ground-breaking way for lawyers to move away from mountains of dense text to advise clients in a way they can actually understand how a deal is going to work,” StructureFlow CEO and founder Tim Follett tells Verdict.
While he admits that StructureFlow on its own wouldn’t have prevented the collapse of FTX – despite name-checking the troubled crypto exchange, David Cameron-linked Greensill and the German payment processing company Wirecard, which collapsed in a flurry of fraud allegations last year and whose CEO faces the court this week – Follett argues that the platform would have enabled lawyers and investors to better “understand what they are actually dealing with, identify the risks and opportunities and reflect that in the terms of the deal.”
“The problem is people not adequately understanding what they are dealing with,” Follett continues. “If regulators then also started using StructureFlow to understand what they are regulating, there would be an opportunity to address risks early, contain them, help prepare for things if they go wrong.”
He adds that “FTX is a perfect case study for us” and that StructureFlow has already used its platform to visualise the exchange’s structure.
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By GlobalData“What is immediately clear is that there were multiple parties making investments with little insight into how the business was structured,” Follett says. “The FTX structure map that we’ve visualised with the StructureFlow platform paints a scary picture of a house of cards that was waiting to fall. The risks for any investor would have been far clearer if they’d completed a due diligence process using StructureFlow.”
UK-based venture capital firm Venrex led the round. High-profile angel investors also participated including Outrun Ventures’ Chris Adelsbach and Tariq Khan. StructureFlow will use the money from the deal to accelerate its product-development and further expand into North America. It is also hiring five new members to its team and prepares for its Series A round, planned for 2023.
The deal is the latest step in the StructureFlow saga
Follett is a solicitor by trade. He has been practicing law since he graduated from BPP Law School in 2009. The idea for StructureFlow came from his own struggles to visualise his ideas.
“I’ve always been a visual person,” Follett says. “Add to this that most lawyers involved in corporate finance deals will instinctively draw out even a basic deal structure – even on a napkin. But I was doing this for complex deals and having to rely on a graphic designer using PowerPoint – who was 10 floors above me in the building – to translate my vision of a deal into a drawing on a slide. Lawyer to graphic designer also doesn’t always translate so well.”
He grew tired of the daily “constant back-and-forth of moving an ownership line between entities” and “adding a note about tax obligations”. This frustration eventually spurred him to launch StructureFlow in 2018.
The company has been funded by a combination of angel and corporate investors with minority stakes as well as grant funding from Innovate UK. With the new funding deal, StructureFlow has raised $8m to date. The new deal takes the valuation of StructureFlow to $15m.
