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Documents about the founding of Wise differ from the real story. According to the documents submitted by Wise, Kristo Käärmann entered in the England and Wales registry of enterprises on March 31, 2010 the enterprise Exchange Solutions with a share capital of 100 pounds and the nominal value of a share was one pound. The firm was renamed Transferwise on July 19, 2012, and since February 22, its name is Wise.
A year later, as of March 31, 2011, the firm had a single shareholder, Käärmann himself. But two months later, on May 31, the sole shareholder of the firm split every share into one hundred shares with nominal value of one penny. The number of shares increased to 10,000 and in August of the same year the firm received its first funding, 70,000 dollars, from the startup accelerator Seedcamp. One of the first financiers of Wise was Sten Tamkivi (via the company Seikatsu).
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On November 11 the same year, Taavet Hinrikus became a new member of the enterprise’s board.
“Kristo and I began working with TransferWise in spring or summer of 2010. Building up the firm is the most important part of a startup, the documents can be always submitted for registration later,” Hinrikus explained the difference between the documents and the real origin story.
The founding of Wise came from a practical necessity. When Kristo Käärmann moved to the UK and began to open a bank account, it turned out that the outdated process required a huge amount of visits to various offices. After he finally managed to open the account and gained access to online bank, it appeared that there was nothing special about it – he could check his amount of balance. The man who had made his first stock market investment in the age of 16, who founded his first enterprise, a financial portal, while being a second-year students and who had grown used to convenient e-services in Estonia, found the situation amazing.
“Time passed and I understood that the banking system there operates in a different way and one can handle it although with some inconvenience,“ Käärmann told the University of Tartu magazine UT (he is a graduate of the university).
Käärmann told the BBC a few years ago that it all had started from his own folly.
As it happened, Käärmann, who worked as a management consultant, received a hefty Christmas bonus of 10,000 pounds (approx. 11,700 euros). Since the interest rates in Estonia were higher, he decided to transfer the money from his British account to the Estonian one, hoping to earn more interest.
“I paid my British bank 15 pounds service fee, transferred the 10,000 pounds and discovered a week later that my Estonian account contained 500 pounds less than I had expected,” Käärmann recalled. “I started to study what had happened and learned that I had been incredibly stupid. I believed that the British bank would exchange currency at the same rate I had read about on Reuters and Bloomberg,” he described his surprise. “Instead, the bank has used a five percent lower exchange rate so that this bank and all the others had their cut on the amount. That was my mistake,” he admitted.
However, Taavet Hinrikus, who was the first employee of Skype and its director of strategy until 2008, was paid in Estonian kroons and thus the friends agreed that whenever Käärmann had to pay for something in kroons (or euros), Hinrikus transferred the necessary sum from his Estonian account to Käärmann’s Estonian account, while Käärmann in turn transferred the same amount in pounds to Hinrikus’ British account. They used the same scheme in the opposite direction and involved some acquaintances, managing to save thousands of euros within a year.
“We thought that if we could do it between ourselves, it should be possible between others as well. We did not do anything extraordinary,” Käärmann later explained. It took a year to fond an enterprise in the UK, to receive the necessary licenses, become competent about regulations, design the service and test it. The service became public in 2011 and thus the enterprise had been founded.
Käärmann and Hinrikus began to look for their first “real” investors in 2012. This attempt failed.
“We talked to 15 investors and they all turned away,” Käärmann said. “No one in Europe wanted us. The European venture investors were then much more wary of risk than the American ones. Thus we received out first funding from the small New York-based fund IA Ventures;” he recalled. The sum involved was 1.3 million dollars.
The startup involved more money after every 1 – 1.5 years, the sums became bigger, the firm’s value mushroomed and the value of the co-founders’ share increased together with it.
The firm raised six million dollars in May 2013. Among the investors was one of the most significant venture capitalists of Silicon Valley, Peter Thiel. He is the co-founder of the online payment system PayPal and the first Facebook investor outside the social media enterprise.
Among other activities, Thiel funded Donald Trump’s election campaign with 1.25 million dollars in 2016 and served on his transfer team committee after the victory.
Thiel’s venture capital fund Valar Ventures is the third largest shareholder of Wise, controlling 10.22 percent of the firm’s A shares.
A share split took place in April 2014, according to which investors received a thousand new shares per one share and the nominal value of the share, hitherto one penny, was reduced to one thousandth of a penny. TransferWise raised 25 million dollars in June and Richard Branson became one of the investors.
While the arrival of Branson (who is scheduled to fly to space in a few days) among the shareholders was accompanied by great media interest, the fact that he sold his stock in November 2019 is only recoded in the documents. When Postimees asked about it, Käärmann said that he has no idea whether Branson had sold his stock.
In January 2015 Wise raised already 58 million dollars.. The investors were headed by the well-known venture capitalist Andreessen Horowitz and this round of investment boosted the firm’s value to one billion dollars.
In 2015, Wise held its famous advertising campaign in London where the firm’s staff posed in the City in their underwear, declaring that they, unlike the banks, have nothing to hide.
In may 2016 TransferWise raised 26 million dollars. Thus the firm had received a total of 117 million dollars and its value had increased to 1.1 billion dollars. The firm became a so-called unicorn – a startup with a value of more than billion dollars. In November 2017 Wise received as much as 280 million dollars.
Since then Wise has not raised new capital but in 2019 and 2020 the earlier shareholders and staff members with share options sold shares to new investors. Käärmann did not sell his shares, but Hinrikus did, having actively invested in startups all over the world.
The existing shareholders sold their shares at increasing prices with the help of advisors and thanks to that the value of Wise increased to five billion dollars last year.
The actual value of the enterprise became clear (at least for a moment) on July 7 when the shares of Wise were listed on the London stock exchange. At the IPO the price of a Wise share increased to eight pounds (9.36 euros), resulting in the value of the enterprise slightly less than eight billion pounds (9.3 billion euros). The value of Kristo Käärmann’s share was 1.75 billion and that of Taavet Hinrikus’s share slightly above billion euros. By the end of the trading day it had increased by ten percent.
Estonia’s first two billionaires were born.