Tag Archives: Our Thoughts

Why equity crowdfunding a listed company is kind of a big deal

Public Company Crowdfunding

Equity crowdfunding is evolving quickly. Naturally, equity crowdfunding fills the funding gap that exists for many early-stage businesses that are too risky for banks, too early for angels and too small for venture capitalists. But now, later-stage companies are catching on to the power of professionally managed crowdfunding platforms (like Seedrs). What we are starting to realise is that equity crowdfunding works really well for certain types of business, regardless of what stage they are at.

This month, publicly-listed, award winning English winemaker and craft brewer Chapel Down (listed on ISDX) launched a £1.6M crowdfunding campaign on Seedrs. In less than three weeks, they overfunded to almost £4M, from around 1,400 investors – which makes this the largest equity crowdfunding campaign ever. This was the first time a public company – anywhere in the world – campaigned for investment via equity crowdfunding. This is an excitingly innovative approach to raising growth capital, especially when most companies at their stage, with their positive financial traction, traditionally reach out to institutions and large individual investors in The City. This is part of the continuing evolution in crowdfunding.

So, why does campaigning on Seedrs make so much sense for larger, listed companies?:

Companies need investment to grow
Regardless of stage, businesses often need capital investment for growth. Publicly listed companies are no different and look to raise money from institutions and retail investors alike. But when they do this the company is not actually raising money through the exchange. Instead, the brokers and placers are the distribution channels through which the institutional and retail investors are accessed. Seedrs, in the case of Chapel Down, is a new type of distribution channel through which Chapel Down as a publicly listed company can access retail investors who might not otherwise have been able to be reached.

Raising investment takes time
When raising investment traditionally through brokers, it can be immensely time consuming and inefficient. Roadshows, sales calls, meetings, emails – it can be draining on the resources of a company. Seedrs provides a very quick, efficient and online process for the publicly listed company to reach out to these investors, and for these investors to quickly and easily subscribe for publicly listed shares.

It’s more than just funding
Inviting customers to invest in your business is a great way to build long-term brand engagement and resonance among people who are already bought in on a transactional level. By inviting them the chance to invest and be a part of your future, you’re inviting them to have a deeper, longer-term relationship with your business. Because these customer-investors will be literally bought into the business, they’ll have a vested interest in helping with user research and feedback, buy your brand instead of competitors, becoming brand evangelists, and keeping in touch.

Combine online and offline investors
Quoted companies likely have previous investors who will have pre-emption rights and may want to follow on their investment. Or, they could have interest among outside institutions. Bringing these offline investors online (through a placing or new share offer), along with a crowd of customers and potential customers, is dramatically more efficient. All investors, regardless of size, can be offered the same transparent terms and same (ordinary) shares; shareholder documentation is standardised; and the ongoing relationship between the business and its investors is more effectively managed through a post-investment investor relations web portal.

Offer more than investment
Many UK businesses may qualify to offer advantageous tax reliefs to investors, including EIS, that wouldn’t be applicable for shares purchased on an exchange. Investors need to hold shares for a minimum period of time to qualify for the reliefs (three years in the case of EIS), but many investors find the tax reliefs highly appealing for longer-term investments and prefer to have access to investments that qualify. Crowdfunding through a platform also makes it possible to offer investors additional perks like free samples, invitations to AGMs, early-access to future products, tours and more. These additional rewards aren’t easy to manage on an exchange.

Business crowdfunding has evolved from raising equity for startups, to crowdfunded funds, to crowd equity convertibles and now crowdinvesting in publicly-listed companies. Our internal legal team and professional processes mean we can continue to offer new, exciting ways for people to invest in businesses of all stages, sizes and types.

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Protecting small investors in equity crowdfunding rounds

People invest on Seedrs for many reasons. To support friends or family, because they love a particular business idea, or they just want to invest in a new asset class. But one thing that our investors have in common is that if the company they invest in is successful, they want to share in that success.

Investor Protection

In traditional forms of financing, large professional investors will agree terms with a company to prevent their investment from being diluted when the company issues more shares, and to ensure they benefit from share sale opportunities.  However, normally a small investor simply will not have the leverage to negotiate such terms.

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How to create a Seedrs campaign

In the year since Seedrs launched, we have been learning constantly what differentiates successful from unsuccessful campaigns. The more we learn, the more we try to communicate to the entrepreneur what does and doesn’t work so that they stand the best chance of raising the funding they are seeking.

Join Seedrs Now

Earlier this month, we published a blog post about the importance of momentum. TechCrunch also ran a piece based on the data we had gathered.

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Startup Investing Trends from YC Founder

Startup accelerators like Y Combinator (YC), TechStars and Wayra are increasingly releasing young, vibrant companies into the mainstream. Some say there are too many startups and not enough investors to support them.

But, in a recent essay aimed at startup investors, Y Combinator founder and successful startup investor, Paul Graham says there are plenty of reasons to be more optimistic about investing in startups.

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Why dilution isn’t always a bad thing

One of the most misunderstood areas of early-stage investing is dilution. I receive lots of questions from investors about what dilution means for their investments and whether it is a bad thing.

Dilution is a natural part of the investment process and we see it as generally something to be embraced rather than feared. Sometimes predatory dilution can be used to take advantage of smaller shareholders, but the investor protections on Seedrs means that the dilution you see on a Seedrs investment is generally more likely to increase the value of your investment than to decrease it.

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Why diversification matters

A core principle underlying the whole Seedrs approach is that investing in startups can be highly profitable so long as you have a highly-diversified portfolio. We built Seedrs to allow both big and small investors to build a diversified portfolio of startups instead of being stuck in just one or two risky deals. Diversification is the key to success in angel investing.

Diversification makes intuitive sense in any asset class, but it’s vital in an asset class such as startups where most investments will fail but the ones that do succeed can do so in a big way. Diversification is also supported by the data: the “Siding with the Angels” report by Professor Robert Wiltbank (Nesta, 2009) shows just how skewed the distribution of returns inside a portfolio can be and why that makes diversification vital.

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It isn’t nominal – Why a Nominee Structure is Vital in Equity Crowdfunding

One of the most important features of Seedrs is our nominee structure, whereby we hold and manage the shares of startups on behalf of the underlying investors after an investment is completed.

Equity Crowdfunding Nominee

Using a nominee structure makes equity crowdfunding easier to manage.

While it may seem like a technical point, this type of structure is actually essential to any equity crowdfunding model: it is necessary not only to enable startups to raise follow-on funding but also to ensure that investors’ interests are protected.

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What is Seedrs?

Jeff sat down with C21 Media, the company behind TechCityInsider, to talk in-depth about Seedrs, our approach to online investing, the UK’s startup ecosystem and building great businesses in Britain.

If you’re new to Seedrs and would like to hear from our CEO – it’s worth a listen over on SoundCloud. Click on What is Seedrs? above to access.

Do you need financial projections when raising startup capital?

None of the the startup campaigns on Seedrs include financial projections. This was a conscious choice by us when we built the platform, and I thought I’d take a moment to explain why we made that decision.

Financial projections are always speculative. Even for the most well-established companies, saying what will happen in the future involves a substantial amount of guesswork.

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What’s your true value?

One of the hardest parts of raising early-stage seed capital for a startup is agreeing a value for the equity on offer. At Seedrs, we love idea stage companies, but we have learned a lot about how investors view new startups.  Sorry everyone…I have some bad news. An idea on its own is not really worth that much. There are lots of other people with great ideas.

Company valuation

Valuing an idea stage company involves several factors.

The real value in a business comes from how the idea is executed. While there may be loads of people with a similar idea to you, you have the opportunity to create a valuable business by executing the idea better. The problem is that for an idea stage business, seeking its first round of seed capital, it often hasn’t started to fully execute the idea enough to demonstrate value.

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Why now is the time for European startups

It may seem like an odd choice to be launching an investment platform in Europe these days. Granted, for the moment Seedrs is limited to the UK, which is somewhat insulated from the most extreme distresses of the Eurozone. But the economy is in far from ideal condition even here, and and in any event we make no secret of our ambition to expand to the Continent as soon as we can. Are we crazy, or is there method in the madness?

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Seedrs FSA Authorisation

After two years of preparation and a year-long application process, Seedrs was authorised by the Financial Services Authority (FSA) this past Friday, 18 May. Our application had been approved in March, but now the final technicalities are all wrapped up. You can see our entry in the FSA Register by searching for Seedrs.

FCA (formerly the FSA)

FSA is now known as the FCA.

I want to say a word about why we see FSA authorisation as so critical, especially given that there are other platforms in the market that have been operating without it.
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Welcome to the Seedrs blog

Three years ago, Carlos and I set out to build a platform that allows ordinary people to invest in startups in a straightforward and efficient way. The term “crowdfunding” hardly existed at the time, and while peer-to-peer lending platforms were already achieving some success, we knew that the legal and operational issues involved in doing equity would pose a much tougher challenge.

As we now approach launch, it’s fun to look back on the hurdles we’ve overcome to get to this point. Achieving FSA approval (making us the first equity crowdfunding platform anywhere in the world to get regulatory approval), raising over £1 million in our own capital, building an amazing product, hiring a brilliant team and meeting thousands of dynamic, supportive people along the way has been a truly wonderful experience.

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