Way way back in 2013 I exchanged a few emails with Jeff Lynn the original CEO and founder of Seedrs about the prospect of a secondary exchange for crowdfunding investments. It was to be called “Seedaq” and be a market place for all the UK crowdfunding sites where investors could see an aggregated feed of the latest crowdfunding investment opportunities as well as list the shares they had bought for sale.
Turns out there were a few issues. First tax. Investors can only claim SEIS relief if they hold shares for three years or buy them directly from the company. Second liquidity. After I’d put every possible transaction into a spreadsheet I couldn’t quite see it generating enough revenue. After all, AllIPO, the IPO only broker from ADVFN is no more. And Thirdy, he thought that most investors were in it for the long run anyway. So again the market for crowdfund stagging probably wasn’t there…
Unperturbed, I did actually develop the idea and created an App called Crowdex on iTunes to do just that. But no one really downloaded it. Plus, it was mainly a passion project to experiment with app building and it just fell off the radar. Well, that’s what I always tell myself when filing yet another failed business idea into the “Keep on the backburner” folder on my desktop.
Anyway, fast forward a few years and Seedrs have launched their own secondary market (albeit just for Seedrs investments) so investors can get out early and get in late. In the high-risk asset class of early stage investing, going with a crowdfunding platform that offers the chance to get your money back sooner is a significant advanatage.
Here, we talk to the new Seedrs CEO, Jeff Kelisky about what the future holds for Seedrs and the equity crowdfunding industry in general.
How has it been taking the helm of Seedrs since Jeff Lynn became Chairman and what’s been your favorite moment so far?
As a CEO, stepping in to work alongside a founder can have many challenges, however taking the helm at Seedrs and working with Jeff has been exceptionally smooth. We share the same values and priorities. We both believe in thoughtful yet robust execution, with a focus on building a mission driven and compassionate culture.
Seedrs’ intellectual horsepower, youthful energy and profound determination to make an impact in the world, enabled me to move quickly and the company to deliver some sensational results in the last two years.
Picking one moment, is nearly impossible, because without exaggeration each week I share highs with the team. However personally, Andy Murray, an early Seedrs investor ran a tennis clinic for the children of a group of our investors and my son got to play with him. Andy also blew me away with his humility, dry humour, and thoughtful conversation. A true gentleman champion.
Seedrs was the first UK equity crowdfunding platform to embrace UK regulation and nominee structures. Where do you see Seedrs, and the crowdfunding industry in general, going over the next three to five years?
More than being the first to launch, Seedrs was the first to work with regulators both before and alongside the creation of crowdfunding regulation. It was a bold decision that required more effort to build a compliant business from the start, but it meant that we were structured to have a better customer proposition that included a nominee structure, and this approach is now paying off in spades.
In fact, 2018 was a record-breaking year for Seedrs, full of industry firsts, European growth and the highest levels of investment on the platform to date.
Over the next three to five years we will see a significant step change in both deal volume and investment value due to three key trends.
- The first is increased product richness and ease-of-use for both investors and businesses.
- The second is the productisation of liquidity allowing much scalable co-investment from VC firms, IFAs, Wealth Managers, and other institutional capital.
- The third is the introduction of premium level services, like our Seedrs Anchor Investor Service, which supports businesses in finding institutional capital.
In fact, this exclusive service which no other equity crowdfunding platform offers, secured over £17 million in investment offers for 15 businesses in 2018. We have big plans in-line with, and indeed actively driving, these trends. We will continue on our growth trajectory, fund more deals, educate more investors and continue our expansion outside of the UK.
We’re starting 2019 with the launch of the Seedrs EIS100 Fund, with more to come as the year unfolds.
Seedrs is one of the only equity crowdfunding platforms to offer a secondary market where investors can potentially sell their shares early. Do you think there is liquidity for an aggregated secondary market for all equity crowdfunding investments?
18 months after launch, we are seeing continued momentum in the Seedrs Secondary Market. December 2018 showed a 158.94% increase in trading compared to December 2017, and it has now delivered over 5,800 exits to investors, in 306 companies.
It must be said that it’s still very early days for secondary market activity in this asset class, so these numbers represent the tip of the iceberg of what’s yet to come. Not only do we believe that liquidity will grow significantly, but we believe that an early stage investment marketplace won’t truly scale without one.
Being able to deliver a scalable secondary market proposition is uniquely difficult, however the reason we’re able to operate a fully-functioning secondary market is a direct consequence of our nominee structure discussed above. The way we’ve structured all our deals since day one, means we can deliver a secondary market with no administrative burden to the entrepreneur or investor.
It simply wouldn’t work if you had to get the entrepreneurs involved in every single secondary trade.
As much as we’d all like equity crowdfunding to be for everyone, the high-risk categorisation means that it may remain a niche investment for sophisticated investors. What pointers could you give potential new investors to reduce risk and increase potential profits?
With the entry level for most investments on Seedrs at £10, and the same level of investor protections in place irrespective of the amount invested or status of investor, we are strong advocates of equity crowdfunding being available to everyone.
Early-stage investing is undoubtedly risky, however we always advise new investors only to allocate what they can afford and to mitigate risk by building a diverse portfolio of investments, just like VC funds and angel investors have been doing for decades.
UK based investors can also often claim up to 50% tax relief from EIS and SEIS eligible businesses.
And finally, what would be your top three online resources for new investors wanting to learn more about investing in start-up companies?
- It’s changed quite a lot over the years, but I first cut my teeth with online investing insight from The Motley Fool, a slightly irreverent but serious site set up in the early 90s by two brothers. Still good.
- Another online resource I also started reading in the late 90s and has continued to stay smart/relevant is Interactive Investor.
- And I’d also look at The7circles, What Investment after of course, Seedrs own blogs/learning centre.
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.