Seedrs seeks to bring liquidity to equity crowdfunding sector.
Seedrs, one of the UK’s biggest equity crowdfunders, intends to launch a secondary market in the summer of this year. This would be the first secondary market for early-stage equity crowdfunding in the UK.
Once live, the secondary market will give existing Seedrs investors the chance to increase or reduce their holdings in companies on a once-monthly basis, subject to demand from other investors. The window for trading shares will last a week, and will open on the first Tuesday of every month. Investors will only get the chance to trade a company's shares if they’ve already invested in it.
The beta version of the trading platform will allow shares to be traded at a price set by Seedrs, deduced using its own valuation methodology. Accountancy firm EY has given its stamp of approval to this methodology, stating that it is consistent with International Private Equity and Venture Capital Valuation (IPEV) Guidelines.
There will be no bidding or negotiating over price at launch, but Seedrs’ has suggested that it might look at this in the future. Also in the pipeline, depending on how well the beta version functions, are continuous trading windows, and opening companies up to external investors as well as existing shareholders.
Seedrs has advised that some companies may be ineligible for trading at certain times.
Seedrs’ main rival, Crowdcube, majored on its plans to launch a secondary market when it raised money through its own platform last summer. But a secondary market for Crowdcube investors is yet to emerge.
Seedrs has pointed to its “comprehensive nominee structure” as a significant advantage in the race to launch a secondary market offering. As a nominee shareholder in all deals, it will be for Seedrs to handle the administrative burden of share trading.
Commenting on the launch, Seedrs’ boss Jeff Lynn (pictured) said that the benefits of a secondary market would be felt by fundraisers, as well as by investors.
“The potential opportunities that a secondary market brings for buyers, sellers and entrepreneurs alike makes this development incredibly exciting,” he said. “Perhaps most importantly, we believe this will help businesses who are raising capital through Seedrs: with the prospect of secondary sales now available, we expect more investors are likely to want to back the great businesses we work with.”
Of course, secondary markets are only as good as their investors. There’s no guarantee that buyers will be on hand to enable sellers to exit their investments.
The new secondary market may provide a useful health reading for equity crowdfunding as an asset class.
Seedrs published a portfolio review in September which suggested a 14.44 per cent platform-wide internal rate of return for its investors, climbing to 41.87 per cent when taking into account EIS and SEIS reliefs. These figures were based on paper valuations.
Julian Sutton, an investor with Seedrs, said that the launch of a secondary market will allow him to realise returns by selling shares “without having the wait for the business to actually exit”.
But he'll need willing buyers for that vision to come to fruition.