Seedrs Becomes First Online Investment Platform to Join UKBAA
This week the UKBAA welcomed Seedrs, a new, online platform for investing in startups—also known as an “equity crowdfunding” platform— this represents the first time that such a platform has joined the UKBAA.
Seedrs offers a full-service, FSA-authorised investment platform for investing in startups online. It has dozens of idea-stage and seed-stage startups listed at any given time, each seeking up to £150,000, and most are eligible for SEIS relief. Once registered, an investor can browse listings, ask questions and arrange to meet up with entrepreneurs, and if they want to invest in a particular startup, they can do so directly through the platform.
If a startup reaches its target, Seedrs conducts legal due-diligence, negotiates and executes the subscription agreement and subscribes for and manages the shares as nominee—saving investors time and cost, and protecting their interests going forward, all while ensuring that the startup only has one legal shareholder to deal with when seeking votes, consents and other shareholder actions. At the same time, investors are encouraged to get involved with the companies in which they invest and provide as much (or as little) mentorship and support they feel inclined to offer.
The minimum investment per startup is £10, meaning that an investor can build a portfolio no matter how much or little he or she wants to invest. In practice, investors use Seedrs to invest at all levels: individual investments have been as large as £50,000, and while the median investment to date is £100, the average is closer to £1,000. And before investing, all investors must either self-certify as high-net-worth individuals or sophisticated investors, or complete a questionnaire demonstrating their understanding of the risks involved in early-stage investing.
Seedrs charges two, straightforward fees: startups pay a 7.5% success fee, which is charged only if they receive investment; and investors pay no joining, annual or on-going management fees but simply share with Seedrs 7.5% of any upside they receive from an investment.
Crowdfunding has become a hot topic lately, and there is regular discussion in the media about how it can best be used and when it is appropriate. There are, in fact, many different types of platforms and structures that could come under the broad “crowdfunding” banner, but generally crowdfunding refers to three new breeds of online platforms:
- Rewards-based crowdfunding, in which there is no investment element. Funders provide cash in exchange for non-monetary rewards—such as a product the recipient is making, or even just a souvenir—or out of altruism.
- Debt crowdfunding, also known as “peer-to-peer lending”. Here, individuals lend money to personal borrowers or to later-stage businesses seeking working capital or other debt finance. This is the form of crowdfunding that most directly fills the gaps that banks have left through contraction of lending.
- Equity crowdfunding, which allows individuals to purchase shares of startup businesses, just as an angel investor does. The UK is the world leader in this space, and Seedrs was the first equity crowdfunding platform anywhere in the world to receive regulatory approval.
Seedrs joined the UKBAA because it believes that its platform can be a useful tool for angels to supplement their traditional angel investing activity. By providing a simple, low-cost way to build a diversified portfolio of startups, Seedrs invites angels to consider rounding out their core, one-off investments with a group of smaller, on-line ones. Seedrs can also be a useful entry point for new angels looking to understand early-stage investing without committing large amounts of capital. Finally, Seedrs hopes to work with the many great angel networks around the country to help facilitate co-investment and other forms of collaboration.