Seedrs was the first equity-based crowdfunding platform in the world to receive regulatory approval from the Financial Services Authority. Now, three years after launch, the company which started life as CEO Jeff Lynn’s MBA project is no longer a niche business but part of the financial mainstream. They’re approaching 300 deals done, all the way from £30k to multi-million, from high tech businesses to theatre productions.
As Jeff explained, crowdfunding can be split into three main types, all constructed around the main concept that any platform is acting as an intermediary for an individual or organization to raise finance. Rewards based platforms such as Kickstarter and Indiegogo offer some non-monetary reward in exchange for your cash, such as the first release of a new product, and they provide an additional advantage by proving to would-be investors that there is market demand for whatever you’re trying to sell. Kano, the build-your-own computer company, spoke at an earlier Cass talk about the benefit they gained had from Kickstarter, particularly in securing VC investment.
Peer-to-peer lending examples, such as Funding Circle and Rate Setter, are platforms for businesses to secure loans. They tend to be used by already established, stable businesses and so offer a, relatively, secure way of seeing a financial return. Equity crowdfunding platforms, like Seedrs, offer an opportunity to buy shares in businesses. As such they are high risk, ‘likely to fail but if they succeed they can succeed in a really tremendous way.’
When buying shares, historically financial regulators have said that only high level investors can understand risk. However, Jeff believes that there is a ‘mass affluent’ who can understand risk, and worked with the regulators to make this case in establishing Seedrs, and shaping the equity crowdfunding market. Why London first? Well, the British system was more adaptable to the digital age. The one in the US dated back to the 1930s and protected against the person who would go door-to-door selling worthless bits of paper and then disappear from the town never to be seen again. Now that theUS regulation has changed, the US is playing catch-up. Jeff believes that the financial crisis was good for the financial sector to innovate. Now that risk within the financial sector isn’t such an abstract concept that doesn’t reach people’s ordinary lives, at least if they choose to invest in high risk assets themselves they can also benefit from the upside.
On Seedrs, you can invest from a minimum of £10. So, are these serious investors or people just having a bit of fun? Absolutely, Jeff believes 98% of Seedrs investors are only there for the financial returns no matter the size of their investment. But, often there is an affinity for the business too. Crowdfunding tends to work for consumer focused businesses, or for B2B where the problem and solution is something people can readily understand. And Jeff finds that investors on Seedrs are very savvy. Deals that are getting funded are the ones being realistically priced. He argues that people actually understand the riskand the value being offered far better than most angel investors. And many would-be angel investors are turning to platforms like Seedrs because it offers a more convenient way to invest than having to set aside time attending pitches and events as part of an angel group.
How do people make money from equity crowdfunding, and how does Seedrs make money? Well, if a campaign on Seedrs achieves its target then the company raising gives up to 7.5% of that to Seedrs. The investor doe&