Investment platform for pre-revenue businesses is launched
06 July 2012
Seedrs has unveiled an equity-based investment crowdfunding platform, allowing investors to invest capital in high-potential startups while also offering entrepreneurial finance. Speaking at the Enterprising London: entrepreneurship and innovation in the UK’s Capital panel, during the Birkbeck third annual Business Week last week, Thomas Davies said the full investment platform is the first online equity crowdfunding offering of its kind to receive approval from the FSA.
Subject to vetting, Seedrs allows entrepreneurs to raise equity capital from friends, family, members of your community and the crowds. Startups can begin the capital-raising process by joining Seedrs as a member. Membership is free and entrepreneurs will have to complete a disclosure questionnaire. Entrepreneurs can create a listing for their startup consisting of answers to questions on the feasibility of their idea, market and team, as well as how much money they are looking to raise in exchange for a percentage of equity.
Seedrs said startups can ask for funding of up to £150,000 – ensuring the service concentrates on that seed gap and then decide how much equity they want to offer. If entrepreneurs reach the full amount within three months then Seedrs go to closing. At closing the team will conduct legal due diligence and ask the entrepreneur to sign investment documentation. Seedrs will then subscribe for shares in startups on the behalf of the investors, at this point Seedrs will ask for a fee of 7.5% of the money successfully raised through the online platform.
Potential investors will be able to view each listing, and if they like what they see they can invest in the start-up directly through the Seedrs website. They can invest between £10 and the full amount you are seeking and Seedrs will hold the shares as nominee for the underlying investors while entrepreneurs will deal with the team directly on legal matters, just as you would an angel or VC fund.
Unlike some other crowd investment services, Seedrs continues to manage the equity on behalf of the investors acting as a middleman to broker the relationship between the start-up and investor. In addition to capital, Seedrs will introduce entrepreneurs to an extensive network of mentors, advisers, vendors and later-stage investors.
Thomas said a wide range of startups can seek capital through Seedrs, including both high-growth, technology-driven ventures along with more traditional businesses like retail stores, restaurants and professional services firms. However, Seedrs does impose two limitations: the startup must be UK-registered (or, if not yet incorporated, willing to register in the UK), and it must be pre-revenue. This means that the startup is not yet making money from its core business model.
Seedrs is about seed finance - investing capital in startups and also equity investment rather than debt, means that investors who use Seedrs can achieve much higher returns than they would in peer-to-peer lending.
Davies said this type of fundraising allows entrepreneurs to grow their business while getting support and connections from investors. He said the new initiative will help plug the gap for entrepreneurs and startup firms struggling to obtain funding from banks and institutions in the UK and across Europe. “It will help get their business off the ground and if you try your best but the company doesn't succeed, you don’t owe anything – it's equity, so your investors share the risk with you.
The Seedrs model builds on the recent successful crowdfunding of creative and charitable projects by donations solicited on platforms such as Kickstarter. It is managed by a team of professionals with extensive experience in early-stage finance, technology, business management and growth, corporate transactions, regulation and compliance.
At Enterprising London panel event, Davies explained, startups as an asset class can be very profitable, and net returns from angel investing in recent times have significantly exceeded other asset classes, including government bonds, property and shares.
“In theory, this should allow firms to offer very small stakes in their companies or projects to a mass audience without exposing that audience to excessive risk, widening the availability of funding for many,” he added.
Seedrs is hoping to become the leading platform for investing and raising seed-stage capital. Soon, the company hopes that it can go further, it wants to get Europe-wide regulatory approval in six to nine months, and then potentially head beyond the continent.
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