It’s now easier to invest in startups thanks to a new online trading platform called Seedrs. The platform allows you to invest in new businesses in the seed stage, or that are yet to raise any cash. You can invest as low as £10 to a maximum of £150,000.
Seedrs is a UK based crowdfunding platform launched in 2009. It assists new businesses or investment projects to raise funds from individual or institutional investors. 2018 is Seedrs best year yet with £195M invested on the platform and 186 successful pitches. It was also named the “Most Trusted” Global Equity platform in 2018.
How it Works
Startups can pitch to raise money offering investors an equity stake in the company. You can also call it equity crowdfunding or peer-to-peer (P2P) equity. The startup provides information about its product, plans, market dynamics, and achievements.
Apart from UK residents, Seedrs is open to international investors. Once you sign up, you can browse the pitches that are currently raising money. A pitch will remain open for 60 days but may close earlier if the startup achieves its goal early.
The equity share offered is stated. Say for example it’s 5%, and the startup wishes to raise say £50,000. To define the valuation the startup has applied, £700,000 will be the pre-money. So post-money, after the startup valuation is complete, will be £1M. The 5% equity share of the new investors represents 5% of £1M = £50,000. The valuation is based solely on what the startup deems appropriate. But if the startup aims higher than the investor demand, the funding will fail.
What Happens After the Funding?
As Seedrs acts as the nominee for the investors, it will complete all the paperwork with the startup. The nominee model means the startup only deals with Seedrs who represent all investors rather than deal directly with each one of them.
When funding a startup, investors don’t have to pay any upfront charges. But entrepreneurs have to pay a 7.5% charge once the startup achieves the cash target. Seedrs will charge the investor a fee of 7.5% on the profits the investor makes.
In return, Seedrs will manage your investment on your behalf. Although Seedrs may limit your voting rights in the startup’s AGM, you’ll receive quarterly updates on the startup’s progress.
The startup’s prospectus or pitch will highlight if the startup is eligible for EIS or SEIS. This can benefit British residents depending on individual circumstances and is subject to change. For more detailed advice, contact a qualified and certified tax advisor.
Seedrs Pros and cons
- Strong track record with over £540M invested in startups
- Large investment portfolios
- Strong underwriting team
- Auto invest tool available
- Investing in startups is risky and you can lose money as there’s no guarantee of returns.
Having provided assistance of over £500M for startups, Seedrs has managed to create a big database of investors. However, the company cannot make any investment recommendations for you. That will be your prerogative. Crowdfunding is not for the faint-hearted, but for sophisticated investors who are not afraid to take risks.