Startups are really hard, teams spend years on solutions to some of life’s biggest problems, aiming to make us all in some way healthier, wealthier or happier. The nature of these problems is that they are hard to solve. Of course, if they were easy everyone would be doing it. However, it is precisely because they are hard that finding effective commercial solutions to them will typically result in financial reward, as well as the satisfaction in a job well done.
Founding teams, early employees and everybody else involved along the way invest years of their lives trying to deliver on these goals. They typically pour their blood, sweat, tears into building something new. Often, these people forgo the opportunity cost of significantly higher salaries in the city or at large tech firms, with the view that this is offset by the contribution to the mission, and potential reward when the company exits.
The most common forms of exit are an acquisition by a bigger player, an initial public offering on a public exchange such as the London stock market, or a private secondary transaction. The trouble with this is that each option will take years to materialize, even with a good wind behind them and breakneck speed that startups typically work at. It has to be the right market conditions for an acquisition, IPO’s are generally only feasible for the largest scale ups and secondary transactions have historically been expensive, opaque and lacking liquidity, which is why they have tended to only be run for huge businesses such as TransferWise.
This has meant that startup employees have had to keep working, with a significant amount of their net worth tied up in the businesses that they are building. That is why we have introduced our secondary product, to free up the liquidity of founders, employees and early investors who want to draw down on some of their holding. By freeing up some of their shares, they can release the financial pressure of life’s major events while staying aligned with the long term success of the business.
On business that has benefited from this is SafeToNet, who are a multi award-winning cyber-safety company that safeguards children around the world from online threats such as bullying, grooming, abuse and aggression. The company, which was founded in 2013, has sold over 550,000 licences, protecting hundreds of thousands of children around the world. To fuel this growth, they have raised over £25m from private investors to date, with their valuation surpassing £125m.
In August of 2020, the company took in an additional £2.5m to fuel their growth plans, including an allocation from Seedrs investors. We saw from our indicative demand that the round was going to be oversubscribed before we opened it for investment. Meaning that there was more demand for shares then there was primary supply. This is an enviable position for a startup or scaleup to find themselves in, but given the dilution considerations of taking on additional capital, most companies would have to turn away investors at this point.
However, using our new split round functionality, we were able to make room for the additional investors by providing a secondary allocation. This meant that when we hit the £2.5m primary cap, the round would switch to a secondary allocation of £300k, designed to provide the founders and some early employees an added bonus.
SateToNet CEO Richard Pursley said of the raise that “It’s really important for us to provide an exit opportunity to some of our existing shareholders … a great way for us to welcome new investors onboard, building up our customer community with passionate brand advocates, without having to part with any additional equity.”
This is just one example of how the Seedrs platform is solving the inheriant inefficiencies, opaqueness and cost legacy systems. In addition to bring fresh cash into the business, we could provide access to late stage scale up investment, while providing members of the team with liquidity to ease help with life’s financial burdens.
If you are a shareholder or an employee in an early stage scaleup and want to sell some of your shares then you can submit your interest here.