When investing, your capital is at risk.
When approaching a new concept, there’s a lot you can learn from the experts – and private equity investing is no different.
That’s why over the past few weeks, we’ve been collecting insights from our most active investors. Many of them, including Jan Rees have been investing for a number of years and have acquired a few tips along the way.
Wondering where to begin with your portfolio, or how to assess an investment opportunity? Here are a few insights to think about.
How did you first become interested in private equity investing and what drew you to Seedrs as an option to do so?
I was attracted very early on to the concept of democratising early stage investment – opening up this asset class to a broader range of participants and helping to drive startup innovation. Crowdfunding offers the opportunity to participate in venture capital, giving exposure to interesting, early stage companies that may one day provide a healthy financial return. I have invested via a number of crowdfunding platforms in the UK, Europe and the USA, but Seedrs is my preferred investment platform, and I’ve been investing regularly since it first started.
Approximately how many investments have you made on Seedrs?
I’ve made about 120 investments since 2012. A number of these arrive in my portfolio via accelerator fund structures, which has tended to boost the overall number. Investing in this way has been useful in terms of exposure to a wide variety of early stage companies and then enabling follow-on investment through pre-emption rights for the ones that appear the most promising. In fact, Seedrs itself was one of my earlier investments, back in 2014!
Why were you drawn to this opportunity?
Seedrs has a well-designed product that sets out to balance its own needs along with those of founders and investors, to ensure stakeholder incentives are correctly aligned in the long term. This is achieved primarily through the nominee structure, which abstracts away the complexities of being a direct shareholder and transfers the management and enforcement of the collective rights of smaller shareholders in aggregate to Seedrs. The nominee structure allows professional due diligence of shareholder agreements and effective ongoing representation of investors’ interests. Without it, small shareholders can be taken advantage of or diluted out, especially during later funding rounds. In this regard, I consider Seedrs to be a fully fledged service offering rather than a one-time portal to match founders with investors.
How has your previous professional experience prepared you to build a successful investment portfolio in this asset class?
During my 25-year career I’ve worked in a range of companies – large, small and startup. More often than not, I was also able to own shares in these companies, which educated me to a great extent about the enormous potential benefits of being an equity-owner. Being responsible for the profit and loss of a business within a large corporation exposed me to the basic reality of having to run a profitable unit. The various roles I held in sales taught me the basic cornerstones of any viable business. These are broad learnings, but ones that apply directly to investing in companies of any size.
What are some of the key factors or metrics you look for when investing in private businesses on Seedrs?
Seedrs performs due diligence on companies to ensure they are legitimate and company details are represented fairly. However, this is not the same as saying such companies are necessarily good investments. There is no health warning on a pitch as to what a professional investor might consider a good investment. There are a broad range of different types of businesses and commercial revenue models presented – which makes it trickier to assess.
I invest small amounts of money across a broad range of start-ups and seek companies that are scalable and have the potential of providing over 10x returns. I also pay attention to company valuation. The higher the initial valuation, the lower the potential gains. High valuation also tends to have a disproportionate impact on the downside – for example, if the company performs moderately to poorly you are highly unlikely to see any type of capital return.
My own investments are not always strictly rational – we all tend to bring our preferences and biases to the table, and invest in things we believe in. I tend to concentrate on whether the pitch narrative is concrete, and the strength of the team. I often invest where there is an innovative edge or a sound social and/or an environmental upside.
What is the sector you most commonly invest in and why?
Due to my background in the banking and payments industry I tend to navigate towards fintech, especially ones orientated around a “marketplace”, with low unit cost scalability and business models that are relatively easy to comprehend. A few examples include Assetz Capital or Landbay. These types of business fit more easily within my own investment framework.
As a seasoned Seedrs investor, you’ve witnessed a number of changes to the platform roll out over the years. Which have been the most valuable to you and why?
I like the format of the Seedrs pitch pages – it’s information-rich allowing you to quickly ascertain key aspects of the proposition, and the videos are a good addition. The website has also been very well-designed and is easy to use, which is important when managing a growing portfolio.
Another highlight is the forums, which allow investors to interact with companies and other shareholders. I make a point of reviewing the updates and forum activity when deciding whether to exercise pre-emption or reinvest in subsequent rounds.
The Secondary Market was also an important milestone. Seedrs’ foresight in designing its platform from the outset around a share nominee structure has enabled it to cost effectively implement a functionality for secondary sales. This area was ripe for innovation given the size and scope of illiquid small company share capital. Their recent announcement of partnership with Capdesk is a signal of the potential road ahead – which very well may lead to a new kind of stock exchange.
How has the current economic climate impacted your investment decisions right now, and going forward?
Personally it has not had much impact on me to date as I try to avoid centering my long-term strategy on short-term events. Some businesses will inevitably suffer from the repercussions of the pandemic, and others will capitalise on it. An overall recession may also helpfully reduce frothy valuations and refocus entrepreneurs efforts on profitability rather than expenditure.
What piece(s) of advice would you give to investors who are new to this asset class?
Every investor should spend time self educating. You can always start by investing small amounts, and build and learn as you go along.
Venture capital investing does generally require more time to realise returns, so it may take time to recognise which investments are seeing returns and which aren’t. Secondary markets may assist in allowing earlier exit, but because of the longer time frames, it’s safer to invest modest amounts over time. Investors should consider a 10-20 year investment horizon, and spread risk across many different types of business at different growth stages. I would hazard that most investor mistakes fall into the categories of investing too much, too quickly, at mispriced valuations.
What keeps you busy when you’re not investing in startups?
I love spending time outdoors, both here in the UK and when I travel. I love dingy sailing near the south coast and inland water-skiing when I’m able to.
What’s the best life hack you can recommend for keeping sane during lockdown?
The current state of the world can be overwhelming. Try switching the news off and listening to a podcast once in a while.