The Seedrs Nominee
Seedrs is registered as legal shareholder on your behalf and takes care of all the administrative shareholder work – with any financial benefit (e.g. the right to dividends, capital returns on an exit and any tax relief) all flowing back to you.
What does the Seedrs Nominee mean for me if I invest?
At its simplest, it means that Seedrs holds the shares of companies on your behalf when you invest through our platform. While Seedrs will be registered as shareholder and take care of all the administrative shareholder work, the full economic interest in the shares all flow back to you.
Benefits for investors
No administrative burden
When you invest through Seedrs, we hold the funds securely on your behalf until the company has actually reached its fundraising target set out in the campaign. Post-investment, Seedrs takes care of all the technical shareholder work, such as reviewing and acting on shareholder resolutions, while allowing investors to easily track their investment and engage with the company through the platform.
Will the rest of the drafting here be included?
We only release investors’ funds once we have carried out our final due diligence checks, confirmed all other investors have transferred funds and the relevant legal documents have been signed.
In the absence of a nominee arrangement, investors would hold their shares directly and have to manage the administration on their own, e.g. signing subscription agreements, ensuring share certificates are issued, giving shareholder approval etc.
This is an administrative burden not just for investors but also for the company, who will need to deal directly with a large number of investors and their legal advisors.
It is also critical to ensuring that the company is able to raise again in the future and achieve an exit. Investment rounds and share sales can be complex. Often various documents need to be signed by shareholders and this regularly requires input from legal counsel. If this relied on the company having to track down hundreds of investors around the world and such investors being available to respond quickly, then it could easily result in a financing round or exit falling apart.
A widely-scattered shareholder base without a nominee structure is also likely to deter future investors and buyers for this reason.
Trusted legals that protect your investment
It is naturally a lot harder for a large number of small investors to separately negotiate contractual protections, and in turn to monitor and enforce them.
Aggregating smaller investments through the Seedrs Nominee allows Seedrs to justify receiving voting shares and put in place minority shareholder protections that individual investors might not otherwise be able to obtain.
As a condition for transferring funds at the end of a campaign, we ensure there are adequate contractual protections in place, including basic investor protection such as pre-emption rights, drag-along rights and tag-along rights.
While no investor can control the success or failure of a business, we want to avoid a situation where the company becomes hugely successful but investors are not able to realise that value because their rights were not protected along the way.
However, it is standard practice that as companies grow and take on further investment, incoming investors may require that the company’s existing shareholder documents are replaced. Existing shareholders are also likely to have less leverage and voting power, particularly if they do not follow-on in future rounds.
Investors should therefore be conscious that the level and strength of contractual rights that Seedrs can put in place will depend on a number of factors, including the stage of the company and size of investment, and such rights will most likely change over the lifetime of the investment. For this reason, we cannot ‘guarantee’ any particular rights for investors, but our team of in-house corporate lawyers are constantly reviewing and negotiating to ensure Seedrs investors are being treated fairly.
Investors should keep in mind that negotiating pressure can be heavily exerted on companies in future funding rounds by incoming investors – and often the decision is one of agreeing to their proposed terms or rejecting the (often business critical) funding.
Alongside our services as nominee, another facet of the investor protection we provide is the due diligence we carry out on companies that raise with us. You can find out more about this here: Due Diligence Charter.
Access to the Secondary Market
The Secondary Market allows Seedrs investors to sell and buy commercial interests in shares, creating both a unique exit opportunity for existing investors as well as an exciting investment proposition for new investors who may have missed the primary raises of fast-growing, innovative companies.
When investing in private companies, typically investors need to hold on to their shares until the company is sold or IPOs, which could take a number of years.
Investors through Seedrs, however, have access to Seedrs’ Secondary Market, which adds an element of liquidity to an otherwise illiquid asset class.
As Seedrs remains the legal shareholder of the company, holding the same number of shares, there is no impact on the Company or its other shareholders when these trades occur on our Secondary Market.
Our commitment to you
Seedrs was born out of a desire to democratise investing in private companies. Where there is no nominee structure in place, smaller investors do not typically have voting shares and often do not even have basic shareholder protections such as pre-emption rights. To us, it’s not a democracy if our investors’ interests are not represented at the voting table.
Our interests are aligned with investors
We are incentivised as a business to maximise returns for investors. We take a 7.5% carry over any profits investors make on their investments through Seedrs. If investors do not make a profit, we do not get paid for the work we do as a nominee.
Makes it easy for our businesses
Having a nominee structure in place makes life easier for the entrepreneurs and companies that you invest in – they do not have to worry about managing numerous individual investors. Apart from the administrative burden of a large fragmented cap table, it can also make it difficult to raise further financing and can cause major problems on an exit.
Frequently asked questions
We are very conscious that the founders and management of a company are the people who have the requisite knowledge and expertise to run and grow the business – and investors will have invested in their ability to do so. This is why when it comes to voting, we will support the board of directors’ proposal unless there is reason to believe that it would not be in the best interest of investors to do so.
When considering what would be in the best interest of investors, our key concerns are to (a) maximise return in the long term for investors, and (b) ensure that investors are being treated equitably.
For instance, we often receive requests from companies to waive pre-emption rights on the issue of new shares, e.g. when raising a new investment round. While we do look to ensure that our investors have the ability to participate in future funding rounds, there are times when this is not possible.
For instance, an incoming investor may request that all existing shareholders waive pre-emption rights so they are able to acquire a specific percentage of the company. In cases like this, we may waive pre-emption rights on the basis that it will ultimately be more beneficial for investors in the long term if the company is able to take on this capital injection and grow, thereby increasing the value of investors’ existing shares.
We do not typically pass votes back to individual investors unless there is a choice that needs to be made by each investor individually. Examples of this would be:
1. If the company is raising again and investors are offered their right to participate in that new investment round. We will then update investors with details of the new round and set up a private page on Seedrs for investors to make their follow-on investments should they wish to do so.
2. If we receive an offer to purchase shares from Seedrs that is not part of an exit or mandatory sale, i.e. there is a choice to be made by each investor as to whether to sell their own shares.
A key reason companies are comfortable issuing voting shares to Seedrs is because the voting right is held by Seedrs rather than a large number of individual investors and we are in the business of managing investments and shareholders.
There may be additional instances where we will ask for investors to indicate their preference or vote on a particular matter, but for the reasons mentioned above this is not common practice.
Investors should also keep in mind that even the Seedrs Nominee voting on behalf of investors will not always have the power to influence a shareholder vote or decision. Typically Seedrs will only hold a minority stake in the company and, like any other minority shareholder, won’t be able to unilaterally decide on a matter. For example, companies will generally have drag-along provisions in their Articles of Association which allow shareholders holding more than 50% of the company to approve a 100% sale, in which case all shareholders will be automatically required to sell their shares at the price agreed.
1. Company updates: As part of the contractual protections we put in place, we ask companies to commit to providing investors with regular updates via the company’s post-investment page on our platform.
Our platform monitors whether or not a company has provided a recent update, and if the company has not, it will prompt the company to post their update.
We know that a lack of information is one of the biggest frustrations of investors. Although our team works hard to ensure investors receive regular updates, the reality is that, in the day-to-day of running a fast-growing start-up, entrepreneurs sometimes struggle to find the time to provide full updates or respond to the high volume of queries they may be receiving.
Where a company is consistently failing to provide updates and we have seen no activity in the company for a significant period of time, e.g. no Companies House filings, no response to requests for information or warnings and escalation through different contact channels has failed, then in accordance with our Valuation Policy, we will mark the company valuation down to zero, which will allow investors to make S/EIS loss relief claims if applicable.
2. Specific information requests: On an ongoing basis, we ask companies to fill in a regular check-in form, which asks a series of questions around key health indicators such as financial runway.
We will also make ad hoc information requests where necessary to protect investors.
While we always seek to ensure investors are kept up to date on material issues, the nature of crowdfunding means that in most cases, companies have raised funds from hundreds or even thousands of investors. As a result, information disclosures can, and often do, make their way into the public domain. We therefore need to strike a balance between maintaining oversight and keeping commercially sensitive information confidential.
3. Maintaining portfolio records
When we close an investment, important details of the company are stored on our platform, and key information will feed through to investors’ Portfolio on our platform. Investors will be able to monitor information such as the company’s latest share price, whether they are raising, IRR across their portfolio and any tax documents.
Investors will also be able to access updates from the company through the post-investment page, post any questions they have for the company directly and join in discussions with other investors.
We also maintain record of the company’s latest valuation and any changes are reflected both on the post-investment page and the Seedrs Secondary Market. If the company has not raised in the last three years, will then request information from the company in order to update its valuation. You can find out more about how company valuations are determined here: Valuation Policy *link*.
When an exit opportunity arises, Seedrs’ team of experienced lawyers will review, negotiate and agree the legal documents with the company and buyer. Our aim is always to maximise return and minimise liability for investors.
Once the legal documents are signed, we transfer the shares to the buyer on behalf of investors in return for payment of the purchase price. We then distribute each investor’s share of the purchase price to their Seedrs investment account after deducting our 7.5% carry (applied only to any profit made by investors).
It is always very disappointing when a business that raises on Seedrs fails. While we cannot prevent business failure, in these circumstances, we make every effort to recover as much value as possible for investors and ensure that they are treated equitably.
If we are able to recover some proceeds from liquidation, we will distribute each investor’s share of the proceeds to their Seedrs investment account. In such a case, given investors will not have made any profit, we do not take a carry and no fees are charged.
Investors will then be able to claim loss relief if the initial investment was S/EIS eligible.
You can find out more information on this here: Wind-up Guide *link*.
When a company IPOs, Seedrs will continue to hold the shares on investors’ behalf. Investors who wish to sell their shares will simply need to complete this form, and the sale will be executed by Seedrs’ broker.
The proceeds of the sale will be distributed to the relevant investor’s Seedrs investment account, after deducting the broker trading fees and our 7.5% carry over the profits made (after broker fees).
We like to believe this will never happen, but if it does, then in this post-apocalyptic world, the shares we hold on behalf of investors will either be transferred to a replacement nominee or, failing that, back to each investor.
Our company structure, our platform and each investment we make is set up carefully to ensure that investors’ money and shares are ring-fenced and protected so if Seedrs did not exist, investors would still have ownership of their shares and any money deposited in their Seedrs investment account. This is part of our regulatory obligations as a FCA-regulated entity.
We take care of the paperwork for all S/EIS eligible investments so that investors can claim the relevant tax reliefs. We do this on behalf of the companies that you invest in – this removes the administrative burden from them but also means we can provide you with updates at various stages in the process via the post-investment pages.
The S/EIS paperwork needs to be completed within two years of either the company trading or the end of the tax year in which the shares were issued, whichever is later. Whilst this gives us plenty of time, we aim to kickstart the tax process as soon as shares are issued so that investors can claim the relevant reliefs as quickly as possible.
The process is as follows:
1. Company provides Seedrs with relevant information for the S/EIS application (‘S/EIS1’).
2. Seedrs confirms information is accurate and drafts the S/EIS1.
3. Company reviews and approves the S/EIS.
4. S/EIS1 is submitted to HMRC.
5. HMRC approves the S/EIS1 and provides Seedrs with authority to issue tax certificates (‘S/EIS3’) to Seedrs investors.
6. Digital S/EIS3’s delivered through the Tax Documents section of investors’ Seedrs Portfolio.
7. Investors can then make S/EIS claims.
Seedrs cannot provide tax advice of any kind, so if you have any questions around your personal tax affairs, please do consult a tax advisor.
Get started today
This guide sets out our general policy but it is important to keep in mind that every company has its own set of circumstances and situations may differ. We will always seek to take the best approach for our investors based on the context and factors at play. We are also continuously working to improve our services for both our investors and fundraising companies, so if you have any feedback or suggestions, we’d love to hear from you – just contact us at [email protected].