What Is The Seedrs Secondary Market?
The Seedrs Secondary Market is a private company secondary market that allows buyers and sellers to trade their private company shares. The market gives early investors in startups and other private companies the opportunity to potentially realise liquidity before a formal exit opportunity, and is the only fully functioning early-stage equity secondary market in the UK.
As a private company shareholder, the market enables you to sell your private shares regardless of whether the business has raised investment on Seedrs before.
As an investor, the market enables you to invest in private businesses, even when they’re not currently fundraising.
The Seedrs Secondary Market now offers over 300 businesses to invest in when the market opens during the first week of every month, with many thousands of individual share lots offered to investors. The market has transacted over £28M since its inception, and averaged more than £600,000 of transaction value per month in 2022.
Why Is The Seedrs Secondary Market A Game Changer?
Without access to a secondary market, investors normally need to hold onto their shares until the company goes through a full exit event; it is either sold, goes public through an IPO, or a private sale occurs. All of these can take several years, and over the past two decades these timelines have extended even further with many companies able to access growth capital that keeps them private for longer.
You can learn more about other routes for investors to make money in our guide ‘How Do Startup Investors Make Money?’.
An investor may have enjoyed healthy paper returns already and the Seedrs Secondary Market provides them the opportunity to realise these before a full exit event.
The Seedrs Secondary Market also makes it easier for companies to bring in new, committed shareholders without having to raise a fresh funding round.
Why Is It Called a Secondary Market?
The Secondary Market is a marketplace for secondary trades, which differ from investing into a business through a campaign on Seedrs (known as a primary investment).
Primary investments involve an investor buying newly issued equity from a business. This shareholding can then be sold on in a secondary sale, or trade. So, secondary trades are transactions where shares are sold by existing investors to other investors, rather than issued by the underlying business in exchange for equity.
Who Can Sell Shares On The Seedrs Secondary Market?
Anyone who owns shares held under the Seedrs nominee structure may be eligible to sell their shares on the Secondary Market.
Shares in private companies held externally to the Seedrs nominee structure can be sold thanks to our partnership with Capdesk. You can learn more about the sale of external shares in this article.
What Does The Secondary Market Mean For Sellers?
The Seedrs Secondary Market allows shareholders to sell shares ahead of a full exit event, and potentially realise a return on their investment early.
There are a number of reasons why shareholders would want to sell part or all of their holding in a particular business:
- The shareholder wants to access illiquid capital to be used elsewhere (other investment opportunities, significant life events etc.)
- The company share price has increased significantly enough for shareholders to want to exit early and realise a return on their investment
- The company share price has increased, leading to an individual’s portfolio being too heavily weighted towards a particular sector, so they need to sell to rebalance
- The company is performing badly and the shareholder wants to remove it from their portfolio and write off the investment as a loss.
Who Can Buy Shares On The Seedrs Secondary Market?
All investment-authorised Seedrs members are able to buy shares on the Secondary Market.
Please note that existing shareholders in a particular business within the Seedrs Nominee Structure have access to a company’s Updates and Discussion Forum where they can communicate with the business they have invested in. If you are not currently a shareholder in a particular business, you will not have access to its Updates and Discussion tab in the business page until after you have successfully bought shares.
We strongly suggest you undertake your own due diligence on the business prior to purchasing a share lot. Seedrs will not accept liability for any claims, losses, or damages you suffer as a result of not undertaking reasonable due diligence.
How Does The Secondary Market Benefit Investors?
The Seedrs Secondary Market allows investors to buy shares in a list of 600 private companies, outside of formal funding rounds.
There are a number of reasons why shareholders would want to buy shares in private businesses on the Secondary Market:
- The investor is already a shareholder in the business and wants to increase their shareholding
- The investor missed the chance to invest in a company’s private round and wants to buy shares
- The investor has heard good things about a business and wants to invest, but the business is not currently raising funding.
How Does The Seedrs Secondary Market Work?
Here’s a quick overview of how a transaction on the Secondary Market works:
- 1. A shareholder requests to sell a specific allocation of shares they own, known as a share lot, and signs the sell-side of the Transfer of Beneficial Ownership agreement
- 2. Seedrs checks if the business is eligible for Secondary Market trading before the market opens
- 3. If the business is eligible to be traded in this cycle, the share lot will be listed when the market opens
- 4. A buyer buys the share lot, either paying with a debit card or credit associated with their investment account
- 5. The buyer signs the buy side of the Transfer of Beneficial Ownership agreement, and payment is confirmed
- 6. The seller is notified that a buyer has been found. The seller has 3 days to confirm the sale
- 7. Once the sale is confirmed, funds are released and paid directly into the seller’s Seedrs investment account
- 8. At the same time the shares are transferred to the buyer and the transaction is complete
How Is It Possible For Seedrs To Operate The Secondary Market?
The Secondary Market is made possible by the Seedrs nominee structure. As the nominee is the legal shareholder of all shares purchased through the Seedrs platform, the ‘trading’ all takes place within one legal shareholding. You can learn more about the nominee structure here.
When investors trade shares they trade their beneficial ownership in exchange for money, rather than actual company shares. This means there are no challenges of transfer restrictions, issuing company involvement or board approvals, which add complexity associated with secondary transactions in private companies.
When Is The Secondary Market Open?
The Seedrs Secondary Market opens for one week per month, beginning on the first Tuesday of every month at 11:00 am and ending the following Tuesday at 11:00 am.
Why Is the Secondary Market Open For One Week Per Month?
The one week cycle per month allows the Secondary Market to function efficiently.
For sellers, the market being open for one week per month gives them the best chance of having their shares sold at the price they want to list at. Sellers can see what prices other sellers are listing their shares at to make sure they’re competitive, giving themselves the best chance of selling their holding.
For buyers, the market being open for one week per month makes share lots more discoverable, and reduces the need to be checking the market constantly to get a good deal. Buyers can log onto Seedrs ahead of the market opening on the first Tuesday of every month and see all the shares that are going to be available, rather than having to log on all the time hoping to get lucky and be the first buyer to find some well-priced shares.
For businesses, the one week opening format keeps the burden on them as light as possible.
Which Companies Are Available On The Secondary Market?
Allowing trading of shares on the Secondary Market is included into all of our contracts with businesses that raise on the platform. There are, however, some exceptions as businesses are able to opt out of the Secondary Market.
The majority of businesses are opted into Secondary Market trading. The number of businesses available for trading can be seen on the market.
Some businesses that have tradable shares won’t be available every month due to the business being ‘ineligible for trading’. A business’ eligibility is dictated by the following factors:
- Seedrs is aware of any event that may result in a potential change in the valuation of the business in accordance with our Portfolio Update methodology before or after the next trading cycle. This may be an increase or a decrease in valuation;
- Where the business has requested that its shares are not listed in the next trading cycle; or
- Where Seedrs believes it would be detrimental to the buyer, the seller or the company for shares to be available.
In most cases, ineligibility is likely because we have become aware of a new funding round and (hopefully) that is with us. However, there are a number of other scenarios and in our role as Nominee and with the rights we hold and manage on investors’ behalf, we may have become aware of an imminent price change. Quite often in these latter scenarios negotiations are confidential and we are bound to respect them or risk upsetting the success of them.
Either Seedrs or the funded business will always share the reason for in/eligibility via email to existing investors or a post on the post-investment forum, if we can. If you haven’t heard from us or the business it’s likely the reason is confidential and we would encourage monitoring the post-investment forums for changes and updates.
What Are The Fees Of Trading On The Secondary Market?
There is a 2% transaction fee (min.£/€0.50) for both Buyers and Sellers on the Secondary Market. For more information on the transaction fees, please read the Secondary Market Terms & Conditions.
If the Seller makes a profit (the sell price after paying the transaction fee is greater than the initial purchase price), then a 7.5% carry fee will be charged on any profit earned.
- If you buy at £100 (after the transaction fee) and sell at £100 (after the transaction fee), you pay £0
- If you buy at £100 (after the transaction fee) and sell at £90 (after the transaction fee) you pay £0
- If you buy at £100 (after the transaction fee) and sell at £200 (after the transaction fee) you pay £7.50 (7.5% of the £100 profit from the sale).
This carry fee is also known as an “Administration Fee” or a “Success fee” and is described in the “Administration Fee” section of the Investment Agreement entered into when the Seller made their investment (which can be found in the Seller’s Seedrs Investment Account).
How Is The Valuation Of Shares Set On The Secondary Market?
For primary raises on Seedrs, the company sets its own valuation and through calculations we ensure that the share price is correct. Seedrs values shares in accordance with its Portfolio Valuation Policy and this is reflected as the company’s share price in your Portfolio.
The company’s share price is marked at ‘fair value’ and this is based on the share price from its most recent investment round. Fair value is also impacted by up-to-date information that we hold on the company.
Investors are able to request to sell their shares on the Secondary Market at a premium or a discount. This can be above or below the fair value, subject to a minimum share price of £.01/share and maximum of 500% the current valuation share price. You are encouraged to perform your own due diligence on the company before making any buy or sell decisions when using the Secondary Market.
The price that shares are sold at on the Secondary Market does not impact the company’s share price or its indicative valuation shown in your Seedrs Portfolio. This will continue to be valued in line with Seedrs’ Valuation Policy.
If you’ve found these sections useful, you can sign up to our monthly investor newsletter, the Seedrs Supplement, where we often explore these topics in more detail and share insights and case studies to help our investor community on their investment journeys.