Investors allocate capital through Seedrs for a number of different reasons. Sometimes it’s to support a company founded by a friend or family member. Sometimes it’s because the investor has a particular affinity for the work the business is doing. Sometimes it’s even about the enjoyment an investor gets from being part of an exciting, innovative venture.
But fundamentally, the people and institutions who invest through Seedrs do so with the expectation of financial returns. When we set out to build Seedrs, our goal was to give profit-seeking investors access to an asset class that was once difficult or impossible for them to reach. We believe that a diversified portfolio of startups and growth businesses can make an outstanding addition to the broader investment portfolio of an investor who seeks capital appreciation and can tolerate risk.
And like any type of growth investing, the overarching goal is to see the value of one’s holdings go up and hopefully, in time, sell one’s shares for more than the price for which they were purchased. But startups and growth ventures are, by their nature, a long-term asset class, and meaningful returns are unlikely to be realised for five to seven years at a minimum, if at all. So how can investors know how their investments are doing in the interim?
The answer is a process called mark-to-market, where the value of each investment is adjusted, up or down, to reflect its current fair value. This process shows what the investment is worth on paper; in the absence of a liquid secondary market, an investor may not be able to sell her shares at the marked-to-market price (or at all), but this allows the investor to understand how the investment has performed based on objective criteria. The relevant criteria for determining fair value are provided by the industry guidance set forth in the International Private Equity Valuation (IPEV) Guidelines.
Today Seedrs is releasing full mark-to-market data on our portfolio with the launch our Portfolio Update 2016. This detailed report looks at the characteristics and performance of the 253 deals funded on Seedrs from our launch in July 2012 through the end of 2015. This is the first time an equity crowdfunding platform has published this type of information, and it is a watershed moment for the industry.
Ernst & Young LLP (EY) reviewed the procedures and processes used by Seedrs for determining the estimates of fair value used to calculate the investment performance numbers, and EY considers that they are in line with the IPEV Guidelines.
It’s important to note that the Portfolio Update focuses on paper returns and cannot be relied on as a predictor of future returns. Investing in early-stage businesses is high risk and the report reinforces the fact that investors should seek to diversify as much as possible across different sectors and types of businesses over time to help mitigate the risk.
To request the full report, click here.