Introducing Direct Investment

Introducing Direct Investment

11th November 2019 by Jeff Lynn

Today we are introducing a new option for investing on Seedrs: direct investment.

We have long been known for our nominee structure, which we pioneered and which has proven to be the best approach for investors and companies in most cases. It has also been an essential strategic capability in launching new product innovations, like the Seedrs Secondary Market. The nominee structure will continue unchanged, and investors who wish to invest through our nominee will continue to be able to do so, and reap the associated benefits, in the same way as they do today.

We recognise, however, that there is a demand amongst some investors to be able to hold and manage shares directly, and having facilitated direct investments on an ad hoc basis in the past, we are now making them a part of our product.

Why we are introducing this option

When a company is raising money from a high volume of relatively small investors, our nominee structure provides substantial value for both sides:

  • For the company, it reduces the administrative burdens of having a large number of small shareholders sitting directly on the cap table.
  • For investors, it ensures that they receive the shareholder protections which we negotiate, monitor and enforce; it allows them to keep track of multiple holdings (including relevant tax certificates) through our single Portfolio page; and it gives them access to secondary trading opportunities via the Seedrs Secondary Market.

We think this is a great deal, and that the 7.5% carry that we charge for the work required in acting as nominee is well worth it (see more on fees below).

However, as we continue in our mission to build a full-scale marketplace for investing in private companies, we want to empower companies to raise money—and investors to deploy capital—in the ways that work best for them.

We understand that there are some investors who would rather pay a one-time fee for access to investments—and do the work associated with executing, managing and exiting the investments themselves—rather than paying carry for our nominee services. At the same time, we know that while many companies value having only the Seedrs nominee on their cap tables, there are some who are not uncomfortable managing a large number of direct shareholders.

So this new offering is not intended to change the way most people invest, and if anything we hope it makes even clearer to investors how valuable the nominee is. But we want those investors who, for whatever reason, prefer to invest directly to be as welcome in the Seedrs marketplace as anyone else, and I’m excited that we are now making this possible as an integrated part of our product offering. 

How it will work

Going forward, whenever a company creates a campaign on Seedrs, it will be able to specify the threshold above which it will accept direct investments. It can also choose not to allow direct investors at all.

Once live, the campaign will disclose the direct investment threshold, and any investor who elects to invest above that amount will be presented with a choice between direct and nominee holding, along with an explanation of the differences between the two.

Importantly, no investor will be forced to invest directly: investors at all levels will still be able to use the nominee if they so choose.

To the extent direct investors wish to enter into any contractual arrangements with the company in connection with their investment, they will be responsible for arranging this with the investee company.

Following completion of the investment, direct investors will oversee administration of their shareholdings, including around tax relief matters and exits, themselves. Direct investors will not have access to the investee company’s post-investment page on the Seedrs platform, nor will they be able to use the Seedrs Secondary Market to sell their shares. 

Fees

If an investor chooses to invest directly, he or she will pay a one-time investment fee of 1.5% of the amount invested, subject to a cap of a £250 fee per investment. As the investor will not have the benefit of our nominee services or the Seedrs Secondary Market, he or she will pay no ongoing fees or carry to us.

Investors who invest through the nominee will be subject to the same fees as they are today. There will be no fee for making the investment, but we will charge a 7.5% carry upon disposal of the shares.

Jeff Lynn

Jeff Lynn

I'm Executive Chairman and Co-Founder of Seedrs.

Digital Agency Kent