When investing, your capital is at risk.
For every Seedrs investor building a portfolio in this asset class, the journey began with one investment that led to many more.
We’re constantly launching new campaigns and platform features to meet the needs of both our longstanding investors and those making their first investment as we speak. Those that have been investing on Seedrs since the early days have witnessed first-hand the rollout of a number of innovations, big and small, that have made private company investment simple, seamless and in many cases, more rewarding.
David Semmens first opened his Seedrs account in 2012. Eight years later, we sat down with him to find out how he first started investing in private companies, and what he looks for before backing a business.
How did you first become interested in private equity investing and what drew you to Seedrs as an option to do so?
Over the past few years, the UK has become a global hub for fintech businesses. The rise in digital payment, savings and investment platforms has marked a pivotal turning point for the banking industry, and a catalyst for improvement of the calibre of financial services available to people around the world.
I was drawn to crowdfunding because I wanted to find these kinds of companies early on—the ones actively innovating within the fintech space to create simpler, democratised, and more transparent user experiences—to help people better manage their money.
Seedrs stood out as an excellent option for two key reasons. Firstly, its Nominee Structure underpinned a business model that catered to protecting investors, but also made it easy to manage investments, while honouring the shareholder rights pertaining to those investments. Secondly, the quality of the firms on offer on the platform was impressive, even early on. On Seedrs, I could access some of the best companies in this field that were properly vetted and displayed all the indicators of positive growth.
What was one of the first investments you made on the platform?
This was a while back now, but one of the first investments was in Landbay, the mortgage marketplace lender. This was at a time when peer-to-peer lending space was still nascent, and Landbay was striving to provide the fastest turnaround of any buy-to-let lender at prices that competed head-on with banks. It was giving retail investors the unique opportunity to invest in an ISA secured by an asset that people really understood.
Landbay had a clear focused product vision, a capable and proven team, and a sensible valuation, all of which are criteria I keep an eye on when choosing investments for my personal portfolio. I’m happy to say that Landbay has comfortably exceeded all my expectations. It’s been one of the brightest highlights for my portfolio to date and I’ve been pleased to invest in the subsequent rounds, taking advantage of the pre-emption protections.
How has your previous professional experience prepared you to build a successful investment portfolio in this asset class?
I have over a decade of experience investing in public markets. While private company investment is a different undertaking in many respects, there are elements and learnings that carry over from one to the other.
Investing in any asset class, whether in publicly listed stocks or private enterprises, fundamentally requires the ability to differentiate a good idea from a great one. Private company investing always involves risk, but once you’re able to identify the businesses well equipped for growth, with an attractive valuation, then it’s simply a question of sizing your bets accordingly. These are things you learn as you go along. Luckily my experience investing in other asset classes gave me the tools to figure it out quickly.
What are some of the key factors or metrics you look for when investing in private businesses on Seedrs?
One of the first courses of action is to observe the valuation, and make sure it offers good value. If not, you’re unlikely to make any sort of return.
Next, take a look at the people. The knowledge and experience of a company’s team can be the strongest drivers of its adaptability, ingenuity and success within a constantly evolving industry. This is particularly applicable to fintech. By assessing how well core team members know the industry, are financially invested in the company themselves, and are innovating on a foundation of financial expertise, you can determine the strength of the manpower behind the business model.
A successful company is also grounded in the product it’s offering, and the product of any business you invest in should be both unique and economically defensible. Take the current C-19 crisis, for example. The businesses that weather this precarious economic climate effectively will be those with structures in place to plan for, and accommodate, changing consumer behaviour. Those will be around long-term.
After that, it comes down to the firm’s idiosyncratic details. What differentiates them from competitors in the space? How are they carving new routes to market? The final deciding factor is always in the differentiators.
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?
One of the benefits of investing in earlier stage companies compared to publicly listed ones, is the option for tax relief through EIS and SEIS schemes. While a huge incentive to invest, filing and managing these claims for eligible businesses can be time consuming. Seedrs’ introduction of downloadable tax reporting documentation directly through the platform was a simple product change that proved a huge time-saver for investors like myself.
The Secondary Market is also a significant benefit not available elsewhere. One of the major barriers to private company investing is that it can often be years before you realise any returns. That’s years of exercising preemption rights, closely following company updates and consistently reassessing whether growth prospects appear as promising as they were when you first bought in. The Secondary Market gives you the option for early liquidity, so if you feel as though a firm has reached its peak, you don’t have to wait around for an IPO, acquisition, or other liquidity event. You can realise your returns right there and then.
There has recently been a trend towards investing in companies with a sustainability or philanthropic element to their business models. Is this something you think about when building your portfolio and if so, how do you identify the right opportunities?
Sustainability is a hot topic nowadays.That being said, in my opinion, it’s valuable to think about sustainability in a slightly different light when choosing investments.
Instead of treating sustainability as a separate, trend-capitalising element of a company’s business model, see if you can determine whether the sustainability factor is a core value serving as a driver for efficiency, or just marketing spin. If you think about sustainable firms as being resource efficient, you’ll realise they are also focused on the bottom line as well as bettering the world. That’s how you spot a good business that’s also doing good.
Certain investors may be hesitant to invest in this asset class during difficult times such as the Covid-19 crisis. How has the current economic climate impacted your investment decisions right now, and going forward?
The crisis has yielded different effects for businesses in different sectors. Tissue paper producers have probably never seen better days. The travel sector has likely never seen worse.
If anything, the post Covid-19 climate has highlighted the importance of diversification. So long as you have strategically covered your bases in your portfolio, you should be able to offset any negative impact that economic uncertainty and volatility will have on certain industries. But that’s not just advice for a crisis, it’s worth keeping in mind at all times when you’re building a portfolio.
What piece(s) of advice would you give to investors who are new to this asset class?
Firstly, there’s no need to feel as though you need to invest too aggressively to begin with. You can start small and ease your way in. Seedrs provides preemption rights even to the smallest of investors to prevent the dilution of their shares when companies go on to raise again. Even if you start with a small sum in a company you’ve evaluated to be strong, growing and defensible, you can continue to maintain your shareholding in that company going forward. You’ll also receive regular updates. Make sure you read them and get in touch with the entrepreneurs if you have constructive thoughts and especially if you can help!
Secondly, do your research. There are countless resources available to investors that will help you learn to identify the companies best designed to succeed. Sharing your ideas with other investors can be a good way to confirm or challenge your assessments, and find new investment opportunities you perhaps hadn’t thought of.
What keeps you busy when you’re not investing in startups?
I really enjoy reading crime novels, travelling (when we’re able to), playing cards, and exploring new neighbourhoods with my wife and our dog, Byron.
What’s the best life hack you can recommend for keeping sane during lockdown?
Make sure you switch off. Or get a dog that demands regular walks; fresh air does a world of good.