The Seedrs Secondary Market allows buyers and sellers to trade their shares in private companies. The market represents an opportunity for early investors in startups and other private companies 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 new private businesses, even when they’re not currently fundraising.
The Seedrs Secondary Market now offers over 600 businesses to invest in when the market opens during the first week of every month with many thousands of individual share lots offered up to investors. The market has transacted over £20M since its inception, and is now averaging £640,000 of trades per month.
Why it’s an industry 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.
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.
How it works
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.
Here’s a quick overview of how the market works:
- 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
- Seedrs checks if the business is eligible for Secondary Market trading before the market opens
- If the business is eligible to be traded in this cycle, the share lot will be listed when the market opens
- A buyer buys the share lot, either paying with a debit card or credit associated with their investment account
- The buyer signs the buy side of the Transfer of Beneficial Ownership agreement, and payment is confirmed
- The seller is notified that a buyer has been found. The seller has 3 days to confirm the sale
- Once the sale is confirmed, funds are released and paid directly into the seller’s Seedrs investment account
- At the same time the shares are transferred to the buyer and the transaction is complete
Secondary trading isn’t something new for us, and one of the many reasons we designed our nominee structure at inception was to make trading as simple and straightforward as possible.
Because we hold shares in each business as nominee, we’re able to take care of the whole transaction process from end-to-end, without the company whose shares are being traded needing to get involved with time-consuming administrative matters.
Without a nominee, the mechanics of trading shares would be substantially more complicated.
How are share lots priced?
For primary raises on Seedrs, the company sets its own valuation and through calculations we ensure that the share price is correct.
On the Seedrs Secondary Market, the company’s share price is marked at ‘fair value’. This is based on the share price from its most recent investment round, and is 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. All businesses will continue to be valued in line with Seedrs’ Valuation Policy.
Why is the market only open one week per month?
The one week cycle per month allows the Secondary Market to function efficiently.
For investors, having the market open one week per month focuses demand, and enables share lots to be discovered easily. For businesses, the one week format keeps the burden on them as light as possible.
Early-stage equity of ambitious, growth-focused businesses is a high-risk asset class. However, investing in early-stage private companies can offer the potential for high returns. Historically this asset class has been highly illiquid which means investors have, until now, had to generally hold their investment for many years before potentially realising a return. With the Seedrs Secondary Market there’s an opportunity to exit from an investment much earlier than would otherwise be possible.
Can I sell the shares I just bought?
When you make an investment you are able to see if shares in the business will be eligible for Secondary Market trading in the campaign’s Key Features.
Not all shares are available to be traded on the Secondary Market. Some companies don’t allow trading on the Market, and others only allow trading between existing shareholders. However, the vast majority of businesses that raise with us do allow trading. In each of the last 12 trading cycles there have been more than 500 businesses available.
If you’ve just purchased shares through a primary campaign, then the shares won’t be eligible for sale immediately. The funding round has to close and be completed before shares become. If the company has opted to use the Secondary Market, once the shares have been issued they will become eligible for trading.
If you’ve purchased shares through the Secondary Market, once the sale has completed you should be able to post the shares for sale immediately, provided the eligibility of the business hasn’t changed since you purchased.
What impacts business’ Secondary Market eligibility?
Seedrs-funded business will not be eligible to be listed on the Seedrs Secondary Market if:
- 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.
But the best way to see how the Seedrs Secondary Market works is to take a look for yourself.
Glossary
Share lot: The allocation of shares that is being bought and sold. The size of the share lot is the number of shares being sold, and the price is calculated by multiplying the number of shares being sold by the share price.
Liquidity event: An occasion when it’s possible to sell shares in a private company. Liquidity events include when a company goes public through an IPO, SPAC or direct listing, when a company is acquired
Disclaimer
Please note that investing involves risks, including loss of capital, liquidity, lack of dividends and dilution, and should be done only as part of a diversified portfolio. Not all shares will be eligible for the Secondary Market and, even if they are, the ability to buy and sell shares will depend on demand. Investors should not assume that an early exit will be available just because a secondary market exists.
