Secondary Market – December Update

Secondary Market – December Update

22nd December 2020 by Joel Ippoliti

December marked the end of a fantastic year for the Secondary Market at Seedrs.  We saw a step change in monthly volumes, in no small part thanks to Revolut investors looking to realise some of the huge value increase they’ve had in their shares and supported across the board by a number of feature releases which boosted growth. 

Since launch, the market has facilitated over 27k transactions worth a total of £8.8m. In true testament to the value of the facility to Seedrs’ investors, December market sellers made an average return of £391, a massive 260% increase in real profits delivered when compared to the £160 average in the January market. Realised investor returns is the ultimate measure of any investment platform and it’s nice to see this number increasing as much as it has.

Here are the Secondary Market’s transactions by month throughout 2020, a market seemingly unaffected by the turmoil that COVID-19 has delivered to other markets. In fact since the pandemic hit us mid-March, we’ve seen a step change increase in transactions.

There is more work to be done and whilst we have added many features the experience of the market is still not one where we are comfortable removing the BETA tag. The term is used broadly but here it should be interpreted as, “work in progress” and not up to the high standards we set ourselves in terms of product experience, simplicity and delightfulness. It’s good but we have a way to go to make it truly great for all. Some things that we’d like to add:

  • Company house updates and alerts within the business page;
  • Allowing buyers/sellers to connect anytime (even when the market is closed);
  • The addition of price alert notifications for specific businesses;
  • Partial sharelots – allowing buyers to offer to buy smaller ‘pieces’ of a sharelot;
  • News and updates from 3rd party outlets organised by business;
  • Advanced following or watchlist functionality;
  • More data on sharelot liquidity.

Our team remains committed to driving these improvements, but these have to be juggled against the needs of the core business, and prioritisation between the two is a constant challenge.

I am very pleased to say that we got a little closer this year by allowing greater price flexibility for sellers. We introduced variable pricing with a 30% limit (above or below market price) in August and removed them entirely for the December market. You can see from the December price variation in sharelots below that the number of share lots sold at a premium far exceeded the number at a discount. 

You can also observe a wide spread of prices away from the ‘current price’ (0) suggesting the last release in December really helped buyers and sellers match. It hasn’t all been smooth sailing though and sometimes the only way to test the water is to launch and observe. 

Observe we did as the unfortunate result below shows:

We had sellers take advantage of the ‘no limits’ approach and list fractional shares with huge mark-ups. This was not our intent and we will be introducing restrictions from the next market.

Effective from February’s market, prices increases limited and fractional shares limited:

  • Price increases will be limited to 5x the market price (based on the Seedrs valuation policy) or 500% 
  • Sellers will only be able to list whole shares for sale, except in limited circumstances.  A seller may sell a fraction of a share where: (i) the share price is greater than £100, in which case they can list a fraction of a share, limited to only 1 decimal place or; (ii) where the seller is selling all of their holding in that company.

Share lots submitted that do not meet this criteria will be cancelled after the January market and sellers informed. We didn’t foresee this behaviour but now we have seen it, we will act quickly to eradicate it to maintain the integrity of the market.

We are also adding a number of smaller notifications in February to improve transparency for buyers before they commit to a purchase, including:

  • Updating the ‘Market’ page (where the share lots are listed – as pictured below) to clearly show the % mark-up of the offered share lot, with reference to the market price.
  • Where a share lot has been marked-up by more than 50%, a popup will be included in the checkout journey for that share lot calling attention to the mark-up.

We believe these changes and restrictions will increase transparency and certainty for buyers and reduce the need to cancel transactions.

We’ve also witnessed the number of sellers reneging on sales increase in December’s market again (107 total sales cancelled, 56 by the seller – the red bar). It’s something that buyers frequently complain about and that we watch closely. 

Having hit all-time highs last month in proportion to the number of share lots transacted, it is time to increase the deterrents again. We currently delay resubmission of share lots in the same business to the following market, as of February that time will be increased to 2 markets. 

We will also improve the messaging on the site to make sure sellers understand this is now in place and further encourage them not to do so. If this does not result in reductions we will escalate the deterrent and target specific users who are taking advantage, ultimately getting to being excluded from using the market for a period. We are hoping to not have to go this far and that simply increasing the comms and upping the period for resubmission does the job. 

One of the big improvements that will impact the secondary market is to only charge a card once a buyer has been found, this ties neatly into the point above as if a seller cancels, buyers haven’t had their funds tied up for days waiting for the refund. We are still delayed here having promised it throughout 2020 but are hopeful by March/April we can start to roll it out. I can only apologise for its delay and point back to the challenges of balancing the core platform’s needs with the market. We haven’t forgotten!

Back to a deep dive on December: it was a good month with total transactions equaling £441k across 1,289 sharelots. We had 540 buyers and 472 sellers in 179 businesses. Compared to November’s market, in which £249k was transacted, December was a sizable improvement – it is too early to say if that was a result of full variable pricing or other factors.  

The sharelot sales volume by price tier were as follows:

These sharelots can be broken out by sector as follows:

Top 15 total value transactions by business as follows:

From myself and the team here at Seedrs, have a great break over year end and we look forward to chipping away at perfecting this market for you all in the new year. 

Joel Ippoliti

Joel Ippoliti

Chief Product Officer

Digital Agency Kent