Seedrs Blog

What is the Seedrs Secondary Market?

What is the Seedrs Secondary Market?

18th May 2018 by Steve Bates

The Seedrs Secondary Market represents an unparalleled liquidity opportunity for early-stage private equity. It’s the only fully functioning early-stage equity secondary market in the UK. This enables you to buy and sell the shares of businesses that have raised investment on Seedrs. And it allows you to invest in a business even though it may not currently be fundraising, or sell your shares in a company earlier than would otherwise be possible.

Why it’s an industry game-changer

Without access to a secondary market, investors normally need to hold onto their shares until the company was either sold, went public through an IPO, or a private sale occurs.All of which can take several years.

An investor may have enjoyed healthy returns already and the Seedrs Secondary Market provides them the opportunity to realise these without the company having to experience a significant liquidity event.

The Seedrs Secondary Market also makes it easier for companies to attract new investors without having to undertake a fundraising 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 – a period known as ‘Trading Tuesdays’.

Here’s a quick overview of how the market works:

  1. A shareholder requests the sale of shares they own
  2. Seedrs checks shares are eligible to be sold
  3. Shares become available on the Seedrs Secondary Market
  4. A new investor has the option to buy the share lot and deposits funds to their Seedrs investment account to be held in escrow
  5. Both buyer and seller sign the transfer agreement
  6. Funds are released from escrow and paid directly into the seller’s Seedrs investment account.
  7. At the same time the shares are transferred to the buyer and the transaction completed.

Setting the ‘fair value market’ price

Shares are bought and sold at fair value in line with the Seedrs Valuation Policy. When a business raises funds on Seedrs, the fair value price is the price per share that was set during that funding round. After the raise, a regular assessment is made to decide whether the price should be revalued either up, down or remain the same. Factors taken into account include:

  • Whether the company has raised a further equity funding round within the last three years
  • The company is continuing or preparing to trade
  • The value of the shares at the most recent fundraising round

Due to the Seedrs Advantage Nominee, we have comprehensive information rights thanks to the shareholder agreement that we sign with the company, making Seedrs a legal shareholder of the business. This enables us to obtain the most up-to-date and accurate information about the business in order to determine what this fair value should be.

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 is highly illiquid which means investors have, until now, had to generally hold their investment for many years before potentially realise a return. Now, with the Seedrs Secondary Market there’s an opportunity to exit from an investment much earlier than would otherwise be possible.

But the best way to see how the Seedrs Secondary Market works is to take a look for yourself.

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.

Steve Bates

Steve Bates

Content Team at Seedrs

Digital Agency Kent