- Investment sought:
- Equity offered:
Seedrs is an online, cross-border platform for discovering and investing in great startups. We let people invest as little or as much as they like in startups they choose, and we let entrepreneurs raise capital from friends, family, their communities, angels and the crowds, all through a simple online process.
Seedrs sits in the fast-growing "equity crowdfunding" space, and since our launch in July 2012, we have become one of the leading platforms of our kind globally. But we are about more than just crowdfunding: our goal is to provide the architecture and infrastructure for the whole universe of private investments in early-stage businesses. This means that we seek not only to aggregate small "crowd" investments but also to (1) process and administer angel and group transactions, (2) fund accelerator and incubator cohorts and (3) create products and structures to give a wide range of investor types exposure to startups as an asset class.
Seedrs has now opened its doors to both investors and entrepreneurs throughout Europe, making us the first widely cross-border equity crowdfunding platform in the world. And we are only just getting started.
Opacity and transaction costs create a profound market failure for seed and early-stage capital in Europe. Seedrs changes that.
There are vast numbers of nascent and aspiring startups who need between £/€ 10K and £/€ 250K to take their first steps. This capital can be the toughest to access due to the lack of market transparency and the transaction costs of making small investments.
Meanwhile, investing in startups appeals to many people for many reasons, including not just financial returns but also the excitement factor of being a "Dragon" and the desire to support businesses started by friends, family and community members. However, the transaction costs of making investments mean only people with lots of time and money invest can off-line.
Seedrs solves this market failure by providing a simple, online platform that benefits entrepreneurs and investors in five ways:
1. Money. We give entrepreneurs access to capital from a wide range of investors, and we give investors the opportunity to invest however much they like and earn returns on dividend or exit.
2. Support. Entrepreneurs can get advice, support and connections from their wide base of investors, while investors can get involved in their investee companies or else be passive and watch them grow from afar.
3. Validation. Entrepreneurs get affirmation from lots of investors voting with their wallets; meanwhile, investors get the benefit of the wisdom of the crowds in selecting their investments.
4. Price. For entrepreneurs our commission is often less expensive than paying a lawyer just to document the deal, while the carry we charge to investors is significantly less than they would pay to a fund manager.
5. Simplicity. Because we hold and administer the shares of each investee company as nominee, entrepreneurs only need to face one legal shareholder, while investors know that a professional firm is enforcing their rights through the lifecycle of the investment.
The following video explain how our nominee structure works, compared to many other platforms. We suggest that you watch this video in full screen in order to be able to read the text.
Substantial accomplishments to date
Seedrs has accomplished a significant amount since its inception. Among our more notable achievements are:
- 49 deals funded, with 600% annualised growth in investments
- 80% quarter-on-quarter revenue growth vs. 6% quarter-on-quarter cost growth
- Over 25,000 members
We were the first equity crowdfunding platform in the world to:
- Receive regulatory approval
- Launch a crowdfunded "fund"
- Facilitate government investment into a startup
- Operate on a fully cross-border basis
- Won London Web Summit startup competition (February 2012)
- Named one of the Top 20 Startups for 2013 by startups.co.uk (December 2012)
- Included in the Accelerate 250 group of Britain's 250 fastest-growing companies (June 2013)
- Named to the Silicon Valley Comes to the UK 100 Club of businesses with the potential to generate £100 million in annual revenues in three to five years (November 2013)
Seedrs earns money through two fees:
1. We charge startups a 7.5% commission on the funds they raise. This means that if a startup raises £50,000, they get £46,250, and we earn £3,750.
2. We charge investors a 7.5% carry on any profits they make. This means that if an investor buys shares for £1,000 and sells them for £5,000, we earn 7.5% of the £4,000 profit, being £300.
Use of proceeds
We intend to use the proceeds of this fundraising round for general working capital purposes as we continue to grow the business toward profitability. Our expenses have historically broken down roughly as follows, and we anticipate a similar division going forward:
- 40% team salaries
- 30% platform development
- 15% marketing
- 7.5% legal & professional
- 7.5% other
A NOTE ON THE APPLICATION OF OUR NOMINEE STRUCTURE IN THIS INVESTMENT
As discussed in the video in the "Intended Impact" section above, Seedrs uses a nominee structure, meaning that we remain the representative of the investor throughout any investment, and we enter into a subscription agreement with each investee company. A subscription agreement is always used by venture capitalists and angel investors when they make investments, as it provides vital post-investment protection for investors and radically simpler administration for entrepreneurs, especially when seeking further funding. We firmly believe that investors and entrepreneurs who use our platform deserve the same level of protection and simplicity.
In the case of our own campaign, we want to ensure that investors have just as much protection as they would do in any other investment, while at the same time ensuring that the structure does not preclude the company from raising further funds in the future. We will therefore use the same type of nominee structure as we use for all our deals, meaning that we will act as nominee over our own shares. To avoid any conflict of interest that this could create, however, we will set up a dedicated, independent non-executive committee, elected by the investors, to vote and take all other actions in connection with the Seedrs shares.
Additionally, Seedrs always gives startups and investors the option of agreeing that an investor hold his or her shares directly rather than through our nominee structure; this option is often used in the case of significantly larger investors. We are granting our investors the same option: if you invest £25,000 or more, you are welcome to hold your shares directly and be an individual party to our subscription agreement. We will contact all investors over this threshold to ask for their preference prior to completion of the transaction.
As an exception to our normal practice, we will not charge any investor any fees in connection with this investment. This means that, whether you hold your shares directly or through us as nominee, you will not pay any carry or other fee whatsoever. (This has not been reflected in the Investment, Management and Nominee Agreement you will sign in making an investment, as we use a standard template, but we confirm our waiver of fees to you here and will do so again, in writing, prior to completing the investment).
Seedrs targets two markets, entrepreneurs and investors, as follows:
We are focused on seed and early-stage businesses, which broadly means businesses that are pre-trading or have begun to trade but are not yet operating at scale. Within this broad category, there are four subsets of firms:
1. Ultra-high-growth businesses, which is the small group of startups seeking to become the "next big thing".
2. Other high-growth businesses, which are the startups that the Global Entrepreneurship Monitor (GEM) defines as seeking to create 20 or more jobs within the next five years (but excluding ultra-high-growth ones).
3. Medium-growth businesses, which GEM defines as aiming for between six and 19 new jobs in the next five years.
4. Low-growth businesses, which are aiming for five or fewer new jobs in the next five years.
Seedrs targets the first three of these categories throughout the UK and Europe. We do not target low-growth businesses, because they are the one category of business that we do not see as equity-fundable.
Our core investor base is made up of two types of self-directed investor:
1. The mass affluent. These are individuals who are broadly in the 80th to 98th percentile of wealth and may include anyone from young professionals to small business owners, middle managers, civil servants, academics and others. These are people who have capital that they can (and want to) invest for growth but generally do not have enough to build a portfolio of traditional angel investments.
2. The cash-rich-but-time-poor. These are people who have the capital to build a portfolio of larger investments, but the reason they have that capital is that they work hard and don't have time to attend nightly pitching events and engage in the lengthy process of making investments off-line.
In addition to this core, we will soon look to target additional types of investors, including advised investors, institutions and governments.
Characteristics of target market
Both sides of our market are vast in scale:
- On the entrepreneur side, based on Global Entrepreneurship Monitor (GEM) data we estimate that there are approximately 2 million businesses in the UK and Europe in our target market (seed and early-stage businesses that are ultra-high-growth, other high-growth or medium-growth).
- On the investor side, based on Datamonitor data we estimate that £3.6 (€4.2) trillion of retail investors' capital is currently held in shares, bonds and funds. We estimate that up to 10% of this capital could hypothetically be allocated to long-term, high-risk investments like startups, making for a capital pool of £360 (€420) billion.
Because we are in such a new space, we have no firm basis on which to predict how much of these markets can actually be captured. However, there are estimates that equity crowdfunding can become a $300 billion market in the U.S. in time (see http://bit.ly/W0EN5A). We think the potential scale is similar in the UK and Europe.
We use different marketing techniques to reach our entrepreneur and investor markets.
We market to entrepreneurs using a pyramid approach: we focus on the elite, with a trickle-down effect to the rest. The two types of startups at the “top” of the pyramid are (1) ultra-high-growth ones and (2) ones led by celebrities and well-connected entrepreneurs seeking to leverage their followers.
We reach these startups through a combination of three core approaches:
- Targeted PR, focusing especially on popular startup-focused blogs (eg TechCrunch)
- Relationships with VCs/accelerators (for the ultra-high-growth startups) and key influencers (for the celebrity/well-connected ones)
- Active outreach by our marketing team and through events
The publicised success of these campaigns lead to the rest of the pyramid learning about and coming to us.
We segment our investors into two categories: independent investors and network investors.
Independent investors come to Seedrs to look for investments. They are seeking to build a portfolio of startups for returns, excitement or other reasons, and we are a marketplace for them to find and make investments. Our core marketing strategy to reach these investors is PR: we find they tend to look to trusted news sources for investment ideas, and the democratisation and innovation of crowdfunding (along with constantly fresh news about new startups) makes the media particularly inclined to report on us.
Network investors come to Seedrs to invest in a specific startup.
For them, the entrepreneur is a personal connection or part of a community of shared interest, and we are a platform for them to make investments they have already found. Our core marketing strategy for these investors is entrepreneur referrals: these investors will only come to us once driven by the entrepreneur, and our role is to provide tools and guidance to help entrepreneurs communicate with their audiences.
We are currently one of the two largest equity crowdfunding platforms in the UK, and we are the most active UK platform based on average deals per month since inception. We are also the only platform that operates Europe-wide.
We will beat our main current competitor because we provide a significantly more professional service and deliver better outcomes for our investors and entrepreneurs. We do this through (1) the protections our subscription agreements and nominee structure provide to investors, ensuring that that they actually earn returns when a company succeeds, (2) the administrative simplicity we provide to entrepreneurs, providing a single legal shareholder for their cap table and thereby eliminating a major potential obstacle to further fundraising and (3) the flexibility of our structure, which allows us to build funds and other products that are tailored to investors' and entrepreneurs particular investment and capital-raising needs.
Going forward, we recognise that new competitors will emerge that provide a service to investors and entrepreneurs that is similarly professional to ours. However, we will beat them through our commitment to constant innovation, our hunger for aggressive growth and the power of the network effects we are creating.