[Update: 25th March 2021]
As announced yesterday by both Seedrs and Crowdcube, the CMA has now blocked the merger of the platforms. Both players were quick to reassure their community of investors and startups that they were in a strong position with good results and even, in the case of Crowdcube, two consecutive quarters of profitability.
Seedrs has today gone one step further and announced that they’ll stop pursuing the merger and will go for another round of funding.
These are the facts… now to the fun part. My opinion 🙂
As I alluded to in my original article (below), the reality is that the business model is really tough. The (very heavily edited) documents submitted by the platforms to the CMA and published on the CMA’s website, confirm clearly what everybody already knew.
Will the platforms survive in the long term? That’s anyone’s guess…
One possible scenario would be Seedrs diversifying significantly into an equity marketplace and beyond (this was the key to their business plan the last time they raised money). This would generate new sources of income. Crowdcube seems firmly focused on its core value proposition (equity crowdfunding) and that might give them an edge and gain market share. I wouldn’t be surprised if, in the future, they were pointing some of their ‘alumni’ into Seedrs direction for post-raise services.
Personally, I think that this was the right move by the CMA. The fact that the platforms argued that the market was ‘startup funding’ and not ‘just equity crowdfunding’ was, in my opinion, misleading. The merger would have created a monopoly. And because of that, as a crowdfunding consultant, I think this is great for the industry: competition means more innovation, choice for investors and better deals for the startups.
What are your thoughts? What am I missing? Any other possible scenarios? Do let me know!
[Original Article published on the 8th October 2020]
On Monday the 5th of October 2020, we woke up with the news of Seedrs and Crowdcube merger. The two biggest equity crowdfunding platform in Europe are becoming one… The rumours had been on Twitter for quite a while, but I had refused to believe them!
Here are my initial thoughts, and I would love to hear your opinions.
A tough business model
The business model of running an equity crowdfunding platform (or an equity marketplace as they like to call themselves these days) is a really tough one.
It might seem steep for a founder that the platform, for an average raise and including all of the fees, is charging you around 10% of your the money you raise through them (it’s worth noting that on a normal campaign, at least 50% of the raise is made offline and the platforms don’t receive any fees on that money). I have heard again and again from my clients that the platforms don’t do a good job at communicating where this money goes. It feels like a cost to them, rather than an investment.
But the reality is that the platform costs are quite significant. Legal, compliance, all the technology behind the payments, campaign support, sales, marketing…
So much so that still now, nearly 10 years after they were founded, they’re both still losing quite a lot of money. For example, Jeff Lynn from Seedrs, shortly after the announcement of the merger, published the 2019 accounts that read, against revenue growth of 34% to £4.3m: “Net loss increased only 18% from £4.0m to £4.7m, which was in line with planned continued investment.” The numbers don’t seem to add up.
The Seedrs and Crowdcube merger was a survival move
Without the merger, I don’t think that both platforms would have survived in the long term. One likely scenario would have been that one of the two had run out of money and the winner would take it all, as the ABBA song goes.
So, in the long term, I believe this is an unavoidable consequence of this tough industry. The merge is better than a long and bloody battle for survival.
A bad thing for the platforms’ customers?
For the startups and people like me (a crowdfunding consultant), I think that the Seedrs and Crowdcube merger is bad news. With no apparent strong contender, it means that we lose choice. In a monopolistic industry, companies have fewer incentives for innovation and delighting their customer with amazing customer service (something I must say I have enjoyed so far from both platforms). The only silver lining I can see (hat tip to Chris Storey) is an increased base of investors (although I suspect there is a significant overlap in both audiences).
What alternatives are there?
I went back to my article The Future of Equity Crowdfunding, that I published exactly a year ago on the 08/10/19. Re-reading it has been a good exercise for me and I did pose the question of a winner-takes-it-all situation. In there, I explained why I thought that the product SeedFast from SeedLegals is an interesting alternative for UK based companies. My feeling at this moment is that entrepreneurs considering an equity raise will put them as alternatives:
- Does it make sense to do a crowdfunding campaign? It’s public, hard work, with a relatively long timeline but I will be able to turn my users into investors and brand ambassadors.
- Shall I go for a SeedFast? A rolling funding round is really interesting. But my reach is going to be smaller and I’ll lose some of the benefits of an equity crowdfunding.
A call for collaboration
At the end of the day, the Seedrs and Crowdube merger is really a cost-saving exercise. And it will likely result in redundancies. From here, my support to all of the Seedrs and Crowdcube workers with their jobs at risk. I am more than happy to have a chat and explore opportunities to collaborate!
What do you think? Is this an accurate picture of what’s happening? Am I missing any important points?