CEO and co-founder of Seedrs, Jeff Lynn, announced on Monday the UK-based equity crowdfunding platform is set to launch its second market this upcoming summer. According to Lynn, the new market will enable investors who have shares held under the Seedrs nominee to buy and sell shares from and to each other, while investors in Seedrs-funded companies will have the opportunity to increase their stakes by buying shares from those sellers.
“‘When are you going to launch a secondary market?’ is probably the question I’ve been asked more than any other since founding Seedrs. It’s a good question and one which we’ve been working on for some time. Our core model, which allows businesses to raise new capital from investors, and investors to subscribe for newly-issued shares in those businesses, is a classic primary market. So facilitating trading in those shares through a secondary market is a natural next step.”
Lynn also explained with nearly 500 deals funded and thousands of investors have made their way to the Seedrs platform, he and his team believe that a second market is definitely worthwhile. Here’s how the secondary market will work – beginning the first Tuesday of every month, the market will be open for one week. During that time, investors will be able to purchase and sell shares from each other. This kind of trade is considered “under the nominee,” which means that the nominee company will continue to be the legal shareholder the shares and will hold them on behalf of the seller. The nominee will also hold them on behalf of the buyer.
The Seedrs co-founder then stated that during the beta phase that shares will trade at a “fair value” with only current investors in a given company having the opportunity to purchase shares in it. Lynn also noted that some companies would not be eligible for trading during certain times due to it being in the process of a major corporate transaction or other circumstances.
“The Seedrs Secondary Market will benefit buyers, sellers and companies alike. Until now, the shares investors purchase have been very difficult to trade, meaning that they need to wait for an exit event such as an IPO or a sale of the business. Whilst Seedrs has already seen portfolio companies like Chapel Down and FreeAgent achieve success on the public markets, allowing those investors to sell their shares and realise a profit, the long-term nature of this asset class means the vast majority remain illiquid for some time. A secondary market has the potential to change that, giving investors the prospect of early returns. Meanwhile, investors who may want to increase their stake in a business will now have the opportunity to do so.”
Lynn went on to add:
“I’m very excited about the forthcoming launch of the Seedrs Secondary Market, and I would make three final observations about it. This is a beta. We’ve worked hard to design the Secondary Market in the most logical way possible, starting with a simple product that addresses the feedback we’ve received thus far. I’m confident that we’ve built something great, but I have no doubt that there is still plenty of room for improvement. Over time we’ll continue to evolve the product as we learn more and more about how it is functioning.
“As in any market, the ability to buy or sell will depend on there being sufficient supply or demand. Even if the market works as well as we hope, investors will not always be able to buy or sell shares when they want to. So, even when the Seedrs Secondary Market becomes available, we strongly advise investors to expect that they’ll need to hold their shares through to the business’s exit, and to view any sale (or purchase) on a secondary basis as a “plus” rather than a certainty.
“The Seedrs Secondary Market is one of many examples of how our nominee structure benefits our investors. 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 such a nominee, the mechanics of trading shares would be substantially more complicated.”