Seedrs will commence its secondary market feature next week on Tuesday (June 6) as they launch monthly their trading marketplace for crowdfunded securities (labeled Trading Tuesdays). This is not a simple task and a persistent item of discussion in the investment crowdfunding sector. Creating liquidity for investors is needed for a robust marketplace to evolve and currently most investors and platforms are dependent upon an exit event like an acquisition or IPO. Seedrs will change that with the Seedrs Secondary Market.
But how do you value securities in private securities? You could create an auction platform where sellers and buyers post offers at a defined price. The securities are sold when a match is made. Seedrs has decided not to allow bidding for their Secondary Market and will launch with a pricing mechanism determined by their own software created with the assistance of EY. At least initially.
Seedrs explained their valuation policy as follows:
Firstly where the company has raised a further round of equity capital within the last three years, and (1) the capital was raised for shares of the same class of shares as, or a class of shares substantially the same as, the class held by Seedrs investors, and (2) the company is continuing or preparing to trade, we have valued the shares at the value of that most recent fundraising round.
Secondly where the company has not raised additional capital for the same or substantially the same class of shares since its Seedrs round, but (1) the Seedrs round closed within the last three years, and (2) the company is continuing or preparing to trade, we have valued the shares at the value of the Seedrs round.
Thirdly, where the company has not raised capital for the same or substantially the same class of shares for over three years, through Seedrs or other means, but it is continuing or preparing to trade, we have conducted a substantive valuation analysis with a presumption of decline in value. Note that this is the only situation where, in theory, we could mark the fair value of an investment as worth more than the share price in its latest round of finance, but we would only do so based on recognised financial metrics.
And finally where the company has wound up, indicated its intention to wind up or ceased (or taken measures to cease) trading or preparing to trade, we have valued the shares at zeros.
Seedrs benefits from their Nominee structure as they have agreed upon rights to financial information from each Seedrs listed business. They can leverage this data to determine a valuation for the security. Seedrs recognizes the importance of allowing bidding to take place and intend on offering this at some point in the future.
This is a fascinating evolution of the equity crowdfunding industry. All industry participants will be watching the Seedrs platform closely and the trading results. Over time, as the number of crowdfunded securities grow along with investor participation, the Seedrs marketplace may evolve into a robust transactional platform adding an important feature and driving value for the crowdfunding ecosystem.
You can watch the Seedrs explanatory video below.