Yesterday it was reported that the UK Competition and Markets Authority (CMA) had provisionally decided to not allow the merger between Seedrs and Crowdcube. The two securities crowdfunding platforms combined were seen as dominating online capital formation for early-stage ventures to the point it would limit competition. The CMA chose not to view the two platforms as competing against other funding options such as venture capital firms or angel investors. Independent research showed that about half of venture deals in the UK were “backed by the crowd” – IE Seedrs and Crowdcube.
Additionally, the CMA only considered the UK market in its review and not the European nor global investment crowdfunding sector – one with dozens of competing platforms.
Initially, both Crowdcube and Seedrs expressed their disappointment in the CMAs decision. In a blog post, Crowdcube stated yesterday:
“We’re obviously disappointed with the CMA’s decision. However, I’d like to reassure you that it’s business as usual at Crowdcube, and we continue to focus on delivering a great experience for businesses and investors alike. Crowdcube recorded outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability. We continue to invest in our people and products, and we expect to be profitable again in the first half of 2021, with an unprecedented level of high profile European businesses set to fundraise with us in the coming weeks. We are excited by the growing market opportunity in the UK and across Europe and we will share further updates on our plans for the future in due course.”
Crowdcube added that it has recorded strong levels of growth in the past year and remains in a strong financial position following record revenue in 2020. Crowdcube also stated it has experienced two consecutive quarters of profitability.
“We continue to invest in our people and products, and we expect to be profitable again in the first half of 2021, with an unprecedented level of high profile European businesses set to fundraise with us in the coming weeks,” stated Crowcube CEO Darren Westlake.
Seedrs initially shared a similar sentiment in a missive signed by Seedrs CEO Jeff Kelisky and co-founder and Chairman Jeff Lynn expressing their sentiment that the CMA decision was wrong.
Today, Seedrs has announced its decision to terminate the pursuit of a merger between the two Fintech marketplaces.
In an email Kelisky and Lynn explained their decision:
“Following on our message about the CMA’s provisional findings yesterday, I wanted to share with you that we have agreed to terminate our merger with Crowdcube. We fervently disagree with the CMA’s view, but given the low likelihood that they will change their mind at this point, we have concluded that it does not make sense to continue the battle. However, we had prepared for this possibility, and we’re pleased to announce that we have agreed [to] a new funding round for the business. Given the strength of the business’s recent performance, we will be able to use this round to return to our pursuit of major growth initiatives. We will share full details of the round very shortly. Thank you again for all of your support for Seedrs, and here’s to our great opportunities ahead!”
While terms of the funding were not disclosed, the additional capital will most certainly be vital to a company that continues to lose money while it executes on its mission to become a digital marketplace and secondary exchange for private companies – anywhere in the world.
In public statements addressed to the CMA, both Seedrs and Crowdcube warned that if the merger was not approved there was heightened risk that one platform would simply cease to exist. Of course, this would result in a de facto market dominated by a single platform. Obviously, the two platforms are now determined to succeed independently.
It is interesting that the CMA took a more parochial approach to investment crowdfunding limiting its decision to the UK market only. Industry expectations are for successful firms to eventually compete beyond home markets. One of the largest crowdfunding platforms in the world, Israel-based OurCrowd, has long sought out deals as well as investors globally. There is chatter in the US that certain crowdfunding platforms are interested in establishing a presence in Europe and Asia. European Union-based platforms are already sizing up pan-European crowdfunding rules that will enable issuers to raise capital across all member states.
Regardless of the CMA’s decision to deny the combination of the two platforms, you may expect both firms to add a growing portfolio of complementary services while looking to compete more aggressively in the EU while targeting other jurisdictions outside of the UK. New services and markets are the paths to sustainability hence profitability for investment crowdfunding platforms.