Coming off the revelation that the UK Competition and Markets Authority (CMA) was not inclined to approve the merger between Seedrs and Crowdcube, Seedrs co-founder and Chairman Jeff Lynn was recently interviewed by the FT. Speaking with the broadsheet, Lynn “warned that the UK competition watchdog risks stifling government ambitions to create a booming tech sector after it blocked his merger with rival Crowdcube.”
Lynn told the FT that the CMA was not current with today’s global marketplace describing its approach as “old fashioned and academic” slamming the decision.
As was previously reported, the CMA announced that it had decided to provisionally block the merger as the combination of the two crowdfunding platforms would consume over 90% of that market. What the CMA apparently did not consider is the fact that both Crowdcube and Seedrs compete with a broader portfolio of firms providing access to capital for early-stage ventures. These include VCs, angels, and other debt and equity-based platforms. Additionally, both Seedrs and Crowdcube seek to compete on a more global basis. Both platforms list securities offerings from Europe – a market that recently announced streamlined investment crowdfunding rules where an issuer can solicit investors across all EU member states. This new EU policy appears not to have influenced the CMA decision.
According to the FT report, CMA officials are a bit gun-shy as they feel like they have been burned in the past by approving other combinations. Yet Lynn noted that the CMAs decision was “absurd” as the crowdfunding sector remains in its infancy. He envisions an international platform serving many markets while the CMA appears to be taking an island-only approach.
It was also revealed that Seedrs generated top-line revenue of £5.3 million in 2020 and an operating loss of £4.1 million so it will continue to be in need of growth capital. When Seedrs announced its decision to exit the merger discussions as it appeared to be a futile effort, the company said it had raised new capital without disclosing the amount.
It was reported earlier today that both Seedrs and Crowdcube booked solid first quarters – one of the best ever – but profitability, key to survival, will remain elusive for some time longer.