In the long run, investment crowdfunding will be judged by the returns delivered to investors. As CI has consistently stated, online capital formation must work for all three constituent stakeholders in the process: Issuers (firms) must be able to raise the money they need; Platforms must be profitable, and Investors must earn a return that is commensurate with the risk taken in backing these private offerings – on a portfolio basis. Seedrs is perhaps the only platform that has put numbers to paper and to provide a document outlining its aggregate performance with its 2023 Portfolio Report. The document covers the 1,038 businesses that raised money on Seedrs from its launch through to December 31, 2022.
In the report, Seedrs claims that “equity [investment] crowdfunding rivals returns for European venture capital firms over the last 10 years.” Seedrs states that since 2012, Seedrs’ portfolio of companies that raised money on its platform has generated a tax-adjusted Internal Rate of Return (IRR) of 18.36% compared to VC firms at 17%. On a non-tax adjusted basis, returns for Seeedrs stand at 12.91%. Seedrs states that the British Venture Capital Association (BVCA) claims a ten-year horizon return of 17% to 31 December 2022 for funds managed by its members.
At the same time, Seedrs says it is outperforming public equity markets compared to the FTSE’s 6.3% annualized return during the same period.
Seedrs also shares that on an individual basis, the performance of the top 10% of platform investors is higher. For investors on Seedrs who have invested in over 20 businesses, the average IRR of their portfolio is above a whopping 45.5% on a tax-adjusted basis.
In regard to taxes, the UK has decided to support entrepreneurs and innovation with several unique tax programs. The two that are widely utilized on investment crowdfunding platforms are EIS and SEIS or Enterprise Investment Scheme and Seed Enterprise Investment Scheme. Both of these programs deliver substantial benefits to investors, mitigating risk while encouraging the support of young firms. This is good for the UK economy.
Seedrs Managing Director Kirsty Grant reflected on her company’s performance, stating early stage, private equity is a compelling asset class. What Seedrs has enabled is an expansion of access to this asset class – more investors may now participate in private securities offerings – a segment of finance previously only accessible to the very wealthy.
Grant said that in 2023, “it could not be easier to invest in some of Europe’s most innovative companies right from the start. Seedrs, alongside our peers in the market, have been instrumental in this process, democratizing private investing by working tirelessly to give individuals the opportunity to share in the success of businesses they believe in.”
Grant pointed to the “undeniable quality of the businesses” offered on Seedrs, including some very recognizable brands.
“Seedrs is a two sided marketplace where we empower our investors to make active choices in the market and have full agency over their portfolio. We are not advisors but facilitators, connecting exciting founders with ambitious investors,” Grant said.
Seedrs operates one of the most effective Secondary Markets for private securities – allowing for an exit/entry for investors beyond an IPO or acquisition.
In a statement distributed by Seedrs, the platform highlighted certain characteristics of the platform and its performance as of 12.31.22. Seedrs noted:
- Only 1% of issuers the company sees end up raising money on Seedrs
- Seedrs boasts a funding success rate of 80% (measured during the last 2 years)
- 284 companies successfully raised money on Seedrs in 2021, the most issuers in a given year.
- There are 18 companies that raised money on Seedrs that are now worth more than £100 million.
- One company that raised money on Seedrs is now a Unicorn – Revolut.
- Fintech (Finance and Payments) is the top sector raising 31% of all funds raised.
- 80% of campaigns have been eligible for SEIS or EIS, with 65% for EIS and 15% for SEIS.
- Almost a quarter (23%) of the offerings have female founders.
- 56 companies have generated exits or “exit opportunities.” Many of these have generated a loss for investors.
- 21% of firms have failed or were in the process of winding down
While the report is not perfect, all private markets, anywhere, have characteristics that differ from public markets. Valuations are based on share prices, largely from the Secondary Market. But this is probably a superior method to “VC math” when valuing a firm. Some of the shares listed on the Secondary Marketplace have generated impressive returns based on the listed share price.
At the same time, investing in private securities is not for the impatient nor risk-averse, and returns can take a long time to materialize – if at all. Similar to venture capital, much of the gains may be attributed to a small percentage of the firms in the portfolio, with many firms going bust or just bouncing along.
While Seedrs has firmly established itself as a top digital marketplace for private securities, it still has a lot of runway in regard to innovation and services provided for both investors and issuers. As it is now part of the Republic family of companies and recently approved to offer securities under ECSPR across all EU countries, Seedrs is well-positioned to raise capital and sell securities globally.
The report is a laudable effort in transparency that should be replicated by all investment crowdfunding platforms everywhere.
If you are interested, you may visit the Seedrs website to download a copy of the report.