Seedrs and Crowdcube are the two leading crowdfunding platforms for investing in startups or growth stage businesses. Between them, £2 billion has been invested since 2011 and they have secured investment for brands like BrewDog, Revolut, Perkbox and most recently what3words and Moneybox.
Both crowdfunding giants agreed to merge in late 2020 / early 2021 and have signalled that this is intended to combine the strengths of both businesses and create the world’s largest private equity marketplace.
The most obvious reason might be cost saving – neither company is profitable and combining their platforms will create substantial economies of scale for the companies.
Customer experience is also a key part of the narrative. Arguably, a single platform simplifies the landscape for investors currently using both platforms.
But possibly more critical to the merger is that Seedrs and Crowdcube are currently distinct offerings with different styles and capabilities. Combining their features could amount to an offer that is greater than the sum of its parts.
In particular, Seedrs’ small but successful secondary marketplace offers some liquidity to investors - something that Crowdcube has not managed to provide. So this is good news for Crowdcube investors, assuming they can access it following the merger. Certainly both companies have made clear that creating additional liquidity investors in startups is something they want to work on together as they merge.
And then, there are the advantages of simply being bigger. A larger platform is likely to create considerable buzz, and attract investors and businesses that might not have previously been possible.
What does this mean for Crowdcube and Seedrs investors?
First off, nothing changes just yet. The merger remains subject to a number of approvals and this is expected to take months. So don’t worry if you have just invested (or are about to) – you can still access investments and services as normal.
The companies have promised that once the transaction is complete, they will set out how the two businesses will combine services and technology. And what’s more, customers can expect new products and services too - but as yet there are no details available on what they may be.
Right now, Crowdcube investors have to hold shares until the company exits or goes bust. But the merger with Seedrs may open up the prospect of trading shares. If you currently invest in a company on Crowdcube, you are going to want to watch carefully to see whether you get the opportunity to do this.
Getting the merger right for all of their customers could be tricky. The merged company is dealing with investors that a) had no say in the merger and b) chose their platform on the basis of its distinctness to the very company that it is now merging with.
Undoubtedly, there will be challenges, but equally there are clear benefits, to both companies and investors, if they succeed in gaining higher prominence for their platform.
If you have invested in Money Dashboard through Crowdcube, you are probably wondering what the merger means for you. We have asked Crowdcube and this is what they said:
“The merger will not have any impact on the shareholders who invested through Crowdcube’s nominee service in Money Dashboard, and the nominee terms Money Dashboard has already agreed with Crowdcube will not be changed.”
Will the Crowdcube and Seedrs merger reduce competition?
Crowdfunding platforms often talk about the ‘democratisation’ of finance. But does a merger of two large companies like Seedrs and Crowdcube actually undo that? Probably not. There is already good competition from the likes of Envestry, Invesdor and Funderbeam. And, there are still plenty of other options in traditional and alternative finance.
If anything, the merger may help validate alternative finance models, and encourage competitors.
One further reality check is that the merged company will represent only 2% of the market for private company investing. So, it is still small in the grand scheme of things. Seedrs and Crowdcube lose plenty of companies to traditional VCs and funds, so across the entire ecosystem this may help them to gain a little market share.
If you are looking at investing, crowdfunding is an innovative way of accessing investment opportunities. Don’t let the merger put you off, but be aware that the nature of the services could change in the next few months.
If you are considering whether you can afford to get involved in crowdfunding startups, check out services like Money Dashboard to work out how much you could spend and to help you save for investment.