Eating Its Own Caviar, UK Equity Crowdfunding Platform Seedrs To Crowd-Raise £500K As It Expands To Europe

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It doesn’t get much more meta than this. Seedrs, the UK equity-based crowdfunding platform, is listing itself on its site in a bid to crowd-raise £500,000 for international expansion.

Armchair investors who put in for a slice of the action will in total get a 8.81 percent stake. This gives the 2009-founded company a pre-money valuation of £5.175 million.

At the same time, Seedrs is announcing that it’s opening up to European investors and startups beyond the UK, giving rise to the claim of being the first “cross-border” equity crowdfunding platform. (Update: A claim that is disputed by FundedByMe.)

“National boundaries become artificial when you move online, and the notion that a Brit should only be able to invest in British startups, a German in German startups and an Estonian in Estonian startups seems silly,” says Seedrs co-founder and CEO Jeff Lynn.

“Our goal is to open startup investing as widely as we can, and a key part of that is about exposing investors to dealflow wherever it’s located, and giving startups access to capital wherever it’s located”.

However, Lynn concedes that equity-based crowdfunding platforms like Seedrs rely heavily on ‘network effects’. The deeper the pool of investors attracted to the platform, the more value that is created for entrepreneurs. Conversely, the more dealflow provided by Seedrs, the more value it creates for investors.

“We’re very much a network effects-driven business, and while the costs of expanding to some regions might outweigh the benefits of the expanded network, our starting position is to say that we want to be open to as many people as possible.

“In terms of timing, we wanted to do this expansion as soon as we felt we had proven the model well enough in the UK, and gained enough of an international reputation, that we would be well-received as we moved into further countries. We feel we have now achieved that.”

Since launching in July 2012, Seedrs has seen 49 deals struck, totalling £2.5 million in funding. From there, it’s not hard to gauge the company’s own revenues. It charges 7.5% in fees for each successful raise on its platform, as well as the same again on any (future) profits made by investors, such as via an exit or dividends.

I’m also told this amounts to 80% quarter-on-quarter revenue growth against 6% quarter-on-quarter cost growth, though without breaking out the raw numbers in terms of burn-rate, that’s fairly opaque.

So, why then turn to the crowd to fund its international expansion, not least considering the startup is already VC-backed. In early 2012 it raised a £1 million seed round from DFJ Esprit, Digital Prophets (backed by Luke Johnson and managed by the investors behind 1seed) and a number of unnamed angel investors.

“We’re raising on our own platform because we think it’s a good commercial and marketing decision,” says Lynn, adding that it would look “strange” for Seedrs to promote democratised investing but then “run off, raise our money from institutions and cut out our customers”.

In addition, just like any crowdfunding campaign, Lynn hopes it will create a large base of “mavens” and supporters. “We’d love to see 500 people – or even 1,000 – invest in us, because that would be a massive base of people who would use us, get their friends to use us and bore everyone they talk to about how great we are”.

And, of course, Lynn says it’s also a way for Seedrs to eat its own dog food. “I would of course say that we make caviar rather than dog food, but the reality is that we will learn a huge amount by going through this process about what works well in our campaigns and what doesn’t, and we’ll use that experience to improve the platform.”

That’s not say that Seedrs won’t look to another VC funding round in the future, but it would have been especially complicated to combine VC funding with crowd funding, says Lynn.

(It’s complicated enough since Seedrs will, perhaps controversially, act as nominee over the shares issued for its own crowd-funding. To avoid the conflict of interest it plans to set up a dedicated, independent non-executive committee elected by the investors to vote and take all other actions in connection with the Seedrs shares.)

“Later on, who knows? I think there are some wonderful VCs in London and across Europe, but VC isn’t the be-all and end-all of business growth; depending on how our customers and the public respond to this round, we might look to continue to grow with public capital all the way up to a listing.”