A British firm plans a secondary market for crowd-funded shares
An obstacle to crowd-funding is that investors have to wait so long to sell their shares
EVERYONE would like a piece of the next Google or Facebook. But the big venture-capital (VC) firms do not usually raise money from small investors. And some entrepreneurs complain that it is hard to get noticed by the hotshots in the VC industry. Hence the enthusiasm for crowd-funding, where small investors can buy a stake in startup companies.
Seedrs, a British crowd-funding firm, was set up in 2012, and has backed 500 firms so far, raising a total of £210m ($271m) from more than 200,000 users. But there are two big problems with crowd-funding. First, it is risky: most startups fail. Second, investments tend to be illiquid—shareholders have to wait for a takeover or a stockmarket flotation to recoup their investment.
Seedrs is trying to solve the illiquidity problem by setting up a secondary market, where buyers and sellers can exchange shares. The new market will start operating this summer, and will allow trading for a week every month, starting on the first Tuesday. The price at which investors can deal will be set by Seedrs itself, based on a valuation mechanism in line with industry guidelines. But there are some restrictions: only current investors in a firm will be allowed to buy shares. And, to the extent that investors make a profit, Seedrs takes a 7.5% cut of the gains.
Crowd-funding might be even more attractive if investors could at a click assemble a diversified portfolio of small stakes in 20-30 companies rather than just one—just as those who put money into peer-to-peer lending can spread their risk across a range of borrowers. The next challenge will be to build on early efforts to offer the same to investors in shares: ie, mutual funds for crowd-funded startups.
Seedrs, a British crowd-funding firm, was set up in 2012, and has backed 500 firms so far, raising a total of £210m ($271m) from more than 200,000 users. But there are two big problems with crowd-funding. First, it is risky: most startups fail. Second, investments tend to be illiquid—shareholders have to wait for a takeover or a stockmarket flotation to recoup their investment.
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Crowd-funding might be even more attractive if investors could at a click assemble a diversified portfolio of small stakes in 20-30 companies rather than just one—just as those who put money into peer-to-peer lending can spread their risk across a range of borrowers. The next challenge will be to build on early efforts to offer the same to investors in shares: ie, mutual funds for crowd-funded startups.
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