Seedrs set for secondary market as investors demand crowdfund trading evolution

Equity crowdfunding platform Seedrs is preparing to launch a secondary market which is due to go live by this summer and will allow investors to trade shares in growing businesses before they go public.

The market, which will form part of the Seedrs platform, will enable investors who have shares held under the Seedrs nominee to buy and sell shares from and to each other, with investors in Seedrs-funded companies given the opportunity to increase their stakes by buying shares from those sellers.

CEO and co-founder of Seedrs Jeff Lynn said: “Until now, the shares investors purchase have been very difficult to trade, meaning that they need to wait for an exit event such as an IPO or a sale of the business.”

Mr Lynn said the move to open a secondary market was in response calls from its users who felt the current situation was too restrictive.

“When are you going to launch a secondary market?” is probably the question I’ve been asked more than any other since founding Seedrs, he said.

“It’s a good question and one which we’ve been working on for some time. Our core model, which allows businesses to raise new capital from investors, and investors to subscribe for newly-issued shares in those businesses, is a classic primary market. So facilitating trading in those shares through a secondary market is a natural next step.

“At the same time, running a secondary market for private company shares is far from trivial. It requires a critical mass of companies and investors, and it also takes a lot of thought to ensure that the right structures are in place so that the market functions well for everyone.”

Mr Lynn went on: “With nearly 500 deals funded and hundreds of thousands of users, we now have the scale that makes a secondary market worthwhile. And, with so many people to provide feedback, it’s enabled us to design a product that serves the needs of the entire Seedrs Community.

“But most importantly, we listened to our users. Over the past few months, we’ve seen an increase in the number of investors offering to buy and sell shares on a secondary basis through the discussion forums on our post-investment pages. That showed us that there is clearly a demand for secondary trading.

“It’s also clear that trading shares via a discussion board is clunky and inefficient. So we decided we would look to meet the demand by creating a proper secondary market product that is simple and easy to use.”

Once live, beginning on the first Tuesday of every month, Seedrs’ new market will be open for one week. During this time, investors will be able to buy and sell shares from each other.

The trades will take place “under the nominee”. This means a nominee company will continue to be the legal shareholder of the shares, but instead of holding them on behalf of the seller, the nominee will now hold them on behalf of the buyer.

But its Secondary Market is not just about investors, the firm said.

It also aims to advantage companies that have already raised capital through Seedrs but have found themselves under less pressure to deliver an early (and possibly premature) exit for their investors. It is hoped that the Seedrs Secondary Market will provide investors in those firms with another possible route to liquidity.

Mr Lynn explained that, “companies who are considering raising money through Seedrs will benefit from an expected increase in available capital, as more investors are attracted to this asset class due to the prospect of secondary trading.”

More information on the launching of the Seedrs Secondary Market and how it will work can be found here.