Opening up private investment to a wider pool
The secondary market, venture capital (VC) funds and alternative asset classes are now more accessible than they have ever been
Private investment is big business. In Europe alone, there is £200bn in assets under management in private companies in the early to growth and pre-public IPO stage.
Driving that growth is the proliferation of startups, with 3,000 UK businesses every year seeking investment in the seed and growth stage. That growth, in turn, is being fuelled by the current adverse economic and inflationary conditions, prompting firms to try to secure more funding and investors to seek out better returns.
Added to this, companies are staying private for longer in order to try to realise greater returns. For example, in the technology sector in 2020, on average, firms went public after 12 years, up from four-and-a-half years in 1999, according to industry estimates.
At the same time, private equity firms are looking to deploy their institutional capital. The problem, however, is that much of this capital is tied up in illiquid assets and doesn’t have anywhere where it can be traded, except with other institutional investors
As a result, the Seedrs secondary market is quickly gaining popularity as it enables more people that didn’t previously have access to invest in private companies. That’s evidenced by the fact that there have been 52,600 sell orders worth £20.9m in the secondary market to date. That amounts to £550,000 worth of shares traded per month in the last 12 months.
Added to that, there has been a 32% increase in sellers listing share lots in the last 12 months. Over the same period, there was a 27% rise in share lots listed.
These share lots can produce huge returns. For example, one seller made a £21,000 profit from selling their Revolut shares in less than an hour – the highest margin achieved for a single share lot. In context, the average profit per seller was £513.
Company listings on the secondary market have also soared by an average of 301 in the last 12 months. Concurrently, there has been a 61% increase in the total value of firms listed. Reflecting this, 12 of the businesses listed have a valuation greater than £100m, including Revolut, Paysend, BUX and Perkbox.
“There are many different segments of the market,” says Jeff Kelisky, CEO of Seedrs. “There are the early adopters and angel investors who are prepared to take high risks, who will seek to get out when the company reaches a certain maturity and sell to investors who want a safer investment.”
Another growing trend is investment in VC funds. That growth is being driven by VCs’ ability to tap into high-end wealthy investors looking to invest in private companies because of the returns they can achieve relative to the stock market.
In this vein, VCs are seeking to make it easier for investors to come on board. Thus, they are taking on a smaller number of big-ticket investors, namely retail and ultra-high-net-worth investors.
VCs are also increasingly opening up to crowdfunding. A prime example of this is Passion Capital, which recently sought crowdfunding for one of its mature funds. Such was the demand, it had to double its share allocation, which then sold out in 20 minutes.
Among the investment sectors most in demand currently are fintech, food and beverage, sustainability, software as a service and wealth management. As people become more concerned about climate change and bring their lives online, that trend will only continue.
Moving forward, investors are increasingly looking to get into alternative asset classes as an affordable way to own a share of something that was previously out of their reach. Among the most popular are cryptocurrency, art and real estate.
“There are a growing number of asset classes that are being made available to a wider group of people,” says Kelisky. “Cryptocurrency is one such asset that investors are increasingly attracted to because of the returns they are able to achieve or the wider applications it can be used for, such as in providing cheaper insurance through the use of blockchain automation.”
One of the biggest regions for potential growth is North America, with private equity, private debt and real estate expected to account for more than £1tn in assets under management by 2026, according to Preqin. Leading the way here is New York City-based global financial technology firm Republic, which recently acquired Seedrs, and has deployed more than £1.3bn in investments and supported in excess of 600 companies, with 2.5 million users across more than 150 countries.
Republic has hosted 12 regulation crowdfunding campaigns worth £4m each, as well as 22 real estate deals. It also supports more than 50 cryptocurrency clients, guiding projects from seed to liquidity, in addition to operating early and growth-stage institutional cryptocurrency funds.
Seedrs launched initially in 2011 with a crowdfunding platform, helping companies find the capital they need to grow and enabling retail investors to invest directly in start ups and scale ups. Then in 2017 it established a secondary market – one of the first of its kind – where investors can invest in, set the price of and trade out their shares, allowing investors to realise returns ahead of a public offering.
Around 200 businesses currently trade their shares on the market every month. They are exclusively companies that have raised capital with Seedrs and include small retail and technology firms, and even big players such as Revolut.
Seedrs has also helped no fewer than 28 VC funds raise capital between 2013 and 2022, including JamJar (£102.1m), Passion Capital and Seedcamp. Five more are set to go live soon.
“Essentially, we are doing for investors what Uber did for taxis, by bringing all of these investments into one place where it’s accessible for all,” says Kelisky.
The performance figures in this article refer to the past and past performance is not a reliable
indicator of future results. Approved by Seedrs. Capital at risk
For more information about Seedrs and private company, secondary market and VC fund investment, visit seedrs.com
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