Liquidity for unlisted firms is looking up as Neil Woodford-backed Seedrs launches secondary market

 
Tracey Boles
TechCrunch Disrupt London 2014 - Day 2
Seedrs’ CEO Jeff Lynn wants to make it easier to buy and sell (Source: Getty)

Winemaker Chapel Down and accounting software firm FreeAgent are portfolio companies of Seedrs that have achieved success on the public markets. However, companies on the equity crowdfunding platform, in common with most unlisted companies, usually stay illiquid for some time, with investors unable to realise returns when they wish.

In a bid to increase liquidity, FCA-regulated Seedrs, backed by star fund manager Neil Woodford, Augmentum Capital, and Faber Ventures as well as more than 1,000 of its own customers, is launching a secondary market early this summer. It is not alone.

JP Jenkins, which says it is the oldest trading platform for unlisted securities, recently relaunched.

Read more: Seedrs is expanding further into Europe with a new Berlin office

Secondary markets, including stock markets, are where investors buy and sell securities they already own to other investors. Transactions that occur on the secondary market are so-called because they are one step removed from the primary transaction that originally created the securities, such as an IPO.

Seedrs decided to trial its secondary market after seeing strong demand from investors who had been posting offers to buy or sell shares on its post-investment pages.

Until now, shares in Seedrs’ portfolio companies 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.

Read more: How crowdfunding can solve the social care crisis

Investors will soon be able to sell shares of companies they invested in through Seedrs, thereby realising early returns. And those who want to add to their position in a Seedrs’ company will be able to buy shares. As in any market, the ability to buy or sell will depend on there being sufficient supply or demand.

There are other advantages: businesses considering raising money through Seedrs are likely to find that the prospect of secondary sales makes it easier for them to attract capital.

Tim Levene, managing partner of the company’s backer Augmentum Capital explains: “In order for the industry to truly scale, a secondary market is essential and will create a real opportunity to provide early investors with returns, and make this asset class more attractive to new investors.”

Jeff Lynn, Seedrs CEO and co-founder, says: “We now have enough investors to make it work.”

Read more: Why, as a VC, I'm embracing crowdfunding

However, Lynn acknowledges there are potential pitfalls for investors, such as finding a buyer or seller when desired.

He says: “Secondary markets are challenging to operate successfully, and we are very conscious of our obligation to provide our investors the best experience we can. That is why we are launching this product in beta form initially, so that we can observe behaviour and make improvements as we go.”

For the beta launch, Seedrs will put several key rules in place: the market will be open for trading for a week every month; shares will trade only at ”fair value”, which is the price consistent with its EY-backed valuation policy. Depending on how the market functions, Seedrs may look to expand the timing, pricing and buyer eligibility.

Meanwhile, JP Jenkins under City veteran Malcolm Burne has already signed up companies including miner Vast Resources and is in talks with 10 more. His aim is to promote the renaissance of wider share ownership.

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