Seedrs Review Introduction
I have been a member of the Seedrs community for four or five years now, and over that time I have gained plenty of experience of how the platform works, what investments are available, and the potential returns, whether they are positive or even negative in some circumstances. Therefore, I am very well placed to write a Seedrs review.
In short, the Seedrs platform provides you with an opportunity to act like a dragon from Dragons Den, insofar as you are able to review the pitches from budding entrepreneurs either by way of document presentations such as PDFs and word docs and even video content. This allows you to assess the prospects of the business succeeding, and ultimately making your own decision based on the information you have read as to whether you are prepared to invest your own cash into somebody else’s business.
Just like on Dragons Den, some of these businesses will not succeed, some will do nothing for a number of years, some will collapse after a short period of time, and then some if you're lucky will do really really well and make the whole journey worthwhile. I will discuss my successes and failures with Seedrs in the coming paragraphs.
What is Seedrs?
Seedrs is a Peer to Peer (P2P) or crowdfunding platform that specialises in equity crowdfunding. They simply facilitate the investments between the businesses and investors via their platform and IT infrastructure.
Many P2P platforms deal with loans and lending money to businesses and individuals, but Seedrs takes this one step further by providing equity crowdfunding opportunities, whereby you are actually investing in the business by buying shares in an otherwise unlisted company.
Each deal will be different, but as an example a new company may offer 10% of its equity for £100,000 investment. Then any number of individual members can choose to buy anything from £10 worth of stock up to £100,000 worth of stock in that particular fundraise. In reality, it may be nearer 1000 individuals invest £100 each, hence the crowdfunding aspect!
Seedrs is the one of the oldest P2P platforms still operating, and was founded in circa 2012. They were due to merge with Crowdcube, but this has recently fallen through for one reason or another.
Seedrs used the platform to raise funds for itself, and raised circa £1m from private investors, businessmen and venture capital firms. They are based in London and are authorised and regulated by the Financial Conduct Authority (FCA), which should provide some comfort to investors.
As you can imagine, investing in new start-ups and new businesses is a long-term strategy. However, Seedrs has quite recently introduced a very useful feature by providing a secondary market for trading shares, thus providing some liquidity to an otherwise very illiquid market.
This feature has gone down well with the investing community, and allows an early exit if you really need one for any reason.
Can you make money on Seedrs?
In simple terms, absolutely yes, you can make money on Seedrs and there is the ability to make a lot of money from Seedrs, if you choose the right business to invest in.
By way of an example, a business I invested in some years ago called SENTA, recently announced they had been acquired by another business. The upshot of this sale was that the original Seedrs investors earned a return of 120x their initial investment. So those fortunate enough to have invested £1,000 just a few years ago, would have had a £120,000 return on capital payday. Not a bad investment at all.
I'm quite sure not all investment returns are as good as that noted above, and others are more likely to be in the region of 10 to 30 times investment, but even so, this is a great result and with the odd extraordinary result, certainly makes this investment class worthy of serious consideration for sophisticated investors.
Can you lose money on Seedrs?
Unsurprisingly the answer to this question is a yes. You cannot have significant rewards without the risk of significant losses. When you invest in small start-up companies, you must be prepared for either a significant loss of investment or a total loss of investment.
I have had a number of investments that were hit quite hard by the COVID pandemic lockdown, and a few of them went into liquidation, thus resulting in a total loss for investors.
One such investment I can remember is a small café / restaurant chain in London called Tart, which at the time looked like a really nice bespoke venue catering for a specific niche of customers. They were doing really well and we're looking to open a another branch, then Covid struck, with no income and continual outgoing costs the business eventually called it a day and collapsed. Myself and my fellow investors will not see a penny from our investments in that business, but your losses are capped at your total investment less any tax relief you can claim back.
The above is a good example of why you should diversify your investments if you do become a Seedrs investor, and not to put too much money in any particular business. Diversify across a fair number of businesses to mitigate your risk. At this moment in time, I have 39 live businesses I am currently invested in.
How do Seedrs make money?
Seedrs make their money by charging a fee on the funds raised via the platform to the business owners. They also charge a back-end fee of 7.5% on investors successful exists.
Special offer for signing up to Seedrs
Seedrs are currently offering an incentive for new customers to sign up. You will get £25 investment credit when you open and invest £150 in your first 30 days.
For more information on this offer click through to the Seedrs offer here.
Seedrs Tax advantages
There are three potential tax relief advantages of investing in early-stage businesses via the Seedrs platform.
1. Upfront tax relief on EIS (enterprise investment scheme) @ 30%
2. Upfront tax relief on SEIS (Seed enterprise investment scheme) @ 50%
3. Loss relief at your marginal rate if you lose your investment.
Seedrs Review Pro’s
1. Tax relief: As noted above there are some generous reliefs for investing in early-stage businesses via EIS and SEIS. This helps reduce the downside risk.
2. Diversified asset class: As an additional asset class to your portfolio, not linked to the wider stock markets, gold or oil price.
3. Helping new business: You are directly supporting new start-up business which is great for them and the country.
4. Fees only paid on profits: There is no charge for joining Seedrs, with investors only facing fees if they sell an investment at a profit.
5. Huge potential: Investing in very early-stage companies gives a greater upside than standard investments.
Seedrs Review Con’s
1. Potential for total loss: Investing in start-ups is very risky, and if you have a broad portfolio, it is likely at least one of your investments will fail, resulting in a total loss.
2. Volatile asset class: Your investment can swing from hero to zero in short order.
3. Further share dilutions are possible: New start-ups will require several rounds of funding to get to profitability, and any new shares issued will dilute your overall stake, unless you take up pre-emption rights.
4. Not very liquid: Liquidity in some shares is poor. Although the secondary market is now available, that doesn’t guarantee you can sell in a hurry.
My personal Seedrs experience so far
My own personal Seedrs experience so far has been very positive. I have benefited from a very profitable exit, and I have also had the disappointment of several losses, albeit my investments were very modest fortunately, but such is the nature of the investment game.
I have become familiar with the platform, how to invest, how to read the investor pitches, and communicate with both the entrepreneurs proposing the business, and the Seedrs staff, with help available as and when required.
So all in all, a really great experience from a user’s perspective.
Seedrs review tips
1. Start with small investments, so if you lose it all, it doesn’t really matter.
2. Learn how to read the investor pitches and ask questions if you want.
3. Select at least ten potential investments you like the look of, and invest something in all of them, it doesn’t need to be much, but you can see how they develop over time, which will give you experience and confidence in the platform.
4. Try to find businesses that you have some experience in, it makes doing to DD easier.
5. Don’t invest money you need anytime soon, and only invest money you can afford to lose.
6. Don’t expect anything to happen very quickly, these businesses usually take years before anything significant happens, so patience is key.
7. Finally, ensure the business proposal has an exist strategy within the next 3-5 years. That way at least you know the owners are thinking about an exist medium term.
Seedrs Review Conclusion
So in conclusion of this Seedrs review, I think my overall experience of everything has been very positive and even good fun along the way. There have been some failures, but there have been some good successes, and overall I have made some money, but my journey is not complete yet and I have 39 other businesses waiting in the wings, and will continue investing in other businesses as they come onto the platform with ever increasing sums of cash as and when available.
So in summary, if you have some spare cash to invest and you are a sophisticated investor, then why not take a closer look at Seedrs?