Who can invest through Seedrs?
Seedrs is open to individual investors, aged 18 or over, resident in certain jurisdictions, as well as institutional investors incorporated in these countries. If you are based outside of an accepted jurisdiction, you are welcome to join Seedrs as a member, but you will not be able to invest through us just yet (unless you have a direct connection to a business currently raising investment).
In addition, you must also become “authorised” in order to invest through Seedrs. To do this, if you reside in the UK or Europe, you can choose to either complete our short Investment Authorisation Questionnaire, or you may choose to self-certify as a “high net worth individual/institution” or a “sophisticated investor”. If you reside in an accepted jurisdiction outside of the UK or Europe, you will need to self-certify as an accredited investor in your local jurisdiction. This process is intended to show us that you have the judgment and understanding to appreciate the risks involved in investing in private companies.
Campaign due diligence
When a business submits an investment campaign to us, we conduct a comprehensive review process to ensure that everything they say is fair, clear and not misleading, and we only allow the campaign to go live if we’re satisfied with that review. Then, once a campaign has hit its target, we conduct a detailed legal due diligence process to ensure that the company is properly formed and that the investment is properly structured. This process can take a couple of weeks to a few months depending on the age and structure of the investee business. If we’re not happy with the outcome of that due diligence, we will cancel the investment and return your money to each investor. You can read more about this process in our Due Diligence Charter.
Does Seedrs advise on which businesses to invest in?
No. While our role is to ensure that the company “is what it says on the tin”, we generally do not make our own judgements about whether it’s a good business. We believe that a large number of small investors are better suited to assess the business’s prospects than a few professional managers. That said, our investment and review team does curate the platform, and we will not allow campaigns to go live if we believe the business is doing something illegal or unethical or if we just don’t think it is likely to be appealing to investors.
What am I getting for an investment?
When you invest through Seedrs, you are investing in the company’s equity. Usually this will be ordinary shares (also called common stock or A shares) and will represent the same type of equity that the company’s founders and other early-stage investors receive. We believe that all investors – regardless of the size of their investment – should receive the same type of shares.
The exact structure of the equity you receive depends on which of the three types of campaigns you invest in. For regular Equity campaigns, you will receive the shares of the company in which you invested. For Fund campaigns, you will receive the shares of multiple companies either directly or through an intermediate entity (such as a limited partnership). Meanwhile, for Convertible campaigns, you will receive the shares of the company in which you invested, but you will get them at a later date, usually at a discount.
One of the challenges of equity crowdfunding (like Seedrs) is that having lots of individual shareholders can cause significant problems both for the company and for the investors down the road. To avoid these, we use a common structure called a nominee (a form of trustee) to hold your shares. This means that Seedrs acts as legal shareholder on your behalf, but that you are the beneficial owner of the shares with full economic interest in them.
To learn more about how the nominee structure works and why it is vital when investing in early-stage and growth-focused businesses through equity crowdfunding, see this blog post. If you’d prefer to hold your shares directly instead of through the nominee structure, you can do so under certain circumstances.
As your nominee, we enter into a subscription agreement with businesses before completing every investment. This contract, which is similar to the type of agreement that angels and venture capitalists enter into when they invest, provides you (and us) with a number of rights and protections. Unlike articles of association, this contract cannot simply be amended by entrepreneurs without consent from investors. This contract ensures that each investor receives the same rights and protections, regardless of their size, and means that investors get to share in the success of the businesses they believe in.
While each subscription agreement may be slightly different, it will generally include things like a requirement that the company provide information to investors on a regular basis (known as information covenants), a requirement that if the company is sold the investors are able to sell their interests alongside the founder (known as tag-along rights), anti-dilution rights which mean that investors are offered the chance to maintain their percentage shareholding in future rounds, and a number of other provisions.
In addition to the contractual protections, all shares issued through Seedrs are voting shares. In practice, however, the contract tends to matter more than shareholder votes, as the Seedrs investment will likely represent a small minority proportion of the overall shares of the company.