As the financial centre of Europe, London has become the recent point of blame for much of the financial crises. While the government is protecting its major financial institutions much like the U.S., the UK government is also taking a very progressive step forward with new legislation for alternative solutions.
The most fascinating development creating a buzz has been the legalization of crowd-investing. As we mentioned in our blog on Spain, where MegaFounder intended to create a Spanish crowd investing platform but remained inhibited by regulations. In fact, most countries do not permit crowd-investing due to investor security regulations, and here in Canada we at Surge have been actively involved with local groups engaging and petitioning government to create a legal framework. While progress remains slow, UK platforms are already up and running.
There are two companies in London leading the emerging industry: Seedrs and Crowdcube.
Seedrs, officially launched after Crowdcube, but emerged as the only regulator-approved crowdinvestment platform in the world. The company spent years working alongside regulators before their launch to ensure investor confidence in the integrity of their service. After meeting their CEO, Jeff Lynn, we gained insight into their strategy and learned of the company’s dedication to putting investor security as their top priority. With a legal and financial security background, Jeff Lynn sees Seedrs as a potential billion dollar company, but insists that patience is necessary when diligently growing a financial organization. As a means of aligning itself with its investors, Seedrs takes roughly half of its commission in the form of shares in the company raising capital. In order to protect themselves and their shareholders they also act as a trustee on behalf of investors as a means of protecting the multitude of investors with a united presence. As a result, investors can feel more confident in their investment knowing that Seedrs remains committed to the investment as an additional watchdog.
While Crowdcube is operating within a regulatory loop-hole there remains scepticism as to whether regulators could shut down their activity at any moment. CrowdCube also structures deals for its investors, such that they receive non-voting shares in exchange for equity. Not only do the investors not have a vote in the company with their small amount of shares, but post-investment Crowdcube takes its commission and holds no further responsibility for the deal. As a result, CrowdCube’s incentive is in structuring deals, not ensuring their long-term prosperity. The primary issue we see with this policy is the exposure non-voting shareholders have to further financing rounds diluting their equity.
Upon meeting Jeff Lynn the first time, we took up his recommendation on attending the Windows of Opportunity speaking series. Windows of Opportunity was a government sponsored speaking series led by Doug Richards, one of the original dragons from UK’s Dragon’s Den. The series was devised to offer entrepreneurs insight and education into methods of raising capital, and was the most informative and well versed panel I’ve attended. Each panelist was at the forefront of their industry and a number of them represented emerging alternative platforms. Aside from Seedrs, the most notable solution was PlatformBlack which offers individuals the ability to provide short-term loans to companies with P.O.s or temporarily high accounts receivables. With banks offering all-time low rates for savers, yet very high rates to borrowers, PlatformBlack has positioned itself as a win-win solution matching borrowers and lenders of business loans. Thus far they have been very successful as, according to executive Louise Beaumont, the platform had yet to have a loan default.
For us at Surge, the online financial services and crowd technologies represent the beginning of a fundamental shift across traditional industries. Whether you are wanting to create the next platform or jump in as an active participant, drop us an email and we’d be glad to offer our thoughts.
I also encourage you to visit: Crowdinvesting Info