Antony is a Business Development Manager responsible Europe at Seedrs, leading pan-European equity crowdfunding platform.
As a leading crowdfunding investor, could you see any change in investments because of COVID? Does it have a short-term impact or will its effects stay for a long time?
At Seedrs we syndicate investment into about 250 startups a year. Those startups range from Pre-seed to Series B stages, operate from across many EEA countries, and provide products and services in a wide range of industries. This gives us a good overview of industry trends as well as provides a lot of insights not seen from the outside. COVID-19 world is a new reality for startups and investors to which all of them have to adopt. The first wave has brought a lot of uncertainty in the industry and many deals were put on pause by business angels and institutional investors. Some of them still remain very reserved in their investments until now. Interestingly, crowdfunding has proven to be a very stable model for these turbulent times. We have seen a slight drop (for about 2 weeks) in platform investment activity back in March, which has returned to its normal level already in April and has been very strong since then. We also observe that more investors and startups choose convertible over equity rounds given the uncertainty and possible negative impact on valuations during the Corona crisis. Some of the verticals are affected a lot more (travel, for example) and have a lot less investment activity, while other sectors (food delivery, remote work) have seen solid levels of investment to quickly tackle growth opportunities provided by external conditions. These trends likely to remain this way until summer 2021 when the world hopefully comes back to “normal”. Some of the changes are here to stay (more meetings between investors and startups will be done via video calls rather than face to face), some will change (industries that are currently affected with start showing growth again and will again win on investment attractiveness).
What is the motivation behind private investors who are more likely to go for an investment towards any startups?
The world of investment is very diverse. Every private investor has a wide range of assets to choose from for his/her portfolio. It’s often about building a diversified portfolio of investments with different risk/return ratio. Venture investment is known to be a very high risk, but also very high return field. As statistically looking, usually only 1 out of 10 startups in an investment portfolio would bring outstanding returns with a good multiple that covers all other “less successful” investments with a profit on top. With this being said, most of the startup investors look for high return potential. This is the primary reason for investing in this asset class. Some of the additional (less important) factors may include supporting innovation or a certain cause (eg. sustainability) or having a personal connection with the startup founders. In equity crowdfunding return potential plays a major role for investors as well. But in addition to that, the emotional component is an important factor in investment decisions by retail investors. They would not only want to see great return potential, but often would want to associate themselves with the company or a brand or are already their existing customers and supporters.
Are there any segments in the future that will boost startup funding?
There are two areas that are on the rise in the startup world and what will continue with this steady growth in the future. Sustainability and climate change are one of them. This topic is on the agenda of the European Commission and more and more startup support and financing programs are appearing on that level. In the professional investment field, multiple impact-driven venture funds are emerging across European countries and sustainability is one of the areas where these funds are deploying their capital. Needless to say, general society is becoming more conscious and aware of climate change, which leads to increased interest of the private investor community in investing in this field. Sustainable startups have been the top growing vertical on Seedrs this year – which very well reflects the trend among retail investors. The second category is A.I. startups. A.i.-specialized startups have already raised record-breaking sums of investment last year from institutional and private investors. This trend will remain and strengthen within the next years.
Does the internationalization of investors impact early-stage startups who are looking for funding?
More investors deploying capital cross-border is definitely a positive trend for startups. Given the overall tendency to globalization as well as technological advances (video conferencing, digital signatures, etc.) it is becoming much easier for investors to find investment targets in other countries as well as for the startups to find investment abroad. Many business angel clubs are expanding their investment activities from the country of origin to the bordering region (Nordics, DACH) or even larger region (CEE). Retail investors are also investing more in foreign startups as geographical diversification is increasingly becoming one of the ways to diversify investments remaining in one vertical where one has the expertise.
What do you think about the future of crowdfunding? Are there any new forms of crowdfunding?
On the top level, there are 4 main areas of crowdfunding. Rewards-based (Kickstarter, Indiegogo). Raising relatively small amounts from backers who want to receive a certain perk, pre-purchase a product, or support company development. Works for product-based startups. Equity crowdfunding (Seedrs) where startups raise growth capital from a large number of retail investors. High risk/high return area. Works well for scalable businesses with high growth potential. Debt-based (Mintos). Later stage startups and businesses borrowing money from a number of lenders. Medium to low risk/return. Works for business with an established track record. Donation-based (GofundMe). Collecting funds from a number of people for a certain cause or a social project. Fits for NGOs and social projects. All of these 4 main forms of crowdfunding are projected to continue growing in popularity. There is a high degree of familiarity and acceptance of all these forms of crowdfunding among a wider audience in Europe, even though some of the markets are much more developed (the UK for example). Looking into the future, additional innovations (like a secondary market on equity crowdfunding platforms) will continue driving interest in this method of funding for both companies as well as funders.
Can you deep dive a little into the topic of secondary sales?
Seedrs has been a pioneer in the field by launching the UK's first fully functioning private equity secondary market back in 2017. The initial idea was to allow retail investors who have invested through Seedrs to sell and buy shares providing for early liquidity. In September 2020 we have gone further and opened up the secondary market to all private businesses, allowing startups, founders, employees, and investors to realize secondary liquidity by offering it to “the crowd”. The main difference between primary and secondary offering is that a secondary sale offers equity from existing shareholders while through primary offering equity is issued by the company by issuing new shares. It’s an exciting development for all startups and early investors. Especially given current conditions where startups have to remain private for a longer period. Increasing demand for secondaries is not a European development, but rather a global trend, partly driven by the consolidation of private equity service providers in the US and across other markets.
Last question on the topic of DigiWhat: What is the biggest issue for matchmaking between investors, customers, and startups?
It is always about finding the best match with the least amount of recourses spent. And the most valuable resource in our industry is time. This means less time is spent on finding the right investment deal or the right investor, more time one can spend on running and growing the business or supporting portfolio startups. It’s possible that A.I. will become a helpful tool in this matchmaking process in the future.