Seedrs Secondary Market: Advance cash flow for the crowd investing platform

The platform describes it as a “revolutionary secondary market”. Seedrs their area in which company shares of startups can be traded between investors. Last week I smiled at the advertising statement. But the blog post by Joel von Seedrs May 2020 secondary market opened my eyes. Now I know that the secondary market is literal revolutionary for Seedrs is. Later more.

For one thing, I've grown up a long time Seedrsfan and have mainly been using this platform for my crowd investments for the past five years. One of my largest financial investments is the platform itself. I have a four-digit stake in the startup Seedrs. And the May secondary market statistics were eye-opening: a total of £1.27MM worth of shares changed hands in one week. Of this, the startup Revolut (British challenger bank) accounts for a trading volume of £969k. Revolut recently had a new round of funding. During the round (according to the rules of Seedrs) the shares of the startup are always temporarily blocked for the secondary market. The financing round has been completed; So Revolut was allowed to be traded again for the first time in the May market - and investors got a lot of money.

Seedrs has cleverly created its own fee structure on its platform. If a startup increases in value, Seedrs receives a fee (carry fee) of 7.5% on the increase in value in the event of an exit (company sale to a new investor/owner). This ensures that Seedrs and the investor have identical interests. Seedrs knows they benefit when their investors make profits. And as an investor, I can sleep peacefully because I know that Seedrs, as my 'nominee' (my representative who holds the shares for me), will make profitable decisions for me as an investor in case of doubt, because they themselves will also benefit from it. The introduction of the secondary market has meant that Seedrs can also realize these carry fees without an exit or in some cases years earlier. If shares are sold on the secondary market at a profit, the seller pays the 7.5% carry fee on this profit – even without an exit. And Seedrs generates profits much earlier, generating a positive cash flow effect that can support further growth of the platform. Seedrs can also realize carry fees for secondary market sales if the startup may never manage to exit or go bankrupt after a significant increase in value. Because with every trade in shares that an investor sells at a profit, Seedrs irrevocably receives the carry on that portion of the seller's profit.

Now back to the magic of the May Secondary Market:
First of all, I have not researched the exact current value and the startup value of Revolut in your first round of financing, so the following fictitious numbers. It should be noted that the multiple 11x used in the example for the increase in company value is realistic for the particularly well-performing startups over many years - but only a small proportion of startups is successful and manages to do so.

Suppose Revolut was worth 100MM on Seedrs in the first round of financing and has now increased its own company value elevenfold over the years, i.e. increased by a factor of 10, to 1.1 billion. In May 2020 alone, a total of 969k was traded on the secondary market, which corresponded to 88k at the time of the original investment. 881k investor profits on which Seedrs receives 7.5%, so 66k fees. A realized win for Seedrs of £66k! These assumptions apply if the value of Revolut has really increased elevenfold, all these shares were originally purchased by investors cheaper by a factor of 11 and Seedrs had not yet received any carry (for an earlier partial increase in value) for these shares via the secondary market . In 2018, Seedrs still made a loss of £4.3MM as a company. That's a welcome contrast in a single secondary market of £66k profit. Periods of such gains would significantly help the platform's profitability.

In addition, from June 2020 Seedrs will charge a total of 3% fees on the trading volume from the secondary market: Buyers and sellers each have to pay 1.5% as a fee per transaction. As a crowd investor, that hurts a bit – but when there are good opportunities, I will continue to buy and sell on the secondary market and realize profits. The opportunities are just too good to turn your back on the secondary market. With a fictitious trading volume of 1MM per month (already surpassed in May), that's another 30k monthly fees for Seedrs. These numbers show how the secondary market could become one of Seedrs' most important monetization features.

What does the future hold for the secondary market?
On the platform you can always read announcements about further developments:

  • Placing additional shares in the secondary market while it is already open (scheduled for June 2020)
  • Partial purchases/ splits of large share lots
  • Private exchange of shares between investors without using the secondary market (thus possibly also trading shares that are currently 'ineligible')
  • Market365, pre-reserve shares at any time, with execution at the next market open
  • Connection of companies / shares that were financed from other sources (e.g. other crowd investing platforms or employee share packages from startups)
  • Dynamic pricing like stocks or the ability to bid on share lots

The pipeline of useful additions is long and can be very profitable for Seedrs. My guess is that the strong focus on these features is because Seedrs has also recognized that they can make themselves indispensable with the best / only secondary market as a central part of the financing ecosystem for startups.

Outlook secondary market June 2020
For June, the listed Revolut shares indicate that there could be a new record, because the listed Revolut shares for June have already exceeded the May value. If the markets continue to follow this pattern from July, Seedrs could quickly turn around 100k profit per secondary market (see above, 66k + 30k).


I have been investing in startups since 2014. In recent years, my portfolio has grown to over 150 investments of various sizes. On my blog I regularly report about crowd investing and my investments.

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