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Seedrs operates a well-functioning secondary market where a premium or discount from the 'fair valuation' between -99% and +500% compared to the fair value can be chosen for the sale of startup shares.

When I choose the premium or discount at which I am willing to buy shares in companies, ignore I am aware of these premiums and discounts. A high premium is often automatically associated psychologically with 'expensive'. Likewise, some investors think that buying at a deep discount must be 'cheap'. In my view, both of these are completely wrong.

1) Fair Value/ The 'fair valuation' – starting point for the premium/discount
The fair value for each startup is determined solely according to the company valuation at which the last round of financing was carried out. This round may have just been completed or years ago. So if it's been a long time since the last round of fundraising, the startup has probably already evolved since then, making this old rating no longer appropriate. The startup's chances of success may have changed significantly since the last round. Or the round that has just been completed is based on a very high valuation (e.g. valuation of the company with an expensive 15x sales multiple), so that the company must first grow into this new valuation with increasing sales before the valuation is really appropriate.

2) Use the surcharge correctly: Calculate the valuation of your own purchase
I use the premium or discount (at which I potentially buy shares in a startup) to calculate the company valuation at which my purchase would be made. So if the from Seedrs If the specified 'fair value' is GBP 10MM, I multiply this rating by (1 + % surcharge), at which I can buy later. Let's assume shares are available with a premium of 300%, so my subsequent purchase would be made at 10MM + 300% = 40MM company valuation.

3) Classify purchase company valuation: cheap or expensive?
For every possible purchase company valuation, I finally consider whether this valuation should be rated as rather cheap or expensive on the basis of historical sales, company profits and growth as well as the resulting future results.

Example:
If a fictional software startup is already making £20MM in annual revenue today, is growing strongly and I believe in the future of the company, then I might consider a revenue multiple of 3x annual revenue (3x) to be a reasonable or favorable valuation. So would result in a rating of 3x 20MM = 60MM. If the fair value of this startup (see point 2 above) of Seedrs is still specified as 10MM, then my purchase at a premium of 300% (which sounds expensive at first because it is a high premium) is still a bargain, since I consider a valuation of 60MM to be appropriate and can buy shares at a valuation of 40MM. If my assessment was spot on and this startup was actually later sold for 60MM, then I would have made a hefty profit of 50% (40MM buy valuation + 50% premium = 60MM valuation) even though I initially bought shares at a premium of 300% .

Likewise, a discount from 50% on the fair value can still be far too expensive if the fair value is grossly overpriced from the last round of financing and the prospects of the startup have deteriorated since the last financing, for example.


Disclaimer: Always keep in mind that any investment in startups is to be regarded as a high-risk investment and a total loss of the capital invested is likely. This post is none Solicitation to buy or sell shares in startups and it trades not for investment advice. As always, you are solely responsible for what you do with your money.