If you have ever considered either raising investment on, or investing via, Seedrs, you will likely have heard of the ‘Seedrs Secondary Market’. Here we take a look at what you should know about it before investing.
A secondary market allows prospective investors to invest in a business even if they may not be currently fundraising, or sell one’s shares in a company earlier than would otherwise be possible – all without the issuing company’s intervention.
Prior to the introduction of secondary markets, investors had to hold their shares until the company either held an IPO or a private sale occurred. Both of which could take several years.
The secondary market offers investors an opportunity to make good gains in a much shorter investment period, offering equity from existing shareholders, where prospective investors can buy shares of the company from “sellers”. This differs from a primary market where ‘new’ equity is issued by the company itself. Investing in early-stage companies was historically a highly illiquid asset class, however, secondary markets ensure liquidity for the investor.
Seedrs Secondary Market is the UK’s only early-stage equity secondary market. At launch, the platform facilitated buying and selling shares of businesses that had previously raised capital on Seedrs. Since then, Seedrs has allowed private companies who hadn’t raised capital on the platform before to list existing shares and present shareholders with liquidity.
An investor may have already enjoyed healthy returns, therefore the Seedrs Secondary Market allows them to realise their gains without having to wait for the company to undergo a significant liquidity event. The Seedrs Secondary Market is open for one week each month, incentivising investors through this time-limited strategy.
There are two types of secondaries listed on Seedrs; Company-led secondaries, a liquidity opportunity managed by the original share issuing company, and Shareholder Secondaries, a share sale where the company in which the shares are being sold is not directly handling the transaction.
A shareholder secondary facilitated by Seedrs secondary market works in the following steps:
When a company raises funds on Seedrs, the fair value market price per share is set during that funding round. After the raise is complete, companies undergo a regular assessment to determine if that price should be revalued up, down, or stay the same. Through the shareholder agreement a company signs with Seedrs during their raise, it allows Seedrs to continue to monitor the company and ensure that the fair market value is up-to-date and accurate.
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