Creatives in the UK will soon have a new way to pitch for funds to start new studios or labels, thanks to the launch of a new website called Seedrs, which enables start-ups to crowdsource equity capital from friends, family and third-party investors. It's similar in principle to Kickstarter, but allows you to get investment for businesses as well as projects (Kickstarter allows crowdfunding of individual projects only).
Seedrs is an online platform that seems to emulate Kickstarter in the US. Entrepreneurs can create a free listing for their start-up consisting of answers to questions on the feasibility of their idea, market and team, as well as how much money they are looking to raise in exchange for a percentage of equity.
Potential investors can browse the listings and pledge to invest between £10 and £150,000 per start-up directly through the Seedrs website. The company takes 7.5% of all funds raised by start-ups, as well as 7.5% of any return that investors make beyond their initial level of funding.
If entrepreneurs reach the full amount within three months then Seedrs goes to closing. However, if the funding target is not met, the pledges are returned to investors and all parties walk away without losing or paying anything.
Unlike some other crowd investment services, Seedrs continues to manage the equity on behalf of the investors, acting as a middleman to broker the relationship between the start-up and investor. The firm is authorised and regulated by the Financial Service Authorities (FSA).
Thomas Davies, investment director at Seedrs, said that start-ups as an asset class can be very profitable, and net returns from angel investing in recent times have significantly exceeded other asset classes, including government bonds, property and shares.
“In theory, this should allow firms to offer very small stakes in their companies or projects to a mass audience without exposing that audience to excessive risk, widening the availability of funding for many,” he said, speaking at the Birkbeck third annual Business Week.
Davies said that a wide range of start-ups can seek capital through Seedrs, including high-growth, technology-driven ventures as well as more traditional businesses like retail stores, restaurants and professional services firms.
However, participating start-up must be UK-registered and must be pre-revenue, meaning they are not yet making money from their core business model. Seedrs hopes to expand into the rest of Europe in six to nine months.