By now, you will know that the merger of Europe's two largest equity crowdfunding platforms, Seedrs and Crowdcube, is off after the UK competition watchdog CMA had 'provisionally' found that the proposed deal would effectively 'reduce competition and innovation'.
Seedrs for one quickly responded to the news, saying that it had prepared for this to happen and lined up a fresh round of funding, but without sharing details thereof.
Today, in a letter to Seedrs shareholders obtained by tech.eu, Seedrs has shared more details about said financing round, which it had prepared for as it apparently became clear to them in January 2021 already that the CMA might have issues concerning the proposed merger with Crowdcube.
The letter kicks off by stating that "it is now back to business", and that the company feels "very fortunate both to be trading strongly and to have in place new financing that will allow us to drive growth as a standalone company".
First, let's look at the new funding, which comes in the form of a convertible loan note. Seedrs says it is securing £2.25 million of new capital from the UK government’s Future Fund at the usual scheme terms, matching another £2.25 million of previously-committed capital from its main institutional investors, Augmentum Fintech and Schroder UK Public Private Trust.
The latter two investors had committed to providing that capital at Seedrs' option when the crowdfunding company raised a £4.4 million convertible equity round (on its own platform) back in 2019, and this has now been restructured as a private investment round.
Following completion of the investment round, which it expects to achieve in about a month from now, Seedrs says it will make the note available to existing investors who wish to take up a pro-rata participation, at the same terms.
As for its current financial position, things are actually not looking terrible. Seedrs says it clocked £5.3 million in revenue in 2020 (up 24% compared to 2019), and that its operating loss decreased from £5.1 million to £4.1 million YoY last year.
The company adds in the letter that it is about to finish its strongest quarter yet, expecting to reach £2 million in sales for Q1 2021, and that it currently has "a little over £3 million" in the bank. Finally, it's let shareholders know that it's "just a whisker away" from profitability.
Interestingly, in the letter Seedrs also acknowledges that it has come to a surprise to some of its shareholders that they were so keen on merging with Crowdcube in the first place, if they were so confident in achieving growth and near-profitability on its own.
The company writes:
"Several of you have asked us why, if we were in such strong shape, we pursued the Crowdcube merger in the first place. There are two reasons. First and foremost, we believed and continue to believe that the merger would have accelerated the path to profitability and scale: by harnessing the strengths of both companies, and taking out duplicative costs, we could have moved faster to achieve financial security and, in turn, used that position to innovate and expand the business in multiple ways. These are all things we can and will do as a standalone company, but the merger would have increased the pace materially.
The other reason is that it was not at all clear six months ago that our performance at the end of 2020 and in early 2021 would be as strong as it was."
As to what the future will bring for its platform, Seedrs is asking shareholders to have a bit more patience, but did state the following in conclusion of the letter:
"Finally, several of you have asked about our business strategy as we move forward as a standalone business. While we will continue building on the momentum behind our core business of providing primary and secondary capital-raising and investment opportunities, we have also launched an internal strategic review to look at a wide range of products and features that we have considered in the past and to identify those that we believe could create the most value for the business if pursued today."
It remains to be seen what will happen to Crowdcube next.
In an earlier statement, its founder and CEO Darren Westlake painted the picture of a bright future ahead, saying that the company had "two consecutive quarters of profitability" last year, and that it expects to be "profitable again in the first half of 2021".
I'd be interested in seeing a letter to their shareholders about the merger breakdown and the future ahead - if one should ever land in your inbox, feel free to forward it to [email protected]. ;)