A British firm plans a secondary market for crowd-funded shares

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The Economist | May 17, 2017

Everyone would like a piece of the next Google or Facebook. But the big venture-capital (VC) firms do not usually raise money from small investors. And some entrepreneurs complain that it is hard to get noticed by the hotshots in the VC industry. Hence the enthusiasm for crowd-funding, where small investors can buy a stake in startup companies.

Seedrs, a British crowd-funding firm, was set up in 2012, and has backed 500 firms so far, raising a total of £210m ($271m) from more than 200,000 users. But there are two big problems with crowdfunding. First, it is risky: most startups fail. Second, investments tend to be illiquid—shareholders have to wait for a takeover or a stockmarket flotation to recoup their investment.

See:  Seers Announces First-ever Portfolio Results With Overall 14.44% IRR (Annualized Rate of Return)

Seedrs is trying to solve the illiquidity problem by setting up a secondary market, where buyers and sellers can exchange shares. The new market will start operating this summer, and will allow trading for a week every month, starting on the first Tuesday. The price at which investors can deal will be set by Seedrs itself, based on a valuation mechanism in line with industry guidelines. But there are some restrictions: only current investors in a firm will be allowed to buy shares. And, to the extent that investors make a profit, Seedrs takes a 7.5% cut of the gains.

"An obstacle to crowdfunding is that investors have to wait so long to sell their shares"

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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