US platform buys Seedrs for $100m after CMA blocks Crowdcube merger on home turf
UK crowdfunding platform Seedrs is being acquired by US investment platform Republic, just months after the UK’s competition watchdog blocked its plans to merge with homegrown rival Crowdcube.
In a transatlantic deal that values Seedrs at approximately $100m (£75m), the two platforms are billing the combined entity as “the first global private investment marketplace with offerings across North America and Europe”.
For the forseeable future, Seedrs and Republic will exist separately. “But ultimately we would expect that to converge into one platform in time,” Seedrs’ CEO Jeff Kelisky tells City PM.
It comes just months after the Competition and Markets Authority (CMA) blocked the merger of Seedrs with its UK rival Crowdcube, arguing it would result in a substantial lessening of competition.
The watchdog said the combined company would make up at least a 90 per cent share of the equity crowdfunding for startups market, which it argued could result in UK SMEs and investors losing out as a result of higher fees and less innovation.
After pulling the deal following the CMA’s provisional block in March, Seedrs’ co-founder Jeff Lynn told the Financial Times that the watchdog’s decision would stifle efforts to “build some great businesses in this country.”
At the time, both companies warned that they could face collapse or fail to reach a sustainable size if the deal was blocked.
“When the CMA blocked that deal, we returned to our core strategy and focused on developing a standalone growth plan,” Kelisky tells City PM.
“Our goal was to execute a Series B funding round – there was no expectation that another deal would follow. We’d told the CMA that the private capital investing was a huge growth area with lots of competition, and we just didn’t expect the US to move as quickly as it has.”
Navigating regulatory frameworks
With the new deal, Republic intends to rapidly advance its presence in Europe, where the European Commission introduced a series of new regulatory changes for crowdfunding across the bloc on November 10.
“We’d been heavily involved in those changes for some time, and we had a conversation in the summer where Republic said navigating the regulatory landscape in Europe would get in the way of its organic expansion. It needed to form a partnership for that,” Kelisky says.
Meanwhile in the UK, tech companies and investors have repeatedly voiced concerns about the CMA’s proposed toughened stance on startup M&A deals, through the new Digital Markets Unit (DMU) launched in April and tasked with regulating the UK’s powerful digital sector.
According to a survey carried out by startup body the Coalition for a Digital Economy (Coadec) in September, half (50 per cent) of the UK’s investors in startups said they will significantly reduce the amount they invest in the country’s early stage companies if the ability to exit is restricted.
“In terms of creating opportunities for entrepreneurs and investors, the CMA didn’t help,” says Kelisky.
“We work with a lot of entrepreneurs through our platform, and when we speak to them they’re all looking towards their future exit outcomes – an IPO, merger, etc. Decisions like that from the CMA make them nervous,” he says.
UK in danger of losing its lead
When asked at a tech event whether the CMA’s proposals for tougher M&A deal scrutiny should worry entrepreneurs and investors, Chancellor Rishi Sunak told reporters: “I don’t think people need to be that anxious about it.”
“No one should come away from that thinking we’re somehow against this activity,” he said. “In fact we are passionately supporting tech investment.”
But in Kelisky’s opinion, there isn’t much of a discord between the regulatory and political approach in the UK.
“In terms of the positive sounds we’re getting from the government about the UK being the place to be for tech innovation, it’s still not good enough,” Kelisky says.
The UK is widely considered to be a global leader when it comes to the fintech sector, and venture capital investment in UK fintechs has reached an all-time high this year, as firms in the industry attracted a record $11.4bn in the first nine months of the year.
But Kelisky warns that this could be jeopardised by regulatory frameworks that are “no longer fit for purpose for innovation.”
“Some fintechs are moving or merging elsewhere,” he says.
“The UK has categorically led when it comes to fintech, and Silicon Valley was behind. But we’re now seeing colossal investment coming from the US to play the fintech game.
“With enough money and will, the UK lead can be shrunk.”