Should Freetrade use Crowdcube or Seedrs for the next crowdfunding round?

Two of my CC investments have had subsequent investment rounds from Angels or VC’s that we original investors were excluded from. In both cases I discovered that our preemptive rights had been removed by looking it up on Companies House. Both follow up investments were for at least the same share price that we paid, but it’s not very nice to suddenly find that you’ve been excluded.

Matt

Out of interest, what are fees for using SyndicateRoom??

Though realise it probably can’t happen, but I do love the idea of simply purchasing FT shares from the FT platform!

Matt

Well, syndicateroom get my vote. Perhaps there should be a poll?

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Worth noting as SR might not br right for everyone.

Matt

That would exclude the vast majority of potential investors

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Is it possible to run an investor campaign over multiple platforms (eg. both seedrs and syndicateroom, etc)??

I’m not currently a shareholder but I would want to invest in Freetrade only if it used Seedrs. On top of the anti-dilution protection, it also has tag-along-drag-along rights on each investment. I think people underestimate how important this is.

A company might want to buy enough shares in a company to gain control or access to assets, but not want to buy 100% of the company. This could leave Crowdcube investors in a position where founders and VCs have sold out, and their shares will never be bought, or they might only be offered a significantly lower offer than the large shareholders. tag-along rights give you the option to choose to sell on exactly the same terms as other shareholders sell for.

Drag-along rights benefit the founders/large shareholders more, as it allows them to force a 100% sale on the same terms as them if they buyer wants 100%. My understanding is that Crowdcube companies often have drag-along, but not tag-along rights.

Am I missing something? Crowdcube would simply action the purchase of new Freetrade shares, they won’t administer them or have any control over them once the purchase is complete - this will be handled by Freetrade themselves using their share register?

Whereas with seedrs you are stuck with their nominee and all the risks that comes with (even if small risk)

Again I would prefer a one off transaction costing me 1.5% all done and dusted with Freetrade in control of my shares, than pay 7.5% exit fee (which will be HUGE) and also have my shares in someone else’s nominee - just look at Monzo share fiasco with them being held in nominee.

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How many shares do people have that they’re worried about dilution?

Interestingly, having never thought about pre-emption before It’s come up twice for me since it was mentioned in this thread. First nanusens had a private pre-emption round. Previous crowdcube investors were invited to take part, so all good there. Now pod point has sold a 13% stake to Legal and General, we didn’t get pre-emption rights with that. I guess there will be some dilution there, the good news is the valuation went up. Not sure if I’m allowed to say how much as it’s not in any of the public articles I’ve read

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What happened with Monzo shares?

Stephen, you are right that the Seedrs fee is bigger in the event of a good exit.

What you’re missing is that you are putting full trust in Freetrade and any future large VCs who might join to not screw you over. Freetrade certainly seems like a great company that cares about it’s investor community, I certainly wouldn’t expect them to do anything bad as they have a reputation to protect. But again, you have no protections in writing in the contract unless you invested enough to get the class A shares. Much like Eduardo Saverin you are putting trust in peoples good nature, rather than having protections in writing, not a good idea in business. Why didn’t Freetrade offer pre-emption rights to all investors in their last crowdcube round?

One issue being missed is that if you pay an upfront fee then you can’t invest that 1.5% in more shares, so your holding is 1.5% lower on exit, in which case its almost equal to losing 1.5% of the exit value. Still miles cheaper than Seedrs, but saying its nothing isn’t correct.

With regards to tag-along rights theres a good example where the founders of Crowdcube sold some of their shares giving themselves a partial exit during their last round. Crowdcube investors were left with no option to exit, while founders get to lower their risk. If investors had tag-along rights they would have also been offered to sell a portion of the shares.

In relation to dilution and pre-emption rights, there might not be that many public examples of investors being maliciously diluted by companies in the past, but in the past, private equity investors were limited to sophisticated investors who would have lawyers and experience to know to get these rights in the contract. I would expect more examples will appear now that Crowdcube has opened a market allowing companies to sell shares without these protections to people who don’t realise their value. Theres a reason that Seedrs and Syndicate Room make such a big deal about guarenteeing them.

Basically what I’m saying is that 7.5% fee on a profit is worth the protections. Alternatively if 7.5% is too much, then Syndicate Room is also a good choice.

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“Seedrs says this helps it to ensure that its investors have pre-emption rights and voting rights, and protects against the aggressive dilution of shares. But Jeff Lynn, chief executive, admits that “on several occasions” it has already waived pre-emption rights on behalf of its investors, particularly when professional venture capital groups have looked to be involved in new rounds of funding a company.”

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Does anyone know when Crowdcube brought in their 1.5% fee? After the most recent Freetrade round in May 2018 right?

It was a few months ago, around the time that CC did their own raise. I only remember this as it created quite a lively debate within the CC pitch discussion pages.

Matt

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Does anyone have any investor information for Freetrade or publicly available accounts?
Is there a set date for the next funding round?

We are all waiting for the announcement :grin:

There will be more up to date information released then

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A full register of shareholders there as well.

Yeh, I checked there. Last accounts are from Jan 2018, so not very useful.