Entrepreneurs in the UK will soon have a new way to pitch for early-stage funding, thanks to the launch of a new website called Seedrs, which enables start-ups to crowdsource equity capital from friends, family and third-part investors.
Seed funding is notoriously difficult to raise in Europe, with the shortage of specialised financiers being highlighted as a major cause for concern in a recent think tank report on London's 'Tech City' cluster. Many UK start-ups are being forced to go to the US for funding, according to the report.
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 Â£10 and Â£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.