The chief executives of Britain’s two biggest crowdfunding businesses say their planned combination will allow them to supercharge growth and it’s not about weathering the COVID-19 crisis.
Darren Westlake, the chief executive of Crowdcube, and Jeff Kelisky, his counterpart at Seedrs, told Yahoo Finance UK their planned merger was geared towards expansion, rather than cost cutting.
“The purpose of the merger is growth,” Kelisky told Yahoo Finance UK on Monday. “It’s not harvesting, it’s not consolidation. It’s absolutely about the growth opportunity that we feel is untapped.”
Crowdcube and Seedrs announced plans for an all stock merger on Monday, hoping to create a combined business worth around £140m ($181.8m).
The deal brings together the UK’s two biggest equity crowdfunding platforms, which between them have helped hundreds of British startups raise over £2bn.
“We’ve got a lot more in common that we have got differences,” Westlake told Yahoo Finance UK.
‘Stay on the front foot’
The deal was hailed by many in the fintech sector as an obvious combination. But some raised questions about whether it was a shotgun wedding, given financial conditions. Crowdcube and Seedrs lost £7.2m between them last year and activity on Seedrs’ platform dropped 20% in the early stages of the pandemic.
Seedrs’ annual results, published on Tuesday, show auditors flagged the business may need to raise money to keep going, particularly given the impact of COVID-19.
“They have to do something,” said Michael Jackson, an experienced tech entrepreneur and venture capitalist who is now a director of businesses including Axa UK and Volvo.
Both Westlake and Kelisky rejected this picture, insisting they are in fine fettle.
“The question behind the financials relates to: is this survival?” Kelisky said. “It was not a question that in any way drove this conversation. We each have, historically and currently, stand alone plans that take us to profitability.”
Deal talks pre-dated the pandemic, he pointed out.
“We’d already had talk about this for several years,” Kelisky said.
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“Over time, we talked more and more about it,” Westlake said. “It was really about a year ago that we started to move ahead thinking this could be a reality. It’s taken until now to make it a reality.”
The onset of the pandemic caused both parties to “pause” and reassess, Kelisky said, but ultimately didn’t change the logic of the deal.
“It was quite reassuring as we came out from three or four months after the initial lockdown, we were both doing better than we thought we would be,” he said.
“One fear was: do investors retrench and wait things out? No doubt there are some who are. But we found that liquidity on our respective platforms is at its highest it’s ever been. Actually there is demand.”
Merging will allow the businesses to “stay on the front foot,” Kelisky said.
“By combining, it is far more valuable to the investors to be served by a richer market platform.”
Both CEOs said the two businesses compliment each other. Seedrs has a head start in the way it structures its deals, through a so called nominee structure that make it easier for companies to manage their shareholder base. Crowdcube, meanwhile, has a much stronger track record when it comes to sales and marketing.
”Putting the two together means we can combine those respective strengths,” Westlake said. “It’s more about that than cost cutting, for instance.”
‘We’ve eaten our own dog food’
Crowdcube and Seedrs employ 150 people between them. Westlake said he couldn’t comment on whether the deal could involve job cuts.
“We can’t plan that far ahead at the moment — we’re bound by the rule of the CMA [Competition and Markets Authority] and the investigation we’re about to go into with them,” he said. “We’re not able to go into much detail as to what the team might look like. We have to act as two separate businesses right now.”
As well as approval from the CMA and the UK’s Financial Conduct Authority, shareholders still need to approve the deal. Institutional investors in both businesses are on board but Crowdcube and Seedrs must now convince their own roster of crowdfund investors.
“We both have pretty wide and extensive shareholder bases,” Westlake said. “We’ve eaten our own dog food over the years.”
Crowdcube investors are being offered 60% of the combined business, while Seedrs shareholders get the remaining 40%. The terms reflect the differing valuations of the two businesses.
“This is a great deal for all shareholders,” Westlake said. “I’m a significant shareholder myself. I’m sure that they will all see the benefits of it and get behind it as we have.”
If the deal does go through, the merged group will likely raise extra cash next year to fund expansion plans. The roadmap includes plan to branch into new areas of the private equity market and take the business model overseas.
Kelisky envisions an “end-to-end journey for businesses and investors, playing a role in a much greater percentage of the activity that happens in the £12bn market which is equity investing in the UK.”
“Today, we’re 2% of that,” he said.
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