Seedrs co-founder Jeff Lynn talks risk, investor expectations and the future of crowdfunding

The most important thing for investors to check is whether the platform that they invest through conducts due diligence on the companies, enters appropriate investment contracts with them, and then administers the investment post-investment. If it does, then they know that they have someone who is looking out for their interests and that their rights are protected. Seedrs is an example of a platform that does all of this, as are leading debt-only platforms like Zopa, Ratesetter and Funding Circle. When investors invest through platforms that don’t do these things, it is far less likely that they will ever achieve returns.

 

The FSCS does not protect any equity investment, whether made through crowdfunding or on the public markets. If you buy shares in, say, BP or Diageo and they go down, the FSCS will not reimburse you. The same is true when you invest in an early-stage business through equity crowdfunding. So it’s important for investors to understand that equity investing of all types involves the risk that their capital may be lost, and they should only invest amounts that they can afford to lose.

 

We think that investors have a much better understanding of risk than they are often given credit for. We see how sensible, grown-up adults are fully capable of making their own risk assessments and investment decisions. In fact, equity investing is in many ways simpler than common financial products like mortgages or insurance policies. 

 

That said, we take very seriously our duty to limit the chance that investors get in over their heads, and that’s why all investors who use Seedrs must either pass a quiz showing us their understanding of risk, or certify that they meet certain government-defined standards for net worth or sophistication.

 

The regulatory regime in place in the UK is a balanced and sensible one – and it’s widely recognised as the best in the world. However, I think we still have some way to go in terms of enforcement of that regime. To create investor trust in this space, it will be important that all platforms come into line.

 

Crowdfunding only works if investors see returns in time. And it will take time – most successful startups take at least five years and, in many cases, seven or more, to produce returns for their investors. So given how nascent the space is, I don’t anticipate that we will start seeing significant returns for several more years. In the meantime, it’s important investors see that their investments are progressing – such as when a company raises more capital at higher valuations, or achieves various forms of commercial success.

 

Yes. This is an industry that is still at its very beginning. It is hugely exciting to see the substantial growth platforms like Seedrs are experiencing – both in terms of investor interest and the number and types of entrepreneurs using us to raise funding. And as we drive forward with global expansion, the opportunities are growing exponentially. 

 

Over the next few years, I believe Seedrs will be funding hundreds of millions of pounds into thousands of businesses every year, transforming the way that investors think about allocating their capital, and how businesses think about their approach to finance.