| Alternative Funding Network |
Convertibles Come to the Crowd: New Trends in the UK
Yesterday, Seedrs brought the West Coast to the United Kingdom by way of convertibles. A popular financial product in Silicon Valley, convertible investments allow businesses to raise finance pre-valuation, thus allowing the business to seek larger rounds of funding in the future whilst negotiating their valuation and getting the finance they need now.
Pioneering this product via crowdfunding, Future Ad Labs (formally Digital Spin) is seeking £300,000 on Seedrs. No stranger to crowdfunding, this advertising tech start-up raised £60,000 back in 2012, becoming one of Seedrs first funded businesses. As a high growth business with mega aspirations, Future Ad Labs has decided to use this convertible investment round as a form of bridging finance whilst preparing for a Series A round in the future. In their pitch video and campaign page, Howard Kingston, co-founder & CMO, explains “We believe this convertible will provide us with the perfect launchpad before we go to market for a large round.”
We caught up with Peter Thomson, CMO at Seedrs, who spent some time with me going over this new product offering and how it benefits both SMEs and Investors.
When discussing this product, Peter pointed out that this type of convertible investment is best suited for businesses that are going on to raise VC or angel funding, but need cash now. Although predominantly used by tech companies, this option is suitable for ambitious businesses that are growing quickly. This type of funding effectively allows businesses to buy some time before settling on a valuation while taking on needed investment to supplement their fast growth. By accessing needed growth capital, the business is able to advance their business and demonstrate the success of their model, thus de-risking an investment proposition for the VC at a later stage. This round of funding gives a business the opportunity to demonstrate success whilst negotiating with potential VC’s and setting the company valuation. For both the business and the VC, this allows them the opportunity to make a considered decision regarding said valuation, and enables a bigger round of fundraising.
Although there is a clear advantage for the SME and the future VC, Peter explains how convertibles enhance the crowd-investor proposition as well. In the case of the crowd investor, an individual is entering into a ‘buy-now, value-later’ arrangement wherein shares are issued at a later date. For these investors, equity shares are issues either upon the completion of a Series A of fundraising or at the longstop date (should subsequent fundraising not occur). Upon the completion of a Series A round, the investors who entered during the convertible receive discounted equity shares relative to the valuation, effectively allowing them to purchase equity at a cheaper rate. It should be noted that this is not the convertible debt product often equated with the term and, in simplest terms, should be thought of as an equity purchase at a discounted rate at time of valuation. Beyond offering a premiere discount, this is not a revolution in equity finance per se.
Although a new investment vehicle for crowdfunding in the UK, Seedrs will approach these investors the same way they would during a normal equity round: as their nominee. In the case of Future Ad Labs campaign, a valuation cap has been set to ensure that these crowd-investors are protected against dilution and don’t get squeezed out during the Series A round. Peter makes it clear that through the Seedrs nominee structure, the crowd investors will get the same protections and benefits as later-round investors.
Launching only yesterday, Future Ad Labs has already achieved over 80% of their desired funding as of this morning. An excellent endorsement for the introduction of convertibles in the to crowdfunding space, this funding round is certainly proving to be an effective tool for this business and indicates the start of a new trend in equity crowdfunding. Peter labels convertibles as the rocket fuel of equity funding, and I think we’d have to agree! We are sure to see many more fast-growing businesses go the convertible route on Seedrs!
-Tania Ziegler
Pioneering this product via crowdfunding, Future Ad Labs (formally Digital Spin) is seeking £300,000 on Seedrs. No stranger to crowdfunding, this advertising tech start-up raised £60,000 back in 2012, becoming one of Seedrs first funded businesses. As a high growth business with mega aspirations, Future Ad Labs has decided to use this convertible investment round as a form of bridging finance whilst preparing for a Series A round in the future. In their pitch video and campaign page, Howard Kingston, co-founder & CMO, explains “We believe this convertible will provide us with the perfect launchpad before we go to market for a large round.”
We caught up with Peter Thomson, CMO at Seedrs, who spent some time with me going over this new product offering and how it benefits both SMEs and Investors.
When discussing this product, Peter pointed out that this type of convertible investment is best suited for businesses that are going on to raise VC or angel funding, but need cash now. Although predominantly used by tech companies, this option is suitable for ambitious businesses that are growing quickly. This type of funding effectively allows businesses to buy some time before settling on a valuation while taking on needed investment to supplement their fast growth. By accessing needed growth capital, the business is able to advance their business and demonstrate the success of their model, thus de-risking an investment proposition for the VC at a later stage. This round of funding gives a business the opportunity to demonstrate success whilst negotiating with potential VC’s and setting the company valuation. For both the business and the VC, this allows them the opportunity to make a considered decision regarding said valuation, and enables a bigger round of fundraising.
Although there is a clear advantage for the SME and the future VC, Peter explains how convertibles enhance the crowd-investor proposition as well. In the case of the crowd investor, an individual is entering into a ‘buy-now, value-later’ arrangement wherein shares are issued at a later date. For these investors, equity shares are issues either upon the completion of a Series A of fundraising or at the longstop date (should subsequent fundraising not occur). Upon the completion of a Series A round, the investors who entered during the convertible receive discounted equity shares relative to the valuation, effectively allowing them to purchase equity at a cheaper rate. It should be noted that this is not the convertible debt product often equated with the term and, in simplest terms, should be thought of as an equity purchase at a discounted rate at time of valuation. Beyond offering a premiere discount, this is not a revolution in equity finance per se.
Although a new investment vehicle for crowdfunding in the UK, Seedrs will approach these investors the same way they would during a normal equity round: as their nominee. In the case of Future Ad Labs campaign, a valuation cap has been set to ensure that these crowd-investors are protected against dilution and don’t get squeezed out during the Series A round. Peter makes it clear that through the Seedrs nominee structure, the crowd investors will get the same protections and benefits as later-round investors.
Launching only yesterday, Future Ad Labs has already achieved over 80% of their desired funding as of this morning. An excellent endorsement for the introduction of convertibles in the to crowdfunding space, this funding round is certainly proving to be an effective tool for this business and indicates the start of a new trend in equity crowdfunding. Peter labels convertibles as the rocket fuel of equity funding, and I think we’d have to agree! We are sure to see many more fast-growing businesses go the convertible route on Seedrs!
-Tania Ziegler
