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What does crowdfunding’s first secondary liquidity event mean for the industry?

On the back of Mettrr Technologies utilising a new secondary liquidity option on Crowdcube, Real Business asked the crowdfunding platform’s CMO to explain what impact it might have.
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Having used Crowdcube to raise £100,000 in 2012, Mettrr Technologies has become the equity crowdfunded business to return capital back to original investors by way of a secondary liquidity event.

Following in the footsteps of other companies like Camden Town Brewery and E-Car Club, Mettrr Technologies has proven that crowdfunding can produce solid returns for investors. Crowdcube’s Luke Lang explained more.

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(1) How many instances of secondary liquidity events have there been?

Mettrr Technologies is the first company to provide financial returns for its crowd investors through a secondary share sale via a crowdfunding platform.It comes just six months after Crowdcube announced that it would pioneer secondary liquidity on its platform, delivering on its mission to help investors realise their investments.

There have been other instances of crowdfunded businesses offering secondary liquidity events and, like buses, two others companies that funded through Crowdcube were announced last week as well. Brewdog announced that US private equity firm TSG Consumer Partners has acquired a 22 per cent stake in the business and as part of the deal shareholders will be able to sell up to 40 shares back to Brewdog.

In another share buy-back, Celixir delivered a 2.7x return giving the Cardiff-based heart medicine company a valuation in excess of £200m – triple the figure it was valued at just two and a half years ago.

(2) Why do you think this is an important development for crowdfunding?

As the first time that a crowdfunding platform has facilitated a secondary liquidity event, it is a real sign of the growing maturity of equity crowdfunding itself and the businesses that have raised funds via the crowd. The recent liquidity events also continue to debunk the myth that crowd investors will be locked-in indefinitely.

Delivering a return for shareholders is the ultimate goal for any high-growth business and Crowdcube has led the way in delivering more exits and returns from equity crowdfunded businesses than any other UK platform.

(3) Is this something you are seeing particular demand for from investors?

Returns are obviously important to investors, but one of the misconceptions out there is that they want to see returns quickly. I think more important is that businesses give investors opportunities to exit during the growth journey if that is possible.

That way they have a choice, to exit completely or realise some of their assets while keeping a portion invested. We’ll continue to look to facilitate investor returns through secondary trading for businesses that are maturing, as well as working with more established and venture backed businesses.

(4) Please tell us in detail about the realisation investors in Mettrr achieved – what multiple, were there fees, did all investors exit?

Investors, who backed the tech startup in 2012, received a 9x return on their original investment after angel investors acquired a stake in the company.

Following the transaction, ten investors collectively realised £50,000 in Mettrr Technologies. Two further investors realised £250,000 in an off platform transaction. Of the original 25 crowd investors, 17 decided to remain wholly invested or partly invested in the company.

For example, Paul Hale, a professional investor and an early shareholder in Mettrr Technologies, invested £45,000 in two rounds and was delighted to have been given the chance to trade some of his shares and make a tidy profit while keeping a portion invested so that he can see the business through the next stage of its development.

As it was the first share trade we conducted there were no fees for investors, meaning that 100 per cent of the return went to investors.

(5) Are we likely to see a dividend structure introduced in the future?

This sort of decision comes down to each business performance and we certainly wouldn’t enforce this on businesses coming to our platform.

By investing in startup and growth stage businesses, our investor community is looking for capital growth rather than income and they understand that dividends come about from more mature companies that are not investing heavily in their business.

(6) Are you expecting to see more complete exits achieved in 2017?

I think we are going to see an ongoing trend of more exits, share buy backs and secondary trade deals reflecting the businesses as they mature.

The precise timing of any event is difficult to predict, but delivering a return for shareholders is the ultimate goal for any high-growth business and its investors and it may be that some companies will begin schedule regular liquidity events in their calendar.

(7) How much capital has been returned to investors and what does this say about the crowdfunding industry?

In a clear sign of the industry’s maturity, over £5m has been returned to shareholders to date and we’re seeing an encouraging trend with 17 per cent of all investors on Crowdcube having received financial returns through secondary share trades, complete exits of businesses including Camden Town Brewery, E-Car Club and bond interest payments from the likes of Eden Project, River Cottage, the Eden Project, Chilango and BrewDog.

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About Author

Hunter Ruthven

Hunter Ruthven is the editor of Real Business. He is also the editor of Business Advice, a title focused solely on a section of the business community currently underserved – micro companies. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative.

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