British crowdfunding sites warn over collapse if £140m merger is blocked

Crowdcube founders Darren Westlake, left and Luke Lang, right in London in 2019

Credit: Professional Images

Britain’s top crowdfunding sites have warned competition regulators that they face collapse if a blockbuster £140m merger is scuppered.

Seedrs and Crowdcube, which between them have hosted crowdfunding campaigns attracting £2bn since 2011, announced plans to merge in October, saying the deal would create “one of the world’s largest private equity marketplaces”.

The tie-up prompted scrutiny from the UK’s Competition and Markets Authority (CMA). The watchdog said the deal meant there was "a realistic prospect of a substantial lessening of competition in the supply of equity crowdfunding platforms to SMEs and investors”.

In November, the CMA said it was fast-tracking an in-depth probe as there were clear competition concerns. This process means that companies involved are not able to offer remedies to get their deals over the line. If the CMA identifies issues, an independent group will set out their options.

In submission documents to the CMA, Crowdcube warned against a total block on the merger, saying both companies were "unprofitable and cannot both achieve profitability independently of one another in the absence of the proposed merger".

The company said: "Absent the proposed merger, at least one of the parties will be compelled to discontinue trading, causing significant disruption to many SMEs, a loss of likely synergies and efficiencies, and an undermining of competition in equity finance provision." 

Crowdfunding companies have struggled for years to turn a profit, and in their latest filings, Crowdcube recorded a pre-tax loss of £2.6m in 2019, whilst Seedrs made a pre-tax loss of £5.1m.

The companies make money by taking a cut of the total raised by start-ups who crowdfund using their sites, but this model has so far not proved cash-generative enough to allow them to turn profits.

Crowdcube, in its submission filed last month, had said: "Crowdfunding remains an unproven model in terms of profitability….Crowdcube’s annual accounts show significant losses."

However, in a statement this weekend, the company suggested it had seen some improvement, saying: "Crowdcube was profitable in the second half of 2020 following record trading performance and tight management of our costs, with a healthy runway to ensure the continued success and growth of the business."

Seedrs, meanwhile, said: "While we do not comment on Crowdcube’s CMA submission, we both believe that this merger is a positive development, and that entrepreneurs, investors and the wider entrepreneurial ecosystem in the UK will be significantly better off as a result of the two businesses coming together.”