What’s the Deal?

After doing battle for the claim of the UK’s top crowdfunding platform, Crowdcube and Seedrs have announced a merger.  Sources say the relative values of the two businesses have been set at their last round valuations – £84 million (Crowdcube) and £56 million (Seedrs) – putting a theoretical value of £140 million on the combined entity.

H1 2020 revenues at Crowdcube were £3.0 million, down 19% year-on-year, with the impact of the pandemic taking its toll on platform activity.  We would expect a recovery in H2 and would anticipate full year revenues to be close to the 2019 result of £7.7 million.  This puts it on a deal multiple (based on revenue) of an estimated 11x.

Current financial data for Seedrs is harder to come by but, using its historic results and Crowdcube as a read-across for growth, we estimate revenues at around £4.5m, implying a multiple of 12x.

Losses have been reducing in both businesses and COVID has led Crowdcube (and presumably Seedrs) to look for cost-savings.  The combined group has some shareholders with deep pockets (Draper Esprit, Augmentum) and some with less than deep pockets (Woodford).

What’s the revenue opportunity for the new Crowdcube and Seedrs Entity?

Putting these companies together makes sense: the UK market is not really large enough for two big players.  The total raised across the two platforms, which together dominate the UK crowdfunding scene, was £225 million in 2019.  The total market size is slightly bigger than this and there is structural growth as well as new revenue streams (for example, secondary markets).  However, at fees of 7-8% (success fees plus completion and administration charges) in the core business, adjusted for inevitable discounts, there is likely to be a £15-20 million revenue opportunity today.  Irrespective of the margins that can be squeezed out of this turnover, the combined group will take time to grow into a £140 million valuation.

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