One of the key issues with equity crowdfunding is the unpredictability of an exit. Sure, you can probably ten fold your money once in a while, but how long will that take? Five, ten years? Now if you are investing the Invesdor minimum of EUR 20, then you will get EUR 200 back with a ten fold exit. Is it worth to wait the ten years to get your 180 EUR? For a lot of people – probably not.
However, what if you could make an exit sooner, much sooner. Say at the next funding round, four months down the road, when the valuation sometimes jumps two or even three times? This is what unlisted share markets in general would let you do – sell shares before an actual exit event and pretty much at any time. It is somewhat like a stock market, but a lot more private, for legal reasons.
Last week, Invesdor announced that any company raising money on their platform would have the option of entering Privanet’s secondary market network and re-sell their shares there. So it is actually a partnership with an existing provider, that has been around since 2000, which means that there will already be some activity there.
Previously, Privanet was not really focusing on smaller companies, as it was not able to raise the initial funding for them, however that is what Invesdor is going to do, leaving the companies to trade on the service after the campaign is over. Also, Privanet can propose to their existing or potential clients to crowdfund through Invesdor, before entering their unlisted share market.
Now, this approach is not for everyone. If you are dreaming of listing your company on First North stock exchange, then this route might indeed be the best. It will give you plenty of practice managing a large number of shareholders, you will be well structured for the stock exchange and will likely be on your way to meeting some criteria, such as having a certain number of shareholders in your company.
If, however, you are going for VC money in Silicon Valley for example, this might actually be a deal breaker since having a large number of shareholders will likely turn away a lot of VC interest. This is because having many shareholders makes decision making slower, especially if there is no shareholders agreement.
That being said, it does not eliminate the option entirely, many private equity VC firms might still find it interesting. As Lasse Mäkela, the CEO of Invesdor, tells us: “Private equity VC route is different, you can combine this at the beginning. But you have to remember the more shareholders you have, the more time consuming it is to sell to the VC later.”
Basically this news gives entrepreneurs on Invesdor more flexibility and options and even companies from outside of Finland can use it. Currently: Denmark, Sweden and Estonia.
Top Image Courtesy of Shutterstock // Stock Exchange People