Scott Simpkin | Seedrs
Scott Simpkin of crowdfunding platform Seedrs explains how crowdfunding works for investors, and reveals what it takes to raise capital from the crowd
Food and drink brands are increasingly turning to crowds to raise capital, and Seedrs is gaining traction among them. Scott Simpkin is the team leader of campaigns development at the crowdfunding platform, and he knows fundraising inside out, having done it himself for a foodtech business he founded. “I have a natural empathy for founders given I’ve been in their shoes, and not been as successful,” he says. Simpkin admits that it’s very hard to fundraise, and very few founders are naturally skilled at it. “So, it’s great to be in a position where I can help them from personal experience.”
Seedrs is one of Europe’s largest equity crowdfunding platforms. The company was the UK’s first full-function private equity secondary market to enter the market in 2017. Seedrs is headquartered in London and also operates from an office in Lisbon, Portugal.
Simpkin says that several notable food and drink companies raise capital with Seedrs and that numbers have significantly increased in the past two years. “26 food and drink companies raised with us in 2018, which rose to 40 last year,” he explains. “This year we’ve seen continued interest from food and drink companies in coming to Seedrs, and with several raises now in the pipeline, we hope to see this number increase again by the end of 2020.”
Last year, 82% of food and drink brands crowdfunding on Seedrs were successful in raising funds on Seedrs, and Simpkin says the trend continues on that level.
“Miso Tasty, Gunna drinks, Cake Drop, Honestly Good Smoothie Company, Cracker Drinks, and Slim Wine are just a few of the food and drink brands that have recently succeeded on the platform,” he says.
Simpkin reveals that food and drink businesses that choose Seedrs tend to have quite a good track record of growth.
“[Brands] that do well aren’t necessarily making massive revenues, but are raising on the back of some good news: an important listing or a new product launch, for example,” he says, noting that it’s very hard for businesses in different sectors to show the same steady number-based progress, and that’s definitely a strength that food and drink founders have.
He says, however, the main weakness founders have is undoubtedly the communications strategy between customer and brand.
“Due to many food businesses selling via marketplaces, it’s very difficult to track down your customer and know who they are. The best brands have gone the extra mile here, and have big social followings or very effective newsletters. That gives them the basis to build a tribe of fans and give them the opportunity to invest in their Seedrs raise,” he explains.
Crowdfunding: How it works
Seedrs allows entrepreneurs to gain investment for their businesses while providing a platform for investors to buy and sell shares in private companies.
Companies can come to Seedrs by applying directly to raise via the website or they can be referred to by Seedrs alumni companies, its investors, or official Seedrs partners. “The team also reaches out to businesses that we feel are well suited to crowdfunding and would be of interest to our investor community,” says Simpkin.
Simpkin explains that the raise process is structured around a campaign. Entrepreneurs work with the Seedrs team to create a campaign page for investors to find out more about the business, its team, future plans, and so on. Investors are then invited to invest in the campaign if it is of interest to them.
“Seedrs is open to and serves all types of investors,” says Simpkin. “We have investors that come to the platform to invest a small amount (£10, for example) in their favourite brand and professional investors such as angels and VCs. Regardless of your level of experience, when you invest on Seedrs, you become a shareholder in a business on the exact same terms as everyone else.”
Simpkin explains that when a business raises on the platform, the valuation of the company that is shown on the campaign page represents the total value of the shares of the company. “The investor is buying a percentage equity into that,” he says.
For example, if a business is raising at a valuation of £1 million and the investor buys a £100,000 worth of shares, the investor is getting 10% of the company.
“This is where crowdfunding is different from investing in public companies,” he says. “What matters is not the price of the share you buy, but the percentage of the company shares that you buy with your investment.”
Crowdfunding and consumer trends
Better-for-you, low sugar and free-from are some of the trends we see today in the food and drink space, which are also reflected in the type of brands coming to Seedrs to raise capital.
Simpkin says that vegan and sustainable foods are trending hot on the crowdfunding platform, representing the majority of the most impactful campaigns.
“Livia’s, which raised £1.9 million in August, is our biggest success this year in the free-from space, and the other two big companies we’ve hosted this year, This and Allplants are really focusing on veganism and sustainability.”
Livia’s, This, and Allplants are London-based start-ups in the plant-based space.
Livia’s produces free-from indulgent treats made with natural ingredients and wrapped in recyclable packaging. The company closed its campaign in August oversubscribed: it aimed for £1 million and raised 192% of its target. The campaign attracted 1,399 investors.
This makes chicken and pork products for cooking and ready-to-eat snacks. The company aimed to raise £2 million and closed the campaign in August with 200% of the target. The campaign attracted 1,844 investors
Allplants is a ready-to-eat meal delivery company that closed its crowdfunding campaign with £2 million-plus, more than double the capital it aimed to raise. The campaign attracted 1,857 investors.
Covid-19 and beyond
The Covid-19 pandemic has made it difficult for founders to raise capital in private rounds and crowdfunding is no exception.
Simpkin explains: “When the enormity of Covid-19 hit in mid-March, we did see an initial decrease in the number of entrepreneurs going forward with their campaigns, and in turn investment levels went down a good bit.
“But, as everyone settled into the new temporary reality, we saw a sharp uptick back to normal levels in the following weeks. In Q2 and Q3, we have seen meaningfully higher levels of fundraising and investment activity than the same time last year.”
Simpkin says that distribution of campaigns is shifting somewhat due to the impact of the Covid-19 pandemic. Those businesses that are in sectors that are less affected by, or that may even benefit from the crisis, are the ones most likely to go forward and attract investment.
“Activity is a bit quieter in sectors most negatively affected by the crisis. But on balance, we’re seeing strong funding and investment levels, and are optimistic that it will stay that way,” he says.
To the point
On average, at what stage do food and drink brands come to Seedrs to raise capital?
We’ve done nine growth rounds of £1 million-plus already this year, but the majority of businesses are seed-stage looking for their first or second round of funding. There are less fundraising options at this level, so crowdfunding solves a real problem for these founders.
What is the average funding target that food and drink brands seek on Seedrs?
It’s quite difficult to give an average funding target as we work with businesses from a whole range of stages in their growth journey.
Some of our smaller raises can start at £80,000, with large raises going all the way up to £4.5 million, as we saw most recently with This. But on average, seed-stage businesses raise between £80,000 to £350,000, whereas businesses that are looking to scale their operations can raise anywhere from £400,000 to £1 million-plus.
Beyond funding, what is the benefit of turning to the crowds to raise capital?
The buzz that surrounds a crowdfunding round is one of the main benefits – it presents a great marketing opportunity to get in front of new audiences, raising brand awareness and helping grow customer numbers.
For later stages, crowdfunding can also be used as a new way to connect with their existing customers to build a stronger connection.
A success story
Simpkin believes that through crowdfunding, brands can also gain a large number of shareholders from a wide range of backgrounds.
“[Shareholders] want you to succeed and are often willing to offer their experience or network to help you get there,” he says, adding that existing customers who use the product regularly will be able to give valuable feedback about their experiences and how it could potentially be improved.
“Angel investors who have lots of knowledge of helping start-ups grow will be able to give their advice. Even investors who have no experience of the industry the business operates in will be able to give their opinion from a unique perspective. All of these sources of advice can help an early-stage business a lot.”
Simpkin says that The Vegan Kind is one of the best crowdfunding success stories of he has seen.
“The company raised in February and has already tripled monthly revenues since. They had a massive following of loyal fans and contributed significantly to the 2,300-plus investors they got in their round. I keep seeing encouraging comments on their post-discussion forum (where investors can interact with the business post-round), and even suggestions of help.
“They’ve just done an amazing job at bringing 2,300 new stakeholders into the business and giving them good vibes!” he concludes.
In September, Seedrs announced the launch of a secondary market offering to all private businesses. The move will allow founders, employees and early investors to realise secondary liquidity without an IPO or exit event.
Seedrs has offered secondary shares on its platform for the past three years only available to those already working directly with Seedrs.