Big corporate news over the weekend revolves around directors of WM Morrison recommending the 254p per share bid from Fortress. Not only is this around a 10% uplift from the previous offer made by CD&R – another US private equity firm – but it also comes with a raft of promises to protect multiple caveats of the business. WM Morrison owns rather than rents much of its estate, and is also recognised for its commitment to supporting British food producers, especially farmers. The Fortress bid comes with assorted pledges to maintain the status quo here, but are these worth the paper they’re written on? After all, even informal market watchers will still be aware of the high-profile incident when Cadbury was bought by Kraft back in 2010. It promised to keep UK manufacturing sites open – that didn’t last.

So, the prospect now is that further offers will be flushed out, as it seems clear there’s a bargain to be had, here. Another private equity group – Apollo – is rumoured to be looking around in a move which has sent the Morrison’s share price well above levels the bid from Fortress reflects. Investors could soon be asked to show their true colours. Accept a lower priced – but still generous 18 times earnings – offer from a consortium who are pledging to look after staff and suppliers, or accept a higher price from someone with what could be considered a more traditional approach when it comes to return on investment?

Unless those pledges made by Fortress are somehow made irrevocably binding and won’t simply see parts or all of the business being sold on in due course, are investors really wise to buy into promises of good corporate citizenship from what will become a private company with no true external influence on its direction? As much as it pains me to say it, perhaps the wise money takes the highest price on the table then uses the proceeds to find a new investment with values that align with their own.

Unbeknown to many, start-up, growth and scale-up (SG&S) businesses have had a large part to play in changing the equity investment landscape over the past few years. Starting with the introduction of the Equity Investment Scheme (EIS) in the UK in 1994, investors have been incentivised to support these SG&S businesses. With the changes in technology that allow investors to meet online and invest smaller amounts into a number of firms it is no surprise that crowdfunding has shown itself to be as popular as it is. Crowdfunding is an effective mechanism for access to growth capital for businesses and it is an investment vehicle for investors.

This combination of businesses looking for funding and investors looking for distributed access to SG&S companies has meant that crowdfunding sites across Europe reportedly raised between EUR 5.4Bn and EUR 6.8Bn in 2017. For the last few years, SG&S businesses have had what those before them never had: an option other than angel investors to help fund their businesses through equity.

For an investor, supporting a brand they understand, instead of a complex corporate is an exciting prospect. How many retail investors, for example, can pick up the latest financial results of a complex business like Barclays and give a confident view on the prospects of the firm, and then decide whether to invest, disinvest, or do nothing? Yes, some SG&S businesses are also complex but, the majority are far less so; they tend to focus on one core area of business as they grow into their markets. The opportunity to invest early on in the lifecycle of a business is exciting and, like all things, knowing when to start and when to stop is crucial to a successful outcome.

For an SG&S business, gaining access to much-needed capital, often from those that make use of their product, is an exciting marketing tool and a way of really connecting with your customers. Millions has been invested through the crowdfunding model and many successful companies can attest to the benefits of this model. Unfortunately, when raising capital SG&S businesses are limited by the inability to predict when or how investors will receive a return on their investment.

Investors are looking for a market where they can invest at a time that is right for them, not only during the crowdfunding round which is often at a single point in time, during a limited window in the business’s life. If an SG&S business is able to provide this flexibility for investors, then new capital raises would become far easier and, increasingly mutually beneficial for both the business and its investors.

Alas, we invest to make a return and if we are unable to realise a return, what’s the point of putting money into something investor can never realise a return on? Sure, there are those companies that go on to an initial public offering (IPO), perhaps pay a dividend, or maybe a venture capital (VC) or similar buys out the investor’s portion of the equity. In each case, unfortunately, the investor is not in control and can often go many, many years without realising any real return at all.

As the financial markets continue to evolve, and as crowdfunding matures, a secondary market becomes more and more important, if not entirely necessary, to continue this evolution. Furthermore, as investment into SG&S businesses becomes more accessible to the average person, and not only accessible to the few angel investor and venture capital businesses, so investing becomes truly democratised.

CrowdX aims to create the secondary market for transacting in private and crowdfunded equity. CrowdX doesn’t run initial capital raises; we simply help create liquidity after the firm has raised capital through an existing crowdfunding site. CrowdX thus operates across the crowdfunding industry and prefers to partner with crowdfunding sites instead of competing with them. We operate a wholesale market only, meaning that a retail investor can’t trade directly through our platform, but that investor can trade on our platform through their broker. If you wish to list your firm, please contact us.

Early investors in a start-up, growth and scale-up (SG&S) businesses are the heroes of our businesses: they take a chance on the founders and their vision. Crowdfunding allows many people, or entities, to invest in and support SG&S businesses, often with no known exit method. It is widely agreed that a secondary market is the natural and essential evolution of the market. A secondary market is becoming increasingly important for the investor, but what about for the company raising the money? Why should they allow their stock to be transacted on after the initial raise?

Firstly, to address a concern which some firms face; is the public nature of having your firm’s equity tradable. By doing a crowdfund, a business already moves into the public domain. Investors have paid their money across to a business they believe in, and the investors want to realise a return on their investment. As a result, the investors are well within their rights to seek information on the progress of the business and their investment. Being in the public eye is not for all companies, but it is a powerful manner in which to engage customers in the brand and generate required growth capital to help build the business. Below are some of the advantages of listing on CrowdX:

1. Capital and process efficiencies
Over and above the engagement with investors, by having a company’s equity traded in a secondary market, the business should gain some major capital and process efficiencies. The management of corporate action like dividend payments, share splits, buybacks and other events in a growing company’s life are taken care of by the operating marketplace. Processes for awarding and incentivising staff and other key stakeholders becomes possible in a fair, transparent and simple manner.

2. Fair valuation method
By having a method of valuation, driven by supply and demand, a business positions itself well for further investments, either through future crowdfunding raises or through Venture Capital (VC) or Private Equity (PE) partners. CrowdX works with the firms that will be undergoing an additional funding round to ensure there is no price manipulation prior to a new funding round.

3. Larger initial capital raises
Notifying potential investors during the crowdfunding round that they will be able to sell all or portions of their positions should result in larger capital raises. There is value in the ability to take partial or full profits at a convenient time and investors should be pricing this into their investment hypothesis.

4. Future negotiating leverage
VC and PE firms and angel investors have, for many years, been able to operate from a position of strength. They hold the money and have experienced teams that are able to negotiate what they want out of a deal. Having the equity of a firm tradable on a secondary market levels the playing field and positions the business with a valuation which is undisputed and can be used by the firm as leverage in a negotiation at a future point.

5. Staff and shareholder incentivisation
Furthermore, businesses which allow the transacting of their equity on a secondary market create an incentive for their staff and other shareholders by providing a valuation and a means of converting what is often earned as ‘sweat equity’ into real cash. Sweat equity is the non-monetary investment that owners or employees contribute to a business venture. Startups and entrepreneurs often use this form of capital to fund their businesses, by compensating their employees with stock rather than cash.

CrowdX will soon offer initial raises and secondary raises for growth companies. A retail investor can’t trade directly through our platform, but that investor can trade on our platform through their broker. If you wish to list your firm, please contact us.