Crowdfunding platform Seedrs will let people trade shares in private companies they invest in

Seedrs will launch a beta version of its secondary market shortly. It will open for one week each month, giving investors a fixed window in which to try and sell their shares. Seedrs will value the shares for trade based on its EY-approved valuation methodology.

The secondary market will not allow new investors to come in. Only existing investors in a company will be able to buy more shares in it. As with any market, investors will only be able to sell — and unlock their money — if they can find willing buyers. Just how liquid the market will prove to be when restricted to only existing investors remains to be seen.

Lynn says in a statement: “Secondary markets are challenging to operate successfully, and we are very conscious of our obligation to provide our investors the best experience we can. That is why we are launching this product in beta form initially, so that we can observe behaviour and make improvements as we go.”

Seedrs will take care of all the paperwork associated with the share trades, meaning companies who have raised money on the platform will no have to get involved.

A race for returns

Seedrs is not alone in trying to set up a secondary market for crowdfunding shares. As the sector matures, platforms are increasingly keen to demonstrate that equity crowdfunding can deliver returns to investors. While there have been a few exits, such as Camden Town Brewery, there have also been many failures. The majority of investors also find their capital locked up indefinitely with little visibility on possible returns.

Secondary markets allow investors to potentially take some money off the table, making crowdfunding a theoretically more attractive prospect. Crowdcube, Seedrs’ largest rival, has long talked about setting up a secondary market and last month held its first secondary sale on the platform.

However, Seedrs warns in its release touting its secondary market feature that “a secondary market for shares in private companies has historically been highly illiquid.”

Crowdfunding is one of the fastest growing areas of investment in the UK, according to investment tracking platform Beauhurst, with activity growing by 11% in the first quarter of 2017. Seedrs was the most active platform, with 35 campaigns.