Crowdfunding site Seedrs has suspended its shares from trading on a secondary market used to buy and sell stock in private companies while it attempts to complete a financing deal.
In a message to shareholders, Seedrs said it was at “advanced stages in a fundraising discussion” and was unable to trade while the transaction was pending.
Seedrs, which counts the troubled stockpicker Neil Woodford as one of its largest shareholders, needs a cash injection to ease concerns over widening losses and the amount of cash it burns through. It made an operating loss of £4.3m last year, compared with a loss of £3.9m in 2017, on revenues of £3.2m.
Cash reserves dwindled to £6.2m from £11.1m over the year, according to a recent report in which Seedrs’ auditors, KPMG, also warned that if Seedrs failed to raise extra capital, it would “cast significant doubt on the group’s ability to continue as a going concern”.
The rush to raise funds comes as a business that raised nearly £1m on Seedrs filed for administration this weekend. The Clubhouse, a London co-working space that secured £950,000 from investors in 2015, has failed to find new cash and is thought to be in talks with Regus owner IWG.
Crowdfunding sites have been criticised for failing to warn investors about the dangers of investing in high-risk start-ups. Seedrs and its larger rival, Crowdcube, have seen a series of insolvencies among companies that have raised large sums from their platforms. Online estate agent Emoov collapsed just four months after it raised almost £4m on Crowdcube.
Seedrs has been criticised for sacrificing the quality of deals in favour of volume. The number of deals conducted increased by 5% last year, while the average size increased by 63% to £807,000. Sir Andy Murray has invested in more than 30 start-ups through the site.
“Seedrs is trying to compete with Crowdcube on deal volume, but it can’t do it,” said Rob Murray Brown, founder of ECF.Buzz, an advice service. “They used to have a different approach, but both now go for a ‘pile ’em high, sell ’em cheap’ approach.”
Seedrs has previously raised £25m from investors including Woodford and Augmentum Capital, a venture capital investor backed by Lord Rothschild’s RIT Capital Partners.
Seedrs launched a secondary market two years ago to facilitate trading in shares of its start-ups.
Seedrs declined to comment.