Since it is one of the leading European equity crowdfunding platforms, we wrote about Invesdor several times before. The firm started co-operation with business angel network FiBAN a year ago, but not many deals led by business angels were closed yet. Invesdor added debt product – CrowdBond (unsecured while bank loans usually require security with personal assets) – recently, for investors who want to invest while shouldering a bit less risk. Invesdor is the first European crowdfunding platform to have been granted a MiFID licence for investment advice, reception and transmission of orders, and placing of financial instruments. The firm recently raised a million euro crowdfunding round through their own platform, which was quite impressive. I sat down with Lasse Mäkelä, Invesdor co-founder and CEO, and interviewed him.
Equity crowdfunding is in no way replacing stock exchanges; it’s merely opening up the world of unlisted investment opportunities to the public and complementing the publicly listed world.
For investors, investment-based crowdfunding is therefore more of a way to complement their listed holdings and balance their investment portfolios with unlisted equities and bonds. While these are riskier than publicly traded securities, their potential profit is also higher. To give some perspective, we generally recommend only 5–10 % of your portfolio to consist of unlisted securities. While crowdfunding is experiencing massive growth, it is still riskier than traditional investments, and will by extension be smaller than stock exchanges.
What companies do raise money via your platform? When will you make use of your pan-European license?
We are somewhat of a generalist in the sense that we don’t focus on companies from specific industries. Furthermore, on our platform there have been seed rounds, IPOs and most everything in between – however, currently we are focusing strongly on somewhat more established SMEs as well as promising startups from everywhere in the EEA.
As for our pan-European operations, we have already begun operations in the UK, and are able to accept companies from a number of EEA countries.
You added bonds/debt to your funding options? Why? How does that work?
Next to equity, bonds are a very attractive alternative both for investors and for companies looking to raise funding. They were a logical extension to our offering.
What makes our bonds special is that they are fully transferrable securities, meaning they are tradable on an aftermarket. Furthermore, their interest rates are determined dynamically in a bidding system similar to a Dutch auction. Simply put, the company issuing the bonds sets a range of terms at which it is willing to borrow money, and investors set the terms at which they are willing to lend money. The interest rate is thus determined by supply and demand during the bond offering.
Who are the investors on your platform? What strategy do they have? How will they make money? What returns are realistic and when?
There is a wide variety of investors using our platform, ranging from business angels to fan investors. The majority, however, are retail investors looking to diversify their investment portfolios with high-risk instruments.
So far, we have only had equity offerings on our platform. While equities have a higher potential return compared to bonds, the return is also much more uncertain, with investments often being very long-term and relying on making money through upside and an eventual exit or eventual dividends.
For bonds, it’s much more simple. Investors are paid a fixed interest every six months, and at the end of the loan period they get the principal back. The possibility of selling their bonds on an aftermarket also provides new possibilities for making a return. As we just launched the bonds, we cannot yet say where the average interest rates will land. However, based on data from the UK market, we could expect to see interest rates of some 6–9 %.
Recently, you closed a € 1 million equity deal. Now, you are taking it to a private secondary trading platform. Is this the future for you? Do clients want liquidity?
Yes, investors do want liquidity, and we do think it is an important direction for us and unlisted investments in general. We have been working towards this goal for a long time, having created the aftermarket that you are referring to with Privanet Securities back in early 2014. Lately, we have also begun to provide our services for pre-IPOs, as was the case with self-storage company Cityvarasto, and even IPOs, such as in the case of Ahola Transport that listed on the Swedish Aktietorget marketplace. We are paying ever increasing amounts of attention on providing investors with liquidity possibilities.