Crowdcube and Seedrs decided to merge

Crowdcube and Seedrs decided to merge to create 'one of the world’s largest private equity marketplaces'.

In 2019:

- Seedrs made a £4.6 million loss on a revenue of £4.2m.
- Crowdcube made a loss of £2.47m on revenue of £7.7m.

The combined company will be worth £140 million - that is 10X+ total revenues.

Some assumptions:

- Seedrs does about 600 deals a year (250 investments + 320 secondary)
- Crowdcube did about 200 deals in 2019 and 60 in Q2 2020 + just started operating secondary.
- Side note: Crowdcube made more money than Seedrs at a lower deal operation.
- For simplicity assume an average transaction value of £500k. On Seedrs, only 20% raised more than 1M and secondary transactions have a lower unit value.
- Assume a 10% cut.

1000 deals * £500k * 10% cut = £50M per year.

It is a very simplistic calculation and likely missing variables out - now at 800 deals they just bring in 12 million.

So is it just me or the valuation is quite high? Will they operate 3-4k deals per year in 3-5 years? What is the realistic TAM?

Other random thoughts:

- Europe has about 10k venture deals per year so that is a roughly 30% share of that deal flow.
- Is there an untapped market? Absolutely so, the number of companies not raising from VC is big but most of them are not suitable for risk capital anyways.
- Crowdfunding is an alternative for the long tail, question is - is it just a lower hanging fruit for those not qualifying for going direct to professional investment houses?
- Or turning the q upside down, is the 3-4k from what VCs presumably turned down a reasonable number still suitable to raise money?
- Other non-equity financial products are emerging as well. Market overall is liquid as is flooded with venture money so competition is there as well.
- Is the secondary market a nice to have or a serious revenue driver?
- Who is it going to be active in the secondary? Lazy (angels) investors missing out? Second tier VCs? Why would they trade on crowdfunding when public stocks are cheap?
- The secondary market is by definition weak in Europe and there is less PE activity in the lower market (<10M). Besides, Europeans don’t really have this quick growing by acquisition tactic in the playbook.

Would love to hear/read other opinions on this.

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