UK startup funding platforms scrap $ 190 million due to competition concerns

Darren Westlake, co-founder and CEO of Crowdcube, at a fintech conference in London on April 12, 2017.

Simon Dawson | Bloomberg via Getty Images

LONDON – UK startup crowdfunding platforms Crowdcube and Seedrs agreed on Thursday to end their £ 140 million (US $ 192 million) merger, a day after regulators raised competition concerns about the deal.

The UK’s Competition and Markets Authority said Wednesday it was inclined to block the deal, claiming it would “significantly reduce competition” in the crowdfunding of stocks space. If the two companies merged, they would control at least 90% of the market, the CMA said.

Crowdcube and Seedrs first announced plans to merge in October. The two platforms have been used by a number of well-known UK startups, including digital banks Revolut and Monzo, to raise capital without having to go directly to venture capital or angel investors.

However, in its preliminary results, the CMA said the deal “could cause UK SMEs and investors to lose due to higher fees and less innovation”.

“The CMA’s initial view is that blocking the transaction may be the only way to address these competition concerns,” added the watchdog.

Both Crowdcube and Seedrs said they were disappointed with the CMA’s decision.

Crowdcube told CNBC that it could continue to thrive as an independent company and “continues to be in a very strong financial position.”

“We continue to invest in our people and products and expect to be profitable again in the first half of 2021 as an unprecedented number of high-profile European companies will raise funds with us in the coming weeks,” said a company spokesman.

Seedrs added that it was inconsistent with the regulator’s conclusion that the transaction was anti-competitive.

“We firmly believe that this merger will be extremely positive for UK small businesses and will help fund thousands of ambitious businesses in the future,” a Seedrs spokesman told CNBC.

“However, considering a possible future as a stand-alone company, we are in the strongest position we have ever found.”

Seedrs said it no longer planned to partner with Crowdcube, but would instead launch a new round of funding. It will “announce all the details of the round shortly,” the company said in a newsletter on Thursday.

Crowdcube and Seedrs have long been unprofitable. Crowdcube recently made its first quarterly profit in light of the increasing demand for start-up crowdfunding. Earlier this year, Seedrs said the merger with Crowdcube was about “survival” and it was argued that crowdfunding upstarts are taking place in a “David vs. Goliath battle” against established SME finance companies.

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