Passion Capital, one of the UK’s first early-stage VCs, is to crowd-fund the final stage of its latest £45 million fund ($62.5m), Passion Capital Fund III. TechCrunch understands this is the first time retail investors have been invited to become LPs in a VC fund, at least in Europe.
Passion says it will use the Seedrs platform, which is normally used by startups themselves for crowd-equity funding campaigns. The move is a highly unusual one for a VC, where LPs are normally drawn from Pension funds and family offices, rather than the ‘person on the street’.
Seedrs was previously used by the Seedcamp venture accelerator in the UK to allow its founders to participate in a fund-raise, but this was allocated privately. What’s different about Passion’s move is that almost anyone will be able to become an LP in their new fund, albeit even a very small one.
A £350,000 allocation will be made available to the public. The offer may well prove tantalizing to retail investors as their single investment would be applied across a range of startups rather than through the direct single company investment traditionally made via Seedrs.
Any investors who self-certifies as ‘high net worth’ or ‘sophisticated’ will be able to invest in the fund. Passion Capital’s portfolio of 81 tech investments is worth an estimated £3 billion and includes Monzo, GoCardless, Butternut Box, Adzuna, and Marshmallow.
Passion says it has already made 11 new investments from Fund III, which investors via the Seedrs platform will automatically become a part of, with a further 15-20 new investments planned.
Eileen Burbidge, Passion Capital partner said in a statement: “Investment into a private venture fund is usually reserved for institutions. We are throwing our doors open to a much wider range of investors in this unique collaboration with Seedrs as we look to diversify our investor base and increase access for investors who might be interested in partnering with us.”
Jeff Kelisky, CEO at Seedrs, added: “This is a very innovative collaboration for both the venture capital and the equity crowdfunding space… It presents our community with another avenue to participate in SME equity finance that delivers additional investment opportunities and the potential for exceptional returns, beyond the direct investment campaigns we also run.”
Speaking to me in an interview, Burbidge added: “We’d been seeing what’s been happening in the States, with Angellist Rolling Funds and then the SEC expanding the definition of qualified investors, and, basically, this democratization of retail investors finally getting access to venture funds and to GPs. It’s kind’ve breaking down these age-old dynamics of where institutional investors pick and choose these age-old fund managers, and the whole notion that venture has been this elite, inaccessible asset class for retail investors.”
Burbidge said she talked to Angellist about doing something similar in Europe and realized it wasn’t legally possible right now, so she asked Seedrs, who confirmed they could do it.
“We closed the fund first in August 2019, it was 25 million, then August 2020 with another 20, so 45 million, which is the same size as our second fund. And during the pandemic.” But, she says, after dealing with their LPs, they eventually found they had a £350,000 allocation left over, so this became the germination of the crowdfunding idea.
“I thought, we’ve got 350,000 left, why don’t we crowd-fund it. This whole movement of letting retail investors get access to venture funds and invest – to get that exposure to a whole portfolio- I just think is a really good thing. I think it’s great for everyone involved. Obviously, as long as they’re educated and they know that capital is at risk and it’s not pensioners putting their last savings in, and those usual kinds of warnings about crowdfunding. But I love the idea of people getting exposure to tech, and not having to do £150,000 as a minimum check.”
Although Burbidge declined to comment further on the subject, there is of course the implication that this allocation could be increased, if the crowd-funding takes off.
She added: “There’s not a retail investor in the world who wouldn’t want access to the latest Sequoia fund, or the Accel fund right or Andreessen Horowitz funds… we think it’s great to give retail investors exposure to a portfolio. I think it’d be great if more funds did it.”
Burbidge believes actions like Passion’s will “increase the diversity of the LP base. It increases inclusion and gives people more access. It just creates more participation and breaks down the old barriers. We’ll have the Seedrs platform for Q and A’s. It is going to be up to us how much we want to engage with that community, the same as Monzo does with its crowdfunded investors. Monzo holds a public event every year for all of its crowdfund investors. I would love to do an event… it’d be great to meet people who have invested in this fashion.”