A recent example on Seedrs comes to mind. Society pitched and successfully raised a heap of cash on the Seedrs platform in January 2018. Now investors have been told they dont want the cash - they have sourced it from somewhere better.
On checking out Society we came across a far more serious example of potential abuse. The company recently suspended its M&A clause on pre emption rights by voting on a special resolution. That's fine as it was only going to affect the founders. But what if this happens when they have a Seedrs nominee account holding hundreds of Seedrs investors. These investors form only a small part of the overall share capital in the company. So the majority ownership by the directors could do the same thing whenever it chose.
Roll that fact out across all of the Seedrs and Crowdcube investments and you wonder why people bother with legal agreements. We have already seen a few cases where investors have had their pre emption rights removed.
What can investors do to protect against this?
I think the answer is to only invest when the founders do not have majority control! If rich VCs who don’t like to throw money away have put money in then safe-ish to follow. If VCs have stayed away then stay away!
ReplyDeleteVoting out preemption also happened on curious brew. I raised a request with seedrs to have a dashboard of investor protections clearly displayed.
ReplyDeleteIt's extremely frustrating that they have turned down the seedrs cash, we ponied up.