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Seedrs - Frequently Asked Questions

Investors
Investing in Startups
What is investing in startups about? Investing in startups is about picking new businesses that you think have the potential to grow. You invest money in them in exchange for a portion of their equity, meaning that you buy shares in the business. If a business you've invested in succeeds, the shares you own will become worth more than you paid for it. However, if the business fails - as the majority of startups do - you'll lose your investment. Is investing in startups profitable? Startups as an asset class can be very profitable, and net returns from angel investing in recent times have significantly exceeded other asset classes, including government bonds, property and shares. Over the 1998-2008 period, angel investors in startups got an average of 2.2 times their money back over an average of 3.6 years, reflecting a 22% internal rate of return; nearly one in ten startups yielded returns in excess - and sometimes far in excess - of 10 times invested capital. This compares to average returns of 15.6% in public equities, 12.2% in property and 4.4% in gilts over a similar period (the full methodology behind these numbers is set out in the following question). But bear in mind that these are just averages, and because the distribution of returns from startups is highly skewed meaning that the majority of startups fail, and most of the profits come from a few big successes - most investors will either significantly outperform or significantly underperform the average. What is your methodology for concluding that investing in startups can be profitable? Our data on angel investing comes from a major study (http://www.seedrs.com/documents/Report 21 - Business Angel Inv v11.pdf ), Siding with the Angels, which was published by the National Endowment for Science, Technology and the Arts (NESTA) and the British Business Angels Association (BBAA) in 2009. To our knowledge, this report is the most comprehensive study of returns from angel investing in the UK ever published: it analysed 1,080 angel investments made between 1998 and 2008, and it showed an overall internal rate of return (IRR) of 22%. That is the figure we have used in the graph on the Investors page. Our data for equities, gilts and property, which comes from FTSE All Share Index, the FTSE 5-15 Year Gilts Index and the IPD UK Annual Property Index, respectively, shows the annualised total return of each asset class over the period 2002 to 2007. We chose that timeframe for purposes of the comparison because those were the years within the period covered by Siding with the Angels during which the markets were at their strongest overall. Annualised total returns on equities and property for the full period from 1998 to 2008 were significantly loweralthough gilts performed slightly betterand so the relative performance of angel investments over the full

period was even stronger than what is shown in the graph. You should bear several important points in mind when you consider this data. First, Siding with the Angels looked at all types of angel investing, which includes seedstage businesses but also later-stage ones. Seedrs offers you the opportunity to invest solely in seed-stage businesses. It is likely that the returns from seed-stage businesses on their own would not be the same as the returns from later-stage businesses, but we have no way to know whether they would be higher or lower: seed-stage businesses are generally riskier than later-stage ones, which means that fewer will perform well; however, the valuations of seed-stage businesses are usually significantly lower than those of later-stage ones, which means that the upside for investors in a successful business is likely to be higher. Second, the strong returns demonstrated by Siding with the Angels are average returns across the entire sample. As the report makes clear, these returns are highly skewed, meaning that a few big winners produce the vast majority of the returns, while the majority of investments lose money. Most startups fail, and in the sample studied by this report, 80% of cash returned came from 9% of exits. As discussed in the previous point, seed-stage businesses are likely to have an even more skewed set of returns than the whole set of angel investments examined by the report. Third, there are a number of important explanations and qualifications set forth in Siding with the Angels, and it is important to read them in order to fully understand the data presented. Finally, the method of calculating return used by Siding with the Angels (IRR) is technically different from the method used for equities, gilts and property (annualised total return). We do not believe that the difference is a significant one or that it affects the overall picture provided by the data. However, for a comprehensive understanding of the data, you should familiarise yourself with the difference between IRR and annualised total return. Will investing in startups continue to be as profitable in the future? No one can say for sure, but we predict that it will become even more profitable, especially relative to other asset classes. In a world where the creation of value is increasingly driven by innovation and adaptability rather than scale, businesses that are small and agile are well-positioned to outperform their bigger, slower counterparts. There will continue to be many failures of course, but we think that there will be more, and larger, successes, meaning that increasingly outsized returns will be available to investors in startups. What are the other benefits of investing in startups? Beyond the potential profits, investors can enjoy two additional benefits from investing in startups. First, it's a chance to be a part of the next big thing - to be like the dragons on BBC2's Dragon's Den and pick exciting businesses, follow their progress as they grow and get credit and recognition for having been one of the first people to spot them. Second, you get to contribute to the culture of innovation by supporting entrepreneurs when they need it most and giving them a chance to get great new businesses off the ground. For many people neither of these is as important as the financial returns, but at the very least they can be nice add-ons. Why do startups need my money?

When an entrepreneur starts a new venture, he or she usually needs a little bit of money to turn the idea into the beginnings of an actual business that can reach out to customers and later-stage investors. Depending on the business, this money known as seed capital - might allow the entrepreneur to build a minimum viable product (technology startups), buy equipment (manufacturing startups), lease space and acquire inventory (retailing startups) and so forth. Every startup is different, but as the costs of starting a business have come down drastically due to the Internet and other technological innovations, an increasing number of entrepreneurs find that a little bit of seed capital - 150,000 or less - can get them a long way.

Making Investments Through Seedrs


How do I use Seedrs to invest in startups? Seedrs allows you to learn about startups that are looking for capital, make investments in the ones you like and watch as the businesses you've invested in grow, all directly through the website. Whenever there is a return on your investment such as when the business pays a dividend, floats on a stock exchange or is bought by another company - the money will get paid directly to you. Does Seedrs vet the startups that are seeking capital through the platform? Yes. We review all of the information that a startup provides, as well as evidence it submits to support factual statements, and we only post the startup for investors to see if we conclude that the information is fair, clear and not misleading. Will Seedrs advise me which startups to invest in? No. While we confirm and approve all the information provided by each startup, we generally do not make our own judgement about whether it's a good business. We believe that when it comes to startups, a large number of small investors are better suited to assess the businesss prospects than a few professional managers. That said, we do our best to exclude businesses that are proposing to do something illegal, unethical or just downright stupid. Is there a minimum or a maximum that I can invest in a startup through Seedrs? The minimum is 10 per investment. Given the risk profile and returns distribution of startups as an asset class, however, we ask that you commit to building a balanced portfolio of not less than 1,000. By "balanced portfolio", we mean at least 15-20 individual investments. If your portfolio of investments by the end of your first year of membership does not meet or exceed the 1,000 investment level, we have the regulatory obligation to contact you to understand why, and we may suspend further investment opportunities from those who are unable to justify their position satisfactorily. The maximum you can invest is however much money the startup is seeking, less anything that's already been committed by other investors. However, you will also be subject to a limitation of investing no more than 20% of your declared net assets in aggregate through Seedrs (unless you self-certify as a "high net worth individual" or a "sophisticated investor"). Is there a minimum or a maximum that a startup can raise through Seedrs?

The most that a startup can raise is 150,000. There is no minimum. Why does Seedrs limit me to investing no more than 20% of my net assets in aggregate? Startups are a high-risk and illiquid asset class, and we want to ensure that no one invests more than they can afford to lose or have tied up. Unless you self-certify as a "high net worth individual" or a "sophisticated investor", you will therefore be limited to investing up to a maximum of 20% of your declared net assets through the platform, and we strongly recommend that you allocate at least 80% (and generally more) of your net assets in safer, more liquid assets. If your circumstances change, you can revise this figure up or down at anytime. High net worth individuals and sophisticated investors are also strongly encourage to invest no more than 20% of their net assets through Seedrs. How do I calculate my "net assets"? Your net assets include all of your assets (less any liabilities) except for (1) your primary residence, (2) any rights under insurance contracts and (3) any benefits payable on termination of service, retirement or death (such as a pension). How much equity will I receive for my investment? Each startup decides how much money it wants to raise in exchange for what percentage of its equity, and your equity interest will be proportionate to the size of your investment. So, if a startup is seeking 50,000 in exchange for 20% of its equity, and you invest 500 (1% of 50,000), you will receive 0.20% (1% of 20%) of the startup's equity. How do I transfer the money to make an investment? Anytime after you join Seedrs, you can transfer money into your dedicated Seedrs account by electronic bank transfer or set up direct debits via online payment platform GoCardless. You can then use that money to make investments. If youve transferred money into the account and not yet invested it, you can withdraw it at any time. Is the money in my Seedrs account safe? Yes. Any money you transfer into your Seedrs account is held in a dedicated client money account at a major UK bank. This accountwhich is the same type of account that a law firm would use to hold money on your behalfis segregated from our own accounts. This means that money can only be taken in or out of it on your instructions, and that even if Seedrs became insolvent, there is no chance that your money could be reached by our creditors. While investing in startups is an inherently risky business, we have made sure that you dont bear any risk until you actually make an investment. What happens if I invest but the startup doesn't receive all the money it needs? You'll get your money back in full. Seedrs operates on an all-or-nothing basis, meaning that if the startup does not raise all of the money it is seeking in three months, it gets nothing. So, when you make an investment, your money becomes

committed to that startupmeaning that you can no longer withdraw it or invest it elsewherebut it continues to sit in the client money account. If the startup does not receive commitments for all of the money it is seeking, we credit the money back to you, and you can then withdraw it or invest it in another startup at anytime. Why do startups enter into a "standby period" before their listing closes? After a startup has received 100% of the investment it is seeking, it enters a standby period in case any investors exercise their withdrawal rights (everyone who invests prior to the standby period has seven days to withdraw his or her investment). During the standby period, investors can continue to invest, but the investments will only be accepted if a sufficient number of the original investors exercise their withdrawal rights. The standby period runs until sufficient new investment has been received or the listing expires. Further details about exactly how the standby period works are set forth in the Investment, Management and Nominee Agreement that each investor executes upon making an investment. Once a startup has received all the money it's seeking, will the investment definitely be completed? No. Once all the money has been invested, we conduct a legal due diligence process and negotiate a legal agreement with the startup before the investment is completed. If we identify problems in the legal due diligence process or are unable to agree legal terms, we'll cancel the investment and credit all of your money back to you, just as we would if the startup had not received commitments for all of the money it was seeking. Will my investment be public knowledge? As a default, any investment you make will be visible to other investment-authorised Seedrs members. However, at the time you make the investment you will have the option of marking it "private", which means that it won't be visible to other members (it will show up as "Anonymous"). You should note that even if you mark your investment as private, the investee company will be informed of your identity before the investment is completed, and in certain cases your investment may be recorded in public filings with Companies House or elsewhere. What is the Leedrs club and how does it work? Members of the Club will be offered exclusive access to investment incentives and will be identifiable with the Leedrs badge within and alongside their Seedrs profile. Each month, well automatically make our top 10% of investors (measured by amount invested) from the previous month, members of the Leedrs Club. Members will be notified of exclusive perks from time to time and will continue to be a part of the Club unless they end up in the bottom 25% of investors for three months in a row. If this happens, investors can earn back their place in the Club by becoming a top 10% investor again.

Eligibility to Use Seedrs


Who is eligible to join Seedrs? Anyone who is 18 or older and a UK resident may become a Seedrs member.

Anyone who is 18 or older and a UK resident may become a Seedrs member. What are the eligibility requirements in order to make investments through Seedrs? In order to make investments, you will need to complete our investment authorisation questionnaire successfully in order to show us that you have the professional judgment and understanding to appreciate the risks and considerations of investing in startups as an asset class. What types of startups can use Seedrs to raise capital? A wide range of startups can seek capital through Seedrs, including both highgrowth, technology-driven ventures along with more traditional businesses like retail stores, restaurants and professional services firms. However, we do impose two limitations: the startup must be UK-registered (or, if not yet incorporated, willing to register in the UK), and it must be pre-revenue. For our purposes pre-revenue means that the startup is not yet making money from its core business model: some businesses may only be at concept-stage, whereas others may have made some progress toward commencing trading and may even be generating limited revenues from preliminary or ancillary activities.

Legal Structure
What am I buying with my investment? Am I buying shares in the startup or something else? You are buying ordinary shares in the startup. These are the same type of shares that the founders and other early investors will usually have. We then hold those shares for you as your nominee, which is also known as a bare trustee. This is a common way of holding shares on behalf of large numbers of investors, and it means that we take care of all the administrative work around being a shareholder, such as casting votes and issuing consents. Why do you hold my shares as nominee? The nominee structure allows us to manage the investment for you while still giving you the full economic interest in the business. If you held the shares directly, you would have to deal with the various obligations and hassles of being a legal shareholder, and the startup would have to manage the administrative complexities of having a large number of shareholders. By using a nominee structure, you get the benefits of being a shareholder - financial returns as well keeping informed about the business's progress - and the startups gets the benefits of your investment without either of you having to face the burdens of a direct shareholding. What legal protections will I have as an investor? As your nominee, we will enter into a subscription agreement with the startup before completing the investment. This agreement, which is very similar to the type of agreement that business angels and venture capitalists enter when they invest in startups, provides you (and us) with a number of rights and protections. While each subscription agreement may be slightly different, it will generally include provisions such as a requirement that the company provide information to investors on a regular basis (known as information covenants), a requirement that if the company is sold the investors are able to sell their interests alongside the founder (known as

tag-along rights) and a number of other provisions. In addition, you will be party to an agreement with us (which you will execute on-line as part of making an investment), and this sets out certain additional rights. If you have any questions about specific legal terms, we encourage you to e-mail us, and well provide you clarification as soon as we can. What's to stop the entrepreneurs from running away with my money? Us. We have a number of measures in place - including upfront checks as well as imposing personal liability on the entrepreneurs for fraud and pursuing criminal charges where appropriate - to ensure that the startup uses the investment for genuine business purposes. The entrepreneurs may make bad business choices, and that's a risk you bear as an investor, but if any entrepreneur tries to act dishonestly we will investigate and, if appropriate, pursue legal action against him or her. That said, we believe that 99.9% of entrepreneurs are well-intentioned people trying to create great businesses, and we expect only to have to use these measures on rare occasion. What will the tax treatment of my investment be? In the absence of any relief, your shares will be treated similarly to any other equity investment you might hold, such as shares of a company quoted on the London Stock Exchange. However, many of the startups raising capital through Seedrs are eligible for either Enterprise Investment Scheme (EIS) or the even more favourable Seed Enterprise Investment Scheme (SEIS) relief. When you invest in one of those startups, you may be able to claim substantial tax reliefs, including up to 50% income tax relief and CGT exemption or deferral. The startups listing will make clear whether it is eligible for one of those reliefs, but you should bear in mind that your ability to claim the relief will depend on your own tax circumstances, and you should consult with a tax adviser before concluding that the relief will apply to you. Which tax reliefs are available for investing in startups? Startups that appear on the Seedrs platform may be eligible for one of two tax relief schemes: the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS).

The Seed Enterprise Investment Scheme offers eligible investors (investing up to 100,000 per tax year) a combined tax relief of up to 100.5% of their investment through income tax and CGT reliefs. For example, on an investment of 1,000 into an SEIS qualifying startup: 50% of the investment (500), may be deducted from an eligible investor individual income tax return; For 2012/2013 only, capital gains realised during the year can be re-invested into eligible startups without paying CGT, saving a further 28% (280); If you sell the SEIS shares at a profit, you wont pay any CGT; and If you sell the SEIS shares at a loss, you may be eligible for loss relief of up to an additional 22.5% (225). SEIS is a highly tax-advantageous incentive for kick-starting the economy and

encouraging participation in exciting, new, high-risk/high-reward businesses. Our SEIS page has more information on eligibility for investors and entrepreneurs, along with explanatory videos.

The Enterprise Investment Scheme (EIS) offers eligible investors the opportunity to claim back up to 30% of their investment in eligible companies through income tax relief (for investments of up to 1 million). Additionally, you wont pay any CGT on the disposal of shares at a profit, and you may be able to claim loss relief if you dispose of them at a loss.

For both SEIS and EIS, the HMRC imposes certain conditions in order to prevent tax avoidance. These include a requirement that you hold the shares for at least three years and a requirement that the company not engage in a list of prohibited trades, among others. You can find more information on the conditions for claiming SEIS and EIS reliefs on the HMRCs website (http://www.hmrc.gov.uk/eis/). In what tax year will my investment be deemed to be made? When you invest in a startup through Seedrs, there is a period of time between when you commit your funds and when we complete the investment in the company. This is because we only complete an investment after the startup has reached 100% of its funding target and we have finished our legal due diligence process. For tax purposes, your investment will be deemed to have been made when we complete the investment into the company, not when you commit your funds through Seedrs. For example, if you invest in a startup through Seedrs in March 2013, and we complete the investment in May 2013, you will be deemed to have invested during the 2013-2014 tax year. We appreciate that this can cause some uncertainty for tax planning purposes, and because we do not know how long it will take a given startup to reach its funding target and finish due diligence, we cannot predict exactly when we will be able to complete an investment in it. However, the law includes extensive carryback provisions for purposes of SEIS and EIS reliefs, which means that in many cases the year in which the investment is completed will not materially affect your tax position. In particular, HMRC has announced that you will be able to take advantage of the one-year CGT holiday for SEIS even if you make your investment in 20132014 (although the disposal in respect of which you have CGT liability must have been made in 2012-2013). For more information on the carryback (and other) rules that will apply to your investments, please visit the EIS (http://www.hmrc.gov.uk/eis/) and SEIS (http://www.hmrc.gov.uk/seedeis/index.htm) sections of HMRC's website. Is Seedrs authorised by the Financial Services Authority (FSA)? Yes. You can see the full details of our authorisation, including our full scope of permissions, on the FSA Register (http://www.fsa.gov.uk/fsaregister).

Post-Investment Process

Do I need to manage the investment once I've made it? No. We manage the investment as your nominee, including signing documents, casting shareholder votes and dealing with the various other administrative requirements of being a legal shareholder. However, we'll keep you up to date on how the business is doing, and you can check the "My Investments" section of the website to read updates from management, media links and other information. Can I stay involved with the startup after Ive invested? Absolutely. In addition to watching the businesss progress through the Your Investments section of the website, youre welcome to reach out to the business to offer support, advice or mentorship at anytime. One of the biggest benefits to a startup in using Seedrs to raise capital is that it can tap the expertise and wisdom of its large base of investors. How will the startup use my investment? In the information you see about each startup before you decide whether to invest, the business may disclose what they intend to use the investment for. But startups need to be flexible, and if it turns out that they find a better way to use the money to grow their business, they can do so. How do I make money off my investment? The main way you can make money of your investment is if you sell your shares. This is most likely to happen if the business is bought by another company or floats on a stock exchange. However, if you are able to find a private buyer (and that person is or becomes a Seedrs member), you are welcome to sell your shares to him or her on whatever terms you agree. In addition, you will receive any dividend the startup pays on your shares. How will you distribute this money to me? Any money you receive from an investment will be credited to your Seedrs account. You can then withdraw that money, or invest it in another startup, at anytime. May I make a follow-on investment in a startup's future financing rounds? Although we will not facilitate subsequent financing rounds directly, where possible we will let you know when the startup is looking to raise more money, and you will be free to discuss making an investment with its management. There is no guarantee that they will let you do so, but startups rarely object to their early investors investing more money in a later round. What happens if the startup I invest in fails? In some cases the startup will either be wound up or sold for a nominal price, while in other cases the business won't formally shut down but we'll write off the investment and dispose of the shares. Any proceeds from these processes will be distributed to you (just as if the shares of a successful startup had been sold), but they're likely to represent far less than your original investment, and there may not be any proceeds at all.

Seedrs in Context
Why do I need Seedrs to be able to invest in startups? Unless you're extremely wealthy and have lots of time on your hands, it is very difficult to invest in startups the "traditional" way as a business angel. Due to transaction costs and other considerations, most angels find they need to invest at least 10,000 per startup; and because this is such a hit-or-miss type of investing, many angels try to invest in at least 10 startups and often more. This means that to be an angel, you generally need to have 100,000 or more that you can allocate just to startups (which means you need to have far more than 100,000 in order to build a diversified portfolio that includes safer assets), and you also need to have the time find, negotiate and execute a large number of off-line investments. If you have that much capital and time available, you might not need Seedrs (although we can still provide you with access to startups you might not otherwise find). For everyone else, though, Seedrs gives you the chance to invest small amounts of money through a streamlined, on-line process, which means that we're the one way to participate in the benefits of startup investing without having both a fortune and tons of time to spare. Is Seedrs an angel network? No. Angel networks introduce investors and entrepreneurs but tend not to get closely involved in the investment processits up to each investor and each entrepreneur to negotiate a deal individually and get lawyers to draft up the necessary contracts. Seedrs is a full investment platform, allowing investors to invest capital in startups directly through the platform. Is Seedrs a fund? No. In a fund, your investment would be pooled into several different investments. When you invest in a startup through Seedrs, you are investing solely in the startup you choose. Is Seedrs like peer-to-peer lending? There are similarities but also important differences. The concept of having many people provide finance in small quantities via the Internet was pioneered by peer-topeer lending platforms like Zopa, Funding Circle and Kiva, and our founders were inspired by those models when creating Seedrs. However, there are two major distinctions between peer-to-peer lending and Seedrs. First, Seedrs is about seed finance - investing capital in startups - whereas most peer-to-peer lending sites focus on personal finance or later-stage businesses. And second, Seedrs is about equity investment rather than debt, which means that investors who use Seedrs can achieve much higher returns than they would in peer-to-peer lending, but they also bear the risks of the business and won't get their original investment back if the business fails. Is Seedrs a form of crowdfunding? Yes. Crowdfunding is a broad term that has come to be used for a wide-range of financing techniques, including charitable and political donations, art patronage and entrepreneurial finance. Most forms of crowdfunding have not provided funders with

a potential for return: they usually rely on altruistic giving or non-monetary rewards. Seedrs is one of the only platforms in the world that allows people to invest, rather than donate, and therefore receive genuine financial returns when their investments are successful.

Risks
Are startups a safe investment? No. The equity of a startup is considered a high risk investment, and in most cases none of your money will be returned. The goal with this type of investing is to invest in one or several startups that perform so well that they more than compensate for the ones that don't work out. But as there's no guarantee that you'll pick one of the big winners, you should only invest money you can afford to lose. Is there a chance I could lose more than I invested? None whatsoever. As an equity investor, your liability will be limited to the amount you invested, which means that even though you might not get your investment back, you can't be called on to pay anything more no matter what happens to the business. What are the main risks of investing in startups? There are three key risks when investing in a startup. The first is simply that the business will fail, and you won't get any of your money back. But even if the business succeeds, your investment is likely to be illiquid for a substantial period of time often a number of years - meaning that you are unlikely to be able to sell the investment, and you probably will not receive dividends from it either. Finally, there is the risk of dilution: if the startup raises more capital later on (which most successful startups need to do), the percentage of equity you hold in it will decrease relative to what you originally had. See our Risk Warning (http://www.seedrs.com/risk_warning) for additional details on these risks. Should I invest all of my money in startups? Absolutely not. We strongly recommend that you invest most of your capital in safer, more liquid assets, such as mutual funds, bonds and bank deposits. As a rule of thumb, active angel investors tend to invest no more than between 5% and 15% of their capital in startups, and we limit you to investing a maximum 20% of your declared net assets in aggregate through Seedrs. Whatever proportion of your money you choose to invest, the most important thing is that you can afford to lose all of it. Of the money I invest in startups, should I invest most of it in one business or small amounts in multiple businesses? We think that the better practice is to invest small amounts in multiple startups. Because the distribution of returns from startups is highly skewed - meaning that the majority of startups fail, and most of the profits come from a few big successes - you are more likely to make a profit by investing in a number of startups in the hopes that the successes of a few outweigh the losses of the rest.

Fees

What fees will you charge me for investing in startups through Seedrs? The only fee we will charge you is 7.5% of the profits you make off of any investment. This means that you will not pay us anything in order to join as a Seedrs member, browse startups or make investments, and you wont pay us anything when you receive less money back from your investment than the amount you invested. You just share a bit of the upside with us, which means our incentive is to see you make money off your investments. Do you charge entrepreneurs a fee for raising capital through Seedrs? Yes. We charge startups a fee of 7.5% of the money they successfully raise through Seedrs. This means that we do not charge startups a fee to seek capital. We feel that so-called pay-to-pitch models deter many great entrepreneurs because they risk losing money even if they dont get investment. Our fee model ensures that entrepreneurs only have to pay us if they raise money through us, and we think this is important to attracting high-potential startups.

Entrepreneurs
Raising Capital for Startups
Why might I need capital for my startup? Many entrepreneurs need just a little bit of money to turn their idea into the beginnings of an actual business that can reach out to customers and later-stage investors. Depending on the business, this money - known as seed capital - might allow you to build a minimum viable product if you're a technology startup, buy equipment if you're a manufacturing startup, lease space and acquire inventory if you're a retailing startup, and so forth. Every startup is different, but as the costs of starting a business have come down drastically due to the Internet and other technological innovations, an increasing number of entrepreneurs find that a little bit of seed capital - often 150,000 or less - can get them a long way. What types of seed capital can I raise? There are broadly two types of capital available to any business: debt and equity. Debt is a contract between you and a lender: you're required to pay the loan back on agreed terms - such as in a specified time period and with a certain amount of interest - and if you fail to pay, the lender can sue you or force you into bankruptcy. By contrast, equity is an ownership interest purchased by an investor: the investor shares the risks and rewards of the business with you proportionate to the size of the ownership interest, which means that if the business is successful you both participate in the upside (either through appreciation in share price or dividends, or both), while if the business fails you both walk away and move to new opportunities. Should I raise debt or equity seed capital? We think that equity is a much better option than debt for startups, because equity creates a greater alignment of interests between the funder and the entrepreneur. Startups, by their nature, tend to involve a lot of risk and a high likelihood of failure. If you raise debt capital and your business doesn't work out, the lender can still insist

on being repaid - which in many cases means you have to pay them back personally or else declare bankruptcy. And even if the business goes well, lenders usually want you to start repaying them very quickly, so you're forced to take cash out of the business that you could be using to expand. Equity, meanwhile, allows you and your investors to share the risk of the business, so you don't wind up personally ruined if the business fails, and it's in the investors interest to see you grow the business rather than pay out cash quickly. Once your business has grown and become less risky, you may find debt is a useful option to finance expansion or working capital needs, but when you're raising seed capital we feel that equity is the way to go (thats why we built a platform for investing equity!). Who can I raise equity seed capital from? Some entrepreneurs start with lots of spare savings or the proverbial rich uncle, but for those who don't your options are actually pretty limited. Venture capitalists are the main institutional investors in early-stage businesses, but only a very few of them invest true seed capital: most want to see some progress in the business first, so when you're still at seed-stage they're off-limits. Some very wealthy individuals known as angel investors do invest seed capital, but its actually a pretty small proportion of the angel community (a recent study showed that only 2%-3% of angel investments in the UK are seed investments), and finding an angel who not only does seed investment but happens to be interested in your particular area of business can be like finding a needle in a haystack. As a result, many entrepreneurs get stuck in a paradox, where they can't raise money to build their business but they can't build their business without money, and it's because of this that many great entrepreneurial ideas never get off the ground. That's where Seedrs comes in.

Seeking Investment Through Seedrs


How do I use Seedrs to raise capital for my startup? Seedrs allows you to raise equity capital from friends, family, members of your community and the crowds, all directly through our website. You can create a listing for your startup at anytime - your listing will consist of answers to questions about your idea, market and team, as well as how much money you are seeking to raise in exchange for how much equity. You can also upload a short video pitch. Investors will be able to view your listing, and if they like what they see they can invest in you directly through the website. Who are the investors who use Seedrs? Seedrs was established to allow sophisticated people who dont have both vast fortunes and tremendous amounts of time to build a diversified portfolio of investments in startups. Our target investors include active professionals, business owners and managers, academics and similar types of people who dont have both the capital and time required to be a traditional angel investor. How do investors find out about Seedrs? We actively market Seedrs to our target investors, using PR, social media, conferences and other tools to communicate to potential investors the benefits of investing in startups through Seedrs. However, we encourage you to tell your friends, family and members of your community about your listing. People are far more likely

to invest in startups run by entrepreneurs they know, so while you'll likely get some investment from people who find you on their own, you may get much more from people you bring to the site. Will Seedrs vet my startup before I can seek capital? Yes. We review all of the information that you provide when you create your listing, and we ask you to submit evidence to support factual statements. We will only post the listing for investors to see if we conclude that the information you've provided is fair, clear and not misleading (and even then, we won't post the listing if we think you're doing something illegal or unethical, or you're just a complete loon). Will Seedrs advise investors to invest in my startup? No. While we confirm and approve all the information provided by each startup, we do not make our own judgement about whether it's a good business. We believe that when it comes to startups, a large number of small investors are better suited to assess the businesss prospects than a few professional managers. Is there a minimum or a maximum amount of seed capital I can raise through Seedrs? The most that you can raise is 150,000. There is no minimum. How much equity should I offer exchange for the investment? You get to decide how much equity you want to offer, and investors can take it or leave it. As general guidance, we think that for an investment of 100,000, between 20% and 40% of a your company's equity is what investors are likely to expect, with proportionately more or less for a larger or smaller investment. But every business is different, and you will need to choose the percentage that you think is most likely to incentivise investors to allocated capital to you. Is there a minimum or a maximum that an investor can invest in my startup through Seedrs? The minimum an investor can invest is 10. The maximum he or she can invest is however much money your startup is seeking (less anything that's already been committed by other investors), subject to the limitation that an investor can invest no more than 20% of his or her declared net assets in aggregate through Seedrs. How can I protect the confidentiality of the my idea? You can't, but confidentiality is the last thing a new startup should be worrying about. Sharing your idea is critical to raising funds, attracting collaborators and building your product. What about the risk that someone steals the idea in the process? Well, Eric Ries provides a very clear answer to this in The Lean Startup: "The most common objection I have heard over the years to building a minimum viable product is fear of competitors - especially large established companies stealing a startup's idea. If only it were so easy to have a good idea stolen! Part of the special challenge of being a startup is the near impossibility of having your idea, company or product be noticed by anyone, let alone a competitor. In fact, I have often given entrepreneurs fearful of this issue the following assignment: take one of your ideas, find the name of the relevant product manager at an established company who has responsibility for that area, and try to get them to steal your idea. Call them

up, write them a memo, send them a press release - go ahead, try it! The truth is that most managers in most companies are already overwhelmed with good ideas.Their challenge lies in prioritization and execution, and it is those challenges that gives a startup hope of surviving. If a competitor can outexecute a startup once the idea is known, the startup is doomed anyway..." What if I don't receive all the money I'm seeking? Seedrs operates on an all-or-nothing basis, which means that if you don't raise everything you won't receive anything. Your listing will be active for three months, and if insufficient investment has been raised by the time the listing expires, investors will have their money refunded in full. However, you're free to try again by creating a new listing at anytime. Once I've received all the money I'm seeking, will the investment in my startup definitely be completed? No. Once all the money has been invested, we need to conduct a legal due diligence process on the business and enter into a subscription agreement with you before the investment is completed. In most cases this should be a quick and painless process, and once it's done we'll transfer you the money in exchange for your shares. If we identify problems in the legal due diligence process or are unable to agree legal terms, the process may get drawn out, and ultimately we retain the discretion to cancel the investment and return investors' money.

Eligibility to Use Seedrs


Who is eligible to join Seedrs? Anyone who is 18 or older and a UK resident may become a Seedrs member. Can all Seedrs members seek to raise capital through the platform? Yes. Can I seek capital through Seedrs for any type of startup? Not entirely. A wide range of startups can seek capital through Seedrs, including both high-growth, technology-driven ventures along with more traditional businesses like retail stores, restaurants and professional services firms. However, we do impose two limitations: the startup must be UK-registered (or, if not yet incorporated, willing to register in the UK), and it must be a new business. For our purposes "new business" means that the startup is either pre-trading or has been trading for less than 1 year: some businesses may only be at concept stage, whereas others may have already launched into the market. Can all Seedrs members make investments? No. In order to make investments, an investor must either complete a short questionnaire to demonstrate to us that he or she understands the risks and considerations involved in these types of investments, or else an investor can selfcertify as a high-net-worth individual or a sophisticated investor.

Legal Structure
What type of equity will my startup need to issue? The startup will be asked to issue ordinary shares. These are the same type of shares that you, your co-founders and other early investors will usually have. Will my startup issue the shares directly to the investors? No. You will issue the shares to us as nominee of the investors. This is a common way of holding shares on behalf of large numbers of investors, and it means that we are the sole legal shareholder for you to deal with on administrative matters, such as casting votes and issuing consents. Why does Seedrs use this nominee structure? The nominee structure allows us to manage the investment for investors while still giving them an economic interest in your business. If the investors held your shares directly, you would have to deal with the administrative burdens of having a significant number of geographically-dispersed shareholders, and in turn each of them would have to deal with the various obligations and hassles of being a legal shareholder. The nominee structure means you only have to face one legal shareholder - us - just as you would a venture capital firm or angel, and the investors don't have to worry about day-to-day management of their shareholdings. What approach will Seedrs take to managing the investment as nominee? We think that at a startup's earliest stages, it makes most sense for shareholders not to breathe down management's necks and instead to let you get on with growing your business. In our subscription agreement, there will be a few requirements and provisions in order to protect the investors, but we won't ask for a board seat or otherwise interfere in day-to-day management. Will investments in my startup be eligible for EIS or SEIS tax relief? Potentially. When you create your listing, you will complete a questionnaire that allows us to evaluate whether you may be eligible for the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS). If we determine that you are eligible, we will note that on your listing, and then we will work with you to file the necessary paperwork with HMRC. Both EIS and, especially, SEIS, provide significant tax reliefs to investors, so if you are eligible, many investors will be more likely to invest in your business. But you're welcome on the platform even if you're not eligible, and you're also welcome to opt out. You can find more information about EIS and SEIS in a handy chart (http://seedrs.files.wordpress.com/2012/06/eis-andseis-table-june-2012-v1.pdf) we've prepared, and we'd encourage you to speak with your tax adviser should you have any questions about how it works. Is Seedrs authorised by the Financial Services Authority (FSA)? Yes. You can see the full details of our authorisation, including our full scope of permissions, on the FSA Register (http://www.fsa.gov.uk/fsaregister).

Post-Fundraising Process

In addition to capital, I need mentorship and support for my startup. Does Seedrs provide this? Yes. The main form of mentorship and support you will get will be from your investors. We find that often the most useful thing for a startup (other than capital) is connecting with the right specialist, and then you can decide how and whether you want to work with him or her. Having several hundred people from a range of backgrounds, all of whom have a vested interest in the success of your business, is likely to be very valuable to you and somewhere in that crowd there is likely to be someone who can help you with what you need when you need it (as well as lots of people who can test your product and act as early-adopters and mavens). Additionally, we will be very happy to introduce you to our extensive network of mentors, advisers, vendors and later-stage investors. Will you keep the investors informed about how my business is progressing? Yes. We'll pass along to the investors updates you send us, media links and other information, all of which they'll be able to access all this information through the "My Investments" section of the website. What will my startup be allowed use the money we raise for? When you create your listing, you'll be given the opportunity to disclose what you intend to use the investment for. But we recognise that startups need to be flexible, and if it turns out that you find a better way to use the money to grow your business, you'll be largely free to do so. How do investors make money off their investment? The main way investors can make money of their investment is if they sell the shares they own. This is most likely to happen if your business is bought by another company or floats on a stock exchange. The investor may also sell his or her shares to a private buyer, but that buyer will need to be (or become) a Seedrs member and enter into a nominee arrangement with us, just as the initial investor did. In addition, investors will receive any dividend your startup pays on his or her shares.

Seedrs in Context
Why do I need Seedrs to raise capital for my startup? Seedrs is the easiest way for you to access the capital of people who want to invest in startups but do not have both the money and time to be traditional angel investors. This could include many of your friends, family and members of your community, along with other people across the country who are interested what youre doing and want to share in your success. Due to transaction costs and other considerations, it is very difficult to raise capital from these people on your own, while Seedrs makes it a straightforward and simple process for you. Is Seedrs an angel network? No. Angel networks introduce investors and entrepreneurs but tend not to get closely involved in the investment processits up to each investor and each entrepreneur to negotiate a deal individually and get lawyers to draft up the necessary contracts.

Seedrs is a full investment platform, allowing investors to invest capital in startups directly through the platform. Is Seedrs a fund? No. In a fund, investors investment would be pooled into several different companies. When an investor invests in a startup through Seedrs, he or she invests solely in the startup chosen. Is Seedrs like peer-to-peer lending? There are similarities but also important differences. The concept of having many people provide finance in small quantities via the Internet was pioneered by peer-topeer lending platforms like Zopa, Funding Circle and Kiva, and our founders were inspired by those models when creating Seedrs. However, there are two major distinctions between peer-to-peer lending and Seedrs. First, Seedrs is about entrepreneurial finance - investing capital in startups - whereas most peer-to-peer lending sites focus on personal finance or later-stage businesses. And second, Seedrs is about equity investment rather than debt, which means that investors who use Seedrs can achieve much higher returns than they would in peer-to-peer lending, but they also bear the risks of the business and won't get their original investment back if the business fails. Is Seedrs a form of crowdfunding? Yes. Crowdfunding is a broad term that has come to be used for a wide-range of financing techniques, including charitable and political donations, art patronage and entrepreneurial finance. Most forms of crowdfunding have not provided funders with a potential for return: they usually rely on altruistic giving or non-monetary rewards. Seedrs is one of the only platforms in the world that allows people to invest, rather than donate, and therefore receive genuine financial returns when their investments are successful.

Risks
What is the downside to raising equity capital through Seedrs? Anytime you raise equity capital, including through Seedrs, the one drawback is that if your business is successful you'll need to share some of that success with your investors. This may mean seeking an exit opportunity, such as a sale of the company or flotation, at some point, or else it could mean paying some of your profits out in dividends. Most entrepreneurs are happy to accept this trade-off, as in practice it usually means that they get a slightly smaller piece of a much larger pie. But if you're really determined to keep ownership of 100% of your business, then you should look for other ways to finance it. If my startup fails, is there any chance I can be personally liable to the investors? Not so long as you act honestly and put genuine efforts into the business. Equity investment is about risk-sharing, so if you try to make the business succeed and it just doesn't work out, everyone simply walks away. However, if you use the investment you receive dishonestly or simply spend the money down without actually trying to make the business work, that's a different story - on behalf of the investors,

we will seek damages from you personally, and if we believe your behaviour amounts to fraud, we will consider pressing criminal charges. So, assuming you're among the 99.9% of entrepreneurs who we believe are well-intentioned people trying to create great businesses, you have nothing to worry about, but if you're thinking about pulling a scam or just not bothering to work on your business, then for your own sake we'd suggest that you not use Seedrs. Will I still have control of my business if I raise equity capital through Seedrs? So long as you retain just over 50% of your business's equity, you will keep control of it. For this reason, we would suggest that you do not offer more than 50% of your business's equity in exchange for the money you raise through Seedrs. Will potential later-stage investors be bothered that I have so many investors in my business? They shouldn't, because we act as the sole shareholder. Venture capitalists and other later-stage investors often don't like to invest in businesses with lots of geographically-scattered small shareholders, as it can make the logistics of investing - and exiting - very complicated. But in your case, there will just be one legal shareholder, us, who can sign documents and handle other logistics quickly and effectively, and that is the ideal scenario from most later-stage investors' point of view. Meanwhile, the fact that you have so many investors acting as supporters of your business is likely to be very appealing to later-stage investors.

Fees
What fees will you charge me for raising capital through Seedrs? The only fee we will charge you is 7.5% of the money you successfully raise through Seedrs. This means that we do not charge you anything unless you raise money we dont believe in pay-to-pitch. We also do not charge you legal fees, and because we use largely standardised documents, you may not even need to hire lawyers yourself. Do you charge investors a fee for investing in startups through Seedrs? Yes. We charge investors 7.5% of the profits they make off of any investment. This helps ensure that, just like you and your investors, were incentivised to see your business succeed.

Technical Issues
Why is my browser unsupported? Unfortunately different browsers deal with web pages in different ways. Some display a page in a certain way while some others may display it in a different way. Some may even not be able to display it at all. This forces us to test our web site using several combinations of browsers and browser versions to make sure that you get the best possible experience when using the Seedrs website. However, since there are so many combinations of browsers and browser versions we are not able to provide support for all of them. You can always use the Seedrs website with an unsupported browser but you may not be able to enjoy it the way we designed it and

you may even lose some of the functionality. So, to enjoy the web in the best possible way please update your browser to its latest version or see our list of supported browsers. Thank you. What browsers does the Seedrs website support? We support the following browsers: Firefox 3.6 or above (http://www.mozilla.com/firefox/); Google Chrome 10 or above (http://www.google.com/chrome); Microsoft Internet Explorer 8 or above (http://www.microsoft.com); Opera 11 or above (http://www.opera.com/); Safari 5.1 or above (http://www.apple.com/safari/). We strongly recommend that you use a supported browser when visiting Seedrs. If you use an unsupported browser, you may not be able to enjoy parts of the website in the way we designed them, and in some cases you may even lose functionality. Seedrs Limited is authorised and regulated by the Financial Services Authority (No. 550317). Seedrs Limited 2013. All rights reserved. Seedrs is a registered trademark (EU Reg. No. 008771537) of Seedrs Limited, a limited company registered in England and Wales (No. 06848016), with registered office at 2 Chapel Place, Rivington Street, London EC2A 3DQ, United Kingdom.