darren and luke

Crowdcube founders Darren Westlake and Luke Lang (l-r)

The UK’s competition watchdog has blocked the merger between the Crowdcube and Seedrs crowdfunding platforms over concerns of higher fees for SMEs and investors.

Following an in-depth phase 2 investigation, the Competition and Markets Authority (CMA) concluded in its provisional decision that the deal would reduce competition and innovation.

The regulator said the proposed merger between the two platforms would result in the newly combined company accounting for “at least” 90% of the crowdfunding market.

The CMA’s investigation found Crowdcube and Seedrs compete closely against each other to win business from SMEs, with a significant number of businesses viewing equity crowdfunding as their only way to secure financial backing.

A deal between the two could result in small businesses in the UK, as well as investors, losing out as a result of higher fees and less innovation, the watchdog said.

“We have therefore reached the view that blocking this merger is likely to be the best way to maintain competition,” Kirstin Baker, chairman of the CMA inquiry group, added.

It creates an uncertain future for the UK’s two biggest crowdfunding businesses. However, the CMA said it had weighed up arguments from Crowdcube and Seedrs that either firm could exit the market or be forced to change strategy should the deal not get the go-ahead.

“The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out,” Baker added.

“Investment in small and growing businesses is vital to the UK economy as we emerge from the coronavirus pandemic, and we have given this deal careful consideration.”

Seedrs blasted the CMA’s decision and argued the merger would have had a “highly positive outcome” for small businesses. The platform added it was evaluating the findings and reviewing its next steps.

“We are deeply disappointed in the conclusions of the CMA’s provisional findings issued today and firmly disagree with the view that this is an anti-competitive transaction,” a spokeswoman said.

“However, as we consider a possible future as a standalone business, we are in the strongest position we have ever found ourselves. In Q1 2021, we have delivered over 100% year-on-year revenue growth, and our pipeline for Q2 is already forecast to beat our ambitious targets.”

A Crowdcube spokeswoman added: “We’re obviously disappointed with the CMA’s decision. However, Crowdcube recorded outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability. We continue to invest in our people and products and we expect to be profitable again in the first half of 2021 with an unprecedented level of high-profile European businesses set to fundraise with us in the coming weeks.”

Crowdcube and Seedrs announced plans to merge in October last year. The two companies requested the proposed deal be fast-tracked straight to an in-depth phase 2 investigation by the CMA.

Since 2011, more than £2bn has been invested in campaigns on Seedrs and Crowdcube.

Food and drink is the most popular investment sector on Crowdcube, with more than £110m invested in the industry over more than 200 campaigns, including pitches from Mindful Chef, Brewdog and Camden Town Brewery.

In 2020, 58 food and beverage start-ups chose to launch campaigns on Seedrs.

The CMA has now launched a consultation on the provisional findings and invited comments on the decision by 14 April 2021.