Tech entrepreneur Anders Sjunnesson wants to take equity crowdfunding to the next level, with backing from Per H Börjesson’s investment company Spiltan.
Equity crowdfunding has been presented as the new black in venture capital, but has yet to really take off in Sweden. So far the investment form has been used primarily for seed funding and is generally considered as slightly less prestigious than regular venture capital. Pepins want to change that with its new equity crowdfunding platform.
Pepins was founded by Anders Sjunnesson in 2014. He has already founded, among other, the trading platform Tbricks, which is now owned by the fintech company Orc.
Last spring, the company secretly merged with Spiltan-owned Alternativa. Pepins and Alternativa is now merging and changes its name to Pepins group with Anders Sjunnesson as one of the major share holders with almost 35 percent of the shares.
“We’re taking equity crowdfunding to a completely new level. We offer something no one else can offer in Sweden. First of all, people can make investments in privately held companies directly through our site, on the same terms as professional investors. They get a confirmation of their investment immediately after the transaction. Secondly there is a community part of the service so that investors can communicate easily with each other and the company executives. And thirdly, the stock gets some liquidity”, Kent Söderström, CEO of Alternativa, says.
Alternativa is a trading platform for unlisted companies. Some 30 companies are currently being traded at the site. Combined with the new crowdfunding platform, the company will be almost like a stock market for startups. The companies raise capital and issue new shares through crowdfunding and the new shares are then traded at Alternativas trading platform.
“We currently have over 7000 people trading at Alternativa. This gives them new investment possibilities and the connection to the trading platform gives the crowdfunders additional security. If they stop believing in the company they can always sell their shares without hunting down a specific buyer themselves”, Kent Söderström says.
We have written previously about Funded By Me, Swedens largest equity crowdfunding company. Regardless of the company’s status, Kent Söderström doesn’t really see Funded By Me as a competitor.
“We are more like international players like Seedr or Circleup. At Pepins you can make the actual investment through the site. Also, as far as I know, we’re the only platform in Sweden that is supervised by Finansinspektionen (The Swedish Financial Supervisory Authority)”, Kent Söderström says.
The seal of approval from Finansinspektionen might to prove to be very important looking forward. In December the authority presented a new investigation regarding crowdfunding. The investigation concludes that equity crowdfunding might violate the share spreading prohibition for privately held companies.
Privately held companies are not allowed to offer company shares to more than 200 people.
Pepins handles this problem by creating a system where the investors don’t get shares in the actual companies. Instead, Pepins sets up a public holding company which is owned by the crowdfunders. It’s the holding company that holds shares in the privately held company that has raised capital through Pepins.
Pepins isn’t just trying to build a more comprehensive service than its competition. The level of ambition is also significantly higher.
The company’s goal is to close 10-15 successful crowdfunding campaigns within a year. The companies are expected to raise between $500,000 and $2.3 million. If the company exceeds its own expectations, more than $35 million will be raised through the service.
In comparison, Fundedbyme has helped more than 400 companies to raise 15.6 million euros ($17 million with todays exchange rate), through equity crowdfunding since it launched in 2013.
“The companies won’t come to us for seed funding. We’re looking for companies that have already commercialized its products and need capital to expand. It can be either for international expansion or for further product development”, Kent Söderström says.
Why should companies choose crowdfunding at all, isn’t there enough venture capital in Sweden already?
“If you’re looking for $1 million it can be tempting to go directly to one person or investment firm that has that kind of money. But we bring the opportunity to get a lot more people invested in the company. Considering how much product knowledge and informations that’s spreading on the internet, having 1000 dedicated fans promoting the company is invaluable”, Kent Söderström says.
The business model is based on Pepins taking a cut of the money that is raised through the service, though Kent Söderström won’t reveal exactly how much.
Alternativa had revenues of $8 million in 2015, up from $4 million in 2014. Spiltan has invested in several other digital companies. Among others, the gaming company Paradox Interactive and Coolstuff. Pepins has yet to announce any numbers.