The UK has scored another own goal, this time in fintech. The culprits were, as usual, the regulators who’ve taken a narrow view of the competitive landscape and handed the crowdfunding market to bigger US players. As someone who has long championed crowdfunding as an instrument of financial democratization, I can only say it’s the latest in a long line of own goals.

Anyone with more than passing knowledge of UK economic history after the second world war will spot a pattern. The UK innovates, gets to first base with a product but then doesn’t quite have the scale to move something into a global market. Said innovators then get together and try and build a stronger strategic entity but the regulators cry wolf, stop the deal and then the Europeans/Americans swoop in and grab our innovation crown jewels. In a few cases, the ‘national champion’ linger son and the government is then forced to bail them out much later.

This is the backdrop to the news today that Republic and Seedrs have got together – though it looks very much to me like a US takeover.

Here’s the detail on the latest deal:

“Republic and Seedrs announced today that they have entered into an agreement for Republic, the U.S. based private investment platform, to acquire Seedrs, Europe’s leading online private investment platform, in a deal that values Seedrs at approximately $100 million (~ £75 million). This deal will create the first global private investment marketplace with offerings across North America and Europe. The acquisition of Seedrs follows Republic’s recent $150M(~ £112.5 million) Series B financing announcement, led by Valor Equity Partners.”

As I said, that looks and feels like the yanks are taking charge (whilst allowing for the fact that there were a few yanks in Seedrs already at senior management level).

Earlier in November came the news that Seedrs rival Crowdcube had also done a ‘deal’. Here’s the detail on that:

“Crowdcube today announced that it has raised £10 million ($13.5 million) led by Circle Internet Financial, LLC, owner and operator of SeedInvest, a leading startup fundraising platform in the US.  The investment aligns two of the most prominent and pioneering platforms in their respective markets: Crowdcube is the largest equity crowdfunding platform in Europe with 1.2 million members and £1 billion invested. The strategic partnership will help pave the way to a global marketplace at every level of private fundraising, from seed stage to public offering. “

Now, this doesn’t feel quite as obvious a takeover but reading between the lines I get the distinct impression that Crowdcube is not in charge of this deal though I stand to be corrected of course.

And why have both decided to pursue ‘strategic options’? Because earlier this year the CMA vetoed their proposed merger which would have created a UK crowdfunding global player. As AltFi reported at the time (March 2021) “Following an investigation, the CMA has determined that the merger will see the new company hold a combined share of between 90 to 100 percent of the equity crowdfunding market in the UK.”

At the time I thought this was quite the lamest rationale I have ever heard. First it viewed the deal through just the UK lens, which I thought was always an irrelevance. Secondly, it ignored the wider competitive landscape in which crowdfunding is just one of many corporate finance options. Lastly, it failed to allow for ‘innovative’ new sectors to build sufficient scale to justify their internal economics i.e surely one should allow nascent, non-systemic sectors to scale first BEFORE applying a standard competitive lens.

It didn’t.

Instead, we have these two deals.

And be under no illusion this is a terrible precedent for the UK fintech market. You work your guts off to build a new product category, you are just about to get scale in your home market, aware that other international players are merging. You suggest a market rationalization and the regulators stop you dead in your tracks because it is ‘anti-competitive. Needless to say, you throw your hands up in the air and then accept the best offer from a player in a much deeper capital pool which is usually the US.  And yet again the UK loses a possible strategic player. Shame on the regulators.