Last week marked the fifth anniversary of Seedrs launch. Five years is a nice milestone for reflection and I thought I would use this chance opportunity to share something that I wrote shortly after we launched. It was sent as an email to our then-small team of 10 or so, and it was an attempt to codify and contextualise for them my vision for Seedrs. Five years in, that vision remains the same and as I look back now at what I wrote I wouldn’t change a single thing.
One of my greatest inspirations in business is Charlie Merrill, the founder of Merrill Lynch. For those who don’t remember the pre-credit crunch days, Merrill Lynch was once one of the leading global investment banks and brokerage firms: it was acquired, on the verge of bankruptcy, by Bank of America in 2009, but that ending belied its history as one of the greatest names in finance in the 20th century.
By its final days, it had become a massive institution with a whole range of products and services and largely indistinguishable from the likes of Goldman Sachs or JPMorgan, but its origins were very different from those of its competitors. It is those origins, and the vision that Charlie Merrill had, that I have always felt should be a key analogy and inspiration for Seedrs.
Charlie began his career around 1910 in a clerk-level position at a medium-sized Wall Street financial house. At the time, ownership of stocks (shares) and bonds in America was the preserve of the elite: only the very rich had the opportunity to invest capital in this way, and the middle class could do little with their savings other than let the money sit in a bank account earning minimal interest (as a side note, the middle classes were lucky at least to have bank accounts — most banks shunned the working classes altogether, and until Bank of America pioneered the concept of bank accounts for the common man in the first decade of the century — which was itself one of the greatest financial innovations in history — they kept what money they had under the mattress).
This entrenched, elitist approach to finance didn’t sit well with Charlie.
The dominant Wall Street firms of the day, which included the House of Morgan (which would later split into JPMorgan and Morgan Stanley), Goldman Sachs, Kuhn Loeb (one of the few major ones that did not survive the years in some form) and others liked it this way and perpetuated the elitism of the markets. They enjoyed the ‘clubbiness’ of a small, tightly-knit financial community, and the lack of competition it engendered meant they could keep commissions and prices high and had no need to innovate. So they created the public impression that stocks and bonds simply weren’t suitable for the middle classes, and that the elite should be allowed to go about their business of accumulating more wealth while the middle classes toiled away for their salaries and never had a chance to put their savings to work.
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This entrenched, elitist approach to finance didn’t sit well with Charlie. The son of a Floridian doctor, he came from a classic middle-class background (he would have called it “upper middle class” due to the slight difference in the way class is described in the U.S., but in the English/classical sense he was squarely middle class), and he recognised that stocks and bonds could be a vastly sensible investment for people from his background. So around 1915, he and his friend Lynch co-founded what would become Merrill Lynch, and one its founding objectives was to open the world of investing to the middle classes around the country.
As it happened, Merrill Lynch made only moderate headway in its first attempt at democratising investment. It did face significant opposition from the Wall Street elite, but it was other factors that got in the way more. First America’s entry into the Great War disrupted operations (Charlie himself served in France), and then when business returned to normal, several unusual and highly lucrative investment banking opportunities came to Merrill Lynch, and the firm began to focus less on brokerage and more on financing a handful of large companies. By 1930 Charlie had moved out of the finance business altogether – he handed the firm over to his partners and headed out to California to help build the Safeway grocery chain (which had been one of the firm’s major clients).
Ten years later, though, he was back. The Depression had driven his old firm to the verge of bankruptcy, and he came in to rescue it. This time, however, he decided to put full focus on his original idea of bringing the stock market to Main Street and over the coming decades Merrill Lynch radically changed the way that the mass affluent allocated their capital.
By the time Charlie died in 1956, ownership of stocks and bonds was commonplace throughout America and in every small city or large town there was sure to be a Merrill Lynch office staffed with brokers ready to help them make investments.
I view what we’re doing for startups as being very similar to what Merrill Lynch did for stocks and bonds.
The impact of this is very difficult to overstate: although the public markets have had a rough time since 2000, their long-term performance remains astonishingly strong: if you had invested $100 in the Dow Jones Industrial Average (or, more precisely, in an instrument that tracked it) in 1950, the capital appreciation alone as of today would have been about 8,250%; if you include dividends, it would have been far more. Millions of people have found that their net worth has increased materially in excess of the rate of inflation as a result of this, and in turn the capital provided by all these retail investors was instrumental in fuelling America’s fifty-year post-war economic boom.
I view what we’re doing for startups as being very similar to what Merrill Lynch did for stocks and bonds. The media are different—we’re not setting up bricks-and-mortar offices in every town — but the principles hold very closely. I firmly believe that the public markets are in a long-term period of stagnation: there will always be opportunities to make money investing in particular quoted companies, but the advent of high-frequency trading and the universal availability of real-time information has made the public markets a speculator’s paradise where long-term growth is increasingly becoming squeezed.
I believe that non-public companies – and in particular startups – are much better growth investments in the coming years and that they have the chance to do for the mass affluent wealth what public shares did fifty years ago.
How far we’ve come in five years: the vision I described in that email was far from obvious at the time, but we have now come a long way toward making it a reality.
Over the past five years, more people in Britain alive today have made an investment through Seedrs than had ever made an angel investment through any means before. Meanwhile, we have played a pivotal role in supporting the fundraising aims of a vast range of businesses, funding over 500 deals with more than £230m invested into campaigns on the platform.
We are today the most active investor in private companies in the UK, and we are quickly expanding our presence elsewhere in Europe. I look forward to the day when Seedrs is all but synonymous with growth investment and has become the genuinely mainstream way for investors of all types to build private company portfolios. We want do for the private capital markets what Merrill Lynch did for the public ones — and we’re well on our way to doing so.