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UK start-up funding platforms scrap $190 million merger amid competition concerns

Darren Westlake, co-founder and CEO of Crowdcube, at a fintech colloquy in London, on April 12, 2017.

Simon Dawson | Bloomberg via Getty Images

LONDON — British start-up crowdfunding platforms Crowdcube and Seedrs concurred Thursday to terminate their £140 million ($192 million) merger, a day after regulators raised competition bothers with the deal.

The U.K. Competition and Markets Authority on Wednesday said it was inclined to block the deal, claiming it would manage to a “substantial lessening of competition” in the equity crowdfunding space. Were the two businesses to combine, they would control at minute 90% of the market, the CMA said.

Crowdcube and Seedrs first announced plans to merge in October. The two platforms have been acquainted with by a number of well-known U.K. start-ups, including the digital banks Revolut and Monzo, to raise capital without having to tap gamble capital or angel investors directly.

But in its provisional findings, the CMA said the deal “could result in U.K. SMEs and investors be defeated out as a result of higher fees and less innovation.”

“The CMA’s initial view is that blocking the merger may be the only way of addressing these match concerns,” the watchdog added.

Both Crowdcube and Seedrs said they were disappointed with the CMA’s decision.

Crowdcube declared CNBC that it could still thrive as an independent business and “remains in a very strong financial position.”

“We resume 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 lofty profile European businesses set to fundraise with us in the coming weeks,” a spokesperson for the firm said.

Seedrs added that it bickered with the regulator’s conclusion that the merger would be anti-competitive.

“We believe strongly and unreservedly that this combination would have a highly positive outcome for British small businesses, helping to provide vital funding for thousands of enterprising companies in the future,” a Seedrs spokesperson told CNBC.

“However, as we consider a possible future as a standalone business, we are in the strongest disposition we have ever found ourselves.”

Seedrs said it no longer plans to merge with Crowdcube and will rather than raise a new round of funding. It “will share full details of the round very shortly,” the firm said in a newsletter on Thursday.

Crowdcube and Seedrs demand long been unprofitable. Crowdcube turned its first quarterly profit only recently amid a surge in order for start-up crowdfunding. Earlier this year, Seedrs said its merger with Crowdcube was about “survival” and maintained equity crowdfunding upstarts were in a “David vs. Goliath battle” against incumbent SME financing firms.

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