Sunday, 19 August 2018

The upside down world of the EIS incentive as Redemption Brewing Co fails to gain traction on Crowdcube

What a perverse world we live in. Brewers can make up all sorts of stuff about the number of units they operate, their turnover and plans but if they have EIS they almost all get funded on Crowdcube. 

Yet a decent brewing business like Redemption, with a solid existing core and Ebitda positive accounts, which has no EIS due to its trading for more 7 years, is failing to get traction on Crowdcube.

It makes you wonder. Is getting 30% back on an investment which will never see a return and will probably fold completely, really better than investing in a company already over its teething stages but without that relief. Common sense demands the answer to be no. Clearly losing all of your remaining 70% investment isnt a good plan.

I fail to see why there is a 7 year line. Young businesses are far more risky and there is a far greater chance that the EIS reliefs will be wasted. No one checks to see if these start ups are really sensible, with sensible plans. Yet a business in its 7th or 8th year, which is producing positive Ebitda, has no access - even though it is a more sensible investment and is therefore a better use of taxpayers money. 

We really need a system that is less rigid - a 7 year cut is plain stupid. A case by case test should be allowed. I know there is an 'allowance' made for companies that can prove their new product is for a  new market, even if they are more than 7 years old but I have yet to hear of a company successfully using this option with ECF.

I havent looked in any detail at Redemption's plans.

...............Well I have now and I can see there are a few other reasons for the lack of traction - like large losses and large debts. Ah well, they dont tell you that on Crowdcube.

Saturday, 18 August 2018

Crowdcube persist with its very misleading 'invested pledges' numbers. Now over £500m. So what?

We are sad to report that despite the whole equity crowdfunding sector crying out for Crowdcube stop it, the UK's largest platform by failures amongst other measures, is persisting with its pointless 'invested pledges' PR. It now tops £500m apparently. 

Crowdcube invented this number and Seedrs soon followed suit. What it means, in plain English, is that this is the total for all the 'money pledges' on the platform for failed and successful pitches, ever. As the failed pitches are a far greater number than the successful ones, you can see that £500m is a very long way off the money that has actually been invested. 

So why do they do it? They started by trying to get away with calling this simply the total 'invested' with a small footnote explaining the above. Obviously after we pointed this out as nonsense, the FCA have asked them to be less misleading. Well £500k in pledged investment is less misleading but it is still misleading. Take for example the headline for this piece of poor journalism  -

The internet picks up these headlines and they tend to become facts. £500m has not been raised. 

It is quite obvious why Luke Lang uses this tactic - £500m is far more impressive figure than the real invested figure. But is it relevant - the amount pledged? Well not really. It is an interesting metric for internal use but is meaningless and more importantly highly misleading to the casual on looker - who might then be tempted to have a go. It's a lot like an architect punting for business by telling clients he has X million of business on his books. Actually, he has none but he has quoted for X million and all the tenders have failed; because he is a rubbish architect who over charges.

In the same article above, they state that 60% of Crowdcube investments come from HNWs and sophisticated investors. Impressive .......until you realise that both of these categories are invented by Crowdcube as part of the kindergarten signing up process - it's self assessed; you just tick a box. Any old box, no one checks. Which makes this claim, which must have come from the Crowdcube PRing Dept, total paff. 

So nothing new there. 

Monzo - £1.5bn. Really?

Hats off to Monzo. They have joined or are about to join, the hallowed ranks of the Unicorn. The unicorn is a mythical creature that no one has ever seen.

Caveat - like Brewdog, Monzo was a big name before it came to Crowdcube. Investment at the £30m valuation in 2016, was a no brainer. The company has done pretty well since and this current round for £150m is certainly looking good. 

I wasnt going to write anything about Monzo's latest funding round for £150m, which if it completes, will place them well into Unicorn territory. But some goading from a Twitter follower who thinks he's rich, has stimulated the juices.

As anyone with their head facing the right way, knows, this and all of these 'valuations' are completely spurious - apart from as a gauge as to how crazy the world has gone. Monzo shares - the ones this twit has bought (£5k's worth from all three Crowdcube rounds) are worthless today. There is not market to trade them. There may be one soon but as of today there isnt. So he cant realise that £50k he is sitting on. He might be able to do a private deal for say £10k.

With very strong headwinds heading this way in fronts that none has ever witnessed before, 2019 will be a true test of the Monzo value. We have all seen how increasing valuations mean nothing - just look at Sugru. 

My best guess is that Monzo will be worth much more than the £30m when it first appeared on Crowdcube. How much more is a pure guess. I doubt it will be £1.5bn. What would it take for sizable numbers of their current 800k plus users to emigrate to Revolut or perhaps a new player not yet visible? A technical glitch or some small hacking scandal? Not much. Evidence is that only a fifth of the company's users place their salaries with with it - although this is growing. It seems like a pretty sandy foundation for £1.5bn. Current losses running at £33m mean new money will almost certainly be required. Like Deliveroo and Revolut, the Monzo Unicorn isnt fussed about profits - customer acquisition is the game. But at some stage it will have to be. Then of course there is always the rise of the established banks, who are just now waking from their techphobia slumbers. Most of them already have the numbers and the profits. Image is their problem. The race is on. 

What the twit was also trying to say was that this mitigates all of Crowdcube's failures. Really? It would certainly go someway to removing the losses - the investment in Monzo via Crowdcube is worth ~£4.2m and this is now 'worth' £84m or roughly a years worth of Crowdcube investment at the current rate. But the losses to date are not the point  - as we have consistently stated. It's the number of zombies that matters plus the closed companies. Closed companies are around the 60-70 in number but add in the zombies and that number flies to around 200 plus. That loss when it materialises, will sink the as yet fictional Monzo uplift. 

Wednesday, 15 August 2018

When Brewdog met St Andrews Brewing Co....and Innis and Gunn ran away.

Is all well in the Beer Garden? St Andrews Brewing Co, currently on Crowdcube with over £500k completed of their £400k campaign, are now opening another new pub in St Andrews; where they already have one. A few yards down the same street, Innes and Gunn, another Crowdcube alumni, have upped anchor and left their St Andrews pub ambitions in tatters. 

The purchase of the new lease by St Andrews Brewing Co is confirmed in the Dundee Courier here 

This is interesting on a few levels. 

Firstly St Andrews Brewing make absolutely no mention of this new unit in St Andrews in any of their Crowdcube plans - the ones used to entice £500k of investment. But the pitch is live and I'm sure investors would like to know more. In fact this new opening was mentioned in the press in April 2018. There is a very early update on the Crowdcube pitch but the plans for this 'new' unit are not included in any of their financials, PD etc.

Why, for instance, do they believe that a new unit, in such a small town, is a good use of investors new cash, when they already have one just 4 minutes walk away? Surely this is information that should at least be on the updates page (see correction above)-  it is a material fact in the investment decision. This is yet more evidence that investors are not given the full picture. Is this new lease and new expenditure on its opening, in the Crowdcube financials? Amusingly, the previous owner of the pub that will be St Andrews Brewing's new pub, has been given a 'senior management' role with the company. Checking on the accounts for Rascals doesnt make for good reading if you  are now investing in this pub - which 600 of you are. But hey, maybe St Andrews Brewing can achieve something with it that the previous manager couldnt - make some money. 

A few yards down the same street, Innes and Gunn, who opened one of their new pubs in a truly awful location, have given up. We knew they would. Innes and Gunn used Crowdcube to raise over £1m in 2016. The St Andrews unit would have cost them plenty to fit out. Since the building was renovated, it has housed a failed restaurant and now a failed pubeatery. St Andrews is not an easy town to operate retail - ask anyone who lives here. Units change hands regularly, apart from a very few stalwarts. Seasonal swings, the Links own retail operation, including large F&B offers and discount hungry students, all make a tricky mix. 

Now to put the final twist on this story. I know, via contacts in Aberdeen, that the greedy Brewdog have been looking to open in town. I also know that they looked at a site that is now to be run by St Andrews Brewery. The rest is as they say, history or is that hearsay. It probably has something to do with money. 

Can you really keep Brewdog out of a town? We think not. There are many locations in St Andrews that the dog could open in, in a swish of its mohawk tail, by offering a healthy premium. So are St Andrews Brewery really going to operate all of them? 

Monday, 13 August 2018

Glentham Capital - Nicola Horlick's crowdfunded disaster - update

Nicola Horlick's daughter Alice recently got married to Nathan Engelbrecht. Around the same time, Nicola transferred a chunk of her shares in disfunctional Glentham Capital to Nathan and her brother. A wedding present perhaps?

We have written a lot about Nicola Horlick and the Glentham Fund - here. It used Seers to raise over £400k a few years back and has done nothing since except spent it. 

It seems someone bought £250k of new shares in Glenthan in April of 2017. This is the amount Nicola Horlick owed the company. She had said it would not be paid in to buy more equity. But she appears to be new owner of 20k shares.

Alice runs Aevha - a company that used Crowdcube to raise £150k in 2015. Alice's then boyfriend and now husband is also a director. Accounts are due out next month and they are supposed to show the company in profit. New money was raised recently, which wasnt in the projections but without which the company would have been struggling. Strange increases in 'other reserve fund' are unexplained in the last accounts. Bottom line is very thin. 

Glenthan Capital itself seems to be pointless. It made another £150k loss for YE Dec17 and has no money. The fund it was intended to set up, is very reluctant to come out and be seen.

What's next - anyone's guess but I wouldnt expect it to be too good. 

Saturday, 11 August 2018

EEEEEEEEEMove get weird on Crowdcube.

Emoov recently amalgamated with two other loss making online estate agents, then they came back to Crowdcube and raised over £1m. The valuation during the raise was £102m. Now they have sent out an email revisiting this valuation and telling SHs the valuation is to be £51m - adding that this is good for them as they can have twice the number of shares. 

Hmmm. What is 2% of 0? The same I think as 4% of 0. 

In 2015, when Emoov raised £2.6m on Crowdcube, they were valued (by Emoov) at around £22m. So even £51m, albeit a paper value, is double this.

We wrote about their last raise here 

We wonder if the management have been told by institutions that £102m is way too rich for the IPO they say will happen in March2019 - even though Emoov themselves predict this will be a £130m. Halving your valuation after you have raised £1m  - however you did it - is crass. It suggests the management havent a clue.

If anyone had any doubt about the ridiculous valuations that Crowdcube allow/encourage, then this has to put it to bed. Crowdcube investors accepted £102m and are now, just weeks later, being told it's £51m. You couldnt make this up. 

Otti Prams joins the logjam of Crowdcube funded companies going nowhere.

Otti Prams raised £89k on Crowdcube in 2015. For once ambitions seemed sensible - well for their failed 2016 second raise at any rate. Unfortunately even sensible seems to be beyond them.

More losses for YE Aug 2017 beg the Q - why were they ever on Crowdcube? These latest accounts have one line that reads like a certain death sentence -

' During the period the company carried on trading, selling to House of Fraser and independent shops.' Eggs all in one pram?

We predicted this 2 years ago -

This is a classic small business with zero chance of scaling, so zero chance of a ROI for any investors apart from the owners. It is a fine business for those involved but it really shouldnt be allowed to raise funding from the public using, what seemed sensible but turned out to be, fantasy projections.