Saturday, 7 March 2015

Pre packed deals and Equity Crowdfunding

Somethings just dont mix. Pre packed deals and ECF are two of them.

In a recent example of just how badly wrong Crowdcube have got their ECF model, they allowed a pitch, Front Up Rugby, to come back for a third time to raise yet more money on the back of poor sales and missed projections.

The founder pitched all the usual stuff, Rugby WC in the UK in 2015, fantastic sales leads, big new customers signing up, worldwide potential etc etc. Amazingly he raised his third tranche. Of course he missed out the old projections and previous raises were not mentioned.

Shortly after this he ran out of many again - he was paying himself £30k pa on the back of large losses. A fourth time seemed unlikely so he did a pre packed deal with Lyle&Scott. They bought the assets off the administrators for £20k, book value £200k. They gave this guy a full time, well paid job and paid off his business loan. Sharp deal. Was this his plan all along?

He had on the various outings on Crowdcube always been very sure of the fact that he would put investors' interests first. Investors, by the time he closed had put in over £250,000 and outstanding creditors took the debts to over £300k. They all received nothing.

The moral here maybe caveat emptor but surely if we want this type of funding to succeed long term, investors need to know that businesses wont be closed under their noses at the whim of the directors just because they get a better deal and that it is all legal due to some rather flimsy company law. We hope that England's Rugby team have a better experience in the year's World Cup.

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