Another Crowdcube pitch misses its projections

Cell Guidance Systems funded on Crowdcube in 2013.

In its pitch projections it showed profits for 2013/14 and 2014/15 - £500k for 2014/15.

Accounts filed for the YE 12/14 show the company continues to make losses.

Mind the Gap.

Self ceritfication Crowdcube style - 2008 all over again.

There have been a couple of recent articles questioning the basis for Crowdcube's model - at last. Both sort of ended up rubbing up against Luke Lang - he's so cuddly.

One of the claims made by Crowdcube is that 'investors' are not simply members of the public, they have to join the site and to do this they have go through a series of FCA approved Q&As. We thought we'd test this so asked a 9 year old to join. All he needed was an email address and user name and password. He self certified that he was conscious by ticking one box and hey presto he had joined. It took him 2 minutes - half of that spent eating a banana.

So how is it that the FCA and Crowdcube and these journalists are happy with this clause at the very top of the Crowdcube Disclaimer section -

''This investment opportunity is not an offer to the public and is only available to registered members of Crowdcube.com who have qualified and categorised themselves as able to invest.''

Qualified? Catergorised themselves? Not members of the public??  We remember 2008 and the joy brought about by self certified mortgages. Who are they kidding?

Camden Town Brewery accused of bullying

We came across an episode which sheds some interesting lights on crowdfunding's claims to be the people's way.

Camden Town Brewery has been a great success to date  - it recently raised over £1m on Crowdcube to prove it - although it had to retrospectively reduce its valuation due to selling 20% to a German firm for considerably less than the crowd had paid.

That aside, it had another issue at the turn of year with a small micro brewery based in Norfolk. Redwell had a beer called Hells Larger - so do Camden. Redwell claimed that Hells is a generic German term for a type of lager - which is why they chose the name. Actually the official term in German is Helles but it's close enough we feel. So Camden have taken them to court  - the High Court where things start at £30,000. We feel that Camden have no case and that they are bullying what is a genuine small business, creating jobs in an area where unemployment is traditionally high. It maybe an interesting case - since when did Hell become the property of one company? It does Camden no favours and they should really know better.

To round this one off - Redwell tried the crowdfunding route to raise money to fight the case on Idiegogo.  It bombed. They are still selling Hells Lager so the fight is still on. 

Just Trust Pilot Park

We were curious to see how the new fully funded Just Park was getting on.

Looking at Trust Pilot reviews it seems very impressive - 9.5 out of 10 and 1000 reviews.

When you look at the reviews in date order however, at least 50% of this years - not many considering they have 1000 in total, are 1/2/3 stars. Some serious complaints about customer service - see picture above!

Even stranger is that the really good reviews kick in on 5 September 2014 and then there literally hundreds of 5 star reviews all dated 1/2/3/4 and 5 September 2014 - we gave up scrolling down as it was never ending.

So what happened to the time in between and why are all these reviews crammed into 5 days? Any ideas welcomed.

A close shave (but a swift one)

The subscription model is all the rage - Lovefilm and Graze being two successful proponents.

Crowdcube's newest pitch is also one - a shaving club called for some reason Cornerstone. Shaveclub tried this only a few months ago but failed to raise only £65k on Crowdcube. They both deal with the same German supplier, who supplies Harry's in the US.

Traction and subscriber numbers are the key to success in this model - it will take the company 3 years to get the required subscription levels to make any profit - so lets look and see if that is reasonable on a current valuation of £3.5m.

The company has a small user base - under 5000 and needs to get to 60,000 to make things work. It is investing a total of £800k to reach this stage. Compare that to say Graze, which started the company with a £6m loan. The sort of technology required to reach the Graze status and attract £50m from Carlyle, is considerably more than Cornerstone seem to realise. They will need to raise more money - they are just not telling punters that now.

Another query we would have in comparison to say both Graze and Lovefilm, is the lack of variety in a shaving service. You wouldnt expect to see the subscription model used for say loo rolls - would you?  Both films and food have a continual offer turnover with new, exciting things to retain members. Shaving can be done in a variety of ways but it is not limitless.

Look at their team. Will Hobhouse has been there and done most things consumer. He has run companies like Tie Rack and Whittards - Whittard went into adminstration only to be bought back in a pre packed deal - leaving creditors scratching their heads. Its a record of very rapid growth that is often built on sand. Caveat emptor here.

Cornerstone may well be successful - but be sure that they will have to raise more cash to get there which will dilute this round's investors and that its main backer is a sharp operator who generally comes out on top. Check the small print. It all depends if you think this team has what it takes and if the act of shaving is likely to create customer retention.

One final point. Valuations are always difficult but it would be good if people on ECF platforms would understand that this explanation is just complete nonsense. Many times when asked about dilution and future raises, pitches state that people will not be diluted because they have a right to preemption and the new value of the company at the second, third or fourth raise, will be greater thereby creating more wealth for the original shareholders' smaller percentage. The so called 'higher value' is pure fantasy. A company is worth what someone will pay for it not what its founders say it is worth for the purpose of raising finance. As to preemption, why would you want to buy more shares in a company that has already gone off track? For preemption read  -'invest or stand to lose your original stake'.

Postscript - fully funded in under 48 hours. Most investors putting in around £5k to £10k so not the average Crowdcube punter. Well Heal'd contacts no doubt. Now of course we will see if the over funding attracts the crowd  - it certainly helps to explain the need for only '£500,000' in the pitch. This seems to be commonplace now - ask for far less than you need and then overfund.

Postscipt - We thought we'd test this product. So you can sign up for just £4 for a razor and several sets of blades - no committment. This works out as avery cheap way to buy good razors - normal price would be £14 for this option. It arrived promptly but the handle is very light - not what we were expecting and we cancelled the service. Now how many of the 5000 'members' they claim to have will take be retained? Buying members by offering almost free product is surely a very haphazrd way to build a solid customer base. We also really didnt like the promotional materials for other businesses we have to wade through - maybe they are paying for the postage.   

Some to watch

Some Crowdcube pitches with accounts due this and next month - who knows, maybe one of them will actually manage to match its pitch projections.

Flavourly Ltd - accounts now well overdue. Raised money initially on Angels Den - claiming it would not need to raise cash again before exit. At the end of 2014 it was back for more on Crowdcube this time raising another £300k. Reviews of their service are poor (Trustpilot and Mumsnet) and the core development is based on a Groupon offer which gave them a massive Christmas hit of discount hunting 'customers' who then melted away. Hence the lack of revenues. Beer52, which O'Rorke is attached to and also funded via Angels Den used the same tactics. We have already written a bit about Beer52. Angels Den projections for Flavourly showed 2014 t/o £900k, 2015 t/o £2,700,000 2016 t/o £3,600,000 and 2017 EXIT with squillions for investors.

Cauli Rice and Righteous - promising lots and now surely time to deliver
East End Manufacturing
Powervault
E-Car Club
Crowdcube
Dr Jackson Ltd
Fantoo
Playcart
New Galexy Services

Baby carrier is yet another Crowdcube funded company that misses its targets.

Innovation Makers Ltd invented a new baby carrier. They raised £180k via Crowdcube only 6 months ago - to launch it - with the statement that FY 2015 would see its turnover at just under £2m.

The company is now raising another £400,000 on Crowdcube and predicting the launch of its product in spring 2016 - which is after it is supposed to have turned over £2m selling them. The current raise values the company at £2.6m against a value only a few months ago of £750,000. Amazing what some good PR and awards can do to the imagination. Of cousre the new pitch makes no mention of any glitch in their 2014 plan - it makes out that the new £400k was always a planned second raise. Our research shows this to be plain rubbish. to rpove it here is what they said on their own website November 2014  -
...................................................................................................................................

Company news

Crowdcube target with £30k over-fund reached today (19/11/14)

We are delighted to announce that, having reached our initial Crowdcube target of £150k on Monday 17th November, we decided to overfund to £180k and we raised the additional £30k in just 36 hours.  We should like to thank the 91 investors, who will now become shareholders in Innovation Makers, for their support of our business and our bridgehead product ‘Little Rider’.  It is full steam ahead now with our partners to bring Little Rider to market in the summer of 2015.  Exciting times ahead….!

..................................................................................................................................

Nothing wrong with an award winning product, just the usual ridiculous projections blindly accepted and promoted by Crowdcube which will now possibly result in all the the original shareholders being diluted.

Oh and as a final point the patent for this invention is still pending - something the original pitch assured investors would be in place sometime ago. Verelli caveat emptor we think.

Why do ECF pitches misalign their projections with their accounts?

We are puzzled. More often than not you will find companies pitching for ECF will produce projections for 3 years that are not the same YE as their accounts.

In these projections, they include a previous 12 month period, which as its not aligned to the filed accounts, is impossible to verify. Surely it would be more open and simpler to get the two aligned  - unless of course this is being done on purpose to prevent comparison.

A quick example and we have a lot - Beerbuds funded through Crowdcube. Their official YE is 31/05 but the projections run Jan to Dec. So their first set of filed accounts showed a small profit of £1500 but the past 12 months projections have different figures. The latest filed accounts show a £5,000 profit but the projections used to sell their equity show a much larger figure with a healthy balance sheet  - the filed accounts show a very weak bottom line with large outstanding creditors well in excess of the cash raised.

To make sense of this, you have to try to guess what happened in between May and December each year, which is impossible. So in essence it is not possible at this stage to say if they are or are not on target. One suspects they are not, only becsue this is the trend but we will have to wait for the May 2015 accounts to see.

By elongating the the time frame in this way, Crowdcube gain more time before people are able to assess if investing in this type of company is going to produce any ROI. Its not exactly as open as they like to make out.

A simple solution would be for SEIS and EIS rules to stipulate that the raising of money via these platforms required the alignment of financials and the filed accounts.

Another case of misinformation, smoke and mirrors for an ex Crowdcube pitch

We reported sometime ago on the demise of Brupond (Brewpond Ltd). They were an early recipient of Crowdcube funding in 2012 and one of their earliest failures - or so we thought.

Started by an American, this business was quickly funded on the back of the craft beer craze, even though the founder had no knowledge of brewing. It lasted a few months, produced little that was drinkable and then his blogsite declared he was returning to the States to carry on a proper career.

He simply upped sticks and left, leaving the company in limbo. Looking now at the filing history something is not quite right. On several occasions it has applied to struck off only to have these applications overridden with DISS40 and DISS16s. It managed to file accounts in mid 2014 for 2013 showing assets worth £144k - no trading, no stock and tiny amount of cash. It posted a £1500 profit. We suspect that this is why it has had its striking off cancelled - these accounts do not make sense. Its next accounts are now well overdue. Several directors have been and gone since and now it is yet again, 2 years after the founder left for the US, still awaiting closure under its first gazette. However a new director has just been appointed so we may well see this rescinded ...again.

There has something wrong with a system where this can be allowed to drag on for two years. We'd be keen to hear from any shareholders.

When will this information asymmetry end?

We come across this scenario too often with equity crowdfunding.

Datemy Ltd pitched for money on Bank to the Future at the end of 2013 and completed in January 2014 according to both the owner of Datemy and Bnktothefuture - the infamous Simon Dixon. To confirm this an article appeared in the Huffington Post in December 2014 where the owner of Datemy was interviewed -
http://www.huffingtonpost.co.uk/2014/12/04/rachael-wardle-datemy-young-entrepreneur_n_6235924.html - in it she confirms that she raised the money on Bnktothefuture in January 2014. However the article states that she raised £25k only  - whereas Bnktothefuture claimed £50k.

Accounts just filed for Datemy to YE 09/14 show no sign of any shares being issued or any cash being delivered in. The company has £100 of share capital all owned by Rachel Ward and its AR01 from October 14 shows capital of £1. It has accrued £15k of trade creditors and done nothing else - no cash, no sales etc in 9 months since the £50k was apparently lodged. Companies House have no record of any share allotment since 09/14.

It doesnt add up. Of course as you would expect, the Datemy projections for YE 09/14 show a turnover of £140k for the nine months from January - not the zero actually filed.

It's just another example of the power of the web to misinform and the way that platforms are using this to create facts that never happened. Journalists seem unable or unwilling to do the basic research to verify their output but then they are not paid for that. So it goes on - good luck to anyone trying to invest in ECF with anything closely resembling the true facts.

This investment was SEIS qualified according to bnktothefuture website and the business plan, so we would love to know if HMRC have issued £25k back to 'investors'  - the ones that do not seem to exist. Maybe this is the answer to this riddle?

Crowdcube blocks our Twitter account. We or they must be mad.

We  - that's me in the middle - have just set up a Twitter account for this blog. Actually we reactivated an old account that hadn't been used since 2013.

Now of course the first thing we do is try to follow Crowdcube - we have 9 followers and have not been on twitter for 2 years. Crowdcube have blocked us - blocked what for goodness sake - the truth?

If it wasnt such a disgrace it would be very very funny.

A pitch too far

A new pitch on Crowdcube is raising £200k for 10% - today valuing this operation at £2m.

Fieldcandy make and sell funky tents and some accessories. The pitch majors on their gold plated stockists, Harrods, Liberty, Heals  - you get the picture. These stores only carry a very few items  - Harrods had 4 kids tents and we couldnt find any at Liberty although they do have their own label Liberty print tents which look similar. Heals seemed to have nothing. Its hardly going to force sales to the levels the projections show, from the very low levels they are at currently. Whats more the company, as is common with many Crowdcube pitches, has chosen to pitch just before the filing date for their latest accounts.

You can buy a fantastic all weather 2 man tent for well under £100 - there are literally hundreds to choose from - all quality products. Or you can buy a funky, not great weather resistant Fieldcandy tent for only £300-£400. The website etc suggests that a major market for these tents is the Festival sector. From our experience you would rather spend £80 on a tent and just throw it in the bin on Sunday - you could get 4 of them for one Fieldcandy effort; that anyway makes you stand out as some Tim nice but dim. If you really want funky and dont want a hole in your pocket a 2 min Google search reveals http://www.mookychick.co.uk/how-to/how-to-guides/funky-festival-tents.php where printed tents are £39.99. Mind you, these ones are not stocked in Harrods!

To be fair, the products are fun and imaginative but they will never reach the sales levels required for investors to see any return - they are simply too expensive for their market. We wonder how many Liberty print tents will be erected at this year's Glastonbury and why if the PR is correct, all of the sales pics on their website are staged - where are the real pics from Reading etc?

The newest Crowdcube pitch The Great British Sauce Company has just launched - valuing itself at £1.4m today.

For that £1.4m you might expect some action. The sauces get favourable if limited reviews, they have new UK supermarket listings and a sales base of 12 months on a turnover of just over £100k. Its not much to go on; maybe it was intended to be a saucy little offer. Sales projections are the usual fantasy with expected 'buyout' (in line with the hundreds of other Crowdcube funded 'buyouts' that have never materialised) within 5 years, for the usual eye watering sums.They say they dont expect to have raise any more capital - how many times have we heard that one.

Then you have to take into account the amount of skin the founders have in this company. It appears to be next to zero. So if they are not confident enough to invest why would anyone be? You would have to be mad or enjoy a good thrashing with the birch.

Crowdcube's PRing just keeps coming.

Now Darren Westlake is at it http://www.nurturemoney.com/crowdfunding-reached-tipping-point/

We'd agree that it has reached a tipping point - only ours is at the other end the scale. The article is full of misinformation. There are no winners on Crowdcube, not one of the 250 businesses funded has even looked like returning investors original stake let alone a ROI. Many have gone bust and many more will follow. On the basis that if you invest in 10 you will get one winner - a basis promoted by Crowdcube, you would need to see a 10X return on your one winner just to BE. That is of course if they havent diluted you several times in the course of becoming this winner.

The forums are joke - any comment detrimental to the pitch will be removed and or you banned. Investors do not have access to the required levels of information to make an informed decision - its just gambling in its most common form. The odds are very long and Crowdcube's days are numbered.

Bertrams Nursery Group are using Crowdcube to raise a mini bond for £1,000,000 at 8%. The term is fixed at 4 years and interest paid monthly. There is no security and no secondary market.

An article in the Telegraph by one of their 'experts' states that -


''Net profits are about 10pc and earnings before tax and other costs ("Ebitda") are 25pc of turnover.

On this basis, the cash generated by the business in coming years should cover the interest costs of this bond issuance and meet obligations to other lenders, the biggest of which is Santander.''

It doesnt take long to check out the real accounts for Bertrams and to discover that these 'facts' published in what you might expect to be a credible paper, are nonsense. Out of the last 5 years of filed accounts, the company reported losses in 4 of them in the pre tax line. In the 4 years of losses, all of them showed an operating profit unable to cover interest payments.

So given a 4 year window in which income has to cover current liabilities and then some if the mini bond completes, you would have to be one hell of gambler to take this on. At 8% it looks as mad as most of Crowdcube's equity valuations.

 

Crowdcube's Cat just keeps PRing.

In a recent article on the Business Insider site, Luke Lang, the PR in Crowdcube's cat, stated -

 "It's quite common. As much as we like to think we fund every business, we don't. Only around 50% of businesses that go live on the site reach their funding target. That number's been steadily increasing over the years."

Read more: http://uk.businessinsider.com/dragons-den-star-kelly-hoppen-pulls-crowdfunding-campaign-on-crowdcube-after-lack-of-interest-2015-6#ixzz3cqTQ68qX

This idea that 50% of the pitches they run are funded is simply wrong. Of course by using the prefix 'around' and not being a numbers man, Lang can get away with this hype. The real figure is closer to 30% than 50%. Why - well because most of the pitches on the site are uninvestable through either being ludicrously over valued or simply nonsense. Punters are beginning to wake up to this fact so if anything the percentage of live pitches completing is falling not rising.

Its just typical of the sort of PRing that Lang comes out with and which journalists seem to print unchallenged.

Yet another Crowdcube success turns out to be an epic failure

Personal Development Bureau funded via Crowdcube. They also tried to access more cash via Bank to the Future but that site is such a lame duck the pitch bombed.

They have just field accounts for YE March 2015. According to the pitch they presented on Crowdcube, this year saw them make a £445,000 profit on a £1.1m turnover.  The real figures, as ever, are somewhat different.

PDB made a small loss of £6,000 - which is a huge success on previous years. The company has been technically insolvent for some years. 68 investors put money into this sham - when will people learn.

Social Marley has missed the boat

Effectively managing social media is a newish problem for SMEs. It is one they really must solve  - SM is the best way to promote your product or service.

A new pitch on Crowdcube claims to have the solution. Social Marley is not up and running yet - it wont be until after this funding is completed. Run by a 17 yo child entrepreneur, it is valued at £666k today. The only other director has had  what can be best be described as a colourful business background over the past 13 years - 23 companies, 14 dissolved 4 of which involved liquidation and the rest either not trading or doing very little.

The video that comes with the pitch tells us that this problem needs solving; one commentator actually stating that if someone came up with a SM management package, then that would be a very good idea.

Hootsuite is a US based SM management package that is already up and running and is on offer for a months free trial and then at £10 per month. It does what is required  - it manages your SM. If SMEs cannot increase profits by at least £10 a month by using this application, then their businesses need adjusting. It has 10m users.

Why, we are asking, would you back a complete flier, as yet totally untested in a market with at least two very dominant players who have all the advantages? How can this be worth £666k today? Cute dog though.

Worth reading this if you are interested in developments in the USA -

http://crowdfundbeat.com/2015/06/08/why-you-should-never-invest-in-a-crowdfunded-startup/

Is the use of SEIS and EIS being abused by platforms like Crowdcube

We had a very pertinent comment on one of our blogs yesterday. It stated quite simply that there was no loss of taxes with the use of SEIS and EIS - it was the individuals' money which the taxman had not claimed and which the individuals had chosen to use to support UK businesses.

This is true in the sense that the money has never hit the Exchequer. However we do not live in a society where individuals get the right to say they will only pay tax if its spent on certain things and not others. We all contribute to the common pot which we elect a government to control and spend in our best interests. Or so the theory goes.

We doubt if the Exchequor or the ex Business Minister Vince Cable had any idea that equity crowdfunding would take of as it has from its start in 2011. This surge has been driven by SEIS and EIS. To date on Crowdcube alone we estimate the amount of the tax rebate to be around £30m and growing fast. To date no single business funded this way has managed to achieve its projections; the ones used in the pitch to sell the equity. Many have gone bust.

The platforms have always majored on the idea - gamble £1000 on becoming the a shareholder in the next Facebook and get £500 back instantly against your income tax. It has helped inflate company valuations - a company asking for £500k for 10% knows that to return 10 times that investment to shareholders, they need only be worth £25m not £50m. So it allows them to hike the present valuation well beyond any place that is sensible. You just have to look at the current pitches to see how true this is.

So who owns this SEIS and EIS rebate?

The money is issued in the form of rebate by HMRC, so one could claim they do - its tax due that is not taken. However the individual investing could also claim its is their money - channelled to a different purpose but still spent.

Lets say that by the end of 2016, the total amount across all platforms that has been rebated due to SEIS and EIS totals £200m - where does that come from? The Exchequor will have an idea of the total take from income tax annually and will need to see that money or borrow. Whilst £300m is not a large hole, it is a hole.

Clearly the idea behind this form of rebate is to encourage investment in sustainable new UK businesses and the consequent prosperity - for all. So if equity crowdfunding is failing to achieve this due to the very poor vetting on the platforms and even poorer business plans that pitch, then how is it justifiable or even sensible to encourage it. The only people making money if most of the businesses either go bust or just limp along, are the platforms and administrators.

There are also the lost opportunity costs from not having this revenue in the Exchequor and the mounting costs of failing businesses. The platforms make very ambitious claims about how many new jobs their funded businesses create but they never ever mention the loss of jobs due to the failures and the unpaid creditors. In most cases HMRC are left out of pocket either through tax due or unemployment/wages covererd. For every creditor left unpaid, there is a risk that this business could also go under, be forced to lay off staff etc etc. It is not just a loss to the 150 or so investors.

In the end who owns the tax rebate is not the key question. The more important question is, is this money being used wisely and will the outcome be the desired one? We think the answer to this is no and no. There is no evidence that equity crowdfunding creates sustainable business or any jobs that are not temporary. There is mounting evidence that it encourages reckless business plans and impacts totally innocent decent businesses by leaving them as o/s creditors - all sanctioned by the Government through its SEIS and EIS support. Time will tell. In the meantime shouldn't a better system be set up to allocate SEIS and EIS relief?

Hug and Co have finally surfaced - only to file for closure

We reported earlier that Crowdcube funded Hug & Co had failed to file accounts or returns. Now we know why; they are closing. This was one mess they couldnt change out of.

So this is yet another Crowdcube success, yet more taxpayers' money poured down the drain and yet another reason why this waste should be stopped... now

Of course it is ok for grown ups to throw away their money if they wish, we believe in caveat emptor. But this whole equity crowdfunding scam is being fueled by the SEIS and EIS schemes - giving investors instant 50% and 30% refunds respetively. This is not free money - it comes out of the Exchequer. It is our tax money that is being so stupidly wasted.

Is a takeaway return of 12 times in 4 years possible?

Keuken, a fast food concept yet to be trialled, has just completed its £100k Crowdcube raise. This is an SEIS funding round so we the taxpayer are helping with £50k of this money.

Keuken claim that what people really really want is food - very very fast. This idea, that people are not getting their food fast enough, came to the founders via a report on Mintel. They plan to open their first unit and then 3 more over the next 4 years and have stated in their pitch that investors should see a 12X return on their investment. Valued today at £588k on Crowdcube, that sort of uplift would require a value of just under £3.5m when SEIS is accounted for.

One of the founders proclaimed USPs is a first mover advantage. This type of USP is really only useful if the first movers achievement is not repeatable due to copyright or costs. Surely in this case neither applies.

According to the pitch, the company will achieve a profit of 66%   - we assume this is a GP. Units will turnover around £300k each; opening 80 hours a week. So they are estimating a 2019 GP per unit of £198k. 4 units will achieve a GP of just under £800k. Takeaway the fixed costs for 4 units plus central overheads and marketing and we are struggling to find the sort of net profit to justify a £3.5m valuation - assuming as we have that they achieve these figures glitch free and more importantly they do not raise more cash (£100k is not much to kick off with) and thereby dilute investors.

We wish these guys well on the one hand but anticipate a hard landing on the other. Time will tell if this really is a good use of our taxes and the sort of business that George Osborne sees spearheading the UK's rise back to greatness.

IMD Health file for closure

IMD Health Ltd raised money on an equity crowdfunding site we have featured here - Bank to the Future. The site is essentially a con, as is the man behind it - Simon Dixon. It is now run off shore as no one would issue it with an FCA licence in the UK.

IMD was one of only 3 successful pitches on the site. One other one has closed and the third is yet to file accounts. IMD claimed to be part of a Canadian based organisation, IMD Global but they have no reference to any European let alone UK operation.

So just two years after raising money on BTTF, the company is closing.

At the same time Simon Dixon (from his new abode in Hong Kong) has apparently raised over $1m for his latest venture with Max Keiser; a bitcoin investment fund. Its always hard to know with Dixon what is real and what is just his fantasy, so the $1m fund maybe just one of his dreams. There are a lot of crazy people out there if its true.

Its a dogs life

Can Crowdcube pitches get more ridiculous?

Qtsy is raising £150k valuing their new enterprise at £1.2m.

The Crowdcube pitch claims  -  ' Joe is a successful entrepreneur, qualified vet and media personality. Founder of Pets' Kitchen, Vet's Klinic and tails.com, and media vet on ITV This Morning.'

So how does this look in reality. We do not have a definition for a 'successful entrepreneur' but we are pretty sure it has to contain some success.

Joe Inglis was indeed involved with Vetskilinic before he resigned. The company has run up losses of over £1.4m in its 9 years of trading - is that a success. Tails.com has not filed accounts as its too new and Pets Kitchen is the company that runs Vetsklinic so this is shadow boxing or just plain wrong. All in all Joe has not had a single success; with two other businesses he started closing having not traded. Hmmm. He has appeared on Telly though, so that bit is true.

So much for Crowdcube's due diligence. Really guys you must try harder if you want to really con people out of their money. 

The need for full, aligned and audited accounts

We have featured INeed before here. They have raised over £200k on Crowdcube on three occasions - the last two times lowering the amount required at the last minute to allow them over the line.

Their accounts to August 2014 have just been filed. They are a very good illustration why companies using this form of finance and government (aka taxpayers) support (EIS and SEIS) should be required to file full audited accounts - not the one page of 5 lines balance sheet figures with no notes.

INeed have a large debtors sum on their balance sheet - a sum of £95k which is not in the projections used to raise the last sum on Crowdcube; a raise well after this accounting period. This figure has no notes - in the pitch the figure listed is zero. INeed is one of the many Crowdcube funders who choose to use a totally different YE for their accounts and their financial projections - August and Decemeber in this case. This makes any kind of judgement almost impossible, which is what we assume is the aim.

Anyway we are sure that INeed will be back for more as their projections show them raising another £1.6m this year (year to December 2015). On losses amounting so far to £200k we wish them luck with that.

A question for George Osborne

We found this Osborne quote on the Extremis Technology website -

''Extremis is a prime example of how SEIS is being harnessed to back innovation and as an export business in the engineering and manufacturing sector, Extremis is great example of what new business in the UK can achieve''.

 Extremis are currently raising money on Crowdcube - having burned their intial SEIS raise. They value the company at £2m which is moderate for Crowdcube pitches. There seems to be no basis for this value, which is common for Crowdcube pitches.

When you start to look at what they have actually achieved, it's all a little flimsy. On the website they have a news section with various headlines about new projects; one in Nepal which looks promising. Clicking 'read more' just takes you to a page with the same headline and an article about the supply of 25 yet to be built shelters to the Dominican Rep - no mention of Nepal . Another headline about supplying shelters to Nepal leads to a page with just the headline repeated. No news just vague unsubstantiated headlines posted by the CEO. Scanning the web it appears that they are supplying 5 shelters to a school in Nepal; but only if they raise £260k on Crowdcube.

Accounts filed to January 14 show only 2 years trading, with little activity and losses of £130k. The CEO is involved with a raft of small t/o exploratory companies and would seem to be somewhat stretched. No doubt the ideas are workable and the concept laudable but the valuation makes a mockery of the whole principle of helping others - more like helping yourselves.

So our question for Mr Osborne is  - Just what is it you think our money (via SEIS) has achieved with Extremis? 

Collar Club submits to the Crowd

The latest pitch to embark on the Crowdcube voyage is The Collar Club.

It may have slipped the notice of the mainly non UK board of Collar club but the name of their company has some interesting and possibly unfortunate connotations.

These guys are actually trying to sell shirts and have valued their enterprise at just over £2m based on two years trading making small losses on small turnovers.

We'd guess this market is already very well serviced by very well established niche brands and that this attempt to break into it will be not be dominant. Surely the CEO,  Mustafa better logo than the rather pathetic reference to the Woofer of Wall St. Even the rather odd offer of a London laundry service will not swing it - unless of course this too has alternative meanings as well.

Jon Allen is simply a conman

This shows clearly why it may never be possible for the crowd to have information symmetry in order to make a sensible informed investment decision.

Back in 2012 Jon Allen successfully pitched for investment on Crowdcube for his company Front Up Rugby. Crowdcube named him 2012 Entrepreneur of the Year.

Having failed miserably to get close to his sales figures he was back again in 2013 and was again successful  - promising the earth on the back of the 2015 Rugby WC. Unbeknownst to investors, Allen had been preparing a pre packed deal with Lyle and Scott. This entailed L&C picking up all of the company's assets, listed at £300k, for £20k and giving Jon a FT job running this new L&C brand. And finally they paid off his business loan. All apparently legal.

Investors had put in around £400k and the company had o/s debts taking the balance owed over £500k. They were all simply jettisoned.

If you now google this episode it appears that L&C bought Front Up Rugby as part of a grand expansion plan - Front Up being some success. Allen's own Linkedin page applauds his many business attributes and his building from scratch and then sale, of his highly successful Rugby shirt empire. No mention of admistrators, shady deals and burned creditors.

Coming to this story now, only 18 months on, it would be very hard to get at the real truth. That Allen set up this whole charade, lied to investors on more than one occasion and was clearly able to very easily hoodwink Crowdcube. He is simply a conman but our guess is he will appear again on crowdfunding sites once L&C have had enough of him.  

Look, it's really very simple. If you want to have a website and sell things from it, you have to have terms and conditions etc on the site. It's the law.

Notes are currently asking people on Crowdcube to believe that they know how to run a consumer business but they cant manage to hit the right note when it comes to their own website. They have none of the legally required information on their site.

The standard of British entrepreneurship as displayed on Crowdcube, is pathetic.

Kelly Hoppen admits defeat as Crowdcube pitch is pulled early

Kelly Hoppen, seen here on the left as one of the glamourous dragons along with whats her name, has pulled her Crowdcube pitch. It bombed.

We commented earlier on the ridiculous valuation she had given herself. The crowd sent a message - 'We're out'.

A little bit of sanity restored and a good laugh to boot.

Filmore & Union win valuation of the Millenium.

Crowdcube valuation of £5m today.

It's just a little embarrassing.

What has happned to Righteous and Cauli Rice?

Righteous make salad dressings. They have raised money on Crowdcube at least twice, the first time in 2012. The same founder has also recently raised £500k on Crowdcube for her latest venture Cauli-Rice.

Righteous was a very popular pitch on Crowdcube. The product was already listed by major chains in the UK and the company had orders from the US and Canada. Projections used to sell the equity showed 2014 sales of £1.15m. Actual sales for Righteous for 2014 are reported (by the company) to be £350k. Yet the company website has almost 300 UK stockists, around another 100 in the US and most of the major UK supermarket on line market. That clearly means that the stockists are not really selling very much of the product. Overseas 'contracts' have failed to materialise or been cancelled.

On the back of this 'success', they decided to launch Cauli Rice. A first apparently, although Cauliflower rice has been around for quite a while - just not in a packet. The company had had success on Crowdcube, so came here to raise £300k at the end of 2014. It ended up raising £500k valuing the company at well over £1m. Not bad for a company pre sales with a track record of non delivery on its promised turnover. Especially when you consider the ease with which you can rustle up fresh cauli rice with your very own favourite flavourings.

Cauli Rice projects turnover in 2015 of 1.4m. As of today the product is not listed anywhere apart from the UK Cauli Rice website, which seems to be under development. It just seems a little unlikely to us. Both products have their place and are popular within their limits. Forcing unrealistic sales figures out of them will only end in tears. Righteous shareholders know this only too well.

Is it possible for equity crowdfudning to work? Part I

We had a question on one of our blogs - how can this space be made to work?

By this space we mean specifically equity crowdfunding, not P2P lending and the original rewards based crowdfunding.

It's a difficult one to answer but it is clear that the current model as run by Crowdcube does not work. Why?

1. Lack of transparency on the platform
2. Lack of real time information due to the UK's accounting system
3. Lack of knowledge on the part of the crowd with early stage company growth, valuations etc
4. Lack of investor rights
5. Lack of secondary market
6. Lack of due diligence and FCA's hopelessness.
7. Profit incentive for platforms based entirely on completions.
8. Ease of access to EIS and SEIS
9. Ease of entrepreneurs and founders to hide behind Ltd status, use of pre packed deals etc
10. Lack of legal liability on the part of the platforms and the pitchers.


Is it possible to design a system that could correct all of these?

We think possibly. However it would be more along the lines of a National Investment Bank than a stand alone for profit platform.  The emphasis would be the creation of successful, sustainable businesses, creating wealth and jobs, rather than the game show millionaire dream promoted currently. If investors can benefit, all well and good but the con peddled by the current platforms that anyone can be their own VC is just nonsense. A nonsense currently being fuelled by burning taxpayers money. If the EIS and SEIS sop was removed there seems little doubt that ECF would disappear as fast at it arrived.

The solution would be a longer term slow burn not some over night mirage. Investors would be protected but would not expect instant gratification. Shares would be tradable, taxpayers money better protected and businesses and their plans more intensively scrutinised. Entrepreneurs would not see this as easy access money.

More on this later.