Mara Seaweed or Celtic Sea Spice Company is looking for £500k on Crowdcube - valuing itself today at £3.65m. So in order to make investors a good return they aim to be worth £25m plus in 5 years.
We like the idea - using seaweed to make condiments. It ticks a lot of the right boxes in today's world, has good branding and the Scottish angle is all the rage.
However firstly the valuation suggests that since the company started trading in 2011 they have made considerable progress. Unfortunately the figures do not back this up. Annual losses have escalated to the point where for YE 12/2014 they made a loss of £375k on a turnover of next to nothing. That's the year Harrods launched the product. So why is the company worth so much now?
Secondly, expenditure of the nearly £500k investment to date has not been on assets or building sales - it has just been burnt. We dont know what on but suspect the ship is not very watertight. For example the accounts filed for 2013 show a large £250k cash balance which when the following years accounts were filed has become a debtors balance. Debtors are not cash.
With growth set at the usual Crowdcube stratospheric levels, investment in this business is very high risk. When you balance what they have achieved in 3 years compared with what they have to achieve in the next five just to break even let alone make investors a return, it looks unlikely.
The pitch talks about being stocked nationally by M&S - which may well be the case. However the brand doesnt appear on the M&S website (or the Harrods one) and M&S are not listed on the company's own website as a stockist. The list of stockists is very small considering the very large spend that they have used to build it.
Finally, Mara Seaweed has been very cunning. The pitch launched today and already has £236k of the £500k raised. This is indeed impressive and makes the crowd immediately very interested. However on closer inspection, one person/organisation has invested £200k of this and we have to assume this was pre arranged as so often happens on Crowdcube.
Given the burn rate, the poor performance to date and sleight of hand, we'd take this pitch with a pinch of salt.
Addendum - The largest single investment just went up to £275k (from £200k) as the pitch seemed to have got stuck. As this is clearly the same person/VC who put up the original £200k this all smells a bit fishy - which you might say is a good thing. Still very few other investors so maybe better if this person just puts in £500k and be done with it!
What's the problem with pre-committed investments?
ReplyDeleteThey invest at the same valuation and potentially have a deeper insight into the company.
Should be very positive throughout, I don't understand why you have to call it 'cunning' and make it sound negative.
In addition to the comments below, there is nothing wrong with gathering a group of investors to give the pitch a good start. It is just when there is one investment of nearly half the sum sought it would be more transparent to crowdfund the remainder ire £300k in this case. That is after all what the 'crowd' in crowdfunding means.
DeleteI disagree, it would be rather intransparent to hide a bigger investment in the same round at the same valuation somewhere in the smallprint.
DeleteThis is standard practice and on other platforms such as syndicateroom it is even mandatory for a lead investor/ angel to lead the round with a pre-commited investment.
Regarding your statistic below, of course people feel more confident to co-invest when there are others who have the same opinion. Even more so when these are experienced investors. To exclude them just because they don't qualify as 'crowd' would add no value whatsoever.
That is pretty much what they have done. An investor or VC or something has invested £200k - we have no idea who they are or what 'credentials' they have. They could in fact be a relative of the one of the founders. This is completely different to Syndicate Room, Angels Den or Seedrs who often have a lead investor - but one that is clearly named. No one is suggesting excluding them - they were included before the pitch was launched so they just dont need to be part of this pitch or alternatively they can be but they should be named as a lead investor so we can check them out. That would be full transparency surely? It is likely that people who do not know how CC work, just think the pitch has raised £235k from lots of different investors - but this simply is not the case. We are sure that this is the intention - CC do this a lot.
DeleteResearch shows that the crowd reacts favourably to a pitch where early on over 30% of the money is committed. So looking at this pitch its appears that ~ 30 people have invested nearly half the money which is in fact not the case. It would have been far more honest and more transparent to have asked for £300k - in which case they would so far have raised ~£35k from 29 investors. If you are new to CC you might well miss the small mention of max investment at £200k. And it is not always the case that they do invest at the same rate - there have been cases on CC where large investments have received preferential treatment. Of course this is only one opinion and if you like the idea then good luck with the investment - I would be far more concerned about their burn rate to date given what they have achieved with it and what they expect to achieve in the future.
ReplyDelete