Wednesday, 5 August 2015
Is this the answer to ECF?
Recent discussions have thrown some new light on ECF. Hope that some platforms at least had taken a far more responsible line than the tricked up, gimmicky take used by Crowdcube.
Sadly it didnt take long for this view to evaporate. Syndicate Room claims to be the true way for ECF. Their model takes businesses that already have a lead investor who is funding a minimum of 25% of the pitch - a lead investor who has a track record of investing with returns ie a professional. All good so far. The site still plays with the crowd by using terms like 'dragons' but not in the overt way that other sites do.
So with these lead investors and a minimum investment of £1,000, you would expect a high degree of professionalism. Wouldnt you?
Reading through the current crop of pitches this expectation is shattered. Two of the pitches have in effect the same lead investors and have raised money on the platform through them before. This fact was left out of one of the pitches until it was corrected by a punter on the forum. Not a great start as it was an investment of £700k!
Anglo Scientific (AS) are the lead in these (Innvotec manages the fund and they are in fact the same operation) and a few others that have been on SR. When you read the pitches on SR they ALL talk about exits in the 3 to 5 year frame - they are cautious enough to add caveats to this about unpredictable markets etc but it is the 3-5 year frame not the 10 or 20 year that they choose. So you would expect to see some evidence that AS have achieved at least something in the 5 year frame to back this up.
AS started in 2003 - so in 12 years what have they achieved in terms of ROI? They have invested in 12 businesses, two have closed, two are limping (by their own admission) and 8 are trundling long. No exits .................what? Yes that's the crunch; in 12 years they have achieved zero exits from 12 businesses professionally selected, vetted and fully funded to the tune of £55m. Yet on this ECF platform they talk of 5 year exits at multiple ROIs.
AS may well achieve success but wouldnt it be more honest to show these figures to the crowd before asking them to hand over their money? It just puts Syndicate Room firmly in the same shady place that Crowdcube inhabit.
You can understand why they do it - who would be interested in a 10 or 15 year investment as a punt? That's no fun. So this is where the professional VCs and business angels meet the punters and the gap between their expectations is very very wide. The Syndicate Room model has tried to hide this gap and to be fair it has succeeded so far. It wont last.