Monday, 28 September 2015
The truth about Crowdcube's sophisticated investor claims
Here is a very recent example of the sort of sophistication level Crowdcube investors enjoy.
On a current pitch , which is now overfunding, an investor asks if, as an existing shareholder from round 1 , his holding will be diluted.
Asking this shows a level of sophistication just above primary school. But the response is more worrying. The company CEO comes back to tell the shareholder that the value of the company has increased because the shares on sale in the second round are more expensive. He ignores dilution altogether.
This is clearly complete nonsense as the shares are worthless bits of paper with a nominal value created by the company. It doesnt address the issue raised by the shareholder of dilution. As it happens, this company had raised a considerable sum in between rounds one and two, so the dilution to our poor shareholder will be substantial - he seemed unaware of this third share issue. Given his understanding of how this all works, I dont suppose he will realise what has happened before the company goes bust.
So much for Luke Lang's claims about the sophistication of the Crowdcube Crowd.