Square Pie have just completed a mini bond raise on Crowdcube. But it isnt quite that simple.
The original bond was for £750,000. The pitch did not go well and by the end of their time, Square Pie had only managed to raise just over £300,000 - less than halfway. So as usual on Crowdcube they 'extended' the pitch, but this had little effect and the amount raised remained below £400,000.
Then in a new development for this platform, the amount being raised was suddenly reduced from £750,000 to £450,000. No new financial projections were produced with this reduced capital and questions about the legality and prudence of such a move on the pitch forum suggested that this may not have been a wise move. Square Pie's CEO had said publicly that if £750,000 was not raised then nothing would be. We expected the pledged money to disappear.
Well blow me down, the pitch closed yesterday with £680,000 raised - another £280,000 more than when the total was reduced. Why?
We havent got a clue - the terms were the same, the financial stability of the company was considerably worse and there had been no explanation. So why did punters who would not put money into the orignal bond suddenly jump in with an extra £280,000?
If anyone has any clues we'd love to know.
Hi Rob, I’ve used Crowdcube a couple of times now – investing approx £150k across 4 companies. One has done not that great, one still young, and two are raising money at a higher valuation off the platform – so its not all bad!
ReplyDeleteHowever, this mini-bond raise was fraudulent. Their numbers were based on them raising £2m, but they were “overfunded” on £452k. Several attempts to ask them to refresh the financial plan fell on deaf ears. When they wanted more money, they just kept extending the time limit. Crowdcube have adopted the “Limited-time-Only” perma-sale model from some retail stores.
Retail mini-bonds unsecured bonds should be banned. The idea of lending unsecured money to such a company (t/o £2.5m and unprofitable) – even at 8% - where you’re taking full equity risk (without tax reliefs) but getting a very fixed upside would be foreign to most institutional/professional investors. And zero liquidity. The largest investor put in £25k. Even if you had a willing seller and a willing buyer, at an agreed price, the legal costs of transacting would be immense.
Keep up the great work on this blog.
Hi Gupta - thanks for reading the blog. Hope you manage to get a return someday! What have you invested in?
ReplyDeleteWhat astonished us with Square Pie was the way once the amount being raise had been lowered, the amount people put in went rocketing up. Hard to explain apart from by saying that people have not got a clue what they are doing.