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Monday, 30 November 2015

We have a new look for equity crowdfuding

An interesting comparison can be made between the many companies that have funded via the various ECf platforms since 2011 and one particular start up which took a different route  - Tropic Skin Care.

Tropic has been trading for three years and to YE June 2014 showed quite remarkable results - turnover up from £600k to £2.5m, with profits of £400k. So whats the secret?

Well it appears to be fairly obvious. Lord Sugar is one the two directors and is the main funder behind the venture after the founder pitched the business idea to him on The Apprentice.

You would also have to factor in the dedication of the founder Susan Ma. As with many great entrepreneurs, she started making product in her kitchen and selling at markets - giving her invaluable insights into her customers' desires. The sort of insights ignored by the instant success junkies who seem to inhabit the ECf platforms. Between them they came up with what appears to be their eureka moment - a revamped Avon Lady scheme as their main sales driver.

It's fair to say that no company that has raised money on any ECf platform has achieved a tenth of this success. In fact there has been very little success full stop.

The big or rather massive, difference is in Lord Sugar's input. Money is required but there is no substitute for contacts and experience. These he has in spades. The investment appears very lite compared with most ECf pitches - a mere £200k of share capital recorded in the accounts.

So the lesson has to be that ECf by itself is not the cure all - businesses that are 'successful' in terms of raising money do not automatically go on to grow. In fact the evidence to date is that encouraging poorly planned businesses to raise  using overstated projections ends in tears. You can be sure Sugar wouldnt be accepting the sort of ridiculous projections that the platforms promote.

The answer is...........combine an ECf platform with top notch business mentoring. Where are you?

What has happened at the ''Award Winning'' Pizza Rossa?

Pizza Rossa took Crowdcube by storm in 2013/14 when it raised £440k in 17 days.

It won various awards from the Crowdcube platform and was the winner of the LBS start up competition in 2013. The whole raise was based on the founders MBA credentials.

Seems it is harder to run a viable pizza business, using awards as the main ingredient, than they thought.

Shortly after the first Crowdcube success, the company had run out of cash and was back for more, raising another £160k this time. But no need to worry as the 'valuation' of the company had gone up 2.5 times! We have Crowdcube to thank for that. Of course predictions by us that their Saturday openings in the City wouldnt work, turned out to be true. How an MBA messed that up is anybody's guess.

So now they had the money, a little more experience and were good to go, toppings and all.

During an interview with Big Hospitality to promote the second raise, founder and chief executive of Pizza Rossa, Corrado Accardi stated, “We are confident that this new campaign will attract the attention of investors watching the steady growth of Pizza Rossa. Since we opened the first pop-up at Leadenhall Market in June, we have served in the region of 20,000 people – and that’s only a five-day a week operation. We opened at London Wall just three weeks ago, and we are extremely encouraged by the results to date. It seems that the City has really taken to Pizza Rossa, and it proves that our concept is right on target for this audience.”

Very sadly the new prime location at London Wall, seen here, has closed only a few days before its first birthday. No new openings have taken place anywhere since and the company that was to take over the London and then world pizza scene, has just one outlet, 3 years after first milking Crowdcube investors.

One lesson that most people with any savvy know, is that you dont build up a retail business opening and then closing units. It costs too much.

Accounts are not due out until next year but with an expensive shop fit, leases et al it will be sometime before this company gets back on track. First accounts since the initial raise were galaxies off the predictions.

It does seem odd to us that since this initial milking, nearly everything the CEO has predicted has turned out to be rubbish. Standards at LBS must have slipped somewhat since we went to Business School.

Surely we will have the pleasure of Corrado's silky tongue again - cash must be tight. Maybe he'll need to choose another platform this time though as the ever busy Crowdcube Undertakers Department are sure to box up his business shortly. We'll let know.

Sunday, 29 November 2015

Come on please dont insult our intelligence

This is Steven Segal - one time action hero, SEAL and cook. It's not what he looks like today, which is part of our point.

A new Crowdcube pitch is being sold with what can only be described as information sieve syndrome. It has more holes than facts.

The Founder of Po Zu is Steven Segal - no not the cook, the shoemaker. They make ethical shoes and have done so since 2002 or thereabouts.

This business may well be one that could make it - but not the way it has been laid out by Crowdcube.

For starters we are not given any historical financials. We are told that the new company Po Zu owns two subsiduaries, Po Zu Online and Fishwalk - both of them due to file accounts by end Dec2015 or in a months time. Why then are they not filed already? They must be hiding something. Fishwalk is insolvent and has a long term debt of £52k for YE March 2014. This debt appears to be cleared in the new holding company.

From previous years accounts both subsidiaries are loss making or just BE. Turnover appears tiny, assets almost zero.  This may well be down to lack of marketing as the pitch explains. Turnover appears to be around the £100k mark, with projections of £350k for 2016 and then £1.6m 2017 etc etc.

The pitch claims that the founders have invested £20k in share capital but this is not in the financial statements. They are raising £150k now and this is the total share capital on the financial projections.

The brand name Po Zu is owned by the newco, but Steven has held back another trade name he owns, only licensing it to the newco.

All of the above is bad enough but then we get to the valuation. Oh Lord the valuation.

Steven has outdone himself proud here. Using the DCF method - with no historic data relevant to the turnover projected, they have come up with just under £1m - now. Its sheer genius.

Crowdcube posted this pitch so must have checked it. Their standards are slipping below the watermark. We need the real Steven to break down the doors and kung fu the lot of them.


Saturday, 28 November 2015

So what did happen to the Rushmore Group and £1.5m raised on Crowdcube

Its funny how the same people continue to crop up in the ECf world.

The Rushmore Group funded via Crowdcube in 2011/12/13. Its owned by John Downey.

They raised what was then a record £1m on the platform, followed by another £500k. They promised to use the money to open a new establishment in Soho, which would replace the burnt out East Room club, bringing the Group back into profit. The club in Soho was the Century club, named for its steps leading up from Shaftesbury Avenue.

Since then, John Downey's plans have gone a little bit off track.

Sure the Century club is up and running but not with the Rushmore Group - who now only have 2 London clubs. They closed Giant Robot Clerkenwell last year.  Accounts filed for YE Dec 2014 show continued losses, now accumulated to £1.75m.

Apparently the Group is suing the  former MD of The Century Club for £6m as the deal, agreed according to the Crowdcube out to lunch department, fell through. He seems to think he will get the £6m.

According to this article http://www.morningadvertiser.co.uk/Operators/Other-operators/Rushmore-Group-secures-further-funding the Group were due to open 3 new members clubs in 2014. They didnt manage one.

So what has John Downey been up to?

It would seem that he has got bored of Rushmore and its 300 investors and is now full time with a new project, London Union. You could say that the Rushmore experience has taught him a few things. He is now raising £3m for his new project on Seedrs, another ECf platform. The pitch closes today, over its threshold figure of £1m and with 102 investors. We assume not many of them from the Rushmore experience.

Interestingly none of this is mentioned in the Seedrs pitch. In fact the bio for Downey doesnt ever mention Rushmore, only referring to one of its two remaining clubs.

This is not untypical of the outcomes that have befallen businesses funded via Crowdcube in 2012/13 and we can assume it will continue to be so. Investors have no control over either business or the management - they do as they please. Mind the wreck on your way out.

Friday, 27 November 2015

Crowdcube's incessant over optimism is a sales tool.

It's nice to occasionally come across an indisputable fact.

Cell Therapy raised almost £700k on Crowdcube at the turn of the year - some achievement as it had only asked for £250k. The company has some groundbreaking regenerative cell therapies and is backed by some industry giants. It may well go on to be one of Crowdcube's major successes. See here http://www.celltherapyltd.com/pdfs/Financial-Times-article-Oct-4th-2015-Cell-Therapy-Ltd-eyes-initial-public-offeringFT.com.pdf
At this stage however, with the YE accounts to July 2015 just filed, they are a long way from where the Crowdcube pitch put them only months ago.
In the pitch, they stated that the Director's loan of £57k would remain in the company. The accounts show it has been repaid.

In the pitch they stated -

Cell Therapy is scheduled to complete a public listing on Jan 14th 2015 on the Euromarket GXG exchange at an initial valuation of £100M (~£50 per share). This Crowdcube funding is the final private placement prior to listing with a pre-IPO discount of over 25% at a £64M valuation (£37.00 per share).

This listing never took place and they have sold more private equity since.

In the pitch it shows capital invested into the company by now of £15.5m. The accounts show £2.5m has been invested, with another £2m plus invested since.

In the pitch it shows a turnover for YE Dec 2015 of £3.9m. In the accounts the turnover is zero. This would appear to be due to the delay (or collapse) of a licensing agreement with a Chinese company.

So you can see that pretty well everything in the pitch turned out to be grossly over optimistic. Investors need to know that this is common place on the Crowdcube site. All of the companies we have accounts for, to compare to their projections, bar one, have failed to get close to those projections.

Of course it doesnt mean that Cell Therapy wont go on to be worth hundreds of millions - it just means that it wont be worth that now, as predicted. 

The point here is a wider one - Crowdcube pitches are always ridiculously over optimistic - it's part of their sales arsenal. So just be aware.

More information asymmetry on Crowdcube

Is this really the way we want equity crowdfunding to function in the UK. Companies giving us as little information as they can get away with.

Shouldnt we be asking for all relevant information about a company and its directors to be laid out in the open from the start?

A new pitch on the one platform that has a history of not telling us everything, illustrates the problem. If one assumes that Crowdcube did a little due diligence then they are sure to have known all the facts and therefore chose not to share some of them with us.

So this company is in the health sector and is run by someone with 25 years start up experience in this market. None of his experiences adds up to much until you come across one company that was liquidated recently. The company's shortfall was over £1m, much of that owed to a national bank. As part of the enquiry into the liquidation, a member of staff at the company reported that there had been some discrepencies with the use of invoice factoring - the factors being an arm of said bank. The report goes on to say that the bank was pursuing this independently.

Most of the other companies he is listed as starting have either not traded and closed or are trading with a negative value. This is not as described on Crowdcube.

We all know that business is a risky venture where things can go wrong. So liquidating a company should not be the end of the world. However with the invoice issues in this case and the current description in the Crowdcube pitch, we are not really being given an adequate level of information. Information that Crowdcube must have chosen to leave out of the pitch. No one could deny its relevance to investing in this new venture. Why would they leave it? Hmmm.

Another aspect of this pitch, which we feel happens far too often, is a lack of clarity of the founders investment. According to the Crowdcube verified financials, no investment has been put into the company to date. Yet the pitch talks about the founders investment. As soon as it was live, the pitch received a single investment of £110k. As there is no evidence given as to where this is from and the total investment at the completion of this round is £360k (the pitch's raise figure) then we have to assume this £110k is from the founders. So why not say so?

You would have thought that after 4 years of running this platform with FCA and UK government backing, Crowdcube would be trying to help investors make sensible decisions, not blindfolding them into crass ones.

Saturday, 21 November 2015

My Date ......you're Late

Mymateyourdate raised £145k on Crowdcube in January this year. The value of their company was then said to be £650k.

Now they are back on CC, raising £75k at an increased value of £1m.

So what takes a start up from an opening £650k to £1m or an increase of 50% in just 10 months?

Certainly not turnover - projected to be £244k for YE Dec 2015 in the C pitch from January but coming in at £19 for the year. Yes that's nineteen pounds and no pence. Mind that gap.........

Of course the new pitch doesnt mention the January projections - why would it, it might put people off.

So what's missing?

Well it seems that in the January raise, the company aimed to have VC investment of £1.5m in place this year. This never materialised and the new pitch just reiterates the January pitches mantra that a VC round will be on stream in 2016. We dont know why the VCs were not interested in 2015 but the company is sure they will be in 2016. Keep then waiting....makes then keener, sort of approach maybe?

Interestingly the company had a £42k 3 year loan with a related Co. in Australia - where the founders come from. This has been reduced in the year to £27k - presumably using funds raised via the January equity raise. Naughty that.

All in all this pitch doesnt tell you much about what they have previously promised and what they have actually delivered. It should do that up front and then see if people want to invest.

What the fudge are Crowdcube playing at?

There is only one thing you can be sure of with a mirage - what you see is not what is there. Or is it?

The Lifestyle Hospitality Group are raising £500k on Crowdcube, valuing themselves at just over £8m. As valuations go, that one went.

Its hard to know where to start with this one - complicated company structure, connection to some 'consulting' firm in Dubai, £200k redeemable pref shares which CC have wrongly described, advice from CC that anyone investing should get independent legal advice, a brand name they seem to have sold to a third party..........and reviews for their restaurants which include some of the worst we have ever seen. 

Lets start with the redpref shares. CC fail to mention that they are redeemable at any stage with a 51% vote by A shareholders - ie the related owners of the business. 75% of the £200k is owned by an OVM Consulting in Dubai. They have no record anywhere on the net and appeared when the previous owner of the shares left the company. For all we know this could be a front for the existing owners, who own the other 25%. At any stage £200k could be taken out of the company.

So thats clear - what about the CC steer that all investors should take independent legal advice on this one. So for example you want to invest £500 and take this advice, which costs you £1500 in fees. Why, well because CC couldnt be bothered to do the DD themselves. I suppose its helpful in one way, as at least we now all know that CC agree with us that their DD stinks.

Then there's the reviews. Bit of thorny issue web reviews - can they be trusted? Well probably no, so what we do is look at a selection of the good and the bad and see what they say. Now for a company predicting world growth, you would expect the reviews to be good to great with the usual smattering of whingers. Here we have a large number of average to poor, to down right catastrophic reviews, from all their venues. Many of them very recent. It doesnt look like they have tied down the model quite yet.

Its surprising that CC would offer this company up as an investment for its group of loyal followers. Its suggests an ever increasing desperation on their part but people really arent that stupid.......are they?

Friday, 20 November 2015

What to do with Altfi Data's ECf report?

Altfi Data have produced a report on the UK equity crowdfunding sector: Where Are they Now?

What can say about it. Well to be frank not very much that's good. As they themselves admit on several occasions, the data they have had to use is very sparse. Much of what they do use has either been interpreted and or been supplied by the very platforms they are analysing. They have not spoken to a single investor or analysed a single failed business.

Even when they do get down to some facts, they get it wrong. An important consequence of ECf is its abaility to increase employment, escpecially as the whole scheme is heavily backed with EIS and SEIS tax reliefs. This report headlines - ''Headcount increases at Crowdfuned companies''. This section goes on to show how this increase is on average 83% post funding. They even have a nice graphic to explain it.

However, if you read on they state - '' Around 25% of the companies we
surveyed disclosed a change in headcount and of those
the average increase after fund raises was 83%.'' To extrapolate this into an overall increase of 83% for all companies that have crowdfunded is nonsense. In fact it castes serious doubts on the any other conclusion the report might make. It's simply a schoolboy error.

In its analysis of the performance of companies since funding, the report again is floundering. It states that data from 2011 is too sparse and that data since, doesnt really tell us much becasue of the way HMRC have set up SME accounting. Yet it goes on to make what can only be politely described as pure guesswork conclusions.

We know that this part of the report is wrong because we have a large number of the original pitch financials against which to compare the companies' progress. Failure rates at this early stage are irrelevant - they will only start to become measurable in 2017 and beyond. We can state here that very few companies manage to get close to the projections they issued to entice ECf investment.

We believe that these projections should also be lodged with an overseeing organisation, be it the FCA or HMRC and then be accessible to relevant parties in the future. This system, which is part of the new SEC regs in the US, would help investors make sensible decisions and prevent Alice in Wonderland becoming a reality.

Another of the report's obvious flaws is the weighting. As it reveals, Crowdube have funded more than the other 4 platforms added together, yet they are not given any weighting in the analysis. As Crowdcube run a very different model to all the other platforms, this hides the real results.

In its final conclusion, the report does at least acknowledge the need for more transparency, something some of us have been banging on about for years. It does seem a shame that a report, which will go on to be held up by the platforms as proof they are getting it right, is unable to fly.

Addendum - after writing this the CEO of Altfi Data contacted us to say that
they agreed the wording on the staffing levels was confusing but the data was essentially correct. We dont agree - the 83% figure is just nonsense.

Further he revealed that in the data sets used, they did not allow for the companies that had closed. Another clear catastrophic error. Companies that had employed 5 people, then ecrowdfunded, overtraded and had gone bust are not included. The whole report is so strewn with basic analytical mistakes as to make it totally worthless.

Enistic withdraw their Crowdcube pitch

Enistic were until very recently trying to raise £150,000 on Crowdcube. The pitch wasnt going too well, but then quite a few on Crowdcube seem to be struggling.

They had a very high rating from Crowdrating - two golds and a silver, which is pretty well the highest rating they can give. So if you believe what Crowdrating say this pitch was as good a bet as you can get. Enistic also formed part of the portfolio of Braveheart  - Crowdcube's Venture fund. In other words, it has the backing of Crowdcube's experts.

So where have they gone and why?

We may never know. Crowdcube run their platform firstly for themselves and secondly for entrepreneurs. Investors, or as some might like to call them, its clients, are almost always left in the dark. This is just one example alongside more obvious ones like 88 Delicious, where it would be very beneficial for potential investors to know why a pitch has gone off line.

We are left to fill in the blanks.

Thursday, 19 November 2015

Crowdcube's pitches still on the game

We had assumed that by now, what with all the hard work we are doing FOC, that Crowdcube pitches would have reached a reasonable level of DD.

Apparently not.

The latest company to fall short of the 'honesty' line is Perks Loyalty. They value their company at £1.75m  - as complete start up.

So you are thinking well the guys involved must be some big hitters. The sole director, an ex footballer, has a few other companies but only one that you could call established, Top Screen Media Ltd. He is ''a leading expert in digital innovation' according to Crowdcube. Top Screen trades at a loss.

We dont have a problem with any of the above. However a very casual glance at his Top Screen Media business rings alarm bells. On this website, he very sensibly has 'Case Studies' to illustrate the benefits of the service the company offers.

There are 11 in all and one of them is for Perks Loyalty. It makes no mention here that Perks is entirely owned by the same person who owns the service being case studied. If this guy can have bogus case studies on his main business website - after all Perks is raising funding to get going so its hardly much a case to study - then believing anything else he says might be difficult.

Still now you know you can at least make a sensible, informed judgement.  

Wednesday, 18 November 2015

Crowdcube's EIS investor fund bombs

A mass exodus of investors must be Crowdcube's worse nightmare.

Their latest attempt to entice people to part with their money has been a total flop. With only 11 days left, a meagre 32 of their tens of thousands of supporters have put in a tiny £140k of the required £500k.

Of course the masters of PR are unlikely to allow this to tarnish their mythical status in the world of ECf. We'd expect the 11 days left to suddenly become 111 and at least one large £100k sum to spring from a nearby bush where it had been loitering with intent. You know the story.

We think the main problem maybe the fact that Crowdcube 'experts' will be picking the fund's winners. That is likely to have investors heading rapidly for the exit.

A response from the CEO of Justpark

Please find below a response (to our post) from the CEO of Justpark to the news about staff layoffs and other issues...........

Hi Rob,

Happy to share openly and honestly what has actually happened and not what has been sensationalised in the media.

I normally wouldn't respond to a post like this which has been taken out of context and misrepresented but feel a duty to the 2,900 people who backed us who may be reading this.

The company DID make some hiring mistakes but only in that we did not focus enough on what was driving real value to the business. We grew a few of our teams too fast but realised quickly enough and made the tough but necessary decision decisively.

The number of people we had to let go has been blown way out of proportion and the original article has since been amended.

We are not running out of money. We raised over £3.7m and still have over 24 months of runway. Revenues are strong as is growth of our key metrics. The decision we made is very good for shareholders. The only people that have suffered have been my former colleagues and friends.

If you have experience of advising or working with startups you will know that this is quite common and not always a bad thing.

I'm not going to comment on individual trustpilot reviews as they are all unique and each one is dealt with by our customer happiness team who continue to beat industry standards in terms of response and resolution time. We've had over 250,000 reviews on our website with over 95% 4*/5 or higher. Our trustpilot rating is also very high (over 9/10).

Unfortunately when operating a business like ours it is impossible to prevent certain situations. We do our best to prevent these issues from arising and also sort out any problems as quickly as possible.

We have a team dedicated to ensuring the quality of our listings and quickly demote and remove listings that offer drivers a poor experience.

Regarding your point about security, I answered your question at the time in the crowdcube forum regarding a terrorist potentially using JustPark to park in a car park.

With everything that has recently happened in Paris, I would rather not comment further but hope that anyone reading this would agree that someone using JustPark would only increase the security of the general public and the parking location rather than decrease it as we would know the identity of the driver.

I am happy answering any other questions you have about JustPark and hope that this clarifies a few things.



A few points.

Firstly we never had a real response to the security issue and as you can see we still dont. There are a variety of central London spaces which can be booked for months on end which are hidden away. Using a false name and payment system would be very simple. We joined the list of space vendors with fake details with no problem.

Of course new businesses go through some trial error, stress testing etc but then they dont value themselves at around level Justpark did only months ago.

The Trustpilot reviews have two facets - the group of reviews which we wrote about before which were all within a few days (hundreds of them) and ALL 5 star and the more general reviews which if you removed the block mentioned above would be nowhere near to the 9.3 average they have today. The problem seems to be a consistent one - poor customer service and lack of control over their only suppy ie spaces. They can change the first but not the second.

For the sake of their investors we hope things improve. We do love the idea that 2,900 people might be reading this blog!

PS - The original number of layoffs has not been corrected as the CEO suggests here - so this is highly misleading and his fellow CEO Alex Stephany has just announced he is leaving. All sounds solid to us.

Tuesday, 17 November 2015

Justpark already laying off staff - eh??

It seems that Justpark have been laying off staff - rumour is that they have off loaded half of the team. Cant be cashflow surely? http://uk.businessinsider.com/london-startup-justpark-cutting-half-of-its-workforce-2015-11

With some terrible reviews and now the problems they face with their London sites and the threat from terrorists, its hardly surprising.

The concept has one very large and in our opinion fatal flaw. Justpark the company have very little if any quality control over what they are selling their customers - the spaces. Various complaints have emerged about unsafe spaces, spaces too small, people parking in the wrong space etc etc. We tried the system out. We promoted a fictitious space to see if they had any system of checks. They dont. You sign up on line and simple wait for a booking. So they will always have poor or dangerous spaces. People in a hurry to dump their car in a space they thought would be fine will not be customers for long.

When the pitch completed on CC, raising £3.5m at a valuation of £20m, we asked the company what checks they had for the private central London spaces vis a vis bombs etc. They had none. In light of recent very sad events, we think this was a little short sighted. Various spaces can be booked anonymously for long periods - in private locked garages. Perfect for anyone wanting to wreak havoc. 

Monday, 16 November 2015

Why we musnt abuse the Crowd

Equity Crowdfunding is rapidly becoming a world wide phenomenon. Each week we read about new laws being passed in new countries to allow this source of SME investment to flourish.

The evidence that it can work, that it really can achieve what is intended - a flourishing, sustainable growth in SME and start ups, is very thin. It took off in the UK in 2011 as the then coalition government were desperately looking for ways to replace bank lending, which had crashed after 2008/9. No investment, no thriving SME sector.......very bad press. The emphasis was very much on lite touch regulation or essentially no regulation. Nothing has changed since.

So far the enthusiasm of the crowd has held firm. The very generous income tax reliefs available here have stoked the fire. The fire is still burning but the fuel is just beginning to get a little damp. What people want and what they have been led to expect by the PR on the platforms, are EXITS and lots of them.

So what do we have in terms of ROI. Well to be honest, nothing. One very small return which if you look at the facts was really not advantageous to crowd investors and that is it. Hundreds of businesses funded and one small shrew sized exit. Failures to date have been limited to under 100 but the evidence is that many if not most of the funded companies are struggling to get even close to their healthy Crowdfunding projections. As a crowd investor, being locked into a limping company is just as bad as losing your investment altogether.

Platforms have been and continue to be guilty of publishing misleading information and occasionally there is evidence of fraud. Our systems are not set up to stop this - ECf has become established out of a political necessity and the protection is simply not in place.  No one has had the cojones to rein in the platforms PR.

The risk is that the crowd will grow bored of being told one thing - we will grow this business ten fold in 3 years and then exit making you lots of money - and having another - sorry it didnt go to plan and we need more money - delivered. If this happens, as it must unless we get exits, then there will be little hope of reversing it. The wave of enthusiasm has been large and the backwash, should it all go wrong, will wreck the whole idea.That in our opinion would be crying shame.

Its time to stop platforms exaggerating the potential upside, force them to be liable for the information they publish and give this nascent new funding channel a chance of lasting. The Crowd are the most important thing here after the businesses and the platforms need to realise this. Without them its curtains.

Saturday, 14 November 2015

Yet again Crowdcube fail on full disclosure

This is not a game and if platforms cannot be trusted to ensure that their pitches give investors ALL of the relevant information, then the FCA will have to step in.

Faction, a Crowdcube pitch we have mentioned before here, was due to launch an important new product this Autumn. This was a collaboration with Quicksilver in the USA. Quicksilver filed for bankruptcy in the USA a couple of months ago.

None of this information is in the Crowdcube pitch, which is rapidly heading to its completion target of £500k. Is it relevant?

Well yes of course it is - it says lots about the management team at Faction that they could hook up with an outfit that was by all accounts on the ropes and is now owned by its creditors. We understand that the deal included a development of Quicksilver's ski range, Roxy, in collaboration with Faction or put more simply Roxy were licensed to produce and brand Faction skis. Surely this information is to be considered important to potential investors in Faction.

The only reason that this has come to light is because a question was posted on the pitch forum. To be fair to Faction they have given a lengthy and considered response although we feel it errs on the side of over optimism. If no buyer is found for Quicksilver or the new buyer ditches the Faction deal then investors will most definitely be effected. The pitch is almost completed and 99.9% of those investing have not known about this.

It is just another example of investors being treated no better than cannon fodder. They need ALL the information to make a decision where caveat emptor is the rule.

A response from Crowdrating's Modweena

We had an email from Modweena - the CEO of Crowdrating - to tell us that we had got this all wrong.


Crowdrating does not receive any money from pitches when it rates companies and publishes them. Quite independently another company, in no way attached to Crowdrating but run by the same people, approaches companies that are in line to publish an ECf campaign and offers them a 'campaign healthcheck' which if they accept, they are charged for. In Modweena's words -  

''This is a nascent Consultancy service that is entirely separate to our publication of Ratings. Being a customer of our Consultancy service cannot influence the rating as each rating is created by our Ratings Engine which always and only uses publicly available facts available to the entire crowd.''

As to our suggestion that the ratings are pointless because they are so diluted, she says -

''Regarding your opinion that our ratings are diluted.  I thought you might be interested to know that we publish the ratings as Appointed Reps of FCA regulated firm Sturgeon Ventures.  All our ratings are approved for compliance and regulatory purposes, and in operating under these rules, our ratings must present a fair and balanced view.''

We would like to make it clear that we are not appointed by anyone or beholden to any Government quango. Our opinions are ours and are based on what we see in front of us and what others tell us.

Nothing Modweena has told us changes our opinion - according to pitching companies who have contacted us, Crowdrating do try to sell their 'campaign healthcheck' and tell these companies that they will get rated anyway ie its better to have the check so we can get all the facts right. The idea of a totally autonomous 'ratings engine' sitting in some London office issuing reams and reams of ratings like something out of a Roald Dahl, is at least amusing. The dilution issue is plain to see.

Friday, 13 November 2015

Crowdrating too dilute to be of any use

We hoped that Crowdrating.co.uk would be a useful tool for investors in ECf.

However it is really very disappointing. Its opinions are way over diluted to be of any real use.

For some reason, most probably political, it is unable to call a dud a dud, instead opting for the more fluffy gold, silver or bronze categories. Of course this may all have something to do with its revenue stream - which has to come from the pitches it reviews.

To take one very recent example - MPB Photographics.

Crowdrating do not mention the valuation which is based on a multiple of turnover. This when the GPM is only a small % of this turnover, taken as it is from the commission on sales. In this instance a fairer multiple would have been that of EBITDA. Costs to achieve the current and future EBITDA are relatively high, leaving a small net profit margin and consequently a very large breakeven or profit turnover. This clearly up scales the risks involved; as the figures illustrate.

Crowdrating also oddly ignores the company set up. Shares are being sold in the new holding co - MPB Holdings Ltd which owns the UK operation and a US incorporated company. No mention of how this is US co doing, when it was established etc is given on the Crowdcube pitch. As the new growth is projected to be coming from the US, then this must be an issue.

The idea behind Crowdrating is a good one but in order not to create offence with its paying clients - the pitchers - it seems to have shot itself in the head.

Thursday, 12 November 2015

Equity Crowdfunding and its effect on EIS and SEIS funding.

A new report put out by HMRC  -


gives some good evidence for the real increase in EIS and SEIS funding since 2011, when ECf started here in the UK. EIS funding relief has been running since 1993 - so it is interesting to see just how clear the 2011 line is.

The graph showing the increase in investment via EIS is particularly clear - initial boost at the end of the 90's then flat until 2010/11 and almost vertical since. Likewise the bar chart with the number of new raises and subsequent rounds is equally powerful. ECf has had a massive impact. Its effect is emphasised by the BofE's figures on SME bank overdrafts, which since 2011 have fallen from £21B to just £13B in 2015.

Which brings us to the point - is this money well spent? Time will tell and it is still early days, but the evidence is certainly not convincing. One very small return via Crowdcube and many of the companies funded bust - figures unknown as the platforms like to keep these as quiet as possible but certainly exceeding the 10's of millions lost.

Hats off to the SEIS and EIS reliefs if they really are going to bring about a surge in sustainable UK businesses. God knows the banks are not much help. But if, as we fear, the vast majority of these businesses either limp along forever or go bust then this money could have been better used.

The rapid rise of ECf has created large disruption and it is to hoped that out of this noise we will start to see platforms who take the matter of creating long term businesses more seriously. The soft launch of Growthdeck this week is one such instance. 

Wednesday, 11 November 2015

New SEC rules make sense to us.

It seems we in the UK may have lost our way.

Reading this http://www.sec.gov/news/pressrelease/2015-249.html SEC press release about the new ECF rules they are passing, the whole approach and structure the US is setting up has a long term vision. We here have taken a much easier grab it now, short term hit. Time will tell who wins.

Whilst the SEC rules are a work in progress, we believe they have identified serious weaknesses in the model established, or more correctly allowed to evolve, here since 2011. The SEC has put the onus firmly on the platforms. 

Here are our highlights - 
  • Platforms required to register with FINRA - not use third party proxy as we have with the FCA.
  • Platforms not allowed to raise money for themselves - which very clearly creates a self perpetuating support network
  • Platforms to provide  communication channels on their sites for OPEN discussion of their offerings. Here we have platform forums that are policed by the platforms and any posts that derogate pitches or the platform are removed - with extreme prejudice, as Jerry would have put it.

  • Pitching companies to provide audited or at a minimum reviewed financial statements and tax returns.
  • Pitching companies to declare upfront whether they will accept over funding if the pitch completes within its allotted time.
  • Pitching companies to provide evidence as to how the company value was reached.
  • Pitching companies to provide shareholder information for anyone owning above 20%
  • Pitching companies can only be live on one site at any one time - the end of the Tarts Brigade.
    • Pitching companies to provide an annual report to the SEC and investors. Evidence here is that companies only provide information to their ECf investors if its good news!
    • All of the information above has to be filed with the SEC as well as the platform - so there will no room for platforms claiming they didn't know - something that is rife here.

    Overall the emphasis is far more on provision of verifiable information by both companies and platforms than in the model we have. Caveat Emptor will still be the bottom line, but we believe that platforms here get away with all sorts of unhealthy practices which the SEC rules will help to eradicate.

    The SEC rules will at the very least help to limit the information asymmetry so prevalent in the UK model. Sure they are more burdensome than here and may cost companies but this a business proposition and an important one. Spending a little time and money to get it right has to make sense. We in the UK appear to have gone for the instant version; probably as a result of the last government's need for results.

    So what if anything will our FCA do about it? Now they can see the light, will they follow it? 

    Tuesday, 10 November 2015

    Growthdeck.com - the new kid in town.

    Is the the moment we have been waiting for?

    The rise of equity Crowdfunding has been rapid since 2012 and with this disruption there is bound to be turbulence and change. Being a first mover is not always an advantage when tackling something so new.

    As far as we know, no platform has yet put together an offer that compares to the new one by Growthdeck.com

    The idea behind this new platform, which launches for real in January 2016, is simple enough. Publish professional, investible pitches and promote them to sensible investors who really care about putting their money into great UK businesses.No gimmicks, no nonsense, just great business all round.

    A minimum investment requirement of £500k will remove much of the chaff that the likes of Crowdcube put out and the minimum investment of £1000 will help to keep the investors at the more sophisticated end of the spectrum. The emphasis is very much on quality over quantity.

    The really clever bit, however, is in the service level offered to investors and entrepreneurs.

    Growthdeck has a growing team of experienced private equity experts and offers pitchers real help in presenting their offer in the best possible way. The platform will not publish plans that that the team do not support.

    They promise a thorough DD service; lunches are taken in house. This help is ongoing throughout the course of the investment not just until the shares are issued  - something that we think is unique to ECF. Its more akin to joining an investment family than merely raising some capital. This is bound to be beneficial to both businesses and also therefore to the investors in them.

    For investors, a nominee structure allows all the hassle of company to shareholder comms to be handled by the platform - efficiently and with real information presented on a timely basis. Twice yearly management reports will keep investors up to date with progress. Whilst some other sites do push their companies to provide this type of information, in our experience the results are sporadic and even sometimes misleading. Businesses with Growthdeck will be able to concentrate on what they are best at; whilst investors are kept reliably informed.

    This just might be exactly what ECF in the UK needs - a very sensible, well thought out proposition, that will develop real business opportunities and allow informed investment in them. Hats off.

    Monday, 9 November 2015

    Wrong Source.

    The new mini bond offer on Crowdcube for Source is to be applauded for producing filed accounts as up to date as possible to YE March 2015 - many pitchers delay filing precisely to avoid this.

    However there seems to be little point in reading them as they are completely different to the ones produced by the CC out to lunch department on the pitch.

    For crying out load guys - what is the point in having any figures on any of your pitches when the only thing investors can be certain of is that they are complete drivel.

    Claims of profits for the last two years are flatly contradicted by the CH accounts as are all of the other figures supplied. According to the filed accounts since the company was incorporated they have made losses each year - as shown in the accumulated P&L account. It's really a pretty simple thing to get right.

    Sunday, 8 November 2015

    A pitch that appears more fantasy than reality

    Recently 92 major snowsports businesses, including K2, The North Face, Rossignol, and Clif Bar, wrote a joint letter to the US President. It was timed to coincide with his speech to UN Climate Change Convention in Paris. It was
    a plea for help.

    Yesterday a new pitch was published on Crowdcube - The Faction Collective.

    FC make skis and some associated items. They are at the trend end of the industry - free formers who seem to have forgotten the real purpose of business - to make a profit. That's clearly far too naff.

    Reading their accounts, from the HQ in Switzerland, you would be forgiven for confusing this company with another one; not the one portrayed on Crowdcube.

    Selling in over 300 stores worldwide, the company has only managed sales of £600,000 and £800,000 in the last two years. You do the math. With costs of £1.55m and £2.15m respectively the losses are off piste. The 2013/14 costs included a handsome sum of £101,000 for 'exchange differences' - that's a whopping 12.5% of t/o. The Crowdcube pitch says they have an CFO but he must be out product testing.

    It is worth checking out (always!) the Crowdcube version of the founders credentials. They have a habit of missing important details out. Mr Hoye is an entrepreneur. Entrepreneurs sometimes fail - it's in the nature of the business. We like them to own up to it. A failure leaving banks and creditors owing several tens of millions of pounds only a few years ago is pertinent information we feel. So do check out Hoye's Latitude Holdings Group Ltd followed by Latitude Digital Marketing Holdings Ltd. This is well worth a view - especially the comments bearing in mind LDM Ltd closed a year and half later! http://www.insiders-view.co.uk/latitude-seo-goes-bust/00683 

    This is one the comments -


    You clearly have been reading this Blog, care to comment on the text taken from Brand Republic?
    “As reported in the August 2008 edition of New Media Agencies Financial Intelligence, Hoye co-founded Go-Industry in 1999 and, using €51 million raised from US venture capital sources, embarked on a massive acquisition spree that included the well-known UK industrial auctioneer Henry Butcher.
    By 2004 Go-Industry was generating annual revenues of €50 million and on 5 January 2006 it was admitted to AIM by means of a reverse takeover. At that time Go-Industry had run up losses of €56 million and had borrowings approaching €10 million. Then, on 26 June that year, a brief announcement said that Hoye had resigned.
    One week later the board signed off the accounts for 2005 showing a further loss of €11 million, of which over €4 million arose from stock write-downs and €4.6 million related to exceptional items including bad debts.”

    Recorded GPM for FC is 10% but in the Crowdcube version, this year it will be 19% and by 2018/19 this will have reached a very impressive 45%. This is
    achieved through improved manufacturing costs and direct marketing - apparently.

    Luckily the Swiss have better accounting procedures than we do, so it is possible to see just where Faction spend all their money. In a business model where there are more half pipes than chairs in the board room, it is hardly surprising that a vast chunk of the spend is on 'riders under contract' or what might be better described as staff outings. It certainly is not what you would call a tight ship.

    On the plus side, the brand has established itself, albeit as a bit, niche player in the market. It has managed to raise £7.5m in capital and has some very chunky investors - all of whom ski Faction so maybe they are the 'riders under contract'!

    Otherways, the market iis forecast to have miniscule growth over he next 4 years and with snow predictions dire, this could well end up being negative. There are already major players and a plethora of niche ones, both in the ski and accessories market.

    As the Swiss Accountants point out, the company has made unsecured loans to its US and Canadian subsidies, for which no provision has been made and they are only a 'going concern' on the say so of the Directors. What's more they have a short term loan of £1.3m due to be repaid in 3 months time.

    Given the obvious market conditions, this is one high risk investment. We are puzzled as to why so many big hitters have invested at what the pitch states are the same terms as you and me. More tea anyone?

    ps - be aware that of the £366k currently invested (09/11/15) - two investors put in £100k and £150k. Sometimes this is a ruse to get pitches into over funding when these large amounts then are withdrawn  - allowing the pitch to still be over its original target and therefore complete. Just saying.

    Saturday, 7 November 2015

    POD Point pitch not as it appears

    Yet again we find that the Crowdcube DD dept has been having long lunches.

    In the POD Point pitch, which is without doubt one of the more solid propositions that CC have posted recently, the founder of POD tells us about his past experience as a successful serial entrepreneur.

    Apparently he founded and built up Ecurie25 and then sold it.

    Well all we can say is that if you bother to check with CH, then this does not appear to be what happened. Its not straight forward so we wont bore you with all the minutia here but it seems that this company made a massive loss in the year he 'sold' it to the tune of £600k according to filed accounts. The company had made small profits prior to this for two years. He then resigned in March of 2009 and has had no 'success' since.  What was left of the holding company went into administration and was bought out by one of the original directors in a phoenix. However this buyout seems to have failed with losses and its now overdue for accounts and its AR with a final Gazette due any minute.

    However you look at this, this company was not a success under his management and has not been a success since he left.

    All in all this is not even close to the description Mr Fairbairn is given in the Crowdcube pitch. That of course is not to say this latest effort wont be more successful but you are better forewarned.

    Friday, 6 November 2015

    Pip and Nut head for success

    It seems we got this one very wrong.

    We wrote several blogs, now deleted, about Pip and Nut and their demise - the website vanished and HMRC tried to close the company.

    However we are glad to report than someone (?) has pointed out that their products are now stocked in around 1000 stores. This is still very early stages and listings like the 500 store one with Sainsbury, which has just gone live, can vanish in an instant but it is better news than we had predicted.

    Lets hope this is one Crowdcube story that has a healthy ending.

    Is this real evidence of the sort of fraud that ECf platforms get up to?

    CrowdProperty pitched on the ECf platform Bank to the Future back in 2014. This platform has since been forced to go off shore as no one here would issue it with an FCA licence. Its founder Simon Dixon has been known to us as a conman for the last 4 years. He was elected to the board of the UKCFA, the 'body' established by Julia Groves which is supposed to be the representative body for the industry. Enough said.

    So the platform claimed to have raised £171k for the company, the company agreed that this is what was raised and as it was over the £150k target, the pitch completed.

    We suspected at the time that something wasnt quite right when the pitch suddenly received an investment of £100k on its last day - without which it would have failed. However it has taken till now, a year and half later, to confirm our suspicions.

    CrowdProperty's first accounts were filed a few days ago and the shareholders paid in capital total is only £114k of which £10k seems to be prior to the pitch. It never crossed its target line

    So what has happened to the rest of the £67k. We suspect that it never existed - it was 'pledged' and then withdrawn just to ensure the pitch got over its target and could complete. If so, then this must have been pledged by people who had a vested interest in it completing and who knew it could be withdrawn before shares were issued. Meanwhile the real investors, who had really invested real money were none the wiser.

    This appears to us to be the first instance of what we suspect is a not uncommon ploy used by the ECF platforms to essentially con people. It is difficult to trace and to verify which is perfect if you trying it on. So beware.

    Thursday, 5 November 2015

    Catflops and other misguided ideas

    If you fancy investing in people who

    • Have no experience in start ups and/or running businesses
    • Have not yet field accounts  or stress tested their model
    • Have projections that go from zero to £3.2m in just 4 years with only £150k invested in three tranches
    • Have a current valuation of £1m
    • Have already asked for the full £150k on  http://www.investago.co.uk/cat-in-a-flat/ so have joined the Tarts team.

      And you really like cats then this one is for you. Crowdcube's new Cat in a Flap truly is an outstanding piece of complete twoddle.

      Or perhaps you're backing the new suits you boys Morts and More.

      • Again no experience in start ups and managing businesses.
      • Again no accounts filed of any substance
      • Has some of the worst looking sample shots we have ever seen - http://www.mortsandmore.com/shop/mens-suits/the-greenford-dark-grey-suit/ 

      But this one comes with an added bonus.............. Fleur Emery is their advisor. Some people may remember Fleur as she founded Green and Pleasant which funded on Crowdcube. Then she advised another Crowdcube pitch. Green and Pleasant closed shortly after the funding, although the brand was 'passed on' to someone else to run - shareholders as far as we know saw none of their investment back. We had a feeling she would reappear here at some stage! 

      Justpark anywhere

      We had to share this with you.

      On Trustpilot we found this plaintiff call for help from 4 days ago -

      Someone has parked in our drive with a JustPark sticker in the windscreen. We are NOT a justpark space and need the car removing urgently. I cannot get my car out of the garage.
      I have emailed & messaged on their facebook page
      I have left my details and phone number but they haven't replied
      How can I get this car removed quickly?

      I may have to contact the Police to tow it
      Beware if you are using Justpark because this may happen to you 

      UPDATE 09/11/15 - this review was referred by JustPark and is pending an enquiry by TP so is no longer visible. 

      More Tarts anyone? Viva join the band of multiplatform pitches.

      Now that Early Bird have completed their £300k raise on Crowdcube (yes that's right; completed!) they have disappeared from Angels Den where they were running a parallel campaign for the different equity % - apparently they were never really supposed to be on their according the founder of EB - ??

      Another Crowdcube pitch has joined the ranks of ECf Tarts.

      Viva Drinks is running a parallel campaign on Angles Den. How is it possible to sell the same thing twice over? 
      Any ideas?

      PS - We have just been informed that the Angels Den pitch is no longer live - although it appears to be on the platform. Apparently the £100k plus 'raised' on AD will now flow to the Crowdcube pitch. So either the AD team have their heads where the sun dont shine or the Viva Drinks CEO is a fibber but you cant have this type of crass nonsense going on in a what is supposed to be a serious business environment.

      What's more, the projections used by this company to sell the same % of equity for the same investment on both platforms, are DIFFERENT. How can that possibly be unless these projections are pure fabrication?? Viva's claim that the change in pitch projections is due to updating data is an eye opener. Sales forecasts for the Angels Den pitch were clearly very optimistic as they have been hugely reduced only a few months later for the CC pitch. What's the point in having these figures if they are so far from reality?

      Crowdfunder claim to be ahead of projections as they raise more on Crowdcube

      Crowdfunder have lust launched what looks like being a successful pitch on Crowdcube for £1m,; valuing the company at £20m or 20 million times net profit. If all goes to plan they hope to double your money in 3 years which given the risks seems a little pathetic to us.

      They may well be only the second Crowdcube pitch to return for more cash with the initial projections satisfied - which would be a fine achievement.

      We do however have one major issue with the way this and many other Crowdcube pitches present their information. Their YE is September but projections run Jan to Dec, for no good reason we can see. To make this more confusing a small italic note states Forecast begins Oct 15. Glad they cleared that up for us.

      These projections show the past 12 months (we assume this is Jan 2015 to Jan 2016 but who really knows) with a balance sheet that has an accrued profit (loss) of £(344,527). If you check the last filed accounts at CH the recorded accrued loss is £(495,417) for YE Sept 2014. So you would expect the company to have made a profit of at least the difference in those months. They declare in the Crowdcube pitch that they made a loss of £45k for YE Oct 2015 (or this might be to Dec 2015?). So you might well ask how does the balance sheet show a figure so far away from the one that it should.

      We have not got a clue, but any answers would be helpful. The company may well be on a winning run and you may invest and get your money doubled as they predict but surely it would help if we had all the information in a format that made some sense.