Friday, 27 November 2015
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.