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Saturday, 30 January 2016

New research is deeply flawed

New research published by Beauhurst shows failure rates for businesses funded via equity crowdfunding are much higher than normal start up and SME failure rates.

The analysis is deeply flawed but not for that reason.

We have been saying forever that most of the businesses funded via ECF have been ones that would not survive and so it has proved. This is the fault of the platforms who have dressed up these old ewes as minted lamb to display in their shop windows. Investors have been taken for a ride and its leaving a bad taste in the mouth.

One conclusion that Beauhurst comes to in their analysis, is that the failure rate for 2012 and 2013 is high but drops off to a level much more in line with the norm in 2014 and 2015. See below

Their conclusion is that this is all part of the ECF learning curve ie platforms are promoting better businesses. This is very clearly nonsense from our research. ECf only started in 2011 and really only got going in any volumes after 2013. So what we are seeing here is a simple result of the time lag. It takes months and normally a year or more for a failed company to be struck off. So the drop off is only a result of the failures not appearing out of the system yet. Sure ECf is on a learning curve and it has to be hoped that it learns a lot before its too late. But please do not let's make things up to hide the truth. 

Tuesday, 26 January 2016

What exactly is a 'transacted customer'?

This one made us laugh out loud.

George Spencer founded Rentify in 2012 and now they have launched a campaign to raise £1m as part of a 2016 £6m funding round. The stated aim is to make the business 'huge'.

George has lots of very important friends and despite the lack of traction so far, some big names are involved.

I just wonder what George means by his opening salvo - ' ....the business has gown to more than 200,000 transacted customers.......'  Transacted is not a real word, so what can he be saying?

Maybe Rentify has completed 200,000 invoices since 2012?
Maybe his customers are into some transcendental, cruci-fictional, mind expanding, after lights out games?
Perhaps you deal with mainly HMOs and you count the 200,000 residents as your clients?

Who knows.

You can just see the Crowdcube meeting though -

George - 'We want to say something at the start of the pitch which makes us look big, you know       something really impressive.''

Crowdcube - 'Well your accounts will not do that George, so why don't we add up all the customers you have ever had, invent a collective noun to give them and use that? How about 200,000 transacted customers? That sounds pretty huge to us.'

And there we have it, Crowdcube have added to our rich and diverse etymology.

The problem is George, you seem to think this is a game where all the players are either stupid or mad.

The implication is that you have 200,000 customers, which would be very impressive. However when you compare 200,000 customers with a revenue of 310k for 2015 things start to look a little ropey. Are we expected to believe that the average Rentify customer spends around £1.50? Even if you add up the last 2 years revenue (£462k) and add another £200k for 2012 and 2013, the average Rentify customers annual expenditure for your services is £3.31. What do you provide that costs less than £5? Dont answer that.

It does help to explain the impressive losses that have accrued of £7.35m in 3 years.

Ignoring the multitude of other vague references to terms like  'processed properties' we simply cant make head or tail of this one.

A Rider - since publishing this today the pitch has more half completed albeit that one 'investor' put in £380k. a couple of points to remeber before you jump in - Balderton Capital who back this company are also Crowdcube's maij backers and the £5m extra equity funding that 2016 will see (according to George) will dilute existing shareholders. Although George says its not very significant, in fact it could bev - the deal isnt done yet. We are seeing increasing signs of VCs using ECf to feather their own nests - so just be aware.

Monday, 25 January 2016

In 3 years 4 times as many failures as exits - what chance the amateur?

Seedcamp has been investing in start ups since 2012. It has pumped money into 206 so far.

It is early days to draw conclusions and we don't have the exit figures, but the investments have seen 45 close and 12 exit, with the remainder still in action.

Seedcamp spend their entire time perfecting this and even they have managed a 4 to 1 failure rate. Of course they probably only need one of the 200 to make it big but the figures are interesting. A typical amateur would not expect to invest in more than say 20 companies.

Equity Crowdfunding platforms typically quote the need to spread the risk amongst 10 investments. In comparison to the professional approach this would seem far too small a net to caste.

Is Harry Brompton's Tea pitch on Crowdcube over valued?

Simple answer is yes.

There is a debate running on the pitch which hasn't come to any conclusion. However the proof surely is in the lack of traction this company has enjoyed in its ECF campaign. We have seen this before and we can tell you they will drop this valuation if you hold firm.

The company has strong listings, a sound sales base, a new product pipeline and a potential brand winner - so why are they being so stupid?

There is no comparison between them and Brewdog or Camden Brewery, as they would have you believe - not at the moment. And it is at this moment that people are being ask to risk cash to invest. So value the company at a level that reflects where you are now and which allows investors the thought of making a few bob, or you will get nout.

We blame Crowdcube, who have inflated valuations to fanciful heights in the past 2 years. Ignoring the constant drip of collapsed businesses they have helped fund, those who are still out there are without exception over valued. So when they come back for more, as two current pitches are now doing, they have to hike the value again making this return campaign so much less likely to succeed.

Like most of you, we are longing for the day when some professionals get involved in the UK equity crowdfunding scene and run these cowboys out of town.

Seedrs' funded Hokkei calls it a day after just 6 months

We think this may be a world record for the fastest ECf exit.

Hokkei funded on the ECf platform Seedrs in June 2015. They raised  £320k at a valuation of £1.1m for a new Chinese Take away concept that '...flips the traditional Chinese takeaway on its head' according to their pitch. Its first unit was due to open in Cardiff on January 2.

The business has just closed - having never really opened and the liquidation process is now in motion. Its too early to know what went wrong but we suspect they dropped the idea on its head when flipping it.

£100k of the Seedrs investment came from Go Compare founder Hayley Parsons. Seems we can all get it very wrong.

Thanks go to our friend for the tip off!

Luxtripper increases its valuation

Luxtripper is back on Crowdcube. Like so many returnees, it has managed to come back with a much increased valuation. This we are told is based on a better level of expectations for the future. It certainly is not based on the financial figures they have produced.

Below are the comparative figures for raise one, end 2014 and now   - so a gap in time of just over a year. The two sets do not have matching YE dates but the camparison still stands as an overall trend. Essentially the 2014 projections have been halved. The EBITDA has taken a much greater hit. Of course you dont get to see this comparison on the current Crowdcube pitch. It has been mentioned by some of the Crowd's more informed investors on the forum, so we are not the only ones to think this way.

It is a mystery how these projections can result in an increase in the company's value. Even by the rather crazy standards used on Crowdcube, a business is valued on a conbination of its likely exit EBITDA and turnover which are discounted for risk/time etc. So reducing the expected EBITDA by a factor of 4 now results in an increase in the company valuation.

That is definately a first; even for the magicians at Crowdcube.

This company may well go on to make investors a hat full of money; the investment on Crowdcube is going very well. I just wish they could come up with some sensible reasoning for the valuation.

                                                2014 Projections(Jan-Dec)               2015 Projections (Mar-Apr)

Turnover     EBITDA

Turnover EBITDA
£8.77m £600k

£3.3m £(266k)

£28.8m £4.59m

£14.98m £722k



Friday, 22 January 2016

Why use ECf Solutions' services for your Equity Crowdfunding Campaign?

Why use our services?

At ECF Solutions we aim to make the most of your chances of raising funding using the Equity Crowdfunding channel. This is a new way to raise business finance and each campaign has to raise its full amount or you get nothing. So you simply do not want to fail – it’s too important to take a chance with.

Of course you can do it for yourself. The average failure rate is around 70%, although this does vary from platform to platform. We have seen many instances of campaigns that failed because they didn’t understand the metrics of this new channel, failed to understand the way the Crowd needs to be handled and failed to tailor their business model to attract the investment. Despite their businesses being investible, they failed to raise the full amount and therefore left with nothing.

Failure in your equity crowdfunding campaign will remain on the web for many years, causing you considerable problems should you wish to try again with a better proposal or raise money using a different option.

Our Services

We offer a bespoke end to end service, tailored to your needs.

We get involved right from the outset, advising you on the best platforms for your offer, looking at other similar campaigns, advising on the equity offer and investment vehicles and helping with the campaign documents and financials. We then see the campaign through with you, advising on actions to take if it stalls, keeping you up to date with any queries from investors, helping with the live pitches and helping wherever we can to bring about a successful conclusion. Campaigns can be very time consuming and we understand that your job is running your company – we take the hard work out of your fundraising.

Our advice is based on studying hundreds of campaigns since 2011 across multiple platforms. We know how to achieve the best outcome.

Contact us for a chat. What have you got top lose?

Thursday, 21 January 2016

Beer52 and Flavourly have alarming similarities

Here are some reviews of a company that raised equity crowdfunding on Angels Den a while back, taken from the Business Matters website. This company is 'advised' by Ryan O'Rourke who runs Flavourly. Flavourly raised money on Crowdcube. Flavourly's reviews have been an issue for sometime and have been mentioned on this blog.

You begin to see a common theme here?

To prevent equity crowdfunding descending into the abyss something needs to done.

  • Scam, scam, SCAM. Badly marketed, hidden charges, impossible to cancel, can't get through to anyone. If it doesn't get resolved soon, I will also ask my bank to block payments.

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        total scam. send a letter by recorded delivery to their address and instruct your bank to block future charges from them. its the only way out

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            Total scam. It's virtually impossible to stop the subscription and they keep taking money off your card details

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                I couldn't agree more with arvedui, their concept is great but their business practices are appalling. Avoid Avoid AVOID.

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                    Beer52 is a fucking scam. It's almost impossible to contact them, and there's no easy way to cancel the subscription. I've been trying to stop the delivery for some time now and have not managed it. Avoid at all costs!

                  Wednesday, 20 January 2016

                  A new hope for ECF

                  For Equity Crowdfunding there is light at the end of the tunnel

                  Since 2011, when Crowdcube launched the first on line ECf platform in the UK, hundreds of businesses have tried to raise money using this channel. Many have succeeded but very very few have come close to meeting the projections used by the platforms to promote the pitches. This has to change.

                  We blame the platforms - far and square. We know from talking to entrepreneurs that the larger platforms push businesses to escalate their financials. Sexing up the dossier in other words. We have shown 50 or 60 examples of this on this blog - there are many more waiting in the wings.

                  This is just crazy business practise. Over trading in an early stage business is one of the most common causes of failure - so actively encouraging it shows strong suicidal tendencies.

                  In a few days we are launching ECF Solutions -  a bespoke business service for companies thinking about using ECF to raise funds. We aim to promote only businesses we feel have a good chance of raising their money and going on to deliver some return for the investors. If we dont back winners, we wont get paid!

                  Failure is all part of the start up game - many would claim that you learn far more from it than success. However stupidity should be kept to a minimum. Advancing claims about a business that simply can never come true is plain stupid - it doesn't help anyone in the long run. As the main platforms seem unable or unwilling to help prevent this and the investors are still being dazzled by the promise of the next FB, its up to some sensible well seasoned business heads to sort out the mess.

                  Launch day has been brought forward to tomorrow.

                  Monday, 18 January 2016

                  No change in information asymmetry

                  AutoTrip are back on Crowdcube. Its been less than a year.

                  Now you would think that the best policy with this would be for Crowdcube to publish the first campaigns projections so that we can all see how the company has fared?

                  Unfortunately this has not happened.

                  The original campaign last Spring had YE dates of December. So in order to make it easier for potential investors to compare like with like, you would expect this raise to have those same dates.

                  Unfortunately this has not happened, either.

                  The projections now are YE September. This is the company's filing date.

                  What is clear from a comparison is that the investment predicted for 2015 of £700k has not materialised. Sales seem short of predictions and losses higher but its simply impossible to make a real judegment, given the date obstructions placed in our way.

                  Maybe that's the way they planned it - it is ceratinly a ploy used by Crowdcube on a very regular basis.

                  Whatever the real state of affairs, the company which was 'valued' at £750k 10 months ago is now valued at £2.5m; having done very little. Amazing how good Crowdcube are at getting their investors on an upward value curve.

                  Sunday, 17 January 2016

                  Seedrs' £650k raise Dipstix calls it a day after 14 months.

                  Dipstix raised £650k on Seedrs at the end of 2014.

                  Little more than a year later, they are closing via an MVL.

                  We dont have the statement of affairs yet, but it appears from a letter sent to all shareholders that things just didnt work out as planned. We had guessed that.

                  In the letter, kindly forwarded to us by a reader, the company states that its core market (the one it waxed lyrical about only 14 months ago) had proven too expenseive to aquire when compared to its revenue per customer.

                  Call us old fashioned but isnt that a round about way of saying 'Our business model isnt any bloody good'? It does stretch the bouinds the credibility to claim in November 2014 that retail customers are the core market and to say in November 2015 that they are not.

                  Valued at almost £2m when the raise on Seedrs took place (!), it will be interesting to see what happened to the £650k.

                  Clearly someone, somehwere, misread the levels.

                  Friday, 15 January 2016

                  Seedrs' Upper Street failure loses almost £500k

                  Image result for images of shoe makers

                  Upper Street raised £230k only 7 months ago on Seedrs.

                  Now they are in liquidation.

                  It is very hard to see where the cash has gone.

                  The liquidators report says the assets are pretty well worthless and they owe the bank and creditors almost £300k.

                  So from May to December 2015 the compnay has manged to spend over £200k of investors money, assuming their own revenue was zero and has nout to show for it. 

                  The founder, Julia Elliot Brown, spent the summer describing herself as an entrepreneur. Enough said.

                  What would be interesting is if she would now like to tell us all what went wrong - then we could all learn a lesson or two.

                  PM - It appears that the new Venrex/Seedrs run fund lost £50k on this, one of their new fund's first investments. Venrex raised £1m on Seedrs to invest in the Crowd Fund - claiming they were democratising the VC investment business. Good to hear boys.

                  Thursday, 14 January 2016

                  What can we learn from Tiger Bills demise?

                  The Lifestyle Hospitality Group (TA Tiger Bills and other suitable names) was on Crowdcube at the end of last year.

                  They were raising £500k for expansion. It didnt succeed.

                  We commented at the time that they didnt seem right for expansion.

                  The business is now closed, in the throws of a 'sale'.

                  So what can we learn from this? Well firstly that the Crowd cannot always be fooled into throwing its money away which has to be some comfort.

                  Unfortunately there is a more serious lesson here. In the financials published on Crowdcube, the company showed a reasonably healthy balance sheet for the previous 12 months to June 2015. Profits for the following 12 months went from £300k to £800k - things were looking great. There was certainly no indication that failure to raise the £500k would result in total collapse. A healthy £2m sat  on the balance sheet prior to any investment  - or so they said.

                  These of course are the financials that the Crowdcube out to lunch department would have spent many hours checking over - to ensure that their investors were given good, clean, accurate information.  These figures were also completely unaudited and it would now appear were fictitious. You have to ask why an outfit making money would close and then 'sell'. The damage caused by closing outlets is not often recoverable.

                  Of course as with all things like this, we wont know for sometime what the true facts are. Someone obviously does.

                  It really just begs the question again - why have we not got some real due diligence service to help prevent ECF going off the rails.

                  Monday, 11 January 2016

                  A New Year?

                  Ah, the turn of the year, time to turn over a new leaf and look at things afresh.

                  Or maybe not.

                  Here are some of Crowdcube's pitches that have reported accounts which in no way come to close to the projections they published when they raised funding on the platform -

                  PDB - more losses and little activity

                  7billion ideas - further small losses

                  Open Desk - appear to have failed to raise the extra capital required on the published plan, leaving existing crowd shareholders in limbo

                  Sweetly Stevia - another £65k of losses

                  Purple Harry - £60k of losses .v. a projected £70k profit, technically insolvent.

                  Stakis Daycare  - no nurseries ever set up, all but Stakis have now resigned.

                  Water to Go - raised £190k at the end of 2014, Projected profits for 2014 of £200k have in fact now been filed as losses of £270k.  

                  Peach Lettings which according to Crowdcube raised money in 2014, has no record of the 92 shareholders on their recent AR. One lonely shareholder only.

                  Of course some of these may go on to be a huge success, but just not in the timeframe they predicted.

                  Worth remembering when you next invest.