Tuesday, 19 July 2016

Crowdcube prospectus reveals lack of any planning or sense of value

So here we are - Crowdcube has yet again blown away all the rules and has as of an hour ago raised £6m from 2400 investors.

We had no doubt that the £5m target would be reached - there seems to be no end to people's blind faith in this company.

When we advise companies on using ECF, we always stress that the money should not be used to plug large gaps in the current cash flow - it must be forward looking and for growth. As CC write their own rules, that is precisely what most of this raise will do - a prop job. When you are burning almost £9m a year on a gross profit of around £3m (2016 projections c/o Fantasy ECF - why not, we are just as likely to be right as they are!), it comes as no surprise that the cash has run out. 

Reading through the Prospectus we learn quite a lot about their ambitions, but very little about how they are going to achieve them. Current losses for 2015 are £5m pa and rising on a slowing revenue growth and shrinking GPM. Increasing competition from Seedrs, a better platform all round and newcomers of the size and scale of Indiegogo is going to make life very tough. 

They talk about making ROI for investors a key metric. Yet again they dont talk about how they are going to achieve this. The three areas they will concentrate on are -

-  Getting more large established businesses to raise via them - on their way to an IPO. 
-  Getting involved in IPOs and public offerings  
-  Operate a secondary market.

Yet again we get no idea from the pages and pages of praise and success stories, as to how they are going to deliver these aims. The Secondary Market looks like the most ridiculous, although recent experiences from Syndicate Room would suggest that public offerings are also impossible. In fact only this May, Luke Lang descrcibed the economics of public offerings as 'god awful' - what's changed we wonder? Why would people buy shares on the secondary market in companies that are miles off the projections used to sell the original CC equity? Mind you why would people buy shares in CC for the same reason?? 

They are right that ROI has to be the key metric but they ignore the fundamental reason why they have delivered so little to date. The quality of their own due diligence and one assumes the staff who select the businesses, drives the very poor quality of 99% of their offerings. Neither founder has ever achieved anything of note prior to Crowdcube, despite the claims they make. Crowdcube is a vehicle for any old company to raise funds - stuff the investors. The company is  largely run by interns - we know as they come to us afterwards! 

The prospectus is full of what they have achieved to date in terms of investors gathered, money raised, awards etc etc. It's a classic sales document. No mention anywhere of the failed companies, losses to creditors, loss to investors, losess to HMRC and lack of any credible ROI. No mention either of the fraud issues that keep bobbing their heads above the water at regular intervals.We can tell you, there are still more to come.

One more lighthearted moment comes in Part 1 of the Registration Document. It really sums up why this company is no good. Under the picture of Darren Westlake, there is a bio - claiming he launched and exited two companies. Darren actually knows this isn't true, we told him so on this blog a while ago - one went in to administration with a pre pack and the other did virtually nothing. Then under the face of the other founder Luke Lang, we have the same Darren bio but without the claim made above. Luke doesn't get a bio. You can make up your own minds how this gaff might have come about. Going to out to lunch is sure to have something to do with it.

People are investing at today's value of £65m. This for a company that is likely to get hammered by Brexit and has shown no signs of getting close to a profit; yet still pays its founders around £300k a year . The FCA are reviewing the way the ECF market operates and they know what we have uncovered on this blog - they quote us in one of their recent documents. 

It's going to be an interesting ride!  

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