Wednesday, 27 July 2016

Crowdcube's Secondary market is pure Myth


One of Crowdcube's key selling points in their latest cash grab, is the creation of a Secondary Market.

So how would this work? Crowdcube give no details and when asked repeatedly in the forum , they give no answers. We know why they have pushed it out there, to try and deflect questions about the total lack of any ROI from 5 years of business. A CC apostle, trying to explain why it was fine for CC to have made 5 years of increasing losses, compared them to Amazon. Amazon made no profits for 20 years. However for this comparison to work, Amazon would have had to spend its first five years taking orders without delivering anything. Like CC have.

A secondary market would be CC's Senokot Max.

As they don't know how it might look, lets have a guess - its likely to be better than their answer anyway.

To create a secondary market in shares issued by successful CC fundraisers, the only essential ingredient is demand.  In this case you have twin demand - the demand to sell shares by those who bought them on CC and the demand by investors to buy them.

There are two drivers for this demand  - a rise in the price or value of the shares since the original CC campaign and a growth in prospects based on the performance of the company since its CC campaign.

We have to tell you that in all but a couple of small instances, these drivers are absent from Crowdcube funded companies. Our data shows only one or maybe two companies that have funded on CC since 2011, that have managed to achieve or exceed their projections. Most have missed them by miles - so why would anyone believe these companies when they claimed future growth? The original valuations, hyped by Crowdcube's business practices, also suggest that companies that fall a long way short in performance will find it very hard to create added value for existing shareholders who bought at these inflated prices.

Now you might get some astute punters who have seen the writing on the wall and decided to jump ship, no matter what the price. But will this create a vibrant secondary market? Will it create this demand?

It seems to us to be akin to Syndicate Room's rather desperate attempt to play in the IPO market, which as we all know has not gone too well.

So its really just a smoke screen to divert attention from their lack of any credible delivery. Amazon indeed.


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