Thursday, 11 August 2016

Wool and the Gang Sell Out their Crowdcube investors for a penny to Blue Gem Capital Partners

No doubt Crowdcube would be trumpeting this from the rooftops as evidence of a successful exit but details shown to us prove otherwise. It's a total farce.

Wool and the Gang (WATG) raised over £1m on Crowdcube at the start of 2016. The company had already secured investment from Index Ventures and a few other financial vehicles. The pitch talked of ambitious plans; dont they all. We wrote a not very glowing post on them and Index here  - looks like we were spot on!

Investors via Crowdcube paid just over 26p per share for their stake in this company which was valued at around £8.5m.

An email sent to these investors this week and shown to us, states that the company has been sold to Blue Gem Capital Partners and investors will receive 27.358p per share. A gain of approximately 5%. There is no choice here - its a done deal behind investors' backs, without them being consulted. The email uses weasel words to try and cover up the let down but we can all see the reality. This would not be the first time Index Ventures have used Crowdcube. 

This pitch on Crowdcube had EIS advanced assurance; so many if not all investors will have claimed back or planned to claim back their 30% and will now have to undo all that and repay HMRC. EIS reliefs are only allowed if you hold the shares for a minimum of 3 years. In this case they have been given no choice. Surely the company needs to account for this? Shareholders should not and will not be used by VCs to 'borrow' the odd million risk free. Investors can get far better and safer deals from Funding Circle. We would like to know when conversations with Blue Gem started - was it before the Crowdcube raise?

In a move that seems so blatantly wrong, WATG offer shareholders an alternative deal. Instead of cash you can take your whole investment back in credit to be spent with WATG. So for example (to quote the email) an investment of £10 via Crowdcube will give you a return of £10.50 cash or a gift voucher of £15.50. No seriously, they are offering this to shareholders whilst sticking knitting needles in both eyes.  Take that, they scream and here is a nicely knitted beany to cover up the mess. Even Mickey Mouse is blushing. 

The email does not make clear if Index and the other earlier investors are also selling out - they paid 20p a share 3 years ago so would see a return of around 35%. 

Is this what Luke Lang meant when he said that 2016 would see some exciting exits? Well on the upside it is not Rebus or Ovivo or Solar Cloth Company or Crowdcube (!) - at least investors are getting their stake back. But it is not what equity crowdfunding should be about.

Crowdcube stood to make a 7% risk free commission on this deal, whilst their customers were asked to risk all their money for a pathetic 5% return or a couple of woolly jumpers. 

We asked WATG for a comment but the CEO was 'out' at the time and has not got back to us. We'll let you know what she thinks if she contacts us. We have also asked Crowdcube and Index Ventures to comment - nothing yet!

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