Wednesday, 5 October 2016

The case of the Headless Chicken - Crowdcube's Hen Restaurant chain lasts under 12 months

Where to start with Hen Restaurants? This is the one we mentioned a couple of days ago but didnt give the name. 

Here maybePhilip has grown up in the restaurant industry managing several restaurants and opening two successful London based restaurants.. with the opening lines of their Crowdcube pitch. Given that Philip has overseen the burning of £150k of investors' cash in less than 12 months, we would have to disagree.

In the final rambling, emotional and rather sad letter sent to investors, Philip demonstrates a total lack of business, let alone restaurant chain, acumen. Most of the letter is spent trying to explain how investors can get back all their losses via SEIS and other HMRC tax breaks. In the rest he just seems totally confused. We think he has missed the point.

Lets rewind a little.

Philip set up a chicken joint in Brighton. It was quite popular with the folk there. He made a living. He was a successful part of the great British SME culture.  

Then, he trips over some Crowdcube PR and reads about how easy and cheap it is to raise capital using this new equity crowdfunding thing. Hell, he thinks, I'm having some of that. So a little later, armed with a well thought out business plan and projections to die for, he travels to Exeter to see Crowdcube. 

The Crowdcube DD department are out to lunch, so Philip's pitch passes muster and he is away. Money raised, no questions asked.

Fast forward 12 months and Hen is a sad sight. Doors closed, the business and Philip in ruins. He had run out of cash, by his own admission, despite stating in the next sentence that sales had been good. EH? So if sales are good then he must of lost control of the costs - but he has this trade in his blood according to Crowdcube.

Ah there's the rub. A perfectly serviceable small business, with no hope of scaling, is tempted by the Crowdcube PR to expand. Its Business Plan is total nonsense but the investment is raised. The business goes bust in under 12 months. The end.

Should we be doing something to prevent this? Well as a parent if you allowed your children free reign to access the sweet shop whenever they liked, then all their teeth would fall out. It's common sense. Of course we should.  

We had this comment from an investor in Hen, which neatly sums up the problem - 

'I've got a few investments on Crowdcube but this is it for me now, don't trust their due diligence process at all.'

1 comment:

  1. I warned Philip he was setting himself up for failure. I'd just done 4 years in my own struggling painful venture and offered some experienced advice. Went down like a lead balloon.

    When will CC collapse? It has to happen sooner or later. The companies raising money on there are just complete crap. Seriously the UK simply doesn't have enough attractive investment opportunities for the crowdfunding industry. Angel investment/PE still dominates. If you're raising through the crowd you're doing it as a way of obtaining easy money, nothing more.

    Dumbfounded how they haven't been pulled up by the FCA for complete lack of due diligence and responsibility to the crowd that feeds them. Horrible company