Friday, 10 March 2017

Seedrs pitch gives shareholders some alternative facts


Enclothed is an on line men's clothes retailer. It raised funding on Crowdcube in 2015, has missed those projections by miles and has sent existing shareholders an update that gave out some very alternative facts. None of this mentioned in the current Seedrs pitch which has doubled the value of the company since 2015.

Why?


Just In 14 March - Seedrs have confirmed that they do not feel the differences on their site and the report sent to shareholders is anything worth mentioning. Much like the difference between the Crowdcube projcetions and the real revenues/losses. 


 
On 2nd December 2016 Enclothed sent an update to shareholders stating -

Dear investors, 

As we approach Christmas, there are a number of exciting milestones and news to share. 

End of financial year 3 

This year we have focused on becoming a scalable and consistent business.  After the sheer chaos of ‘Dragons Den’ we have worked tirelessly to build our technology, team, and operations.  So we are happy to announce that we hit our predicted year-end gross revenue target of £1.2m. This shows the huge potential of our model and the overall growth of the company. This sets us up for a successful 2017 where our target will be to hit the £2.5m mark. 

2014 - £200,000 
2015 - £800,000 
2016 - £1,200,00

The YE is October. The email went on to say that they were working on the new Crowdcube pitch for 2017. You should note the comment 'we hit our predcited year end gross revenue target of £1.2m' when you read the Crowdcube target.

In the current pitch on Seedrs, the financials show the following figures for revenues for these years
(these are also financial years Nov-Oct) -

2014 - £91,000
2015 - £611,000
2016 - £978,000

Ignoring the massive gap between the first set and the 2015 Crowdcube projections for now, why would a company send out this information to its shareholders? Are the figures given by Seedrs' pitch wrong?

We asked Enclothed to explain the differences. Dana, one of the founders, replied -

Hi Rob

Would you be able to clarify where these discrepancies are for me so that I can investigate/clarify as I am unsure of what figures you are referring to.

In terms of SH update on 2nd December please be mindful that the figures state calendar year, rather than financial YE which Seedrs documents state, and state gross figures rather than net.

Many thanks
Dana

What could she mean by gross - surely not inc of vat, as that would be kindergarten error and the sums still dont add up. Also you will have spotted the obvious problem with this explanation - the SH email states in its heading very clearly - End of FINANCIAL Year 3 and then gives the figures. Seems pretty clear to us.  We asked for further explanations but nothing so far. Maybe they are not too good with figures. Jeff Lynn says that this doesnt matter for entrepreneurs. 

The projceted revenues from the CC pitch are listed here for those who think these things do matter - 

2014  - £95k
2015  - £1.3m
2016 -  £3.35m

Just how far out do these figure have to be before we can consider them as misdirection or even misselling, is a point neither Seedrs nor the FCA have answered.


The CPA given to the SHs is also completely different to the one on Seedrs. For obvious reasons we are not going into the actual numbers. Suffice to say the difference is very substantial in the wrong way.

Enclothed isnt a bad business. It has some good backers and has made progress in 2016. So why do we have to see this nonsense touted about? Well if you believe Jeff Lynn, CEO of Seedrs, then its because all early stage businesses have to be very over optimistic with their projections - all experts says so. He also states below in a response to our query about this,  that Seedrs did not carry the Crowdcube projections and the very substantial shortfall from the actual figures, because it's not meaningful information for potential investors.......really? -

I therefore feel, and have always felt, that the premise of your attacks on most Crowdcube-funded companies is very unfair to those entrepreneurs, as it expects something of them that is directly contradictory to the expectation set for them by everyone else you are working with. I don't think you care about that (and I am sure you will post some sort of snarky reply to this on your blog), but for purposes of your specific question, this is why we do not believe that the fact that a business has not hit a previous set of projections represents meaningful or useful information.

As you can imagine, we do not agree with this - it is certainly information I would want to know about. Granted it's not convenient for a doubled valuation. We'd love to hear from shareholders who do agree.

In our opinion a company using any ECF platform to raise funding, should have to follow these simple rules - 

1. Accounts for the last 2 years in full filed at CH. Plus accounts for the next 3 years in full filed at CH.
2. Declaration of any other ECF funding round, with full financials and explanations as to why projections have been missed. 

This might create a more open and lets face it, successful fleet of ECF funded business, for UK PLC going forward. It's not like we have been run over by the exits and the ROI so far. The platforms will say no way, more work for them and potentially less investment (their revenue source) and the FCA will say 'what's that' and nothing will be done.

We had this further response today from Jeff Lynn, CEO of Seedrs, who had asked us to provide the SH information mentioned above. We refused stating that firstly it was not our job to provide Seedrs with information about their vetted clients and secondly he should be finding this sort thing out first hand and not from us -

 "The evidence we have received at this stage does not support the truth of this allegation. If we receive evidence to the contrary at any stage, we will of course review it and take appropriate action then."

We thought that it was Seedrs job to check out their pitches' claims and properly assess their suitability for investment. We'd be happy to help if they cant manage this by themselves.

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