Friday, 29 September 2017

Are Crowdcube delusional?


Crowdcube have produced their latest quarter's report for July to Sept 2017. Read it and see if you can make sense of it.


This is a report on the quarter for the activity of their ECF business - ie what has happened on the platform. It's a little downbeat for the CC Glitz Dept. But then they have their reasons.

They open with a very unimpressive statement that they had revenues of £1m. As their costs are around £2m that's not great. The cover infographic is honest enough to include the scandal ridden Ethos Global, now Soma, logo right next to the C for Crowdcube. 

They go to say that they have a record number of new pitches - which is a bit like a car dealer saying they have had a record number of new cars on sale. It tells you nothing about performance. 

Then they say that £25.6m was invested into pitches on the platform with 31 business raising £14.4m between July and September. That is exactly what they state. What is the extra £10.2m? They only have one platform in the UK so it would be misleading to include their satellite businesses in Spain and Ireland and in any event this turnover is insignificant. Is this misleading?

They are happy to announce that their average commission has gone from well under 5% to over 5%. You do the math with the revenue at £1m on sales of £25.4m.  

If you count the number of signed off pitches that have raised money (from the company's own site), you get a total of under £12m for the period. So for example this doesnt include the new food pitch which raised over £1m (its target) yesterday but is still due to run for another 28 days. CC do include this. It also doesnt include the US 'partnership' which brought Keen Homes to our shores and has 'raised' over £2.8m but most of it in the US on another platform. But knowing CC they probably will include this.

The big news is apparently that their app has been a success. It took over £5m of investment, What they dont ask is if this £5m is new or just would have been put through the website? Our guess is that the app is a diversion and total waste of time. Since when did serious investors need to book a table for two and invest in a newco whilst enjoying the meal?

That all seems as clear as mud. 

What is clear is that with revenues of £1m, Crowdcube are heading for more large losses, with the probability of them being larger than 2015 or 2016. This whilst their closest rivals disappear in the opposite direction. 

4 comments:

  1. I thought the whole report was very downbeat and bizarrely in a way more customer focused compared to the usual offering.

    I suspect that the difference of £10.2m is that which was invested in pitches which did not close eg companies that didn't meet their overall targets. This would also explain the margin improvement if they took £1m of revenues against the £14m. This margin improvement is actually pretty good news but sadly not enough to change my current view of them.

    Crowdcube do seem to be drowning but unable to save themselves! They need a massive increase in funded pitches in order to survive but I don't know where these will come from!

    As an existing shareholder I want them to do well but I am struggling to see how they will eventually get to a profitable position as their costs are too high.

    I suspect that very soon we will either have a downround (which would almost wipe out existing crowd shareholders due to the VC's preference shares being topped up) or a fundamental shift in business model eg with a carry.

    However the best thing that they should do, in my opinion, would be to accept Crytocurrencies for pitches, try to get a few large ICO's (Initial Coin offerings), and massively increase their short term revenues. Then with the significantly enhanced revenues, even if they are still loss-making, carry out an IPO on AIM for silly multiples and exit ASAP......

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  2. Yes someone else suggested that. I looked at it but was sure they would try to play that lie - money pledged is not invested in anything unless the pitch completes. If true this would be the worst lie they have ever told. And yes IMO they are finished which will be blessing for equity crowdfunding. Allows the sector to get on with this seriously. Bitcoin not sure...maybe but i cant see them trying it as they simply dont have that sort of financial expertise. See the fiasco with Ethos.

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  3. I am happy to chip in as another Crowdcube (small) shareholder. I invested after meeting Darren in 2012 (possibly round 2?) and recognising that with ECF there was a real gap in the market that CC could fill.

    I still believe there is a need for ECF, hopefully including Crowdcube, however there are several issues that need to be addressed.

    ECF valuations make no sense to any experienced investor. I don’t know whether this is down to owners insisting on these valuations, or them being tempted by offers of ‘we can achieve this valuation…’?
    Mini Bonds just make me wince - these carry equity type risk, with bond type returns. I don’t understand who would buy them?

    In terms of Crowdcube specifically.

    They have gone for all out expansion, high risk / high reward, personally not the route I would have taken, but they are the management I have invested in. I seem to remember a TV show they were on that suggested a similar lower risk approach?
    I would like see the directors renumeration at a lower level until they achieved profitability. Am I paying for CC or Darren and Luke?
    I am not clear where Crowdcube’s responsibility is (if any) in vetting company financials, projections and discussion posts?

    To be clear, whilst I read this blog, I believe it is probably as one sided as the CC PR machine. However, I think it is healthy to get both sides of the argument, which is why I do read it.

    Personally I wrote off my CC investment the moment I made it. Any return I get will be a bonus. However I was concerned to see both the failed ‘sell your shares’ round last summer and also the failure of VC partners to follow through on their investments into following rounds, so my expectation of any return is not high.

    CC is the only ECF investment I have made and I can’t see that changing any time soon.

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    Replies
    1. Thanks for commenting and reading. Have to pick you up on one thing - we are scrupulous about only reporting verifiable facts and we make no money from it. So we cannot really be in the same bracket as the CC PRing dispenser. I do this because I believe there is a value in truth and honesty which we must not sink below - less we want to become animals. This belief was reinforced by the 2008 crash when I lost, along with man,y my shirt and trousers and just kept my pants. All because i was lied to or rather only given a portion of the truth. It's vocational. Look around - there are platforms doing this shit properly, with long horizons and professional teams.

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