Our new evidence suggests Sugru and Crowdcube knew more than they told investors.

We can reveal, exclusively, that Sugru hired a Finance Director who had moved from a previous role where a £350k fraud had taken place under his watch. Even though this information was in the public domain, Crowdcube failed to notify their investors who have now lost the £5.5m they invested in Sugru.

Information we have, shows that the accountant, an accredited Financial Director with the FD Centre, was in the FD role at Idio Ltd when Natalie Saul, an accountant, stole £350,000 off the company in broad daylight. Following this, he moved from Idio in 2016 - the theft took place between 2015 and 2016. Natalie Saul used over 400 fake invoices and the crime was only uncovered when she went on maternity leave and a new accountant found it. For obvious reasons we are not revealing the name of the FD. We tried to contact him but he wasn't answering.

We also reached out to the FD Centre and Sugru but they haven't commented. The FD Centre stated that as this wasnt in the public domain, they couldt comment. They clearly hadnt read the newspapers.

This FD was an early investor in Sugru and later became the company FD. To be clear there has never been any accusation made against him linking him to the fraud. Bit like Loris Karius, he just missed it when it was his job to stop it.  

There are various articles about the theft here - https://www.mirror.co.uk/news/uk-news/accountant-who-stole-350000-spared-10974077  and here - http://www.dailymail.co.uk/news/article-4781536/Accountant-stole-350-000-firm-walks-free.html

The FD makes no mention of his time at Idio Ltd on his extensive list of experiences on Linkedin. However we have evidence that he is the same person who worked at Sugru. Natalie Saul was accused and admitted the fraud at the end of 2016, well before the second Sugru raise on Crowdcube. 

So you have to ask, firstly why did Sugru employ this man to run their finances, did they know about the Idio evidence? Did Crowdcube check this man's background - did they hide this from investors or were they simply ignorant of the facts. Would you invest in a company with such aggressive financial targets if you knew the FD had missed such a colossal fraud in a recent job? How is it possible he is considered competent with that record? Why is he still registered with the FD Centre as a Financial Director?

Did this have any bearing on the mess Sugru are now in re their bank covenants? After all, it was this financial failure that forced the sale of the company for a fraction of its quoted worth, leaving Crowdcube investors with empty pockets. 

All of this reflects poorly on Sugru - but then we know the management were poor. What does it say about Crowdube? Well pretty well everything we have been saying for 6 years. This comes on the same day that the platform are advertising for a new Head of PR at £80k plus perks. Haven't they worked it out yet? They do not need to be spinning more fairy tales and paying £80,000 to some spiv; they need to be presenting good quality, honest, SMEs and start ups with careful DD. Wake up guys. 

It is time entrepreneurs learnt some lessons about how to ruin their dreams with equity crowdfunding

It is good that most liars eventually get caught. Promoting your business on Crowdcube using projections that are totally divorced from reality will eventually kill your business.

There is a classic case on Crowdcube right now. Craved raised cash on Crowdcube with fantastic projections. Now that money has run out with break even a distant dream, they are trying to raise more. But in 2018, investors are waking up to Crowdcube's games.

When you predict revenues of £1m and you achieve £185k  - 'learning curve' doesnt quite cut it with irritated investors. It would have done in 2016 but this game has now become so commonplace that even Crowdcube investors have had enough. There is no trust that this business will ever deliver a single promise it makes or that it even cares a hoot for its investors. 

Had they pitched with sound financial projections the first time and missed them by say 100%, then things might now be different. Even an extension on the pitch has fallen flat. They clearly sought and took some very very bad advice. 

We hoped that businesses would learn from this - we have been warning about it for years. Judging from some of the live campaigns at the moment, it seems a forlorn hope. This really is a crying shame because some of these businesses might in fact have been able to achieve something. But the stupidity of the Crowdcube model will ruin this for them. It is and will continue to be a harsh lesson. 

Pavegen looking for more money but not on Crowdcube

Pavegen raised £1.9m on Crowdcube a while back. That's gone, so they are raising what appears to be £3m - mainly from VCs but they have earmarked £250k for existing investors. Some of their claims are mysterious.

Nothing too wrong so far.

However as with previous rounds, some of the claims made in the IM are a little flexible - misleading even?

Take for instance the first commercial use of their paving in the UK at the Mercury Shopping Centre in Romford - a small 6 by 6 installation at one of the entrances.

In the IM, Pavegen state that this shopping centre has a daily footfall 60,000 and that these footsteps will now be generating information and electricity and in turn, real revenues for the company. 60,000 per day equates to 21,900,000 per year. Being the company's first commercial gig and being as they have included it in a request for new funding with virtually no other financials, you would expect the numbers used to be ball park accurate, at worst.

The Mercury Shopping Centre, that's the same one in Romford,  has a website operated by the owners, Ellandi. In my time, I have dealt with many shopping centres and I think its fair to say that along with events companies, they share a generous idea of their own success. Ellandi claim that this centre - the one in Romford, has an annual footfall of 9.7m. You can check it here. That's a daily  number of around 26,500. So well under half the number printed in the IM produced by Pavegen and sent to investors to solicit £250k. And dont forget this official footfall number is likely to be high.

In the IM Pavegen talk about the VCs. According to the IM, a 'signed Term Sheet for £3m has already been signed.' When a company has to emphasise something this way, you do have to wonder. As we all know, a singed or unsigned Term Sheet is not a slam dunk. 

Trust is a wonderful thing. Once lost, it is unlikely to return. 

This is Crowdcube's new attempt to empathise with red faced investors!

Affresol are in liquidation - we knew about this a while ago. Crowdcube now have a handy easy sympathy message for all their disappointed investors It's an improvement on saying nothing, which is what they have been doing since 2011. Maybe on these they should remove the strap line? I think our logo above is more fitting. We have written about them before here Affresol is in liquidation Email not displaying correctly? View it in your browser.

Hello XXXXXXXXXXX We understand that Affresol is now in liquidation. I'm sure that this news will be extremely disappointing for you as an investor in the company. If applicable, you should have received your SEIS3 or EIS3 form to enable you to claim any tax relief you may be entitled to and if you haven’t yet done this, we recommend you do so. Income tax relief can be claimed within five years of the year you made the investment. If appropriate, loss relief is also available under SEIS or EIS. You should seek professional advice if necessary. For more information about tax relief, please visit the HMRC website:  HMRC - 'How to claim EIS tax relief'  HMRC - 'How do I claim my SEIS tax relief' Once again, we understand your disappointment and if you have any further queries please do let us know. Kind regards, The Crowdcube Team

Capital at risk. Investments of this nature carry risk as well as potential rewards.  Click here to read the full Risk Warning. Copyright © 2018 Crowdcube Limited. All Rights Reserved. Crowdcube HQ | Fourth Floor | Broadwalk House (South) | Southernhay West | Exeter | EX1 1TS

Have a great Bank Holiday Weekend!

This is what the Sugru and Crowdcube argument is about

Above are the notes on page 30 of the last Sugru (Formformform Ltd) full and audited accounts for YE Dec 2016. This pertains to the movement of the bank loan and personal CL from long term liabilities to current liabilities. The big Q is was this information hidden from Crowdcube investors in March 2017?

Sugru have claimed in a written statement that the breach that caused this movement of the loans and the cancellation of the extended facility with the Clydesdale occurred in late 2017, was immaterial and was therefore not declared to Crowdcube SHs.

They have also claimed that the breach referred to above is a different breach to the one that took place in 2016.

It seems they want it both ways. If the material breach occurred late on 2017, what is it doing in the 2016 accounts. Balance sheets do contain information about actions that have taken place after the YE date - but these are as notes and they should not change the numbers for the YE date ie December 31st 2016. If the breach referred to here is immaterial, why does it result in the moving of around £2.5 of debt facility - a move that puts the current account into deficit when they told investors in May 2017 it was £1m in credit.

It all seems pretty obvious to us. You SHs need to complain firstly to Crowdcube and then the Financial Ombudsman. Crowdcube, if found to be liable, will have to compensate you. 

How to complain to the FCA

A friend very kindly sent this through and I thought it might be useful for anyone wishing to look at taking action against Crowdcube and or Sugru. I have to say my experiences with Ombudsmen is not good.

I have complained against companies that have ripped me off and have been complained against so here it is.

No matter how much fuss you kick up, and is on the message boards, the FCA won’t do a thing. They are not listening and not even monitoring.

They’re basis for taking action is complaints that are upheld by the Ombudsman http://www.financial-ombudsman.org.uk/

If any FCA company gets one or more complaints which are upheld by the Ombudsman, then suddenly the FCA is all over the offender. But under their light touch regulation, they have to identify a problem before they investigate it.

You need to get one of the investors or many of them to complain to Crowdcube. Standard stuff is we were presented misleading information to make our decision on. As such I want my money back.

Crowdcube then has 28 days to investigate and find a way to make the client happy.

If the investor is not happy he can then complain to the ombudsman (the FCA is now aware and monitoring events via the ombudsman).

The ombudsman investigates and has the power to get Crowdcube to refund all the investors money.

These are the proper channels for getting results. The FCA doesn’t listen to anything else

What Notes dont tell you - but we did.

Notes are back on Crowdcube, as expected. They have run out of your money. They dont tell investors what they told them last time, as that would be a real downer on their pitch. We told you back in March of this year but you dont seem to have listened. The pitch is funded.

When you have read through all the guff that Notes produce about how fantastically they have done since 2008, sit back and read this. And this - http://fantasyequitycrowdfunding.blogspot.co.uk/search?q=+notes

In 2015 they told everyone that they would have revenues of over £13m for YE June 18. They now say that its truly great that they have reached almost £5m. In 2015, they said they would have EBITDA of £1.87m by now. Now they are very happy with £200k. A net profit was projected whereas we are looking at large losses.

At some stage surely someone is going to do somehtig about the word 'misleading' when it comes to the FCA's use of it in regulating ECF platforms. How is the above not totally misleading? None of the information from the 2015 pitch is inlcuded in this one - only up notes on how brialliant the whole thing has been. 

Ok, so we all know it takes longer and its never possible to rely on projections - so why have them if they are so totally misleading? Well Crowdcube need them to show the 'big numbers' out there - the big numbers get the juices flowing. Crowdcube couldnt exist without them. And lest we foget, this is ALL about Crowdcube. 

As the fog on the Sugru debacle thickens, we have a lead that may prove the 2017 raise should never have been allowed.

Sugru screwed Crowdcube investors for around £6m. It now seems confirmed that the breach that occurred in their banking facility with Clydesdale Bank, prior to the 2017 pitch, was material and was hidden from investors.

It all depends on interpretation. Sugru claim it was not material but they admit it happened and they admit they and Crowdcube agreed not to tell investors. Thereby materially altering the company position presented by the platform - which claimed the £3.5m facility was 'secure'. The accounts for the period confrim that the breach resulted in the loan, due to be repaid in 2019 was moved into current liabilities. That is material. 

This is Paraic's (a board dierctor at Sugru)  extraordinary explanation of these events - 

As for the “discrepancy” you mention, there is none. In the crowd cube pitch the bank loan (£2M) and loan from junior debt holders (£0.5M) were both classified as long-term debt. In the Dec 2016 statutory accounts these two amounts were classified as current liabilities. Hence, the net current liability position in the statutory account looks worse than the net current asset position in the CrowdCube pitch. It is purely a classification change. Again, no “smoking gun”.

Paraic if you read the accounts, the reason given for moving the debt from LT to ST liabilites is the breach of the covenant. They were moved not 'classified'. This movement put your company into a net deficit on its current account. Most of us consider that to be a highly important fact that should have been shared with investors in the 2017 Crowdcube raise. You clearly dont but you give no reasons for this curious decision. Perhaps accounts are not your thing. This is not just a smoking gun - it's a bleeding, recently dead body with a large bullet hole,  also.  

Sugru go on to say that the Bank's withholding of the balance of the loan was not the reason the company had to be sold. They later go on to say that cash issues played a significant part in the course of events. They clearly cant add 1 and 2 up and get to 3. As we have said before the collapse was down to very very poor management. Full stop.

Which ever clever way you try to spin this  - it all reeks of collusion and fixing. How Crowdcube will get away this, as they undoubtedly will, will be interesting.

We have been approached by a source who has another take on this and it is one that the platform will not be able to get away with if it turns out to be true. It is certainly material and it was never mentioned either. 

Watch this space!

Sugru's filed accounts reveal what their 2017 Crowdcube pitch failed to.

As we keep digging, we keep finding. 

Crowdcube investors in March to May 2017 were shown the 'projected accounts' for the company's YE Dec16 in the pitch documents - ie they were actuals. These showed a reasonably healthy current account balance of £1m credit. 

Now the filed accounts, which remember were for YE Dec16, so had already been completed 5 months before the Crowdcube pitch closed, show a very different story. These accounts were not made public until December 2017, so there is no way that anyone outside the company other than Crowdcube, would have known the real figures.

These accounts show a current account deficit as at 31 December 2016 of £337,528. 

This difference of £1,337,528 is around the amount that the company states it was due from the Clydesdale, in the second tranche of their agreed loan. The one they had breached but hadnt told people about - the one the bank withdrew which resulted in the fire sale.

That seems pretty clear to us. Crowdcube told investors the exact opposite of the truth in the 2017 raise. Maybe this was because Sugru hid it or maybe not. Either way it shows Crowdcube's due diligence is totally worthless. 

You simply must read this post on the Sugru Crowdcube forum

It is quite long, so I wont interrupt -

Insiders win / Outsiders lose

maximator 2 days ago

8 Replies

Indeed an astonishing exit @ 90 pct discount to equity value at last raise a good year ago. Sure we have all taken calculated risks, and this is one of the outcomes that was to be expected. HOWEVER, I find it hard to believe that the bank's withdrawal made a fire sale unavoidable, even with unforeseeable (?) challenges in DIY distribution. So the case indeed raises serious questions as to governance, and why we should pay to warm our Directors' cold feet, instead of being able to rely on them exercising their fiduciary duties to everybody's benefit, including ours.

Questions which only the Directors can answer. So I wrote to them today (see below). Let's see what they say.

Keep you posted. Any support / observations welcome.

B.

PS: At least one question missing from my list below, i.e.: Have the Directors / founding shareholders / current top management agreed on continued employment / advisory relationship with Tesa, and on what terms ?

QUOTE

Dear Roger, Jane, Paraic & James,

Thank you for your letter, and congratulations to you on your successful exit.

To me, having acquired shares in the last round of crowdfunding in 2017, this is very disappointing news indeed. How disappointing the news is for the other shareholders depends, I suppose, on the timing and terms of their respective investments.

At this point, as an outsider, I cannot exclude that the incumbent shareholders / Directors may have misled the new investors in the last round of fundraising with the purpose of making a final bet for their own benefit, very largely at the expense of the new shareholders. All this based on a – from today's perspective certainly, and probably even then, taking into considerations the terms of the first crowdfunding - grossly overstated valuation (i.e. 10 x the equity valuation realised only slightly over a year later). For a relatively mature player already profitably active on a highly international scale in both production and distribution, it certainly appears to be highly unusual that the same set of insiders should have revised their views on equity valuation down by 90% within a year. In other words, the final crowdfunding round led to only minimal dilution of the incumbent shareholders' stakes at the time, at the full expense of the last entrants.

The sale to Tesa on these terms, at this time, therefore raises a number of serious questions, in particular with respect to conflicts of interest of the managing incumbent shareholders / Directors vis-à-vis the later shareholders.

May I therefore ask for your co-operation in addressing these concerns, by responding to the questions below. Given the very unfortunate short timeframe of only a few days between your announcement and scheduled completion, I am forced to hereby formally challenge and object the sale itself as well as the lawfulness of the execution of the drag-along right.

Finally I am concerned about the potential reputational aspects of this sale for the Sugru brand. Please allow me, therefore, to share this letter with the Board of Directors of Tesa S.E., and to post it on the respective crowdfunding platform you used in 2017.

Yours sincerely

[Signatory]

SALE OF FORMFORMFORM (THE „COMPANY“) TO TESA
INFORMATION REQUEST AND QUESTIONS

INFORMATION REQUEST
Minutes of all Board meetings since 1 Jan 2016

Complete copies of any and all business plans and valuation reports on the company produced by it, its advisers, employees, Directors, consultants or similar, since 1 Jan 2016

Any pay-outs to Directors and advisors since 1 Jan 2016 (including cash salaries, stock grants, etc.)

Full copy of the Sale & Purchase agreement with Tesa, including all Annexes etc.

Detailed table of amounts of Sources and Uses of Sale proceeds, including:
Their respective timing (if not paid-out at proposed closing in May 2018)
Allocation of proceeds to each of the Directors and founding shareholders

Analysis of financial returns to equity, expressed as percentage p.a. (Internal Rate of Return), and amount (in GBP), including:
In aggregate since foundation
Broken down into classes of shares
Broken down into cohorts by timing of initial investment (i.e. For each funding round until exit)
Individual returns of the Directors and founders

QUESTIONS
How were the conflicts of interest of the founders / Directors vis-à-vis the later shareholders managed specifically over time ? (pls provide detail)

Why did the bank withdraw from further debt financing ?

Why did the company not disclose to shareholders at the time that such withdrawal had taken place ?

To preserve value, what alternative funding sources did the Board take into consideration following the bank's withdrawal ? Why did the Board instead ultimately decide to fire-sell ?

Did the Board / Directors actively consider there was a risk of insolvency ? If so, why ? If not, why not ?

Disposal process
Who prepared and negotiated the sale (including advisers, legal counsel, consultants, etc.)
How was Tesa selected as the buyer ? Was there a competitive bidding process ? Please provide details (number of parties approached, engaged, negotiated with, etc.)
Were negotiations with Tesa conducted exclusively at some stage ? Why ?

Valuation
Please disclose on what basis and how (exactly, i.e. including methodologies, amounts, etc.) the Company was valued as a basis for sale negotiations ? How exactly did this valuation differ from the ultimate purchase price achieved ? Please provide a detailed and reasoned reconciliation

In particular, provide details on the Enterprise Values (i.e. Value of the firm as opposed to certain classes of capital / assets) derived for the last round of crowdfunding vs. Enterprise Value achieved in the sale to Tesa (including a reasoned deviation analysis)

Purchase price
Is the entire purchase consideration proposed to be paid entirely in cash, at closing in May 2018 ?
If so, did the Directors consider negotiating contingent / deferred purchase price elements to allow the (later) shareholders to participate in the future performance of the Company ? If not, why not ?
Did the Directors consider introducing amendments to the distribution of proceeds which would have made-whole, or at least reduced the severe losses of, the later shareholders ? If not, why not ?
Proposed use of proceeds from the sale (in GBP) (in detail, including fees, and allocation of sale proceeds to individual classes of shares)

UNQUOTE

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Pezlow 2 days ago 

An impressive list of questions which I assume might by the basis of an unfair prejudice application to the court. Good luck with that. I only invested a tiny amount so I've taken it on the chin as a good lesson learnt.

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Pammy001 2 days ago 

Rip off in broad day light :-)
They new they are going to do it.
Let the court decide. I am in :-)

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swoody 1 day ago 

Good list of questions - doubt you will receive answers to all of those (if any). Been radio silence from Crowdcube and Sugru on deal specifics so far. They will likely hide behind 'confidentiality' so as not to reveal what really went on.

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maximator 1 day ago 

Unfair Prejudice proceedings still leave the burden of proof on us. Yet the breach of provisions of the Articles is obvious. No offer was made to the minorities, in breach of para. 7 of the Articles. Also, it is not clear that para 8 (Drag-along) should override para 7. Even if that were so, Tesa does NOT qualify as a bona fide **arm's length ** purchaser according to para 8.1. of the Articles, not the least because of the envisaged continued employment of the Selling Shareholders. Such employment agreement in fact turns the unrelated parties (arm's length) into RELATED parties (NOT arm's length).

Also, the communication of the Company is inconsistent with the Drag-Along-Notice. The latter stipulates the price per share (@ GBP 0.09 / share), as required by 8.2.3 of the Articles, whereas the former is vague on final proceeds, claiming its dependency on currency conversion of financial debt. Unacceptable / invalid.

If all that were not enough, we have to date not received proof that the Conflict-of-Interest rules of the Articles have been properly adhered-to by the Directors in the process of resolving, and effecting, the sale.

The resolution may be, and the Sale and Drag-Along ARE in breach of the Articles, and therefore invalid. As a result of all this, I specifically call on the Selling Shareholders to exit from the Share Purchase Agreement. In particular, I specifically deny any Director's right to act on my behalf in transfering my Shares to tesa SE (para 8.7. of the Articles).

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nickparker 1 day ago 

It does appear to me to have been shoddily handled at best.

My reading of it is they were/are very badly advised and left at the mercy of the only game in town who realized this and cut the offer at the last moment and the current directors decided that it was still best for them (as the main shareholders) and the staff to take it and keep their jobs. It could for example have been structured as an asset rather than a company sale.

It doesn't feel that they gave much consideration to the more recent shareholders - to not even delay completion a little so that the first round crowdfunding investors who are only a month or so away from a three year EIS hold suggest they really don't care about them.

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GDBKent 2 hours ago 

There appears to be a question mark as to whether the company was already in breach of its banking covenants in March - May 2017, and if so I cannot see that this was disclosed. It is certainly material. Does anyone have any news of this please before I write to the company asking for proof that it was not in breach at the time.
A 91% devaluation in less than 12 months is not consistent with the tone of the pitch, I am sure that if we pursue this then we will find more information about the state of the company in the last pitch.
I am certainly open to being involved in any class action. This process has been disappointing from the perspectives of both Sugru and Crowdcube; it brings all other investee companies into question and suggests this may be the wrong platform to invest through.

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swoody 2 hours ago 

As far as I am aware, the company is denying that they were in breach of the covenants at the time.
One thing is clear though, based on the handling of this from Crowdcube, it is absolutely the wrong platform to invest through.

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GDBKent 2 hours ago 

I should like to see evidence of this as well as correspondence from the bank as to the level and conditions of support on offer; the pitch makes reference to an agreed £3.5m facility agreed.

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