Monday, 14 May 2018

What does the FCA mean by a misleading fact?

The FCA guidlines for equity crowdfunding state that it is the responsibility of the platforms NOT to present misleading information. But what does that mean?

Let me give you a recent example - this company is currently on Crowdcube trying to raise money.

So - the claim is that this company's product is stocked by the following national chains - Asda, Aldi, Morrisons, Ocado. Well that seems simple enough. Asda have 525 UK stores and Aldi have over 700. Ocado is online, whilst Morrisons have 500. 

Having such a fantastic listing in national supermarkets, totalling over 1700 stores, is a very clear investment gold standard. It's dynamite.  

Now you wouldnt expect that this company, which is only 3 years old, to be stocked by all of these stores. But given the fact they dont enlighten investors with more information, you would expect the listing to cover a good - for good maybe read sensible percentage of the UK coverage - number. 

As it turns out, the company only stock these chains' Scottish stores. So that is about 5% of their total number. They are regional listings in a region with 6m inhabitants. 

Strictly speaking the information given in the pitch is not wrong. But is it misleading? Well of course it is. Asda for example only have 20 Scottish stores. Investors might hope that this is exactly the sort of basic due diligence that the platform would carry out on their behalf. So the conversation might go - 'dont you think it would be fair to say that you have regional listings in these stores for Scotland only?' Actually you and I couldnt possibly find out that they are only in Scottish stores, unless the stores or the company told us - we tried the latter. They said it wasnt misleading at all! They said that they never mentioned how many stores the listings covered!! Wonder why? 

There is only one plausible explanation for omitting this information - it helps make the pitch more attractive. Isnt that the definition of misleading - something that informs but in a way that doesnt tell you the whole truth? It misleads you. 

When investors have to fight to get the right basic information to make a sensible investment decision, surely it is time for the FCA to do its job. 


  1. Can the FCA comment on this please?

    1. I can on their behalf. The FCA is a passive organisation. They do not check for fraud or misselling. If they not receive a whole bunch of complaints from the public, they will do nothing. Crowdcube know this. That's why they are able to get away with the very poor due diligence they carry out - this is just one example of many. We have tried making complaints to the FCA but had no reaction whatsoever. You could just as usefully talk to a dead squirrel. Until the FCA is brought kicking and screaming into the 21st Century, nothing will change for the better.

  2. Rob, I think you should write a book. Something along the lines of "Start-up investing for dummies." I.e do not invest! I'd buy it anyway. I think you have assimilated enough anecdotes and start-up projections vs reality to inform the wider audiences on the realities on investing in start-ups!

  3. Thank you. I might do that. Looking at the moment at making a site including this blog which is a one stop shop for anyone interested in SMEs/start ups as investors or creators or just interested. Subscription model with lots of sticky bits for people to get into. I think the traction here forms a good base? Nothing expensive - say £1-2 per month with offers? Comment s very welcome. We might even crowdfund it!

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  5. V. Good idea, publish a couple of short questions like :-
    how much pa do you plan to invest via the mainstream ecf platforms this tax year

    how much would you be willing to pay to be told about the bad ones up front while they are raising rather than 2 years later.

    I think most blogging platforms support something like that.

  6. Forgot to mention one of the core offers would be a forum for all interested parties to compare notes and if successful, an annual event for the same.

  7. Why don't you start your own crowdfunding site and show the industry how it ought to be done? Jf

  8. One very simple reason - they are loss making. Id be happy to run a not for profit platform funded by some of the money the Government is throwing at Crowdcube. That way there would be less pressure to push through cr1p. BTW never claimed to have all the answers, just to be able to see Crowdcube's model doesnt work.

  9. No idea who you are referencing here but did you know that up north you can buy Pip & Nut in Sainsbury's, while finding it hard to acquire soy sauce. I personally believe that's quite an achievement for a CC co :)

    Is it not up to each investor to do their own DD and to ask questions prior to investing? No VC/PE or pro angel would invest without fact checking first. Why should crowd fund investors get a free pass on doing due dil when making an investment in something that is clearly presented as high risk. When it comes to outright lies in pitches I share your sentiment but people should understand that these platforms are essentially sales tools and not there to do DD on their behalf. The question to bring out the omitted data in this question would be my first question to someone I trusted, let alone someone pitching on a crowdfunding platform.

  10. We have kept the name out of it as its the issue that matters. I would agree that investors need to do their due diligence but surely that cant be helped by having to dig to find out if things the company claimed in their pitch are actually true? The FCA rule is clear (as mud) 'not misleading'. It is not a free for all as you suggest. Maybe that would be the best option but then you would really have to take a different view on the use(mis) of S/EIS. I am a believer that the Olympics should be free for all - lets see them pumped up and breaking all records....much more fun.

    Also you have to remember most investors here are not VCs/Angels or even close. Crowdcube claim to carry out a high level of DD.

    Pip and Nut have done well - you must be an investor ;))

  11. We have tried making complaints to the FCA but had no reaction whatsoever.

    That tells you all you need to know about the good work done for the UK funding ecosystem by the platforms with Crowdcube leading the way. Thanks for highlighting the FCA's view on this. ;-)