At the crucial moment when Crowdcube are sure to be asking for more cash - you can tell as their PR has been ramped up - the ECF platform is completing enough funded campaigns to generate a BE situation. For this month at any rate.
Despite out best attempts to warn people and despite mounting evidence that they will not see any of their money again, the Crowd is reaching deep and if you count the over funding campaigns on the platform, it totals around £15m currently. This truly is a first and is a major breakthrough. Annualised this would get them to the magic figure of £180m which at a 4% commission, is BE nirvana. And this does not include the bizarre US campaign they have listed.
One Q you have to ask is just how much of this money is on/off commission? For example VITL were going nowhere with their £400k campaign until this week, when Nogra Group put in £600k. The Crowd in this instance has put in less than half of the target. Is is likely that VITL would be paying commission on this £600k? We think not.
We know that Crowdcube have put a lot of flex into their commissions - smaller companies pay full wack, allowing the larger ones to pay less or nothing (reportedly). So that would explain their low 4% overall commission when they charge a 'fixed' rate of 7%.
So despite the total lack of returns and exits and the increasing failures and zombies, all catalogued here, the Crowd are fully behind the platform. It makes you wonder. What would it take to change this behaviour?
or maybe not...
ReplyDeleteFrom the Sunday Times 5 Aug, Luke Johnson, penultimate paragraph
More signs that the market is overheated are the crazy valuations for businesses that use crowdfunding to raise capital. Almost every such financing I’ve seen is priced at two, three or even five times what it would fetch from a professional investor. The promoters are taking advantage of a lack of investing expertise among the public. Good luck to them — but many schemes will end in tears when the uninformed punters realise they’ve been had. I predict that returns from the asset class will prove abysmal, especially since investors get few protections or rights in the subscription agreements offered by crowdfunding platforms.
Isn't it the case though that in many raises the crowdfunded money is part of a larger round with VCs or Angels investing at the same valuation? In these cases punters aren't paying more than the 'professional investors'. Having said that there are plenty of p1ss-poor companies that manage to get crowdfunded.
DeleteJim - I think most is too high certainly on CC. The ter angel investor does include a lot of people who are not really in that bracket and i have come across more so called VCs who are backing CF campaigns than real ones. Certainly some of the larger campaigns have large VC/Angel backers and it is a growing trend but its far from the majority. Often VCs use ECF to trial the public response to an offer on the understanding that their backing is dependent on the campaign completing - they back it and if it doesnt fly they get their money back. No fees, so easy testing bed.
DeleteSo this excerpt seems to imply that all the capital raised on crowdfunding platforms is from ‘uninformed punters’. It isn’t. There is a mixture of VC investors, professional private investors, and retail investors. Before people run away with the idea that crowd investors are uneducated, it is worth having an understanding of the profile of an average investor registered on the platform. Most people don’t.
ReplyDeleteWhere is your evidence for these statements? I have pleny of evidence that the bag is mixed and that a large number of investors (mainly on CC because that's their core market) are clueless. They dont understand what a share or equity is or means. They have no idea about how they will get any return, they cant read yet alone analyse financials. These people are only punting £10/20 maybe £100. Id love to hear about your first evidence?? They dont care about losing the money - its a game/gambling/punt to them. However they love the fact that the Gov pay for 30% and 50% of their fun. They have no regard for UKplc and what funding almost instantly failing companies does to other unpaid suppliers.
DeleteI agree Rob there are plenty of examples of uninformed investors on crowdcube. You only have to look at the questions asked on the pitches to see that many don't understand the fundamentals. The number of times people ask how many shares they are going to get for their investment and seem to think that the price that they are paying per share is crucial is a good example of this.
DeleteI'm not sure crowdcube punters "don't care" about losing money and I'm not sure that they are investing for the tax breaks (I'd be interested to know how many bother to claim EIS on such a small investment). I think a lot are incentivised by "success stories" like Brewdog and are also after rewards. Also a lot of people feel that by investing a small sum of money into a company whose products they like they are sharing in the companies journey, and there is an emotional connection which goes beyond money.
I guess that my point is the motivations may be numerous and that different crowdcube punters have all sorts of motivations. This is obviously very different from the professional investor whose overwhelming motivation is to get a return on investment.