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Friday, 19 October 2018

Failure of Square Pie loses creditors over £2m, costs 50 jobs and loses 324 Crowdcube investors £668k

Just in case you thought the failure of a business was just the business failure, Square Pie illustrates the resonance a failure can really have.

This is something we have highlighted here many times. When a business is enabled, by raising funding on Crowdcube and then it collapses, the ripple left by the splash touches a whole raft of people who do not get mentioned. 

Square Pie raised a bond on Crowdcube in September 2015. It was clear to us at the time that this company was not right. 324 investors piled in anyway. The Administration update posted recently shows we were right. 

This was the highlighted headline at the top of the Crowdcube pitch - 

**UPDATE**: Square Pie has reduced its minimum raise amount to £450k.  Please refer to the pitch update below.
**UPDATE** - Square Pie has been given a Probability of Default (POD) of 0.7% by Moody’s Analytics tool based on historic accounts. This compares to 3.3% average for the bonds listed on Crowdcube so far

Well you might conclude - god help us. The bond's purpose was to increase the number of eateries - to 25 by 2019. It was this part of the business that brought the whole castle down.

At the start of 2018, the company went into administration. All its eateries were closed with the loss of 50 jobs - jobs that the 2015 money had helped create and jobs that without this money, would not have existed. These are now 50 human beings who have been made redundant through no fault of their own. Its down to Crowdcube and its lack of DD on this company and its sustainability. Yet again they have failed on this front. Dont forget this was not equity, it was a bond  - a distinction Crowdcube were happy at the time to tell people made their investment more secure because they had checked the company's plans. Bond companies have to have a good trading record and be subject to a higher level of DD. What is higher than zero?

The administrators have managed to sell the wholesale side for just £100k. Picking up cheap off cuts is the norm in these disasters. 

Add the redundancies to the large number of unpaid suppliers - trade creditors to the value of £2m will not be paid a penny - and you get the real picture of the costs of financing hopeless businesses run by hopeless entrepreneurs. It just doesnt make any sense.

We are not too bothered with bondholders losing their pants - 38 losing more than £5k and a couple in the £20ks. The Bond company also left a large debt to HMRC headed 'Local Compliance' suggesting some serious management issues. Meantime in the two years 2015 and 2016, the CEO had paid himself a total of £176k. Nice. Caveat Emptor and the fact that we warned you not to do it here makes investors gullible idiots. From the last post in this link, we wrote this in 2015 - 

To take an extreme example, the recent lowering of required funds by Square Pie from £750k to £450k has gone unexplained. How can this company suddenly not need £300k? 

I can assure you we are not psychic - it is just good old common sense. 

What is a shame is that those who put in more than they wanted to lose, will probably not come back to ECF and that is a loss to UKplc. This should be billed directly to Crowdcube.

It would appear the grandly named Bond Instrument document was just a pile of poop.

Investors may already know that the ex CEO of Square Pie is also a major shareholder in the company that has picked up the off cuts. Ring any bells?

Readers may also be interested by Crowdcube's sleight of hand with the interest return figure they have been recently been quoting in their annual PRing. According to Crowdcube, investors via the platform have received XXX in returns from their 'investments'. This figure is an amalgamation of the interest on bonds and the return from the few small sales that have occurred. But does it include the bond holders principle sum when it all goes tits up or the losses made from failed equity investments? Hmmm. Makes you wonder. 

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