Financial Ombudsman and Crowdcube's response to the Emoov Fiasco - Nothing to do with us mate

This is a disgrace but it is also exactly what we predicted Crowdcube would say. Thank you to the investor who forwarded this and who is now a member of ECF.Buzz - so it wont happen again. Shame on you Luke Lang and Darren Westlake - 

Dear xx

Thank you for your email, which we will consider and respond to as a formal complaint. 

We understand and share your disappointment at the outcome for Emoov investors. However, as we underline on our platform, there is a very real risk when investing in startups and growth companies. As always, Emoov’s pitch was reviewed according to our due diligence charter, and approved as a financial promotion.

Any claims made on the company’s pitch on Crowdcube, including the financial section of the pitch, were subject to our standard due diligence and were therefore verified with evidence before being approved as a financial promotion. Any additional claims made outside of the pitch or post the raise on Crowdcube, would not be verified or approved as a financial promotion by Crowdcube. 

In the cooling off email that was provided to all investors prior to the capture of funds, the company reduced its valuation and confirmed that they would require additional funding. Investors were able to withdraw their investment during that cooling off period.
You can access our Due Diligence Charter, which is public on the Crowdcube site, here. 

It’s always disappointing when a business doesn’t succeed but please be assured that we will be liaising with the administrator over the coming weeks and we will provide further updates to investors when possible. 

Please consider this email as our official response to your complaint. If you feel we are unable to rectify your complaint to your satisfaction, we would like to make you aware of your rights to escalate your complaint to the Financial Ombudsman Service at the below details:

Financial Ombudsman Service
Exchange Tower
London
E14 9SR
website: www.financial-ombudsman.org.uk 
email: complaint.info@financial-ombudsman.org.uk 
phone: 0800 023 4567 or 0300 123 9123

Unbelievable. 

The Crowdcube story is a classic example of how not to grow your start up.

Crowdcube were the first but they have failed to capitalise on their first mover advantage. As yet another Crowdcube success fails, what is their next roll of the dice? 

You have to give Darren and Luke, the founders of Crowdcube, a certain amount of credit for having the idea and getting it going. But that's where the credit must end.

PR can only paper over so many cracks before the walls cave in. Crowdcube is mainly PR - lift the hood and you find a cheap two stroke engine where the PR says its a gleaming V8. Proving the model worked was always going to be difficult. To work, we had to see exits and these take time - much longer than the fantasy figures provided in Crowdcube pitches. You dont expand your cost base unless you have evidence the model works - not if you want to succeed. They either couldn't wait or more likely didnt know this. So they led with PR and fell back on PR - it's all been a myth building exercise. 

To illustrate, here is an article from 2017 in The Telegraph by James Titcomb - it opens....

• James Titcomb 

12 JULY 2017 • 6:40PM

Members of the public have invested more than £250m via Crowdcube, the crowdfunding website has announced.

The milestone comes after a number of businesses funded through the site have been sold, leading early investors to pocket huge gains.

Firstly the public have not invested more than £250m and they know it. Secondly you would have to look very hard for one of these lucky recipients of huge gains and even then, you would fail. It's simply PR put out by the boys and naively reprinted by a lazy journalist. Of course it does depend on your definition of 'huge'; a ploy CC use a lot. Ask CC's loyal investors and they would just cringe.

The main problem is that neither Darren or Luke have run anything successful - ever. They do not have that knowledge, despite what Darren claims in his CV. They have made mistake after mistake with Crowdcube, to the point where now, 7 years after they started, real progress has hit the buffers.

You cant blame them for trying but the really stupid part is repeating the same thing over and over again and hoping it will bring you different results.  

The initial reaction to their launch and the first businesses was WOW - first adopters were enthusiastic. The business was small but grew rapidly - failures were slow to come through and they managed a couple of decent (not WOW) exits with Camden and ECar Club. They managed the situation very well - big news about the exits and very little information about the failures. 

By 2015/16 however, there were no more exits and the failures began to mount up. People started asking if the hype around the pitches was just that. Darren and Luke introduced some new toys - mini bonds for example. This allowed them in future years to promote a return on investment figure - even though these were loans not investments in the equity sense - ie 'returns' were just the interest paid out on the bond. They didnt bother to distinguish as this would rather spoil the story.

These bonds came and went and we are now left with one company failure  - Square Pie - where all bond holders lost their cash. Plenty of other companies that have used the Crowdcube bond have been struggling - The Eden Project, River Cottage, Chilango and Taylor St Baristas to name 4. 

By 2016 Crowdcube as a company was accumulating very large losses, running at between £4m and £5m pa. It had in its own CC raises, created some ludicrous projections. In fact our records show that the Crowdcube projection to reality ratio or the PR ratio (!), is one of the worst for 500 companies we have records for. That says a lot.

Investors at this stage were still buoyant - still believing the PR issued that 'next year will be a very exciting one for Crowdcube'. You can take any year, the PR message is the same. Jam tomorrow.

By 2016/17 Crowdcube was burning through over £8m a year. They put their commission rate up from 4% to 7.5%  but they were no way near to raising the required £100m plus per annum to get to break even. Despite the PR, their accounts will show more massive losses for 2017. Their backers are deep pocketed but there will come a time when they stop filling in ever larger holes. 

And here's the rub. They are now running out of time. With no exits to talk about and investors becoming far more vary of the sorts of manipulation they have been guilty off, the funding for businesses is not growing at the required rate. We dont think they will ever get to BE. How many times can Luke say that next year is the one? We have a queue of failing companies on our radar - all funded via Crowdcube. Yes there are some we would expect to make a good exit but by the time investors have been diluted 6 times and had their 'rights' rewritten, what return they will is questionable

Their latest ploy is a good one - partnerships with various related companies outside of London. So for example a partnership with Scottish solicitors Harper Macleod is expected to pick up Scottish business. According to their own PR, this will double their deal flow. Well it may increase the number of attempted pitches, but will it really increase the investment stream - they only make money on completed deals? We doubt it - it has come too late. Harper Macleod may not have done much research into Crowdcube. They fell for the PR. Their clients wont be pleased.  Investors we speak to have moved on to other platforms, ones that take a much more professional and holistic approach. This is the way forward. Crowdcube fund you and ditch you - investors have to look after themselves; the platform takes zero responsibility for the information it publishes. Which is fortunate, as they might have been sued otherwise. But that model simply doesnt work. Investors tell us this and the number of failures and zombies funded via Crowdcube endorses it.

The only answer for Crowdcube is to get at least one large exit - a X10 job. And it has to be in 2018. They have lost their first mover advantage and in the hands of Darren and Luke it turned out to be a disadvantage. Funding hopeless companies using fantasy projections is never going to create a sustainable business - for anyone. Even with S/EIS. 

There are one or two possible exits. One has a targeted IPO for this year but Crowdcube were only involved in a very small way - Seedsr will get this credit. Others have 'exited' early, much the same as Camden, forcing CC SHs to sell up and greatly reducing their returns. Many have gone bust or are doing nothing. The return is very poor. You cant hide that forever, even by mixing in bondholders percentages. 

Having bigged themselves up so much for 7 years, it looks likely that Darren and Luke will be hoist on their own petards. When people told them that their model wouldnt work, they would have done well to listen.   

Desperate Darren's Friday Comic

This made our Friday - http://www.crowdfundinsider.com/2016/02/81909-crowdcubes-darren-westlake-debunks-some-crowdfunding-myths/

No mention anywhere of the losses incurred by investors or the large number of zombie companies Crowdcube have funded that will never give their investors a return. Or of course the collateral damage that isn't their fault.

Love the stuff about the FCA. We all know that back in 2011 when this all kicked off the Lib/Con government were desperate for good news and decided under Vince Cable's shaky hand to give ECf a clear passage. We also all know, or do now after we pointed it, that the stats banded about, about how few businesses have gone bust after funding this way, are all nonsense. The time lag is ignored by those wishing to create the mirage - Westlake included.

The returns issue just wont go away Dareen because you try to confuse people about bond returns and  the lack of equity investment returns -the two are like chalk and cheese. In reality no one was expecting returns this early despite the ridiculous claims made in the Crowdcube pitches about 3 year exits. Claims sanctioned and some might think encouraged by Westlake and his team.

What people might have been expecting is that the funded companies had a good chance of getting somewhere near to their Crowdcube vetted projections. The failure of so many to do so and scale of this failure is something that the press have shied away from. We have been banging on about it for since we started this blog last summer. It is a real and present catastrophe which needs highlighting.

Why?

Well simply because companies that sell equity with 'promises' of performance need to be held partly responsible for these 'promises' or we just end with a large pile of nonsense. How do we know - well quite simply we have the records for a large number of the 300 Crowdcube pitches that have funded. It takes time but eventually filed accounts and web searches reveal whether these companies are on track.

Sadly most are on a totally different line heading in the opposite direction.

The real myth is that Crowdcube give a fig.