Zero Carbon Foods fails on an epic scale but declares success the Crowdcube way.

If you browse through the latest pitch on Crowdcube you would be forgiven for thinking this was a great opportunity. It maybe but not when they choose to hide facts and totally mislead  - backed as usual by the Crowdcube platform.

Zero Carbon Foods raised almost £600k at the end of 2013 on Crowdcube, valuing the company then at ~£2m. They have a star studded board - celebrity chefs and CEO's of major movers in their market - salads. It all looked good - expected to have a turnover heading for 4 figures this last financial year and a small net profit.

Now they pitch using a completely different name ''Growing Underground'' - in the hope that the crowd will be too stupid to realise this is Zero CF? They eulogize about the success of the role out and the massive things to come and emphasise their celebrity board. Again it all looks very promising  - ticking lots of boxes for the 21C - sustainable food production, limited carbon footprint, limited use of chemicals etc.

So why has the last 12 months seen such a dismal performance? Why did the management not raise the other £400k it said in would in 2014? Why are they looking at a loss of several hundred thousand pounds when they promised a profit and finally why, when all of this is documented fact, do they pretend that its all gone to plan?? Turnover for 2014 was disappointing - the clue is the name. All the money is gone and they will certainly have to raise more cash in the next two years if the last 12 months is anything to go by - despite the usual claims by the management. The new valuation of £2.5m is just more Crowdcube nonsense - based on sales and progress this company has to be worth less than its previous £2m.

We all know that setting up a new business has ups and downs. Delays are inevitable and set backs are guaranteed. So just be honest and say so. Your plans are way off schedule and you need more cash. You have learnt from your mistakes and will act accordingly. Now the opportunity is still alive, with more backing.Stop growing your board and start selling some greens!

Then you might have a chance. This pitch is just total BS.

The increasing strength of the Crowd

In the past few months quite a number of pitches on Crowdcube have been forced to revalue their offer. Why, well because the crowd told them to and in the end they would have left empty handed if they had not. Some have been forced to offer another 20% of their equity to raise the funds.

So dont just give in to the usual clap trap you hear when you question a  valuation - you know like its difficult to value a start up but so and so and such and such recently sold for £x million and we consider ourselves to be similar. Leave them to stew in their own stupidity and they will eventually be forced to react or leave with nothing.

This trend is partly a consequence of Crowdcube pushing companies to promote high valuations and partly the Crowd realising it can derail a pitch if it chooses. It will only increase as more and more new pitches pitch with more and more ridiculous valuations.

Watch out all you entrepreneurs if you come to an ECF platform with a high valuation and no room to lower it - like Mara Seaweed currently. They pretended to be raising £500k on their Crowdcube pitch but in fact £300k had already been raised beforehand.

Now the Crowd are telling them the valuation is way too high but as 300k has already gone in at that rate, it may not be possible for them to adjust. Had they been a little more honest and pitched for £200k then they could have renegotiated the deal more easily. So with half the pitch time passed, they appear to be doing well at £365k raised of £500k - but this is in reality only £65k raised of £200k.......... a ratio that at the halfway mark more often than not leads to failure.

When lawyers are late with filings you know there is something wrong.

Newgalaxey Services Ltd are late with both their annual accounts and their annual return. The company raised money on Crowdcube at the beginning of 2014 - just over £200k from 122 investors.

This taken directly off Companies House Website

Registered office address

27b Greenhill Gardens, Greenhill, Edinburgh, EH10 4BL

Company status

Active

Company type

A Private Limited Company

Incorporated on

6 June 2012

Accounts overdue !

Next accounts made up to 31 October 2014
due by 31 July 2015
Last accounts made up to 31 October 2013

Annual return overdue !

Next annual return made up to 6 June 2015
due by 4 July 2015
Last annual return made up to 6 June 2014

.....................................................................................................

For a company offering legal advice to large corporations to miss both its AR and annual accounts is not very convincing. Previous companies that have funded on Crowdcube and followed this route have all closed. We'll keep you posted as to whether Newgalexy Services are the latest dross on top of the pile of Crowdcube's closed successes.  

Another Crowdcube success fails to meet expectations.

If we told you that a company on Crowdcube had funded successfully back in 2013 and its projections showed 2014 net profits of  £1.128m, what would you expect the actual accounts to show? Have a guess - would a loss of £20k be the first figure you thought of?

Probably not. Angel Alerts certainly takes some beating when it comes to ridiculous projections. The evidence is pretty well conclusive now, take a Crowdcube projection, halve the bottom line and then divide by 4. Then take the costs and times them by 10. Then you just might have a picture of where the business will be in two years time.

Is this the answer to ECF?

Recent discussions have thrown some new light on ECF. Hope that some platforms at least had taken a far more responsible line than the tricked up, gimmicky take used by Crowdcube.

Sadly it didnt take long for this view to evaporate. Syndicate Room claims to be the true way for ECF. Their model takes businesses that already have a lead investor who is funding a minimum of 25% of the pitch - a lead investor who has a track record of investing with returns ie a professional. All good so far. The site still plays with the crowd by using terms like 'dragons' but not in the overt way that other sites do.

So with these lead investors and a minimum investment of £1,000, you would expect a high degree of professionalism. Wouldnt you?

Reading through the current crop of pitches this expectation is shattered. Two of the pitches have in effect the same lead investors and have raised money on the platform through them before. This fact was left out of one of the pitches until it was corrected by a punter on the forum. Not a great start as it was an investment of £700k!

Anglo Scientific (AS) are the lead in these (Innvotec manages the fund and they are in fact the same operation) and a few others that have been on SR. When you read the pitches on SR they ALL talk about exits in the 3 to 5 year frame - they are cautious enough to add caveats to this about unpredictable markets etc but it is the 3-5 year frame not the 10 or 20 year that they choose. So you would expect to see some evidence that AS have achieved at least something in the 5 year frame to back this up.

AS started in 2003 - so in 12 years what have they achieved in terms of ROI? They have invested in 12 businesses, two have closed, two are limping (by their own admission) and 8 are trundling long. No exits .................what? Yes that's the crunch; in 12 years they have achieved zero exits from 12 businesses professionally selected, vetted and fully funded to the tune of £55m. Yet on this ECF platform they talk of 5 year exits at multiple ROIs.

AS may well achieve success but wouldnt it be more honest to show these figures to the crowd before asking them to hand over their money? It just puts Syndicate Room firmly in the same shady place that Crowdcube inhabit.

You can understand why they do it - who would be interested in a 10 or 15 year investment as a punt? That's no fun. So this is where the professional VCs and business angels meet the punters and the gap between their expectations is very very wide. The Syndicate Room model has tried to hide this gap and to be fair it has succeeded so far. It wont last.

  

Does this matter?

Is this a problem? An increasing number of pitches on the Crowdcube platform are looking certain to miss their target only to suddenly have a very last minute, large, single investment which takes them over the line. The latest case being Big Sofa.

There is no way to tell if this is a genuine investment or a member of the company filling the void to ensure all the other money comes in. In the case of Big Sofa, the company was on its last day when a single investor put in £240k of the £700k pitched for, which took them just over their target.

Linked to this is another development which is new. Pitches are finding that resistance to their optimistic valuations are forcing them to eventually re offer with a better percentage. So beware those companies that pitch with a fixed off platform deal already in place - eg Mara Seaweed. It is good that these businesses are seeing sense but wouldnt it be better if they came to the Crowd with a sensible offer in the first place. It just puts their business acumen in the spotlight.

7 Tips on raising equity crowdfunding

As part of our new advice service, here are some pointers on how to be successful when raising money from the Crowd.

1. Have either proof of concept or some serious sales data and real market research ready or be prepared to sell a large percentage of your business. Despite what the platforms tell you, this is a very high risk investment and you need to offer comparable returns. You are offering a chance not a certainty, so dont value your company on the 'fact' that your 3 year sales projections show EBITAD and multiply this by the sector's standard. The value is todays with an uplift for future prospects.

2. Be honest - do not start comparing your start up niche food business with Dorset Cereals  or your low tech subscription model with Graze etc. It just makes you look silly and will caste doubt on the credibility of your plans. Generic statements about your market size, copied from a Mintel report, are worthless. Get some real customer feedback.

3. Essential to get a large group of supporters before you launch. All the data shows that the first few weeks of a campaign are crucial. Research shows if you can get over the 33% funded mark early on, the momentum will more often than not, see you over the line. Use SM to generate a buzz. Get the pitch out there big time. Offer evening talks/meet the founders in easily accessed places. Create a highly convincing presentation. Remember investors have a week to withdraw their investment at the end of the time period, so make sure they know this. If you have over funded and with withdrawls accounted for, you are still over your original sum, then you can complete.

4.Use your greatest asset, your customers, to invest that vital first third by offering them generous product discounts or freebies. Like rewards based CF, you can use the pitch to 'sell' product to promote your business.

5. Dont be fooled by the platforms into playing games with the Crowd - they know about these now. If you are raising a total of £500k and £300k has already been arranged outside of the platform (cf Mara Seaweed currently), DO NOT make it look like you are raising £500k on the platform and hey presto you're off to flying start with a £300k funder. It may well prevent what was a perfectly investible plan being unsuccessful.

6. Do have a good deal of skin in the game. The Crowd hates founders who ask them to risk money when they themselves are not. Bank loans etc do not count - you must have equity in your own business. If you are not confident enough why would anyone else be.

7. Be sensible with your valuation and financials. Platforms have seen both escalating out of control since 2011. If your sales jump from £100k to £800k in 12 months you need to show how this will happen. Have you enough cash to make it happen, what is your stock turn like, how will your systems cope with this increase etc etc. Similarly if you show your GPM increasing substantially be sure you can show why - bland statements about economies of scale will not work . Dont use your business plan to enthuse about your multi billion pound market. Use it to show how you will get from A to B and then C in real terms and what you have prepared should you be delayed. Most start ups over trade and run out of cash. Dont be one of them.