All is not always what it seems

People put opaque glass into buildings to hide what is happening behind it.

Escape the City raised £600k on Crowdcube in the summer of 2012. Their latest accounts to YE12/14 show a loss of £100k for the year. What is slightly more surprising than this loss, which of course was not what was in the projections used to sell their equity, is that the paid up share capital is only £457,000. This is someway short of the £600k raised on Crowdcube and you would expect the total to be far higher than this £600k anyway.

All a bit of a mystery but as it happened behind the glass we will never know the truth.

The Great Diving Beetle is upon us.

We love ponds but some of the life in them is not too desirable. The Great Diving Beetle and its larvae for example, will extinguish all other pond life if you let it - attacking and consuming creatures 4 times its own size.

Out of the blue recently we were approached via email about a new business trying to raise money via its own crowdfunding campaign. So we thought we should check it out.

Unquoted claims to be a new way of building trust in what is fast becoming, lets face it, the murky world of equity crowdfunding. That sounds like a great idea and they are offering the first 500 investors who put in £200 each, a very large slice of the company.

The only slight problem we have with this outfit is that its previous incarnation - Unquoted Limited is in liquidation with money owed to shareholders and trade creditors of around £500k. This position had been achieved before any accounts were due to be filed. What's more, the name of the company was changed to Unquoted Realisations plc, 5 days before it was put into liquidation, which strikes us as nothing if not odd.

The team they claim to have comprises the same two who were involved in the now waiting to be liquidated company.

Caveat emptor my brave investors  -  into the the pond with you!

Are Crowdcube hiding their own massive chasm?

Bottomless chasm are dangerous things. Before you can react they are upon you and its all too late.

Looking at Crowdcube's latest accounts, to YE Sept 14 and comparing these to the projections they used to sell their equity on their own site, one might be tempted to yell ''LOOK OUT!!''.

It is not so much the loss for the year of £1.35m but the fact that this loss is on a turnover of just over £1m. The company is in no immediate danger with investors piling in over £6m. The interesting bit is the fact that the company now (2014) runs administration costs at an annual £2m which by end 2015 may well be nearer £4m. Taking a 5% commission on successful pitches means that to 'turnover' enough money to cover costs of £4m would mean raising £80m pa - ignoring the listed direct costs of 30%. That's before the company makes a penny. In five years it has just managed to raise a total of £100m. Now the truth is beginning to hit home with investors - you aint ever going to make any money this way, investment will become increasing tight. So is £80m in one year really possible?

Quite apart from all of the above, what is so amusing here is that their very own projections - the ones used to enthuse all that investment, have turned out to be more inaccurate than any of the others used by the 1000 plus pitches that the platform has promoted. We are talking about stella differences here not a close miss.

What also might be of interest to those who have their faith in this outfit is that the notes to the accounts state that they have, under the Companies Act, not declared a P&L - but there it is on the very first page; a full P&L. What's more they go onto declare a profit of £1.35m in these notes not a loss - !! Management, what management?

If we were amongst their shareholders, we would be looking out for the first cracks before the big drop opens up.

Why are Mara now overfunding?

Firstly apologies for going on about Mara Seaweed, but it is a case that has some very curious elements.

Two days ago Mara looked sure to miss their £500k target. The pitch opened 45 days ago with a startling £300k already in from one investor. This turned out to be a group of Scottish investors who had agreed to invest off the Crowdcube platform but Crowdcube had worked out that by opening with over 50% completed, this would help the pitch succeed.

In fact a mix of the Dragons Den debacle, a management in meltdown and a valuation based on a total misuse of DCF, turned the Crowd very firmly against the pitch. By the time one day was left they had only raised another £98,000 on top of the pre arranged £300k. Then out of the blue they reached £500k. Whats more they have now extended the time period for another 14 days to 'overfund'. Why?

We know that the final £100,000 was invested by a Jim Fallon, a non executive board member of Mara. Of course Mr Fallon could always change this investment amount if, say for instance, the overfunding brings in another £50k he might reduce his £100k to say £50k. He gets a week to confirm his investment once the time is finally up. I dont suppose he will but you get my drift. Mara have themselves stated that this whole process has been difficult and taken up valuable time but they have decided to ride the Crowdcube wave or 'overfund' - looks more likely to be a backwash to us.

As reported earlier, the reaction from some Crowdcube members has been very hostile to these happenings. It certainly isnt very transparent.

Anyway that is probably enough on Seaweed, until the accounts reveal what has really happened over the next few years. 

Mara Seaweed completes its Crowdcube funding despite the obvious objections of the Crowd.

Well done to Mara Seaweed. Having seen very little activity over the past few weeks and being over £100,000 short of their £500k target with 3 days left, in the blink of an eye, or 24 hours,  they are now 'overfunding'.

It will be fascinating to follow their progress and to see if they can really deliver a NPM of 35% on £8m sales, as they claim.

From what the crowd have been saying for the past month, this £100k investment must have come from existing sources - we all agreed that the management was lacking and the valuation was ridiculous. From the numbers of investors it is clear that this last minute funding has come from one source so of the £500k sought, only about £98k was crowdfunded.

There is even a now a comment on the forum about it all being a little bit fishy - not for the first time we might add!

The Crowcube conundrum

Crowdcube's conundrum appears to be that it cant make the real Crowdfunding work - the one for start ups and it cant make its latest attempt to recreate it for more established businesses work either - because there isnt enough in it for investors to get excited.

Take the latest two examples of the latter option. Emoov at £20m and Brewdog at over £300m are valued to prevent the Crowd being interested at the levels they require - £1m and £25m respectively. Despite Emoov starting out with £250k already pre arranged - when will the FCA sit on this practice, it just doesnt seem to make sense to have a punt at these levels. It's a bit like the Lottery offering you a 20% chance of winning but only winning small - you just wouldnt bother. It's just not in our psyche.

Of course the main problem is the fundamental one that will eventually bring this all crashing down. Crowdcube has raised almost £100m for nearly 300 businesses over the last 5 years. With one tiny little and to be frank slightly forced return of £1m or 3 times the investment versus losses heading fast towards £5m, the picture isnt a good one. Add to this all the dross in between reporting accounts that show what we all really know - that very very few businesses return the sorts of value that Crowdcube has and still is promoting in its glossy sales pitch.

What the appearance of the big boys like Brewdog will do for the many struggling pitches is obvious - it will soak up any investors who have only just noticed this platform. Leaving the small hopefuls to die on the outskirts of success. You do have to wonder if any of Crowdcube's claimed 200,000 'investors' have been fast asleep for two years if they hadn't already heard of  Brewdog's own crowdfunding campaign.

Brewdog's positivity might just give you the hangover. Drink responsibly.

So will Brewdog be able to raise its £25m via Crowdcube?

Brewdog were self crowdfunding but it seems that the target of £25m may have been a little too far out. They raised the first £5m in weeks but then only another £3m in the 3 months to August this year. Of course you wont hear them talk about this  - their positive energy jive is all consuming.

On Crowdcube now they have a double offer - equity and or a fixed rate bond. The bond is raising £6m and the equity seems to going for £25m although it is all a little unclear. There is no 'target' as with mere mortal's CF pitches, just a number of investors. Presumably this is to protect against any ridicule if the barrels turn out to be empty.

The company is the UK's fastest growing food or beverage company and made operating profits of almost £4m in 2014. There is no dount about its success to date but what about the plans for the future and the valuation being offered today to investors. The company is already valued at around £300m in terms of this offer, or a staggering 100 times earnings.

Still with phrases such as 'crazy awesome' being used by the founders to highlight their positivity who knows what will happen.