Crowdcube's Luke Lang gives 'evidence' at HoC Treasury Committee.

First point is what the hell are Crowdcube doing at this committee giving MPs advice and secondly Lang is guilty of a blatant untruth in his response to Alister Jack MP. We really are living in a fantasy world.

Lang is asked a few very pertinent questions by Alister Jack MP at around 11.36am - why do things always go wrong at 11.36am? It turns out that Alister has invested in a company on CC - the outcome is not revealed but maybe the line of questioning is a clue.

Just as a note here, Alister Jack is himself a highly successful entrepreneur, having co founded an Edinburgh based marquee company back in the late 80's which grew to be very large marquee company - Field and Lawn. So he has some form when it comes to talking about successful start ups and how best to help them. I know all of this from first hand experience as we were both cutting our teeth at the same time in Edinburgh as entrepreneurs. You can tell he was rather better at it than I. 

He starts by asking Lang about the degree to which Crowdcube is liable for the information it produces on the platform. Lang says that they carry out extensive checks and get the companies to sign off all their pitch claims. Well that's not completely true as we know but it's passable. Then Jack asks about a company that had funded on the platform and went bust and it was proved information in the pitch was not correct or missing; who would be liable. 

Lang responds with a total untruth. He says that to the best of his knowledge this has never happened.

Luke you do remember Solar Cloth Co? Surely. It was on here and we helped the Times write it up - it was well covered and you were asked questions about it at the time. Investors were most definitely not given the right information about the founder and his previous businesses. They were in fact misled. Ethos Global is another one. Ovivo was another where the information was not too good. There are several others that have gone bust where claims made on the pitch were dubious at best. Tip of the iceberg.

Crowdcube took no responsibility and investors lost it all.

Of course Lang was only at the HoC as an 'adviser'; he was not under oath. Which in itself is total joke. It would be like asking Fred Goodwin to advise on banking reform. Or Tony Blair to advise on Intelligence Reports. 

Where is the counter balance?

Vested interests, as always, win the day - it is no way to run a country.

Cape Fisheries - another Crowdcube success goes bust.

Cape Fisheries raised £136k on Crowdcube in summer 2015. Now they have been closed by CH. No news of what happened to the money invested by 121 Crowdcube clients.

There are some very large sharks off South Africa, the homeland of Cape Fisheries. Looks like some of them decided to pop over to the UK and help themselves to some easy money from Crowdcube clients. 

Since funding this company has produced only a few lines of accounts - hardly even a minimum. Now it is dead. Something stinks. 

You do have to ask what the platform was doing allowing this business anywhere near to their 'investors', with projections and a PD that showed impressive credentials and much jam the morrow. No point in asking Crowdcube though as they are now well used to batting away such complaints. 

Is this is why companies on Crowdcube believe it is their right to mislead investors?

We had a very enlightening chat with a business founder who had used Crowdcube to raise capital but had so far failed to get even close to its projections. 

His explanation was honest. Simply put, it is impossible to create sensible projections. So all businesses therefore produce overly optimistic projections. Everyone knows this. Therefore everyone allows for around a 50% reduction on net revenues when they look at them. The point was also made that it's impossible for businesses to know what costs and revenues will be even 12 months out, so trying is pointless. 

Added to that, he stated that the only sensible way to value new businesses was to look at further funding rounds where the value of the company will be dictated by the amount people are willing to pay for shares. 

We dont agree with either.

It maybe a fact that all the projections we see on Crowdcube are hopelessly optimistic but we believe there is a positive reason for this. Its done to attract investment. If any of the investors believed that these projections were out by 50%, they wouldnt invest at the value which is set by the very same projections. We know this because if you look at the queries on valuations on Crowdcube, they are all answered by pointing directly to the figures in the projections. If everyone agrees the figures are nonsense then so is valuation. Unless investors really are fools, they would only invest at a halved valuation. Its not a conclusion you can escape - people still invest. QED they believe the projections are in the right ball park. Most of then are not on the same planet. 

Regarding the company health check - we also disagree with this. How many times have we seen companies returning for second third and fourth rounds at increased valuations only for the company to go bust. There are quotable examples where the administrator's report states the company had been in trouble well before the funding rounds and yet the upward valuations indicated the opposite. These valuations are entirely subjective and investors have mixed motivations for reinvesting. Many believe that just a little more will bring about the outcome they dream of -  a healthy ROI. Otherwise known as the Gamblers Curse - once on the ride it is difficult to jump off. These dreams are initiated and encouraged by founders emails to shareholders giving them often highly misleading information. These emails are not regulated and do not go via the platforms. So they are legal lies. They can get away with whatever they like and often do. 

There is a fundamental problem with UKplc being littered with companies that have accessed ECf  funding based on these types of projections. It encourages them to over trade in a vain attempt to meet their aspirations - taking on crippling fixed costs that will if unfunded in subsequent rounds, bring the business to its knees. As down rounds are not really the thing on ECf platforms, these next rounds simply exacerbate the problem by raising the value - thereby satisfying everyone that the business is being successful. Given a more gradual climb many of these companies could become part of a healthy UK SME structure. 

All the while all of this mess creation is being paid for in part by the Goverment's S/EIS tax reliefs. What we need is a system where all directors of limited liability companies have to pass a knowledge based test or S/EIS is not available. This, backed by much more stringent assessment of the handling of the company's affairs on administration, would certainly help. After all you wouldnt want someone on the roads without a license.

It was certainly interesting and worrying in equal measure to hear this opinion from the horses mouth.

Crowdcube's Adzuna win Government contract to replace Universal Jobmatch

Adzuna has had a rough ride but has turned a corner. From Q2 of 2018, Adzuna will be providing what is one of the UK government's largest online services.

When the founder of Adzuna was diagnosed with stage 4 cancer, things looked bleak for him and the business. Remarkably he has now fully recovered and the business, which was on hold, is steaming ahead.

It's too early to know how things will turn out a couple of years down the line, but for now Adzuna is a success that Crowdcube can genuinely point to as a company they helped. 

Ideas Britain - This post was removed after legal action was taken by Adam Shaw.

See more recent post. 

Is Sustainable Power more evidence that Crowdcube companies suck

Sustainable Power took £1.84m off Crowdcube investors in 2014. The company showed projected profits of £2.7m and £13m for 2016 and 2017. How have they really done?

If you were to be kind, you would have to say  - could try harder. In yet another example of how Crowdcube investors are being misled by the financials the platform promotes in these successfully funded businesses, we find reality is a hard task master.

SP losses for 2016 were  £1.5m. According to the accounts, the directors thought this was normal for a company gearing up for production. Well that maybe so but then why tell Crowdcube a whole load of twoddle? Ah.......... it's an incentive thing again. If you had told them the realistic projections, you wouldnt have raised £10.

Accounts for 17 are late but what are the chances the company getting close to a £13m profit? No one with any experience in start ups expects all companies to always smash their projections. But out 400 companies we have on file, when only a handful get anywhere close to the projections used to promote their funding, something is wrong in the system. SP is the norm for Crowdcube funded companies; not the exception.

Berrywhite reappear on Seedrs having been delisted on Crowdcube - Are you going to love them just a little bit more?

Berrywhite's downround saga keeps on rolling...just keeps on rolling....rolling to the river.

We highlighted BW's odd and possibly illegal tactics on Crowdcube in Round 2 - here. In an attempt to get over the line, the founder had offered to sell investors his own shares at a discount - but only investors who came in at the end of the campaign ie a late incentive to drive over the line (maybe a clue there for Eddie). Thereby crashing the one sacrosanct rule of ECf  - all shares offered must be offered pari passu. As a result Crowdcube closed their campaign down, even though they were close to completing. 

Now we understand the company is on Seedrs and providing they reach their new target £50k at the lower valuation of £900k, before going public, they will be allowed to use this platform. Presumably BW hopes you will love them just a little bit more and £50k will over fund to £150k. It is very messy and really not what we want to see from platforms - even if they have so much to give.  

BW funded in their first round on Crowdcube at a valuation of £5m. The failed Crowdcube second round started at £2.7m and ended (just as it was pulled) with attempts to lower this to £900k. Desperate times. 

Anyone reading this blog, knows we have a thing about these crazy 'valuations' and how they have driven companies to make up ludicrous projections to justify them.  These crazy valuations then push the company to over trade and bang, it's curtains. You need look no further for an example of this than BW. It should have gone from £900k to £5m - not backwards. Investors on Crowdcube are not bright enough to get this  - yet. Although they must be catching on by now?

By way of a factual illustration in this case, for YE December 2016 BW, who was never never gonna give you up, projected profits of £1.6m. Accounts filed show losses of £275k. We would expect that a company with this history of dubious projections, might want to reassure investors now, by publishing YE December 2017 accounts - but they havent. 

One might feel a little sympathy for the founder if he hadnt been such a greedy so and so in the first place. Anyone looking to invest now, would do well to go over the numbers with a microscope and then half all the revenues and double the costs.  BW, what am I going to do with you?