What can we learn from Tiger Bills demise?

The Lifestyle Hospitality Group (TA Tiger Bills and other suitable names) was on Crowdcube at the end of last year.

They were raising £500k for expansion. It didnt succeed.

We commented at the time that they didnt seem right for expansion.

The business is now closed, in the throws of a 'sale'.

So what can we learn from this? Well firstly that the Crowd cannot always be fooled into throwing its money away which has to be some comfort.

Unfortunately there is a more serious lesson here. In the financials published on Crowdcube, the company showed a reasonably healthy balance sheet for the previous 12 months to June 2015. Profits for the following 12 months went from £300k to £800k - things were looking great. There was certainly no indication that failure to raise the £500k would result in total collapse. A healthy £2m sat  on the balance sheet prior to any investment  - or so they said.

These of course are the financials that the Crowdcube out to lunch department would have spent many hours checking over - to ensure that their investors were given good, clean, accurate information.  These figures were also completely unaudited and it would now appear were fictitious. You have to ask why an outfit making money would close and then 'sell'. The damage caused by closing outlets is not often recoverable.

Of course as with all things like this, we wont know for sometime what the true facts are. Someone obviously does.

It really just begs the question again - why have we not got some real due diligence service to help prevent ECF going off the rails.

A New Year?

Ah, the turn of the year, time to turn over a new leaf and look at things afresh.

Or maybe not.

Here are some of Crowdcube's pitches that have reported accounts which in no way come to close to the projections they published when they raised funding on the platform -

PDB - more losses and little activity

7billion ideas - further small losses

Open Desk - appear to have failed to raise the extra capital required on the published plan, leaving existing crowd shareholders in limbo

Sweetly Stevia - another £65k of losses

Purple Harry - £60k of losses .v. a projected £70k profit, technically insolvent.

Stakis Daycare  - no nurseries ever set up, all but Stakis have now resigned.

Water to Go - raised £190k at the end of 2014, Projected profits for 2014 of £200k have in fact now been filed as losses of £270k.  

Peach Lettings which according to Crowdcube raised money in 2014, has no record of the 92 shareholders on their recent AR. One lonely shareholder only.

Of course some of these may go on to be a huge success, but just not in the timeframe they predicted.

Worth remembering when you next invest.

Another Crowdcube success misses its targets

There is a reason why XXXXXX (name removed for legal reasons) produce the only stand up mobility vehicle.

A clue is in the only review they have on Amazon - a 2 star review saying the whole thing was unstable and customer service was appalling.

No wonder then that the company, which raised over £200k on Crowdcube in 2014, has just filed accounts which are well off the projections published on the ECf platform. When we say well off, we mean it.

Projections had the company making a healthy net profit of £450k in its first year after funding. The accounts show a £70k loss. Even allowing for the usual Crowdcube misalignment between projections and actuals, this miss is a good one.

Sales to July 2016 were projected to be almost £3m with profits topping £1.6m.

Anyone can make up figures, the game surely has to be who can come somewhere near to delivering on them. It certainly doesnt look like being Crowdcube.

New Year, same old Crowdcube.

Crowdcube's latest pitch, Ethos, may prove a massive success.

But it would help if at the start of the New Year, they could publish accurate information.

Ethos states in its heading it is a chain of keep fit /yoga studios. Currently this chain has just the one outlet. Sorry but that is not a chain in anyone's dream.

The company claim to have recently raised £275k in equity finance, which is significant as they had none in the business before and it was technically insolvent. However the AR is late (just) and their filings have no record of this transaction, which apparently valued the company at just over £3m. Today's value, without the paperwork to confirm any investment, is put at almost £4.5m.

How difficult would it have been to ensure the AR had been filed and the terms of the equity raise made plain before the pitch went live? Do they really expect investors to take Crowdcube's word for it - after the recent debacle with Crumpet Cashmere? 

Crowdcube's Cashmere Crumpet tries the Double Phoenix!!

This is a truly incredible story.

Back in 2014 Crumpet Cashmere pitched on Crowdcube. The pitch made little mention of the real circumstances behind the business. In fact it totally ignored most of the it.

The management team had started a company called Crumpet England which had got into trouble, so they used the prepacked deal route to off load the debts and start afresh. Crumpet England went down in flames owing over £750,000. The prepacked charged Crumpet Cashmere to pay £60k for the old assets, brand etc. The management of both companies were the same.

At the time that Crowdcube published the pitch for Crumpet Cashmere, the administrator's report shows that the management were in default of this payment for the old assets - or put simply they hadnt paid up. The administration had had to be extended to accommodate this default and had been forced to issue a Statutory Demand. 

These facts were never mentioned in the Crowdcube pitch. At the time this information was hard to get hold of for ordinary punters as the CH beta site wasnt running then. Chances are none of the investors knew of this default.

This is how the Crowdcube pitch described the collapse of Crumpet England in the Crumpet Cashmere pitch -

''During latter part 2012 and 2013, the business with the support of professional  advisers, undertook an in depth review of its activities and structure, which resulted in significant cuts to costs and overheads''.

The 'business plan' published in conjunction with the experts at Crowdcube states that Crumpet Cashmere had bought the brand in January 2013 - a fact we now know is rubbish. Caveat Emptor will no doubt cover any liability.

Only when questioned by us on the forum did they admit the pre packed deal part. By significant cuts we assume they meant leaving behind all their creditors. In essence investors in the Crowdcube pitch were having their investment in Crumpet Cashmere used to pay for the prepacked deal with Crumpet England - without their knowledge. 

This could have been useful information, given what we now know. Crumpet England was finally closed in October 2014, some 6 months after Crumpet Cashmere was already losing investors' money. Less than 12 months later, the money had all gone and the management team were looking for the next out.

Ruby and Rudy was incorporated on the 25 August 2015, just around this time. It has the same management team as both Crumpets. According to the liquidator for Crumpet Cashmere, its assets were sold to R&R for £3,000 before the company went into liquidation. The management team claim this was in the best interests of creditors. Creditors who according to the liquidator will receive nothing. 

All of this sad saga could easily have been avoided had the Crowdcube out to lunch dept been awake. Armed with the full story it seems likely that the pitch would have failed. This would have saved investors £160k and yet more creditors another £260k. 

We helped the Times put together a piece on this which came out today -  http://www.thetimes.co.uk/tto/business/industries/consumer/article4656180.ece 

Luke Lang of Crowdcube commented  - '' Investors can be assured that we are committed to ensuring transparency and have rigorous due diligence processes in place.” Phew that's fine then, we were worried things had got out of control.

ASSOB tells it how it should be - can you see this FCA??

As we have said before here, The Australian Small Scale Offerings Board, are spot on with their line on regulation and investor protection.

Here's what they said about the new Australian ECf regulations -

“ASSOB has now had a chance to fully digest the legislation and has a completely different view to most of the industry.

 “We believe it achieves its twin goals of protecting both investors and companies, and, at the same time, will allow significant capital to be unlocked to help drive a considerably under-capitalised sector of the economy. 

“The key points of difference with the legislation’s critics, are, in our opinion: 

“The cost of converting to a limited entity, at $550, is neither expensive nor complicated – despite what is being said. Requiring three directors is simply good governance as it sets up small businesses for the long term by encouraging them to enlist skills outside their businesses that will help critically analyse their business models. 

“An independent auditor is critical. Although relatively expensive, independent auditing gives investors the necessary peace of mind, especially where companies won’t be cash-flow positive for several years. 

“The move by the Government to protect investors is to be fully commended. In our opinion it’s not unreasonable for investors in a speculative venture to have access to the board and management at an AGM; to have access to accurate financial accounts; to receive quarterly disclosure statements; to require the company to file their documents with ASIC, including financial reports; and for the company constitution to protect the investor. These protections should be par for the course. 

“Responsible crowd funding platforms are vitally necessary. Having platforms migrate towards having an AFSL is an obvious prerequisite as only qualified and responsible advisors should be allowed to exhibit investment opportunities to the public.''

Any comments from the FCA??

Article from WSJ

Here's a piece we helped with in the Wall St Journal - we would have liked a larger mention given how much time and information the journo took!

U.K. Shows the Way for Amateur Venture Capitalists

Max Colchester

By Max Colchester

1171 words

24 December 2015

The Wall Street Journal (Asia Edition)

AWSJ

B5

English

Copyright © 2015 Dow Jones & Company, Inc. All Rights Reserved.

LONDON

The U.K. has led the way opening up a new ultra-risky market in which fledgling companies pitch shares to amateur investors online. The country "is now the best place for equity crowdfunding in the world," says Kieran Garvey, the policy program manager at the Cambridge Centre for Alternative Finance, which benchmarks such projects across the globe.

Buying shares in unlisted companies is a long-shot bet: Few if any of these companies will ever have a public offering that will allow investors to cash out at a hefty profit. The main hope for many investors is that the company is eventually sold. Financial reporting is thin, and the U.K.'s regulator has expressed concern that amateurs aren't suited to do the kind of financial sleuthing a venture capitalist can.

So far, out of 367 U.K. companies that have raised money between 2011 and the first half of 2015 via equity crowdfunding, only one has made a profit for investors, according to Altfi Data, which tracks the alternative finance sector. Since then, Camden Town Brewery became the second company set to make money for investors, after agreeing to sell to a rival brewer.

Still, U.K.-based investors have snapped up stakes in companies making everything from flying cars to burritos and musicals.

The U.S. is following the U.K.'s lead, with the Securities and Exchange Commission set to allow armchair investors to get in on an act long reserved for "accredited investors" -- broadly those with a net worth of more than $1 million or who earn at least $200,000 a year. Other countries remain wary. Germany eased disclosure rules for small businesses looking for funding but caps the total investment at 10,000 euros ($10,900) a person. In Italy, individuals can invest only 500 euros at a time and 1,000 euros over a year.

In the U.K. the rules are more relaxed. Retail investors must certify they won't invest more than 10% of their portfolios, excluding housing, pensions and life insurance, in crowdfunded companies. Websites make investors pass a multiple-choice test to show a basic understanding of the risks involved.

The U.K. equity crowdfunding market is small but growing rapidly, roughly tripling between 2013 and 2014, according to the Cambridge Centre for Alternative Finance, helped by generous tax breaks for investors. Proponents see it as an important way for small companies -- many of them starved for credit as European banks pare lending -- to access funds. It also allows investors

Critics say it opens the path for companies with inflated valuations to hawk equity to uninformed investors. One in five companies that raised funds via crowdfunding between 2011 and 2013 is no longer in business, according to Altfi.

Many of the companies that raised money are still growing. "It's going to take another year or two or three to get a feel of how well it is working," says Luke Lang, co-founder of Crowdcube, the U.K.'s largest equity crowdfunding platform. Mr. Lang says the current failure rate is better than expected. Several companies that tapped cash online via Crowdcube have gone on to raise funds at higher valuations, he says.

Investors in Britain aren't just hunting for the next Uber Technologies Inc. or Facebook Inc. Hungry customers at Chilango, a U.K. chain of Mexican restaurants, were recently handed leaflets promoting a share sale along with their burritos. Chilango raised GBP 3.4 million this month selling equity to investors onCrowdcube. The equity raise came after Chilango loaded up on more than GBP 2 million of debt last year via a "burrito bond" also pitched to customers.

"What better people to own your company than those that support it?" says Chilango co-founder Eric Partaker.

A lack of transparency has made judging the success of such capital raises hard. Most of the crowdfunding websites don't provide regular information on how companies that raised money are holding up.

It can also be unclear how much traction a pitch actually has. For instance, Crowdcube says that a theater musical, called "The Water Babies," raised GBP 1 million on its website in 2013. However GBP 800,000 of the total had already been lined up offline from other investors, says Peter Shaw, one of the show's producers. (After some negative reviews, Water Babies Musical UK Ltd. went into liquidation earlier this year.)

So far, around 90% of U.K. companies that raised funds via Crowdcube have missed their projected financial targets, estimates Rob Murray Brown, who tracks crowdfunding investments on a blog called "The Truth About Equity Crowdfunding."

Phil Murray, a teacher, made money from a sale of an equity crowdfunded company earlier this year. He invested in the electric-car rental company E-Car Club, which was sold to a competitor.

Mr. Murray, who has invested around GBP 80,000 in about 25 small companies via online platforms, also saw another bet go sour. "I don't think you can ever predict what the outcome will be," he says. Most people investing via these websites "have no idea what they are doing," he adds.

Earlier this year, the Financial Conduct Authority, the U.K.'s regulator, said it was concerned that the majority of the people placing funds on the sites had no venture-capital investment experience.

to access investments they wouldn't have been able to before.

Tax breaks are a major incentive. The U.K. offers 30% tax relief on investments up to GBP 1 million ($1.48 million) and allows investors to offset any losses they incur against their income.

Critics say it opens the path for companies with inflated valuations to hawk equity to uninformed investors. One in five companies that raised funds via crowdfunding between 2011 and 2013 is no longer in business, according to Altfi.

Many of the companies that raised money are still growing. "It's going to take another year or two or three to get a feel of how well it is working," says Luke Lang, co-founder of Crowdcube, the U.K.'s largest equity crowdfunding platform. Mr. Lang says the current failure rate is better than expected. Several companies that tapped cash online via Crowdcube have gone on to raise funds at higher valuations, he says.

Investors in Britain aren't just hunting for the next Uber Technologies Inc. or Facebook Inc. Hungry customers at Chilango, a U.K. chain of Mexican restaurants, were recently handed leaflets promoting a share sale along with their burritos. Chilango raised GBP 3.4 million this month selling equity to investors onCrowdcube. The equity raise came after Chilango loaded up on more than GBP 2 million of debt last year via a "burrito bond" also pitched to customers.

"What better people to own your company than those that support it?" says Chilango co-founder Eric Partaker.

A lack of transparency has made judging the success of such capital raises hard. Most of the crowdfunding websites don't provide regular information on how companies that raised money are holding up.

It can also be unclear how much traction a pitch actually has. For instance, Crowdcube says that a theater musical, called "The Water Babies," raised GBP 1 million on its website in 2013. However GBP 800,000 of the total had already been lined up offline from other investors, says Peter Shaw, one of the show's producers. (After some negative reviews, Water Babies Musical UK Ltd. went into liquidation earlier this year.)

So far, around 90% of U.K. companies that raised funds via Crowdcube have missed their projected financial targets, estimates Rob Murray Brown, who tracks crowdfunding investments on a blog called "The Truth About Equity Crowdfunding."

Phil Murray, a teacher, made money from a sale of an equity crowdfunded company earlier this year. He invested in the electric-car rental company E-Car Club, which was sold to a competitor.

Mr. Murray, who has invested around GBP 80,000 in about 25 small companies via online platforms, also saw another bet go sour. "I don't think you can ever predict what the outcome will be," he says. Most people investing via these websites "have no idea what they are doing," he adds.

Earlier this year, the Financial Conduct Authority, the U.K.'s regulator, said it was concerned that the majority of the people placing funds on the sites had no venture-capital investment experience.

In the U.K., investors tend to be men who have disposable income, says Jeff Lynn, chief executive of Seedrs, an equity crowdfunding platform based in London. The peak investment time on Seedrs is at 11 a.m. on Monday mornings, he says, suggesting that investors are looking for an exciting distraction at work.