Primo raised £274k on Crowdcube in 2016. Now in its first full year since funding, it has lost £1m and incurred a US lawsuit for patent infringement.
It's not what you would call a good start. Albeit the lawsuit has been dropped.
The company's claim to fame for the moment is that one of its backers is Mark Zuckerberg's sister, Randi. Projected profits of around £300k have been replaced with a £1m loss. Profits for 17/18 are going to be £1.7m according to the company. They make a kids' toy that teaches programming and it seems they may have been using it to create their financial plans.
They had started life by raising $1.5m in pre sales on Kickstarter and from the comments on their page, it has been far from a satisfactory outcome. They appear to have run two KS campaigns - one in 2015 for delivery in 2016 and another with pledges for $700k for delivery end 2017. It is hard to see where all this cash has gone. Complaints are numerous.
The accounts are something of a revelation - in that they show exactly what HMRC is capable of - which is nothing. This company has been in deficit since incorporation and was at June 17 sitting on a £1.13m liability. Since then there is no evidence of any new money coming in. Randi must be the backstop but it makes a mockery of the UK accounting system that such a company is allowed to call itself a going concern. The Crowdcube 'historic' accounting information looks very dubious when compared to the filed accounts; something we see too frequently.
Finally Amazon sells it but has only 5 reviews. So maybe its not really selling. Who, you might ask, wants to train their 5 yo to code?
They had started life by raising $1.5m in pre sales on Kickstarter and from the comments on their page, it has been far from a satisfactory outcome. They appear to have run two KS campaigns - one in 2015 for delivery in 2016 and another with pledges for $700k for delivery end 2017. It is hard to see where all this cash has gone. Complaints are numerous.
The accounts are something of a revelation - in that they show exactly what HMRC is capable of - which is nothing. This company has been in deficit since incorporation and was at June 17 sitting on a £1.13m liability. Since then there is no evidence of any new money coming in. Randi must be the backstop but it makes a mockery of the UK accounting system that such a company is allowed to call itself a going concern. The Crowdcube 'historic' accounting information looks very dubious when compared to the filed accounts; something we see too frequently.
Finally Amazon sells it but has only 5 reviews. So maybe its not really selling. Who, you might ask, wants to train their 5 yo to code?
Rob,
ReplyDeleteI stumbled upon this blog and I must admit it raises some fair points. Crowdfunding is really advantageous only for the entrepreneur. Minibonds? Pointless.
However, I struggle to see the real purpose of this crusade. Survival rate of startups is abysmal, what is the point in reporting any single one of them that did not make it?
It does not take a genius to call for failures in a group with 90% failure rate.
As I have few moments, I'd like to give you a helping hand in understanding what it is we do.
DeleteIf you have read a number of the posts, you will see that we rarely call a businesses a failure before it has failed. The case above is an exception because they had ignored investors concerns in round one and then hidden these, in round two. Essentially blindsiding investors. I think it is highly unlikely that 90% of CC business will go bust - your supposed figure. The vast majority will become zombies - simply going nowhere but still 'active' at CH. This is the worst possible outcome for these investors as they cannot claim loss relief. These will eventually close from natural causes losing investors all their money but its not the same as going bust.As we have seen this can take many years - record so far is 5 and counting.
We spend most of our time trying to help businesses get funding through ECF, some of it writing this blog and some of it writing for other ECF platforms. In order to know what makes a good campaign, we have looked at a lot of bad ones - bad in the sense that they failed to complete. You learn far more this way. A lot of this information is then used in the blog - which is essentially part an ECF sector news point and part content marketing for ECF Solutions.
Hope this helps.
Anon your last was deleted by fat fingers. Cant say it added much but happy to post if you can resend. BTW it makes a MASSIVE difference whether these are start ups or growth companies. As an investor Id hope you knew that. And it makes another massive difference that we are wasting tax payers money subsidising these failures - Tax payers who have no choice and would I hope see these investment opportuniteis for what they really are - sweet FA. ECF could work if is was run differently - that is the purpose of the blog.
DeleteAnon - seems you dont understand what we are doing here. Assuming you have a job and pay taxes, the whole equity crowdfunding sector is using some of that money to give back to investors. The idea being that at least some (10% in your estimation) goes on to give ROI and money back into UKplc. If you read the PR from the platforms, you would be forgiven for thinking the figures are reversed. We try to put this side of the story - what actually happens to these businesses. I think if you wish to contribute anything worthwhile here you need to do some reading. Not all (in fact on CC not many) businesses are pure start ups - many if not most are looking for growth funding. This should of course mean they have a better chance of succcess. However the issue we continuously see, is that these companies make up very ambitious projections which they never reach, they over trade and go bust. All the while using EIS as a means to fund this failure - that's your taxes. If you dont think any of this relevant to you, then why bother reading it? We have plenty of supporters thanks.
ReplyDeleteThat patent suit was dropped over a year ago, not sure why you're reporting it now. As to "maybe it's not selling", they delivered 27,000 units in 2017, which for a toy that costs £200 is quite a few. As for "This company has been in deficit since incorporation", most start ups make a loss, that's how it works. As to "it makes a mockery of the UK accounting system that such a company is allowed to call itself a going concern", in 2018 they had gross margins of £1.2 million and more-or-less broke even on an EBITDA basis. They're looking to raise more money to expand.
ReplyDeleteYou are quite likely correct that ECF sites result in vastly inflated valuations, and that few investors will see any returns. Primo may very well still fail, as most start ups do. Even if it succeeds it's not clear investors will make anything. But it seems entirely wrong to claim that most ECF-funded start ups are wildly mis-managed and/or outright fraudulent as you constantly imply. You've added the tag "fraud" to your post, despite absolutely zero suggestion of it.
Hi James. As a shareholder in this company, we can understand your wish for it to do well. We try very hard to get our facts straight before we publish and in this case Im happy that we are in the right ball park.
ReplyDeleteThe court case may have been dropped - our point was that it happened in the first place. We have no record of it being dropped.
Your figures completely ignore a few facts. This company has run 3 Kickstarter campaigns - as the article states. Many of these backers have not received the toy yet and many have received what they consider to be an inferior version - just read the posts on KS. On the last KS pitch, 2,569 backers paid for a cubetto. Inn the one before over 6,000 did so. So do your figures include these KS prepaid customers? Your idea that the 2017 revenue is 27,000 units times the RRP of £200 seems unlikely as the company cannot even manage to supply those people who have already paid for them. Maybe your figure of 2,700 includes these prepaids? And how you know that their GM for 2018 (of which we have completed just 2.6 months) equates to £1.2m and a B/E EBITDA is a little baffling. Can you explain?
Whats more the company has some very odd share allottment filings at CH - one for 28,119 ord shares at £0.00001 or a total sum of just under £3 raised. This seems a little unlikely?
There is a big difference from being in deficit and making a loss as Im sure you know.
The fraud tag is related to the platform not the company - there is no mechanism on the blog to make that clear but point taken - we will remove it.
Sorry, I meant 2017 not 2018
ReplyDeleteYou havent answered the essential Q - does this figure include all those of thousands of people who prepaid for the product on Kickstarter? Our guess is it must do as they havent fulfilled all of their KS obligations yet (see KS forum) and to be selling product to others when you have customers who have already paid without receiving anything is criminal or fraud.
DeleteAccording to their blog they delivered all orders from the 2016 kick starter by November 2016: https://www.primotoys.com/blog/2016/11/cubetto-is-shipping/
DeleteTheir online shop currently gives a delivery estimate of 5 to 7 days.
Their 2017 figures only include deliveries, not unfulfilled orders. I presume that they include deliveries for earlier kick starter orders, yes.
I only invested a token amount of money and have not extensively researched exactly which customers have valid complaints about delivery dates. I am merely pointing out that on the basis of the information available to me, the blog post is an unfair characterisation.