A direct comparison is possible between the way Crowdcube deal with shareholders in a failed company and with how Seedrs deal with them.
You may remember the debacle that was Ethos Global - they ripped £800k off Crowdcube investors and then allowed the company to be put into liquidation whilst taking that money and spending it on assets for their new venture Soma London England. The Insolvency guys are still trying to find out what happened almost a year later. Help for CC investors from CC; absolutely none. We have copies of CC emails from the CC 'team' telling investors that really they should talk to the founders of Ethos - there is nothing Crowdcube can do. That's it. We emailed them on behalf of some investors who asked for help and got no response at all.
Crowdcube have a reputation for this shabby behaviour - we have highlighted many instances on here.
So compare this to the developments with Nick Hatter's Giftgaming - which funded via Seedrs. Nick has been a bit of a naughty boy - according to Seedrs. Ignoring the ins and outs of what went on with his now defunct company, Seedrs have pressured him to give up his 78% share of the proceeds of the liquidation, in order to give these to the Seedrs investors. They have spent a considerable amount of time and effort to reach this outcome and have sent investors a lengthy email to explain the current situation. It is still a loss for investors, but it shows that at least Seedrs care for their clients - the investors who make Seedrs tick.
UPDATE March 2019
It seems that someone has been leading someone a merry chase around the bushes. The company is now finally closing with little or no money for shareholders.
Crowdcube on the other hand couldnt give a tit, let alone three.
I think the market has started to notice.
ReplyDeleteCompletely unscientific and possibly unrepresentative and just a snapshot and I might have added up incorrectly but funding commitments on 28/04/18
Seedrs ~16.5m
CC ~7.7m
Still lots of success for CC this year though, eg Hiyacar moving to them after 2 rounds on Seedrs. I think there's a perception of Crowdcube having more reach to the ordinary punter. Would be interested to hear other's view on this.
ReplyDeleteSorry did we miss something - have investors in Hiyacar seen a ROI? The most likely explanation for them switching to CC from Seedrs is that Seedrs wouldnt agree to their pitch given their performance to date. CC dont really care about that so long as they get their commission. Whether Hiyacar ever delivers any ROI is a question very much still up in the air. How are you measuring success? Seesm to be taking money, burning it at a faster rate than predicted and coming back for more at a higher valuation. You are not alone - aall the ECF platfroms do this as does Beauhurst. But in our opinion it's BS. No real returns have to date been realsied on a company that re used ECF to fund itself. Thats a fact.
DeleteI didn't mean Hiyacar are successful, I meant CC are still pitching lots of companies and raising lots of money for them and taking their commission. Hiyacar one example of very many. These companies could have used Seedrs but chose CC. Regardless of how we feel about CC many companies still prefer to use them. I'm wondering why. My guess is their reach to the average punter - deeper reach to a less sophisticated investor base. This would be attractive to a lot of companies wishing to raise.
DeleteAgree - CC are still pushing out fairly hopeless companies that are getting investment. From many Q's we get here it is certain that CC investors are clueless when it comes to how this supposed to work. A great shame as the well is not bottomless and when no returns are the norm, investors will be put off not just CC but other better platforms. Shut down CC and the picture looks a lot better.
DeleteI'm not convinced either of them are great if you look at the ridelink mess on Seedrs. Bottom line is that investors need to do way more of their own research into investments and start from a position of scepticism. Caveat emptor and all that. The forums on both sites aren't bad for asking difficult questions.
ReplyDeleteProblem is that once a pitch has successfully raised it seems the companies can go off and do whatever the hell they like. It only seems to be this blog which continues to challenge and research ch filings etc (for which many thanks Rob).
I think the story is a little more nuanced.
ReplyDeleteAll based on observation. I have no inside knowledge.
CC are still trying to just grow business on a quarter/quarter basis. The easiest way of doing that is to take smaller, more early stage companies (and/or fairly hopeless companies) that other platforms are 'less focused on'.
Companies do not raise money on a platform just to raise money. Both chapel down (seedrs) and WiseAlpha (cc) were clear that they wanted publicity, a channel into into high probability clients (a lot of the shareholders also buy the product) and optionality - not being tied into one platform.
Basically XYZ co moves to new platform to raise £abc seems to be more 'news' than XYZ co to raise £abc.
Investors _are_ clueless (I am one). This cannot be otherwise. No-one can tell if their investment in XYZ co will be worth 0, level, x2, x10, x100 at some point in the future. Too many things can go wrong, or simply events happen.
Investors are placing money in the expectation of an outcome that is unknown and unknowable at an unknown point of time in the future and the return will be unknowable until paid out and that payout can be manipulated by the dominant shareholders in unknown ways.
I put £20 on annabale fly E/W. That was less of a gamble than ECF investing not least as I knew I would find out the return (0/2.2x/12x) by 6pm on 14 April, and those odds are the product of a deep market.
In other words ECF investing is _structurally_ a couple of steps below betting on a horse in the Grand national.
(Even then I would rather put money in ECF - part of being human).
People have been gambling for thousands of years in the full knowledge that they will probably lose.
Some investors will be put off but they will be replaced.
My apologies for going the long way round, but my central point is that (a bit dismal I know) I am not sure CC will be going away and even if CC ceased to exist something else will replace them that exploits the same niche.
Thanks Andrew - interesting points. im not sure I entirely agree with your conclusion. You have missed out a few crucial things - IMO.
Delete1. ECF and all the platfroms spend most of their PR telling everyone that they are one of the answers to creating a brilliant UKinc SME sector. How funding cr!p is supposed to do this is never answered.
2. Care of HMRC investors can get back most of this gamble as you put it - that sitn the case on the horses. Tax payers money is being abused.
3. If this was done well, it could work and benefit all. No quick returns, no cr1p business allowed to (mis)use SEIS/EIS so they will not get funded.
I think just accepting the situation is not the answer. On your final CC may have no option - can you really see them ever making a profit?
Anon - Sorry I cant publish your comment re Mitonics as you have given me no proof that what you say is correct. If you want to make comments like this you will have to email me the info - we cant make accusations that we havent checked. Just for starters your dates are wrong - liquidation was started in April 2017. We are very thorough on our DD otherwise we would have been closed down by lawyers by now. Happy to look at it if you email me details.
ReplyDeleteI expect firms prefer CC because they have more members and do more marketing. They also don't charge carry, which would put a lot of investors off - after all, it's their risk, so why should Seedrs benefit?
ReplyDeleteAs for Seedrs writing emails about trying to convince companies to go against their shareholder agreements, have they ever managed to pull this off, or is it just to create an impression that they care?
We will see - movement is towards Seedrs at the moment. Investors who are really just playing the horses prefer CC as they tend to offer easy to understand retail facing businesses. 99% are total cr!p but that hasnt sunk in yet. The 3 'successes' CC have had have all had interesting postscripts - Camden decided to sell out as they knew they couldnt make it on their own, ECar Club did the same, both missed the serious gains expected. Now the paper gain on Revolut actually has very little to do with CC investors as they couldnt take part in the Revolut CC round - over subscribed by placed investors who were Revolut customers before the pitch ever got on CC (even privately). As always smoke and mirrors is the CC way.
DeleteGetting back to the point of the article, I agree with your points Rob. I wish to stay Anon for this post as I was/am an investor in GiftGaming.
ReplyDeleteThere has been a huge amount of talk on the Seedrs platform regarding GiftGaming following the update last year that the founder, Nick Hattor was, shall we say, "having problems".
Whereas a some of the investors of this company would not agree with me, I think that Seedrs has handled this very well, albeit they were, in my opinion, slow to act initially. I believe that the result, even though it will still be a good sized loss, is a fair result for shareholders. I agree that they seem to care about the outcome for the shareholders and have acted in their best interest.
What won't ever be forgiven by some is the way that Nick has behaved. You mention 'naughty boy' in your article, I think the majority of shareholders may choose language far stronger and fruity than that.
I suggest that his name is kept track of in the event he tries to raise funds for another venture. I certainly wouldn't trust him again with the way he has treated shareholders with contempt.
Note I have no agenda here. I am also a direct shareholder in CC as well as Seedrs so I would like to see both succeed. But I am becoming increasingly upset with the way that CC is managing it's business. Seedrs is, in my opinion, the safer long-term bet for shareholders.
Its not just the crowdcube round that this happened on. Despite being a Revolut customer I wasn't able to invest in their latest round on Seedrs - massively oversubscribed. I see revolut (and Monzo) as using crowdfunding to drum up (relatively) sophisticated and high net worth customers not as a genuine route to funding their businesses.
ReplyDeleteAs with most things in life (LLoyds names is an example that springs to mind) - those in the know get the best deals and the mug punters are dragged along to buy in to the cr!p.
Revolut were clear from the get go with their round on Seedrs. The first 4000 customers to upgrade to their newly released £6 per month premium service, would be invited to participate in their Seedrs round, capped at £2K.
DeleteI upgraded, I was invited to participate.
Precisely - they are using crowdcube to recruit customers. Not necessarily a bad thing, after all Brewdog have done similar, but it does suggest that little can be learned (about equity crowdfunding) from Revolut's success.
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