We have been saying this for 7 years - taking a nice little business and scaling it is not always a good idea. Equity Crowdfunding demands scale. QED ECF is not always a good idea.
Hummus Bros was a small business, running for 7 years before it started to use equity crowdfunding. It took £600k off Seedrs investors to grow large. Now it has collapsed - blaming all sorts of reasons but the one that did it in.
For example, in the letter to SHs, the company blames the fall in the pound after the Brexit vote. However the second Seedrs round was in 2017, so after that vote and collapse. Did they mention this then - NO.
To put it simply for you, this was a business that might have made the owners a living and paid its staff and dues. It was not a business to scale and in the old days a bank manager, whose job was on the line if he got it wrong, would have said so. They wouldnt have scaled as they wouldnt have been funded. They would have continued for many years happily running their 2 or 3 outlets. Since the funding started coming in in 2015, the only consistent rise for the business has been the magnitude of its losses.
ECF platforms are not in the habit of turning away businesses with a little sex appeal and the restaurant trade has always been considered that - despite the failure of so many.
So who is really to blame. Its a mix between the actions and reactions induced by ECF - need to scale and need to exit. The lack of business sense of most of the investors on these platforms. The lack of the management team to do scaling and in the end the false idea that this was ever achievable.
At some stage more people will wake up to these facts and ECF will alter direction for the better. It's not happening yet though. So you can expect this example to be repeated many times more.
I've started to think that ECF is predominately as marketing business. The EIS funds are just the latest product to get investors involved.
ReplyDeleteSpot on Rob. Pilpel is a similar business to HB, and is profitable. Perhaps this is simply a tale of two different management teams.
ReplyDeleteI remember this campaign on Seedrs, which I was close to invest and I didn't at the end (which I am so glad now). I don't remember well if it was because of the valuation or debt or the amount of management it had, some businesses just don't sound good to scale, and ECF definitely has to filter more and raise standards. Anything is worth £5M nowadays.. A portuguese company raising in seedrs now sold € 11,000 in 2016 and is now raising at a €2.4M total Valuation, that would make any serious mature company worth what? I should put my industrial €15M revenues industrial company on seedrs and value it at what, 1 billion? Money is too cheap and everyone is playing with it, thats what it seems!
ReplyDeleteMoney is too cheap and everyone is looking for somewhere to park it in order to try and achieve some form of return, which is nigh on impossible to find in a zero interest environment where inflation eats away at buying power both during and over the years. Perhaps people should be more focussed on the return of their investments rather than the return on their investments.
DeleteIMO as a global hummus connoisseur their biggest problem was simply that their hummus wasn’t that good. Council tax / rent rises in their core areas were probably a bigger issue, alongside the fact that no one eats hummus for breakfast.
ReplyDeletePilpel mentioned above is pushing out falafel that IMO is in another league to anyone else in London with efficient counter service, their rent is probably cheaper with lower council tax too.
I agree the product just wasn't good enough (and I like hummus)
ReplyDelete