The current Crowdcube pitch has thrown up some interesting questions on the forum. We dont use the Crowdcube forum but thought we would answer them here.
UPDATE - Here is a very recent example of the sort of smoke and mirrors Crowdcube use to fudge figures. Asked for some simple p&l info in the current pitch - they replied -
Hi Rathgil_78 & RBIPURITY,
Our audited 2017 financial year end accounts are available via Companies House and we are currently working on the audit for our 2018 YE September accounts.
We're pleased to report that our turnover is on track to be around £6m for 2018 (calendar year), compared to less than £4m in 2017, without significantly increasing our costs or team. The current trajectory of revenue growth and reduction in EBITDA loss means we are targeting a break even point in 2019.
We are unable to provide any further financial information due to its commercially sensitive nature but hopefully the above is helpful.
Bill
So why mix Calendar Year with filing year which ends in September? This £6m has two months projections in it and doesnt include Oct/Nov and Dec 2017, months that were far slower than Oct Nov and Dec 2018. They already have the YE Sept18 numbers, so why not used them? Could it be that the promised £6m revenue for 2018 (financial year) has been missed? And it's not clear if the reference to 2017 is calendar or financial. Why? It makes a substantial difference.
One of the main issues has been the introduction of the investor fee.
One of the main issues has been the introduction of the investor fee.
Crowdcube is a loss making business. £4.6m last year and a total to YE Sept17 of over £17m. The PR does not do these numbers. It is desperate to change that before the curtain falls. They have hiked the fee they charge companies using their platform, from its original 4% (free for the large PR campaigns) to around 8%. They have also started demanding that companies produce as much as 40% of the their total before the pitch can go public - they charge commission on this money even though it is not raised on the platform. They also include this 40% in their annual PR figures.
Given that the company needs to net revenues of £9m just to break even, you can see why they need to push to get there. Last year's revenue was under £4m and this year's is projected to be under £6m - so still a long way to go. In 2016, they told the world they would be at break even by the end of this year. That will not happen. They also talked about secondary markets and IPOs - they havent happened either. What they didnt talk about was multiple failures, loss of investments and collapsed, often dubious, businesses. They have happened.
The timing and rather sly way they have unannounced the investor fee has also caused concern but this is exactly in keeping with the way Crowdcube handle all their difficult issues. It amazes me that punters on the forum do not seem to understand this.
If the company was forced to cancel its investor fee, which will bring in around £1.5m pa on current numbers, then they will not get to BE in 2019 either. We doubt they will anyway but it certainly increases the chances. Crowdcube are relying on their punters inability to stop. It has worked so far with no exits to talk about.
Another Q asked is why the company costs so much (£9m pa) to operate. That is a very good question. It certainly shouldnt. After all when you strip it back what have you - an active investor list of 40,000 max and a website that functions well. Most of the jobs the staff do are done very badly - due diligence, dealing with investing companies, dealing with investments, S/EIS and investors. We are constantly hearing complaints first hand on all of these.
What keeps Crowdcube afloat is the mountain of aggressive PR. C4 are about to join the mountain. This is expensive. They are also known to have written to at least one company, considering them and other platforms, to pass on less than verifiable or favourable information on their opponents. This is done in order to seal their deal and their commission. It is not only unprofessional but it is also amoral.
It is about time you punters woke up.
Thanks for that Rob Interesting.
ReplyDeleteFood for thought
'Woke up' you said Rob.
ReplyDeleteThe punters are sleepwalking into empty pockets. My theory is this, there has to be a steady inflow of fresh cherries to ECF. Once the emails, updates and rewards cease, the punters aquire a certain cop on.. I'd be hugely surprised if any continue to punt after 1 year, 5 investments or indeed this blog. Many Thanks, you've single handedly saved myself and many others much financial suffering.
Without the ingredients there is no cherry pie in the sky.
I do believe there is a better way an dIm currently trying to get that going. The prblem is that Crowdcube are bleeding the market dry with their stack em high cheap un due diligenced rubbish.
DeleteWhat pray tell is the solution Rob ? I'm certain you would despair at a free site with no diligence? I agree the model doesn't work, they cannot generate adequate fees from small rounds to cover adequate diligence costs. However, crowdfunding remains a great concept, and great inventions will be missed without it. Yes, due to the high failure rate there is a cost, but this is no worse than Big Pharma's odds where BILLIONS is spent every year. No-one is forced to "bet" on these start-ups. This site can be summarised as "its risky, many things can and normally do go wrong". Just like any of our pioneers, I think we should be celebrating the efforts of those that try not castigating them.
ReplyDeleteThank you for your comment. The fee has nothing to do with due diligence levels. Everyone and especially you, must know that Crowdcube dont do any anyway - its just lip service. The failure rate is in fact not high as most end up as zombies - our research proves this. This site reports on the companies that have used ECF and how they have got on since. This information is not available anywhere else. If you read the Crowdcube or Seedrs case studies they rarely touch the failures or why they failed. For investors to understand better how to invest in companies that have a chance, they need to learn from the failures..........like yours. And these people are not pioneers - most of them are greedy fools who have seen the honey pot and invented a business to access it. Why would anyone want to celebrate that? When we lauch our new site we will have all this on record for people to read - a list of failed businesses, why they failed, who was behind them, what they have done before and since. And of course the same for the successes when they occur. You wont find this information anywhere else. Who knows Andrew, you may feature.
Delete"However, crowdfunding remains a great concept, and great inventions will be missed without it."
DeleteI agree that it's a good concept, but I wonder if many "great inventions" would be missed. Most crowd raises are for mundane businesses (some of which are dressed up as "innovative"). Businesses underpinned by innovative technology have access to all sorts of govt and institutional investment schemes, anyway.
Crowdfunding appeals most to: (a) businesses that want to attract relatively affluent customers, and can use the crowd as a word-of-mouth marketing channel (e.g. Revolut), (b) businesses that are struggling to raise money through conventional routes, because their idea is flawed.
Of course, blogs like this actually help to raise the standard of crowdfunding - assuming investors pause to read it and take on board the evidence. But what is really needed is an independent crowd-diligence platform to complement the crowd-funding platforms. The FCA could even introduce an online crowd investment training course that certifies you for larger investments. We need a whole crowdfunding ecosystem that has space for critical voices, not platforms that are incentivised to run as many raises as possible.
Thanks for the comment. An independent website that looks at crowdfunding businesses and allows an open forum for members to discuss their experiences and has a whole host of information on how to do real due diligence, read BS and get the most out of for eg micro accounts, use SM to help with discovery, the law on IP, a list of directors and what their CF companies have done etc etc is exactly what we are launching next year. Members only, it will cost £6/month or £36 pm paid annually with a 6 month discount. As we have around 30k readers annually we are hopeful it will get traction and help clean up this sector for the better. Please join us. :))
Delete@ Arth Scratchett
DeleteI agree totally, good shout.
Yes great inventions says some fool. Three come to mind, a man and a cheesecake fridge, a ballistic aeroplane skin with NO I. P and a Zeppelin that's prone to crashes. Pioneers indeed.
So, Crowd funding is meant for the small invester.
ReplyDeleteThe small investers pay a fee of 1.5% But no fee for large investers. Hardley seems fair as small Investers hit hardest when companies fail.
Proposal to encourage small investers to dip their toe into crowd funding:
All investers pay a 1.5% charge which goes into a separate interest paying fund (bank account) run by a committee of small investers. If a business fails within ? (say 18 months) those small investers (of upto say £100) get say 90 % of their money back from the fund. Those who invested say upto £500 get back 90% of the first £100 and say 75% of the balance back. Those investing over £500 upto a max of say £3000 get back the same as the £500 investers plus an additional 50% or 20% or ? of the balance up to the max £3000. This at least reduces the pain of losses for those who can least afford losses. It is hoped that no companies fail but inevitably some do. Initially this would not be guaranteed but would be after the fund reached a viable amount. Also the committee would adjust the levels of payback as the fund balance increased or decrease accordingly. The initial charge may be optional and/or need to start a little higher until fund reaches a viable amount. Or maybe a generous angel could start of the fund with large deposit. Repaid with interest when fund reaches an agreed level. Several donations maybe Goverment grant to encourage investment.
Not to be run by any crowd funding platform but by small investers for small investers on any approved platform.
A website funded by adds. Any interest / comments ?
Thanks for the ideas - please see our reply above. What do you think?
Delete(The way I see it is) ECF is like a Reverse ROBIN HOOD, steal from the poor and give to the rich.
ReplyDeleteI had to ditch CC to make money.
Amateur investors like myself believe the hype and phoney projections that's peddled by the Director's. The same Directors that whole heartedly know how to skin the newbie.
Until such times as, to catch the Wolf, you gotta be the Wolf..