Looking across the swathe of businesses funded via equity crowdfunding since 2011, it is hard to get excited about the successes. Maybe a lesson can be learnt from the rise of Hyper Recruitment Solutions; a company set up in 2011, which is now making £1m plus net profits.
HRS was the brainchild of Richard Martin or Ricky as he became known in 2012 when he won Lord Sugur's Apprentice TV show. Im not a fan of the show, more comedy than anything else but you cannot deny the numbers.
Since 2012, when the company launched, it has made steady progress and now reports accounts for YE June18 showing £1m plus NP and dividends to £500k. It has two SHs, Ricky and Sugar. A simple 50/50 deal and very little investment - £250k in equity and no borrowing. It is now a cash generating super charged success. ECF investors would give their right arm to have any such success as part of their portfolio.
This is real success - it is not based on the last or the next round of desperation funding. It has been built from the base up - the old way. If you watch the Apprentice you will know that Sugar likes the old ways - he hates BS and wouldnt dream of selling equity based on some mythical future value.
There is a lesson here. We know the platforms are not interested in learning it but investors should be. Real value is built from the bottom up and it takes time. You cannot simply throw cash at an idea to make it work. Ricky is a highly driven business machine and has built this business up from the boot straps - you cannot buy that or replace it with cash. Sugar knows this.
It is time that investors in ECF thought long and hard about what they doing. ECF needs businesses to succeed in the real world. The latest Monzo cash grab is not a success - the company makes massive losses. It may become one but most of that value is already spent. We need to stop the hype and get back to the basics of what makes a successful company - a bank account filled to the top with cash.
I appreciate the sentiment and it depends on the type of business. Bootstrapping a bank is not going to work but whether Monzo will be a success is a complete unknown
ReplyDeleteOk Monzo isnt a good example like for like I agree. But not sure why you cant bootstrap a bank -it just takes longer - maybe too long in this crazy world. All businesses prior to the internet were bootstrapped weren't they?
ReplyDeleteAll businesses prior to the Internet were bootstrapped!? Get real Rob and read a little about the history of VC funding.
ReplyDeleteMight be helpful if your statements had some evidence to back them up? Maybe even a name for you? All is not correct obviously but Virgin, Amstrad and Bodyshop come to mind. What names have you got?
DeleteRob - I am trying to comment under my name but it's not showing. Must be a bug with the comment system. For the record, my name is Chris.
ReplyDeletePrivate Equity/Venture Capital has been around since the '50s - companies like FedEx, Apple and Minute Maid (now subsidiary of Coca Cola) have all been bankrolled by a VC. In the case of FedEx, they were bankrolled to the tune of $70m (in the early 70s!) for first three years of operation until they broke even. Of course, the model of funding risk/losses in exchange for equity with has been in place much, much longer. A lot of the maritime expeditions in the 1600s & 1700s were privately funded.
The problem I have is that you're often far too extreme with your position. I think a lot of 'startups' could easily be done without external funding - no doubt that is the point you're trying to make. However, a lot of startups do need external capital and that is fine, there is nothing inherently wrong about that providing everyone is upfront about the risk and on the same page. No doubt you'd agree with that.
Hi Chris - no one else has had a problem with the name thing. Im talking about start ups.... are you? In any case we can agree that both ways of funding are required but I do believe you will find it hard to find a start up (a real start from the beginning start up) bank rolled by a VC. Fedex started out as a purchase of another airline which evolved into Fedex - so it's not a great example of what I was talking about. Of course there are many ways to start companies but I was specifically talking about pure from the ground up start ups. Not pivoting an existing company and opening with 389 staff as Fedex did. Wasnt it your advice to read up on some VC history? Apple started out making the computers in Job's garage - was that funded by VCs? Dont think so. Minute Maid was an off shot of the National Research Corp of Boston so wasnt a start up at all! Research dear boy research. Im afraid the reason that I over do things is because my small voice in amongst all the monster noise makers would not be heard otherwise.
ReplyDeleteChris again. In terms of the bug, it's showing below my comment that I'm signed into my Gmail account and it's saying 'Comment as: chris@gmail.com' so could be something preventing email addresses being shown?
ReplyDeleteAll good points on my examples - definitely none of those companies were funded before any operations. Under that definition, I'd be interested in finding out what % of companies raising on Crowdcube have absolutely no operations (even money operations would count under that definition). Do you have any stats on that?
You're probably right, I'm going to struggle for examples of companies funded by VCs before the internet at the conception of an idea (with no implementation). However, I'd suggest the funding of an idea alone is probably rare (less than 10% of the time?) even now in VC circles.
I get that feel you're shouting to be heard but over-exaggerating your point doesn't do anything for your credibility - it allows the bad actors in the industry to ignore you and characterise you as fanatical commentator. My opinion is you'd get a much better result and a bigger/better media profile.
I agree you need to be heard over the noise and surely the best way to do that is to do the objective work that journalists aren't.