Wool and the Gang Sell Out their Crowdcube investors for a penny to Blue Gem Capital Partners

No doubt Crowdcube would be trumpeting this from the rooftops as evidence of a successful exit but details shown to us prove otherwise. It's a total farce.

Wool and the Gang (WATG) raised over £1m on Crowdcube at the start of 2016. The company had already secured investment from Index Ventures and a few other financial vehicles. The pitch talked of ambitious plans; dont they all. We wrote a not very glowing post on them and Index here  - looks like we were spot on!

Investors via Crowdcube paid just over 26p per share for their stake in this company which was valued at around £8.5m.

An email sent to these investors this week and shown to us, states that the company has been sold to Blue Gem Capital Partners and investors will receive 27.358p per share. A gain of approximately 5%. There is no choice here - its a done deal behind investors' backs, without them being consulted. The email uses weasel words to try and cover up the let down but we can all see the reality. This would not be the first time Index Ventures have used Crowdcube. 

This pitch on Crowdcube had EIS advanced assurance; so many if not all investors will have claimed back or planned to claim back their 30% and will now have to undo all that and repay HMRC. EIS reliefs are only allowed if you hold the shares for a minimum of 3 years. In this case they have been given no choice. Surely the company needs to account for this? Shareholders should not and will not be used by VCs to 'borrow' the odd million risk free. Investors can get far better and safer deals from Funding Circle. We would like to know when conversations with Blue Gem started - was it before the Crowdcube raise?

In a move that seems so blatantly wrong, WATG offer shareholders an alternative deal. Instead of cash you can take your whole investment back in credit to be spent with WATG. So for example (to quote the email) an investment of £10 via Crowdcube will give you a return of £10.50 cash or a gift voucher of £15.50. No seriously, they are offering this to shareholders whilst sticking knitting needles in both eyes.  Take that, they scream and here is a nicely knitted beany to cover up the mess. Even Mickey Mouse is blushing. 

The email does not make clear if Index and the other earlier investors are also selling out - they paid 20p a share 3 years ago so would see a return of around 35%. 

Is this what Luke Lang meant when he said that 2016 would see some exciting exits? Well on the upside it is not Rebus or Ovivo or Solar Cloth Company or Crowdcube (!) - at least investors are getting their stake back. But it is not what equity crowdfunding should be about.

Crowdcube stood to make a 7% risk free commission on this deal, whilst their customers were asked to risk all their money for a pathetic 5% return or a couple of woolly jumpers. 

We asked WATG for a comment but the CEO was 'out' at the time and has not got back to us. We'll let you know what she thinks if she contacts us. We have also asked Crowdcube and Index Ventures to comment - nothing yet!

JustPark breaks all records

Today is the last day of Justpark's pitch on Crowdcube. The pitch was to raise £1m. It has broken all records.

The current investment stands at over £3.5m and who knows by the end of today it may well hit £4m. There seems to be no upper limit.

The pitch never presented a business plan - for 'commercial reasons'. It is backed by VC's Index Ventures (or will be if this ECF is successful) and has BMW as a business partner. You would have to admit its a neat idea, although questions over security with hidden cars in central London garages for months on end do seem to be unanswered. Likewsie their site pretends to offer parking in places where they do not have any spaces - St Andrews in Scotland for example. Asked why, they said they liked to be seen as offering spaces near all major attractions, even if you have walk 7 miles from your car to get there.

Its backers are certainly gold plated.

We understand that Crowdcube was not the first choice of platform. Crowdcube's model doesnt under normal conditions allow for a VC/crowd hybrid, where the crowd's investment is held by the platform under a nominee arrangement. The main proponent of this model in the UK is Syndicate Room. We assume Syndicate Room lost out to Crowdcube because they have a larger crowd base and this is essentially a consumer product.


What is interesting about this outcome is where it leaves crowd investors. Index's  history shows they more frequently enter at a later stage than this seed funding. The deal for the nominee shareholders is not exactly a good one. They have no rights and do not even need to be asked if Index wish to change the various share arrangements.

One thing is certain - to reach its goal JustPark will need several more rounds and each one will dilute the nominee shareholding. You just need to look at the types of funding that Index have been involved with in the past. The argument that increased company value protects the crowd is we feel a spurious one. Already valued at just over £20m in this round without really doing very much, it wouldnt take a great deal of dilution to make it difficult for the crowd to make any serious money.

From Index's stand point, the Crowdcube pitch offers the best of both worlds. They get to test ECF and the product JustPark are offering, They gain some great PR and several thousand evangelical JustPark supporters. Finally were the pitch to have failed they could have withdrawn their offer of funding. There is something of the guinea pig in all of this - well several thousand guinea pigs to be exact.