Failure of Square Pie loses creditors over £2m, costs 50 jobs and loses 324 Crowdcube investors £668k

Just in case you thought the failure of a business was just the business failure, Square Pie illustrates the resonance a failure can really have.

This is something we have highlighted here many times. When a business is enabled, by raising funding on Crowdcube and then it collapses, the ripple left by the splash touches a whole raft of people who do not get mentioned. 

Square Pie raised a bond on Crowdcube in September 2015. It was clear to us at the time that this company was not right. 324 investors piled in anyway. The Administration update posted recently shows we were right. 

This was the highlighted headline at the top of the Crowdcube pitch - 

**UPDATE**: Square Pie has reduced its minimum raise amount to £450k.  Please refer to the pitch update below.

**UPDATE** - Square Pie has been given a Probability of Default (POD) of 0.7% by Moody’s Analytics tool based on historic accounts. This compares to 3.3% average for the bonds listed on Crowdcube so far

Well you might conclude - god help us. The bond's purpose was to increase the number of eateries - to 25 by 2019. It was this part of the business that brought the whole castle down.

At the start of 2018, the company went into administration. All its eateries were closed with the loss of 50 jobs - jobs that the 2015 money had helped create and jobs that without this money, would not have existed. These are now 50 human beings who have been made redundant through no fault of their own. Its down to Crowdcube and its lack of DD on this company and its sustainability. Yet again they have failed on this front. Dont forget this was not equity, it was a bond  - a distinction Crowdcube were happy at the time to tell people made their investment more secure because they had checked the company's plans. Bond companies have to have a good trading record and be subject to a higher level of DD. What is higher than zero?

The administrators have managed to sell the wholesale side for just £100k. Picking up cheap off cuts is the norm in these disasters. 

Add the redundancies to the large number of unpaid suppliers - trade creditors to the value of £2m will not be paid a penny - and you get the real picture of the costs of financing hopeless businesses run by hopeless entrepreneurs. It just doesnt make any sense.

We are not too bothered with bondholders losing their pants - 38 losing more than £5k and a couple in the £20ks. The Bond company also left a large debt to HMRC headed 'Local Compliance' suggesting some serious management issues. Meantime in the two years 2015 and 2016, the CEO had paid himself a total of £176k. Nice. Caveat Emptor and the fact that we warned you not to do it here makes investors gullible idiots. From the last post in this link, we wrote this in 2015 - 

To take an extreme example, the recent lowering of required funds by Square Pie from £750k to £450k has gone unexplained. How can this company suddenly not need £300k? 

I can assure you we are not psychic - it is just good old common sense. 

What is a shame is that those who put in more than they wanted to lose, will probably not come back to ECF and that is a loss to UKplc. This should be billed directly to Crowdcube.

It would appear the grandly named Bond Instrument document was just a pile of poop.

Investors may already know that the ex CEO of Square Pie is also a major shareholder in the company that has picked up the off cuts. Ring any bells?

Readers may also be interested by Crowdcube's sleight of hand with the interest return figure they have been recently been quoting in their annual PRing. According to Crowdcube, investors via the platform have received XXX in returns from their 'investments'. This figure is an amalgamation of the interest on bonds and the return from the few small sales that have occurred. But does it include the bond holders principle sum when it all goes tits up or the losses made from failed equity investments? Hmmm. Makes you wonder. 

The Crowdcube story is a classic example of how not to grow your start up.

Crowdcube were the first but they have failed to capitalise on their first mover advantage. As yet another Crowdcube success fails, what is their next roll of the dice? 

You have to give Darren and Luke, the founders of Crowdcube, a certain amount of credit for having the idea and getting it going. But that's where the credit must end.

PR can only paper over so many cracks before the walls cave in. Crowdcube is mainly PR - lift the hood and you find a cheap two stroke engine where the PR says its a gleaming V8. Proving the model worked was always going to be difficult. To work, we had to see exits and these take time - much longer than the fantasy figures provided in Crowdcube pitches. You dont expand your cost base unless you have evidence the model works - not if you want to succeed. They either couldn't wait or more likely didnt know this. So they led with PR and fell back on PR - it's all been a myth building exercise. 

To illustrate, here is an article from 2017 in The Telegraph by James Titcomb - it opens....

• James Titcomb 

12 JULY 2017 • 6:40PM

Members of the public have invested more than £250m via Crowdcube, the crowdfunding website has announced.

The milestone comes after a number of businesses funded through the site have been sold, leading early investors to pocket huge gains.

Firstly the public have not invested more than £250m and they know it. Secondly you would have to look very hard for one of these lucky recipients of huge gains and even then, you would fail. It's simply PR put out by the boys and naively reprinted by a lazy journalist. Of course it does depend on your definition of 'huge'; a ploy CC use a lot. Ask CC's loyal investors and they would just cringe.

The main problem is that neither Darren or Luke have run anything successful - ever. They do not have that knowledge, despite what Darren claims in his CV. They have made mistake after mistake with Crowdcube, to the point where now, 7 years after they started, real progress has hit the buffers.

You cant blame them for trying but the really stupid part is repeating the same thing over and over again and hoping it will bring you different results.  

The initial reaction to their launch and the first businesses was WOW - first adopters were enthusiastic. The business was small but grew rapidly - failures were slow to come through and they managed a couple of decent (not WOW) exits with Camden and ECar Club. They managed the situation very well - big news about the exits and very little information about the failures. 

By 2015/16 however, there were no more exits and the failures began to mount up. People started asking if the hype around the pitches was just that. Darren and Luke introduced some new toys - mini bonds for example. This allowed them in future years to promote a return on investment figure - even though these were loans not investments in the equity sense - ie 'returns' were just the interest paid out on the bond. They didnt bother to distinguish as this would rather spoil the story.

These bonds came and went and we are now left with one company failure  - Square Pie - where all bond holders lost their cash. Plenty of other companies that have used the Crowdcube bond have been struggling - The Eden Project, River Cottage, Chilango and Taylor St Baristas to name 4. 

By 2016 Crowdcube as a company was accumulating very large losses, running at between £4m and £5m pa. It had in its own CC raises, created some ludicrous projections. In fact our records show that the Crowdcube projection to reality ratio or the PR ratio (!), is one of the worst for 500 companies we have records for. That says a lot.

Investors at this stage were still buoyant - still believing the PR issued that 'next year will be a very exciting one for Crowdcube'. You can take any year, the PR message is the same. Jam tomorrow.

By 2016/17 Crowdcube was burning through over £8m a year. They put their commission rate up from 4% to 7.5%  but they were no way near to raising the required £100m plus per annum to get to break even. Despite the PR, their accounts will show more massive losses for 2017. Their backers are deep pocketed but there will come a time when they stop filling in ever larger holes. 

And here's the rub. They are now running out of time. With no exits to talk about and investors becoming far more vary of the sorts of manipulation they have been guilty off, the funding for businesses is not growing at the required rate. We dont think they will ever get to BE. How many times can Luke say that next year is the one? We have a queue of failing companies on our radar - all funded via Crowdcube. Yes there are some we would expect to make a good exit but by the time investors have been diluted 6 times and had their 'rights' rewritten, what return they will is questionable

Their latest ploy is a good one - partnerships with various related companies outside of London. So for example a partnership with Scottish solicitors Harper Macleod is expected to pick up Scottish business. According to their own PR, this will double their deal flow. Well it may increase the number of attempted pitches, but will it really increase the investment stream - they only make money on completed deals? We doubt it - it has come too late. Harper Macleod may not have done much research into Crowdcube. They fell for the PR. Their clients wont be pleased.  Investors we speak to have moved on to other platforms, ones that take a much more professional and holistic approach. This is the way forward. Crowdcube fund you and ditch you - investors have to look after themselves; the platform takes zero responsibility for the information it publishes. Which is fortunate, as they might have been sued otherwise. But that model simply doesnt work. Investors tell us this and the number of failures and zombies funded via Crowdcube endorses it.

The only answer for Crowdcube is to get at least one large exit - a X10 job. And it has to be in 2018. They have lost their first mover advantage and in the hands of Darren and Luke it turned out to be a disadvantage. Funding hopeless companies using fantasy projections is never going to create a sustainable business - for anyone. Even with S/EIS. 

There are one or two possible exits. One has a targeted IPO for this year but Crowdcube were only involved in a very small way - Seedsr will get this credit. Others have 'exited' early, much the same as Camden, forcing CC SHs to sell up and greatly reducing their returns. Many have gone bust or are doing nothing. The return is very poor. You cant hide that forever, even by mixing in bondholders percentages. 

Having bigged themselves up so much for 7 years, it looks likely that Darren and Luke will be hoist on their own petards. When people told them that their model wouldnt work, they would have done well to listen.   

Who ate all the Pies?? Crowdcube bond raiser Square Pie goes into administration

This is a first for the failing Crowdcube platform - their first bond issuer to go bust taking with it £665k of investors cash.

We warned you all about this happening when they were raising the money - when will you listen?

http://fantasyequitycrowdfunding.blogspot.co.uk/search?q=+square+pie

There are no details at CH but this article confirms the collapse - https://www.birminghammail.co.uk/whats-on/food-drink-news/square-pie-grand-central-closed-14260512

So days after we published a warning about the health of the other major bond raisers, what we thought and what Crowdcube told everyone wasnt possible, has happened. 

What a total shambles. This comes at a time when the PR mania coming out of the Crowdcube office has been geared up. That's embarrassing. Square Pie ran 6 units, 5 of them were loss making. Was that in the bond offer documents?

We will bring you more on this once the documents are filed at CH. Looks like the simply ran out of cash and had had cash issues for a while. Long enough maybe to make the Crowdcube bond a scam? KPMG are in charge of the mess - is that a good thing? 

Square Pie and the mystery of the Disappearing Restaurants

When Square Pie managed to get £650k off 324 Crowdcube punters for their 4 year mini bond in September 2015, they promised mass openings. Now in October 2017, they have fewer restaurants than two years ago.

We have given these guys some previous coverage - here

The original target for the bond was £2m but that soon looked untenable so they reduced it to £450k. That was a dumb idea. Then they had 6 restaurants in London, now they have only 3. Plus one in Birmingham.

In lieu of restaurants, they have teamed up with Vue - the cinema operators - to offer a pie selection to film goers. They have one Vue in London and one in Bristol. 

The last accounts to YE Dec 16 will not have thrilled SHs - a loss of around £300k against a projected profit of £75k. It is hardly surprising given the change in company's core strategy. 3 of the London restaurants from 2015 have now closed - which strikes us as very odd considering what the Crowdcube pitch said about them. The 2015 pitch showed the company operating 12 restaurants by YE 2016 - with 20 by the end of this year. 

So now they have joined The Eden Project and Riverside to see who can be the first Crowdcube mini bond funded company to fail to repay investors. Square Pie have little cash and now new investment this year. Their reviews remain poor. I wouldnt bet against them.  

Dark clouds Gathering - Square Pie cant round its numbers

Square Pie, a restaurant 'chain', took out a Crowdcube bond for £655k in 2015. The bonds are the safe investments on this platform - aren't they?

In the documents presented to investors, which are declared verified by Crowdcube, the company said it would have 20 units operational by end 2017. Today at the back end of July 2017, they have 5 only - which is the same number they had when they promoted the bond in 2015. We warned you all about this company here 

Instead of small profits the company is still making good losses - over £200k for YE Dec 2016. It's well backed by equity capital but the cash looks a little shy.

It also appears the bond, which was issued at 8% pa over 4 years, has an administration and interest charge for the YE Dec 2016 of £120,559. It's not clear who is paid this as the interest for the year to investors would be only ~ £52k.

Reviews reveal the potential problem - the pies are not very good. Their restaurants range from 2.5 to 4 out of 5.

It appears that the new frozen pies in Sainsburys, placed in April 2016 - 

https://www.thegrocer.co.uk/buying-and-supplying/categories/frozen/square-pie-to-launch-frozen-range-into-sainsburys/533902.article 

have gone down a storm and been delisted on the back of 3.1 ratings.

   

The company declare in the accounts that they will be back in 2017 for more gravy from the Crowdfunding train. Watch this space.

Square Pie bond close to its target

Sometimes reality just disappears.

Square Pie have just completed a mini bond raise on Crowdcube. But it isnt quite that simple.

The original bond was for £750,000. The pitch did not go well and by the end of their time, Square Pie had only managed to raise just over £300,000 - less than halfway. So as usual on Crowdcube they 'extended' the pitch, but this had little effect and the amount raised remained below £400,000.

Then in a new development for this platform, the amount being raised was suddenly reduced from £750,000 to £450,000. No new financial projections were produced with this reduced capital and questions about the legality and prudence of such a move on the pitch forum suggested that this may not have been a wise move. Square Pie's CEO had said publicly that if £750,000 was not raised then nothing would be. We expected the pledged money to disappear.

Well blow me down, the pitch closed yesterday with £680,000 raised - another £280,000 more than when the total was reduced. Why?

We havent got a clue - the terms were the same, the financial stability of the company was considerably worse and there had been no explanation. So why did punters who would not put money into the orignal bond suddenly jump in with an extra £280,000?

If anyone has any clues we'd love to know.

Square Pie reduces its mini bond raise

Square Pie are the latest Crowdcube pitch to change the rules.

They launched an attempt to raise much needed cash via a mini bond to the tune of £750k.

The pitch has been struggling for a variety of reasons but one of the main ones was the lack of confidence that investors would see their money back at the end of the bond period, or their regular dividends. The company had extended the pitch and still there was very little activity with the bond only being half fulfilled. It was never going to complete.

Now they have reduced the amount of money they need - to the amount already raised. Eh? Yup so they have completed. Eh? They dont need the extra £300k they did need only weeks ago. Eh? But the good news is you can still take them to £750k using Crowdcube's old friend over funding. Eh?

We love the way they have worded their announcement - '' We have all deciided to lower the amount that we are willing to close the bond at.'' Eh? You were not going to get close to £750k so you have simply fudged it to ensure you do get £450k. 

Only weeks ago, the head of the SP pitch when asked what would happen if £750k was not reached stated that the bond WOULD NOT GO AHEAD. I hope the fillings are more substantial than their responses.

If we have a word of advice for investors in Square Pie its Run Away..............