Hands Off Crowdcube approach for Sugru disaster.

We have a copy of the email sent out by Crowdcube to investors in Sugru, the day after we broke the story. Crowdcube valued Sugru at £33m in May 2017. It was sold for next to nothing last week and left shareholders with losses of 91p in the pound.

Firstly thanks to the sender.

We post this here becasue we are not convinced Crowdcube's advice is correct - maybe you would like to comment?

As usaul if you want any advice, Crowdube tell you to go away and get it somewhere else - they cant afford to pay a serious legal team to advise investors. I love the way they don't even have a considered opinion of their own - they push it all onto Smith Williamson - their in house financial advisers. As if you havent lost enough, now Crowdcube advise you to pay for independent legal advice as well - that's real service for you. Whatever you do, dont use Smith Williamson. 

Here it is - 

What impact does this have on EIS?
If you have claimed tax relief from HMRC through the EIS scheme, please note that you will not have reached the full three year period of ownership required to qualify for full relief. 

FormFormForm Ltd has been advised by financial group Smith and Williamson, that if you have claimed EIS tax relief for your investment, you should anticipate having to refund a proportion of the relief to HMRC, based pro-rata on the duration you have held the shares as a proportion of three years. In some cases, shareholders may be entitled to some relief on the loss suffered. However, you will need to seek independent tax advice relevant to your own unique circumstances.   

Mr Sherick Shakes it all up.

So here we are again. Mr Shericks takes £250k off Crowdcube investors, spends it, liquidates and the founder Andrew Jonathan Sherick reopens using a company he registered just in case - Shericks Shakes Ltd and then to make sure, changed its name to Luxury Shakes. 

We wrote about them before but took the post down as Andrew Sherick claimed he was trying to gift CC SHs free shares in the newco. That has not happened....yet anyway. 

Meanwhile the original version, in liquidation, looks to have piled up around £600k in unpaid liabilities, including trade creditors. 

We really do need to take a look at the way the law operates in this area now that EFC is around and here to stay. It's a shambles as it stands.

Was Sugru's Bank loan covenant breach declared in the 2017 Crowdcube pitch?

We find if you keep on digging, the truth will out. This maybe a new piece of it. 

Thanks first of all to our anon comment pointing this out.

Sugru filed its YE Dec2016 accounts late, in Dec2017. When they pitched for the last time on Crowdcube in March to May 2017 and took another £1.9m off Crowdcube investors, the company and one assumes Crowdcube, knew that they had been in breach of their loan covenant - as stated in those filed accounts. This loan was with The Clydesdale Bank and it was the extended portion of this loan being withdrawn and the main portion being listed as due within 12 months, that forced Sugru into the fire sale. It is impossible to think that Crowdcube, with its own due diligence, did not know this fact. If they didnt, then that has be gross negligence and if they did, it is something far worse.

As pointed out by the anon comment, a breach of a bank loan covenant is a very serious incident. We can see the consequences here. So for this information to be hidden from the March 2017 investors seems astounding. If they had known the facts my guess is Sugru would have been forced to sell last year and this would have saved investors £1.9m.

We have been saying for 3 years that the accounting system in the UK is not fit for purpose when it comes to the modern age. You can easily delay accounts, hiding important information. We need a system whereby all companies using ECF as a funding channel have to declare accounts up to the time of the pitch or close to it - not sit on them and then file them 9 months later. 

If we had this simple change - this fiasco would have been partly avoided and investors and HMRC would not be looking at another £1.9m in lost money. 

Hilarious letter to Sugru shareholders from Jane Delahanty.

In an acutely embarrassing letter to Sugru shareholders, the Founder, Jane Delahanty, tries to dress up as a pixie bringing good news.

As with so many Crowdcube disasters, the Sugru story is rapidly taking on the elements of a farce.

The letter sent to shareholders starts of by telling SHs that the company has been sold to one of the worlds leading etc etc. Then the next paragraph starts -

''The difficult news is the low price being paid for the company.''

I know the Irish pride themselves on their sense of humour but please. There is no other way of putting this - shareholders have been royally screwed and the founders have come out of it smelling of roses. It is essentially a collapse not a sale - 91p in every pound invested has been LOST. That is not a low price; its next to zero. 

Like their grossly exaggerated sales figures and their grossly exaggerated valuations, Sugru in its last dying gasps serves up a grossly misleading statement. All with that Irish smile and pixie glint. To be sure. 

Crowdcube - what a week that was!

Despite the very recent fiasco with Sugru and yet more large losses filed by Asio Ltd (Chirp), Crowdcube has helped Adzuna raise another £8m and Freetrade another £3.1m all in the last 7 days.

Our only surprise is that along with Louis Litt and Mike, Darren was not to be seen at the Wedding.

Both of these raises were entirely or largely carried out in the private mode, with Freetrade taking in £2.5m before opening out and Adzuna, using 400 Crowdcube investors, never appearing on the public site.

Still the crowd has had chances to invest in both, through the public site and was enthusiastic in doing so - we just have to to see if the virtual value that these companies have created becomes a reality or whether more funding indicates a situation more akin to the Sugru one. A massive shortfall in revenues leading to a fire sale and the loss of investors £5.5m. There was little warning with Sugru, we had a heads up from inside Crowdcube, so we'd expect there to be little with any new disasters.

There has been an assiduous radio silence from Beauhurst on their misuse of CAGR for working out investors 'returns'  - only relying on next round valuations for their data. We would have thought the very obvious hazards in this method, so clearly shown by Sugru and few other recent collapses, after up round fundings, would have led to a statement? Maybe the FCA should look at redefining 'misleading'?

It's a crazy world out there - take care. 

Sugru debt facility WAS dependent on sales targets

For those wondering why the bank pulled a further £1.5m debt facility on Sugru, with its resulting fire sale for 9p in the pound, here it is.

The company had this note on its Crowdcube 2017 raise - you had to download it to see it as it wasnt in the main text.

Clydesdale Loan The Company has a £3.5 million loan facility from Clydesdale Bank PLC (“Clydesdale”), of which £2 million was drawn down in November 2016. The agreement for this loan includes the following terms:  A further £1.5 million may be drawn down from October 2017, provided the Company meets certain revenue targets. 

Now the obvious problem with this is, the company assured investors that the sales figures were doable - but did they really know that they were not. The outcome has been so far off the mark that you do have to wonder. It would not be the first time a company has come back to Crowdcube and asked investors for more cash when they know it is the last throw of the dice.

  

Is someone lying here? Sugru Debt Facility - was it secure or just an option??

We are on a very sticky wicket here. Sugru's 2017 Crowdcube raise told investors that a debt facility was in place. No ifs and no buts  - it was secured.

If that is the same facility that after the Crowdcube £.15m raise, fell through and which led to this situation, then the facts used in the Crowdcube pitch were very misleading - if not negligent. Does the FCA have the powers to check this. Are you kidding. 

Come on Sugru and Crowdcube lets be having some real facts here - no more crocodile tears and no more PRing, please. Investors have lost £5.5m; the least you owe them is honesty.