Saturday, 29 April 2017

FT gets it all wrong on Crowdfunding bonds

A recent article in the Financial Times is wholly wrong about the Crowdfunding Bond - but good to see they read our blog!

You would expect journalists with the FT to have a higher standard. Aime Williams' piece on Brewdog here  makes you wonder.

She is right in her interpretation of the recent 2800% ROI for round one investors in the Scottish punk brewer - it is not a 2800% return as we pointed out sometime ago here. She is wrong in the description of the TSG deal - out by 100% on the money paid.

But the misinterpretation of how the Crowdcube bonds work is not so good. To claim that people would be better investing in shares - which as we all know have no market - when they can invest in a short term bond at 8% is hard to explain. And she doesnt try.

Whilst the bonds have no security, on the sort of life span that they have and with the background of the sorts of companies that have issued them, they really dont need any. Take for example the bond issued by the River Cottage Group, also on Crowdcube a few years back. River Cottage have missed all of the targets the financials for the bond projected - they are not doing well enough to generate the spare cash to repay the bonds. They are, however, doing well enough to pay back the bond holders, as all they need to do is use their brand to borrow more cash when the time comes. They are not going to default in the bond as this would almost certainly mean the end of the business. There is your guarantee. Meanwhile you are getting your 8%. Shareholders get nothing unless the company IPOs or is sold. Their shares are worthless bits of paper in reality.

What Williams has ignored, is that bonds are only issued by companies of some substance and with a track record. They are not issued by start ups - which is where the equity side comes in. They are not issued by start ups for the simply reason that people wouldnt buy them. Her reading of this situation is simply wrong - and surprisingly so. Its seems pretty obvious to us. Bonds offer a good return for a lower risk, over a set and usually short term. Equity, as Crowdcube run it, offers god knows what.

It is not a question of either or - both offer totally different outcomes for totally different reasons. The implication in the article and its heading that people didnt realise they were buying bonds is very odd. 

Friday, 28 April 2017

Redchurch pitch shows Crowdcube dont listen.

Redchurch Brewery raised £500k last year on Crowdcube at £2m. Having missed all their targets and burnt their cash they are now back for another £400k at £5m.

What is it Crowdcube dont understand?

Redchurch may well be a class brewer but their business management is taking the P. They have managed around 50% of the projected sales in the 12 months since they were last here. Do they understand that these figures dont work inversely? You cant half your turnover, increase your losses and then more than double your valuation. That only happens in politics.

Whether on advice from the Crowdcube interns or not , common sense dictates that the company cannot be worth 2.5X what is was 12 months ago. The company even admits that sales have been slower to take off than they anticipated. So why the increase?

What makes it even more ridiculous is that the projected figures for 2015/16 are also miles out when set beside the filed accounts. And they were mainly actuals in the 2016 pitch. YE June 2016 showed a filed loss of £170k against a 2016 projected profit of £1000. You simply cant believe what they say.

From the comments on their forum, it's clear investors are not too happy. Nor would we be. So as not to alarm last years intake, they havent produced any detailed figures in this new pitch. Wonder why?

Thursday, 27 April 2017

Podpoint signs deal with Savills

Podpoint, which has raised on both Crowdcube and Seedrs, has now signed a deal with Savills, who manage 75 retail parks in the UK.

It's still early, but this deal could be a major break though for Podpoint, who have till now struggled to deliver on their targets.

The deal is for Savills to be 'encoraged' to place the recharging units across their retail parks - so the outcomes are vague. But it has to be a step in the right direction. 

Solarmass losses half its volume

Solarmass funded on Crowdcube back in 2014. It has failed to live up to expectations. Now one half of company has left.

We wrote about them here a year ago as they seemed to making some progress. Luke Lang got very excited about it all. It's one of the Crowdcube companies that hasnt closed but hasnt done much else either. 

For one of the two co founders to have just resigned, you have to assume that the company isnt really going to make it. 

One footnote - any company that uses TM in an attempt to make you think they have some legal ownership of their brand is not worth bothering with. 

Wednesday, 26 April 2017

Farmdrop to expand outside London with £7m of new cash

Farmdrop raised £750k on Crowdcube in 2014. Now with over £11m invested in the company since, they are finally ready to launch outside London.

According to the 'simplistic' (Crowdcube's own term for their projections) projections that Farmdrop used on Crowdcube to sell their equity, they should now be turning over £70m (YE July 2017). According to Crowdcube's own blog, they expect to achieve £3m this year. That's we call really simplistic.

Clearly someone thinks this is going to work on a scale, as investors led by Atomico have just put another £7m into the company. We have estimated that this was at a pre money valuation of around £14m. Crowdcube investors took shares at a valuation of around £2.5m. Atomico invested another £3m last year. We estimate that on the current valuation with dilution assumed, CC shareholders have been diluted 100% but have seen the value rise by 550%. Paper value, that is. Working backwards on 10X eventual EBITDA and a 5 times return on this round (value £21m post money), the company is going to have make a profit of over £10m. At its stated 6% EBITDA rate, that means revenues of £166m. So presumably an early sale based on numbers of current subscribers is more likely. 

The company is nowhere close to break even and it seems to us that after so long in London and with considerable investment and promotions, the revenues are small. But that's the way these tech driven investments go. Build to scale and hope that the profits follow. With the rapidly changing environment we live in we'd be bricking it a little on this one. 

Trust Pilot reviews are excellent unless you check them out by dates. All of the the poor reviews are very recent, possibly suggesting a problem with upping volumes? As with Just Park, the one defining  factor that Farmdrop have little control over is the consistent quality of the produce, once they have signed up a supplier. Bristol is next - worth watching how that goes.  

Tuesday, 25 April 2017

Pallet Eater reaches for the diocalm

Perfect timing - A Crowdcube funded company shows us all how well vetted and sensible their plans are  - in reality.

The Pallet Eater was described in its Crowdcube pitch in 2014 as - 

In contrast, The Pallet Eater picks up and stacks pallets in one seamless movement, electronically adjustable to the required pallet size as required. Moreover, the Pallet Eater builds and straps a squared column every time, reducing hazards and handling costs in the process.
The Pallet Eater turns this cumbersome link in the distribution process into a seamless part of the operation which should reduce time, cost and injury.
Compact, agile and easy to use, the Pallet Eater is built upon proven existing technology. As such, the concept is simple and we will require no further R&D before taking The Pallet Eater to market. 
We were sent information recently by a shareholder in this company - Stacking Systems Ltd. This is the same company that claimed in 2014 to have a machine that 'picks up and stacks pallets in one seamless movement'. Within the information package was a video which shows the latest version of the eater in action - stacking 4 pallets. This takes the machine over 3 mins. It is cumbersome and on several occasions the pallet gets stuck. It would have taken a human around 30 seconds to stack these four  - seamlessly. 
In their most recent accounts to YE July 16, the company made a £4k loss. It has no cash and a massive intangible asset of £150k - the 'IP' for the phenomenal Eater we presume.
People on Crowdcube invested over £130k in this. The projections, you know the ones Crowdcube called 'simplistic', showed the company making over £700k in net profits for the last year and over £1m to YE January 2017. This 'machine' couldnt make 5p. 
Now we know that these things take time. But it clearly states in the Crowdcube pitch that the machine already stacks pallets.....seamlessly - that was in 2014. We have seen the video and we feared for the operators safety moving 4 pallets 2 yards in late 2016. Their statement that the Eater requires no further R&D is accurate in that it clearly has not received any R&D - ever. It simply doesnt work.
Investors deserve better from you, Darren and Luke. In a recent excuse given to The Times about precisely this sort of outcome, Crowdcube claimed our research was 'simplistic' and that they gave investors a large volume of information to help make their decisions. We assume that both Darren and Luke would have been referring to the fact that this Pallet Eater moves seamlessly around a warehouse creating beautiful squared monuments to world of pallets. The only problem boys, as in so many cases on your platform, it doesnt and they do not. Time to leave the field for the professionals.

Monday, 24 April 2017

Big time investor in start ups agrees with US

After the recent article in The Times - - we were contacted by an ex Investment Banker with some real experience of investing in start ups over 14 years. We thought we would share it with you. It's not the picture Crowdcube paint, but that should come as no surprise.

So Mr X told us that he invested over £2.8m in 12 start ups between 2000 and 2014. That is a very sizeable chunk of cash in a good variety of businesses. Mr X considers himself a sophisticated investor who knows the ways of the world. He was in the City for 24 years. 

Below is the text of his email laying out his story - 

Just read about your blog in the Times, and took a look. I hadn’t seen it before as I gave up investing in start-ups two years ago, for reasons you will see below.

Anyway, real and current evidence is very difficult, so I thought I would share my experience.
Between 2000 and 2014 I invested £2,814,000 in 12 different start-ups.

Of the 12, There have been
Two successful exits - one made 400% return, but this is 11% IRR over 16 years which is the real measure. The other 82% return in 2 years, 42% IRR, and I had to work hard with the company to make it happen.
Six total losses - most have failed pretty quickly, within 2 to 3 years.
One alive and cash generative
Two alive zombies - spinning wheels but not making or using cash One semi- zombie, good product and in seventh year but constant fundraising

If I count zero returns from those still alive but no market for their shares, I have lost £1,264,000, which equates to IRR of -14%. This is with EIS rebates, which have been considerable at £610,000. If I ignore EIS benefit, £1,874,000 has gone!

But it’s not that bad as the remaining four companies I estimate are conservatively worth c. £600,000. Let’s add that into the mix and net loss is £664,000, and IRR of -5% over 17 years.

For full disclosure, one of the total loss startups was one I founded myself and worked hard on. We burnt through £800,000 of shareholder funds (including £200K of mine). The business model just didn’t work so we cut our losses.

These investments were at what seemed at the time very sensible valuation levels. Certainly far more sensible than we see today on Crowdcube and Seedrs, where I can only describe some valuations as bonkers. So I can only assume a portfolio of investments would be even worse than my experience. My last note to investors is to avoid films at any cost - two of my total losses and one of the zombies were films. The intricacies of the film business and completely unethical practises I experienced, but which seem normal to them, stack the odds even more against investors.

We think this makes interesting reading - if only to warn people that promotions used by the likes of Crowdcube are highly misleading. You can see from this that returned are very hard and often take considerable input - something that never happens in Crowdcube funded companies.

That is not to say ECF cannot work - it's just that the Crowdcube model cant. Unfortunately The Times forgot to include in their article on our work , the fact that we offer companies looking to use ECF a consultancy service. The idea being that we help you gain the best results. Its cash flow neutral as we only charge on results. We are not negative about ECF but we can see and understand the shortcomings of the Crowdcube and Seedrs models. There are others out there trying to do a better job.