Thursday, 9 April 2015
Crowdcube failures are a bit like buses - you wait a year and then .....................
Kinopto Ltd, a cinema technology start up, is the latest Crowdcube ECF business to file for closure. The business was set up in 2011 and funded on the Crowdcube platform in Winter of 2012.
Its annual return and accounts are now overdue and Companies House has it flagged as 'proposal to strike off'.
The tsunami of Crowdcube funded business failures is ready to burst - as we predicted.
It strikes us that the rise of ECF has led many SME start ups to do just that - start, knowing that they can help themselves to free cash. Failure to meet projection figures will not result in any sanction - they just lose other people's money if the business closes.
Hop Stuff has just posted its yr1 accounts. The Crowdcube projections are as usual for slightly different dates but in any case, the loss made in reality of £37k is a long way off the projected profit of £96k, when you consider what a very small business this is.
You cant blame the guys for trying - they were told by Crowdcube to push optimistic forecasts. The equity wouldnt sell otherwise and Crowdcube would not get paid.
You do have to question just how sensible it is to encourage small business start ups to over estimate their initial sales. If you read this blog, you will see that we have many examples of the same thing. Where is the FCA? Why is this Government encouraging the misuse of tax payers money through EIS and SEIS income tax rebates?
Wednesday, 8 April 2015
Yet another Crowdcube funded business has closed its doors. Green and Pleasant run by 28 Broadwick St Ltd, has taken and spent the investment and closed.
This is what the Crowdcube site says about Green and Pleasant - under the heading ''It's looking Green and Pleasant for 2014'' -
Plans for 2014
Fleur and Jamie are delighted at the success of the project so far and have recently recruited Hugo Scott Russell from Home House to join the team. They talk with real excitement about their strengthening relationship with Freedom Brewery who have now become stake holders in the business. Located in the Trent Valley, Freedom Brewery have set a goal to reduce their carbon footprint by 30% with plans including building an ancient reed bed filtration system and wildlife set-asides. There are also big plans afoot to help save the honeybee – hives will be installed in the set aside making honey to eventually be added to Green & Pleasant lager!
Supportive of emerging creative talent, the company is keen to shine a light on Britain’s design future and craft tradition by sponsoring emerging artists. A project close to their hearts ‘The New Craftsmen’ a Mayfair based business curating the very finest British traditional crafts, encouraged by Fleur is currently pitching on Crowdcube to fund their relocation to a permenant home in Mayfair. No doubt the opening night will be celebrated with Green & Pleasant beer!
Having raised their funds with Crowdcube, Fleur is a real advocate of the crowd funding industry and she regularly meets with start ups to encourage them to engage with the process. Managing numerous investors has never been an issue for the company; a conscious decision was made when the funds were raised that they would embrace the number of shareholders that the crowd funding round presented them with, considering them assets to the company and ensuring that they had a role within the company as brand ambassadors. They were also keen to ensure that all investors would be treated equally, regardless of the amount that an individual had invested, and everyone’s views are taken into consideration when decisions are made.
This ethos has worked well for the duo. A great example is the case of one investor who invested £10 and was in regular email contact with Fleur and Jamie. At this point many people could consider ongoing email communication with someone who “had only” invested £10 as a drain on resources, however, as a result of Fleur and Jamie’s respect for all their investors and listening to what they had to say, this particular investor has now invested a further £4,000 into the company, this time as a gift for family members.
Recently the company raised another £80,000 through their own investor base to put into promotion and marketing, ensuring that the company grows and continues to flourish.
We wish Green & Pleasant the best of luck for 2014 and are looking forward to sharing their success with all Crowdcube members.
For those of you who want to sample Green & Pleasant for yourselves, you can now buy it online. Go to the newly launched Freedom Brewery website.
Yet another waste of investors' £130,000 and HMRC money. When will the FCA wake up?
This business was never going anywhere. We looked over the original business plan and having posed some questions on the Crowdcube site about its inconsistencies, we were as usual removed from the site. As a result more than 50 investors have lost all their money - not to mention the unpaid creditors and the SEIS tax scam.
As usual Crowdcube will not carry this 'funded' business on their site once they realise it has closed. They have been paid so they care not what happens afterwards.
Tuesday, 7 April 2015
Beer52 is a online craft beer subscription site run out of Scotland. It has taken the internet and the upsurge in craft beers to create a new demand.
In January 2014, Beer52 raised £100,000 on Angels Den. This ECF platform purports to be different to others - but we will go into that later.
The pitch has all the usual misinformation you might expect from an ECF platform. It states that year one will deliver a NP after tax of £316,000. This allows for the usual ridiculous company valuation. Year1 filed accounts now show a loss of £86,000. So a difference of ~ 450% on their projections.
Looking in more detail at the pitch plan, there are some obvious reasons why they have missed by such a large margin. As with a few other ECF pitched businesses, strangely run by the same people, Beer52 launched with a Groupon heavy discount deal. This was a Christmas deal and as you might expect was jumped on by bargain hunters.
In the plan it all appears rather differently. The plan states that they had 6,500 subscribers in their first 3 days and sold 30,000 bottles in the first month. No mention here of the Groupon deal. Its uses these figures to extrapolate its Yr1 projections - the ones it has just missed. Groupon is not a sensible way to up your retention rate. We all know that.
This technique was also used by Flavourly.com, who funded on Angels Den and then Crowdcube, after their results missed projections. The Flavourly.com founder is an 'advisor' to Beer52. So I suppose we can expect to see Beer52 on another ECF platform anytime soon.
What Beer52 dont tell you is that for them to be able to offer these beers at a good price, they have to deal mainly in bin ends - lines that the brewers cant shift. Subscribers will not hang around for long to put up with this sort of con.
So how do Angels Den fare in all of this? Well the platform has had a number of successes - successful funding that is. It claims to have a 90% rate of funded businesses still active. Well ahead of the sector norm, it proudly declares. When you look into this claim, it proves to be totally spurious. The platform has only been funding businesses for just over a year - so its is hardly surprising that few have gone bust. It took Crowdcube almost 2 years to see its first collapse. It is just another example of the ECF platforms' desperate attempts to sell themselves.
As a footnote Angels Den seem to have a large number of pitches that have either raised money on other ECF platforms or worse have failed to raise money on other ECF platforms. It appears you can do the circuit now, selling your wares to first idiot willing to buy.
Bank to the Future are still peddling this nonsense -
When will the FCA take a stance on conmen? The pitch had run it course and failed to raise the money. So the platform just extended the pitch for another 3 months. What is the point in putting a time on it? When in 3 months it has still failed, they will extend it again - unless the FCA get off their behinds. It makes you wonder if this Spanish business is for real when they seem to have an unlimited time to raise their finance. We know Bank to the Future is a con.
Monday, 6 April 2015
Crowdproperty.com have sent us two emails about their new crowdfunding property investment business. We came across this company when they pitched for funding on Bank to the Future - alarm bells ringing already.
The first email started out - ''Did you know that if you made your money work at 10% you would double your money in less than 7.5 years and quadruple in fewer than 15?''
In fact most people will realise that to double your money at 10% it will take 10 years at a flat rate return. They offer a flat rate return. Quadrupling it would take 40 years and so on.
The latest sales pitch email arrived a few days ago. Now they are claiming - '' CrowdProperty has also been approved for SIPP & SSAS pension investments. If you would like to know more about this please visit us at www.crowdproperty.com and fill in the form on the pensions page to receive further information on how.''
Their website has no such approval and an email asking them to confirm just how they have this approval has gone unanswered. Our research shows that all but commercial property is liable to heavy taxation if put through either scheme.
So please, be careful out their.
There is something odd about a current pitch on Crowdcube - Wrap it Up. They are looking for £400,000 for 6.25% - so valuing the company at a mouthwatering PV of £6.4m.
Wrap it Up Ltd has been closed and Wrap it Up Holdings is owed £1.1m by this closed company. They both have addresses related to the current pitch. How this sum is allowed to appear in current debtors on the balance sheet when it is noted as a long term debt is questionable - but then the accounts are not audited.
According to the WiU website, the company is run and owned by World Gourmet Restaurants Ltd - set up in 2009. According to the current pitch on Crowdcube , this operation turned over £2m in 2013. The accounts do not reflect this although it is impossible to be sure. There are a whole group of sole traders listed as Wrap it Up whose addresses correspond with the units listed by World Gourmet Restaurants. World Gourmet Restaurants Ltd last filed accounts showed a current debtor for £76,000 as 'cash deposits' for securing leases. Again as with Wrap it Up Holdings, this should not be in the current assets. The accounts are unaudited. In these accounts there is no company structure to suggest a legal connection between the sole traders and the World Gourmet Restaurants.
The Founder of WiUP and World Gourmet Restauarants, has a good list of closed companies. Not quite a cricket score but certainly getting there.
Wrap it Up are listed on Trip Advisor at 3.5 with only 23 reviews - a small number for a company that has been trading for 8 years. As 6 of these are 'poor' and 'terrible' they clearly have some work to do. The accounts show 4 years of trading with losses for all 4, accumulating to just over (£200,000). Where does that leave a current valuation of £6.4m??
The company has had £125k pledged to date but £100k of that is from one investor. As usual on Crowdcube, this we are sure would have been an prearranged deal so 'nout to do wit crowd'.
We think that companies pitching for public money on ECF sites, whilst also benefiting from EIS and SEIS tax rebates, should be required to produce at least one year of fully audited accounts. Crowdcube's due diligence has been shown time and time again to be mere window dressing; so something needs to be done.
In the summer of 2013 Hug and Co raised £35,000 on Crowdcube. They sell all things baby; except baby. Or they used to. Woopsie!
Today their accounts are over a month overdue and their website (as promoted on their FB page) http://www.hugandco.com/ is a dead end. Their FB page has only 3 entries over the past 12 months.
So is this yet another Crowdcube funded failure? If this company is still active, then they need a few lessons in communications in this modern era.
Friday, 3 April 2015
The failure of Bubble and Balm is a classic tale of ECF. The company was the first to raise money on Crowdcube in 2011. £75,000 for 15% of the company. By summer of 2013 its had closed; owing creditors several hundred thousand pounds.
Bubble and Balm had won a business award and grant from BT and had professional financial backers. Before it pitched on Crowdcube, it was listed in at least one major chain store. Its growth, since its creation in 2009, had been steady and well thought through.
The company's greatest mistake was using Crowdcube. Enthused to promote the company at a present value of £500,000, sales projections for the next three years showed rapid growth. They had to. As only in this way, could the current valuation and promoted ROI be justified. The presence of professional investors - a minor VC company and the BT award helped credibility.
So what went wrong so quickly.
It was a classic case of cash flow. In business cash is king - like water for humans, business cannot exist if its cash runs out. Bubble and Balm had relied heavily on a new listing with a major retail chain to build its projections. When this listing ended, they simply couldnt pay the bills. Its a very old tale - large retail chains have a habit of trialling new products from small suppliers and then recreating them in own label.
So a business that could still be going and growing, vanished, taking with it investors money but also more importantly, creditors dues. This would not have happened without the help from Crowdcube. The requirement to over value a businesses to justify the equity price leads directly to unusable and very dangerous business plans. If new funding isnt available when the sales fall way short of predictions, it's curtains.
Another and much larger Crowdcube 'success' Righteous, had exactly the same problem. It used a new contract with a US buying house to up its value and raise a second round on Crowdcube (having failed to meet its first round expectations). This contract lasted all of one shipment; the product was slow to move and it was cancelled. Righteous has still to get anywhere close its predicted sales and profit figures.
Shortly after the Bubble and Balm collapse an article appeared on the Syndicate Room website - https://www.syndicateroom.com/blog/bubble-balm-went-bust-so-what.aspx. Its worth a read as it explains how platforms like the Syndicate Room, which combines the Crowd with VC investors, help to avoid this type of failure. Unfortunately Bubble and Balm did have VCs on board. It also goes on to say that investors could avail themselves of EIS and SEIS tax rebates, so their loss would be minimal. Shame really that it doesnt recognise the very obvious failure in this logic. If the investors are not paying the full amount invested - who is? The answer is of course - all of us who pay tax in the UK. So it does matter.
Thursday, 2 April 2015
Red Advertsing Ltd has raised over £1m in the last 3 years - most of this through Crowdcube.
The latest accounts for YE May 2014, have just been filed. They show a negative balance sheet with accumulated losses of £1.15m (£500,000 for 2013). Projections produced to sell their equity on Crowdcube, predicted profits for 2014.
Red Advertising have raised money on Crowdcube 3 or 4 times; we have lost count. They were lauded back in 2012 and 2013 as one of Crowdcube's great successes. Each time they have raised more money, questions have been asked.
At the last Crowdcube raise in 2014, the founder stated that this funding round was being backed by a venture capital company. When pressed, he stated that this VC was called Johnson Capital. He went on to state that Johnson Capital had carried out very thorough checks on their projections and that they were the only CC pitch that had a VC as a backer. So this investment, backed as it was by professionals, was far more secure than most. The problem is Johnson Capital run by Veera Johnson, is not a VC. Its a financial advisory company whose accounts are so small as to be almost invisible.
In 2013 at the second or maybe third CC Red Advertising raise, the founder was asked a very straight simple question by an existing shareholder. Will this be the last raise of capital? He received a very simple straight reply ''Absolutely the last call''. After a brief explanation as to how things were looking up, the founder rounded off his answer with - ''This is the last call and the last chance to acquire shares in Red'. 8 months later Red Advertising was back on CC raising £400k using the VC story mentioned above.
When we asked them about the 2013 'last call' statement, we received the usual excuses but also a statement that this time it really was the last time as the company aimed to be sold by May 2015 - ie next month. We look forward to that. According to the latest accounts, the directors of Red are happy to call this business a going concern as they have, since May 2014 issued another £150k in shares. So yet another raise - not on CC this time. Maybe CC thought this 4th or 5th round would be simply too much of a peetake.
During this whole sorry story, CC continued to take their commission - 5% on approximately £800k and continued to support what are now clearly shown to be unfacts. Johnson Capital was never a VC and is certainly not a company of any substance. Financial projections were so wildly off target as to be worthless and simple answers to simple questions from existing shareholders have turned out to be untrue.
An interesting footnote to this case is that in 2014 when they were raising £400k on CC, Red were simultaneously raising the same £400,000 on Syndicate Room. When we pointed this out to Syndicate Room, they removed the Red pitch from their site immediately, siting the fact that Red had claimed to be EIS registered, when they were not. Asked why the Red Syndicate pitch had been removed, the founder of Red replied that he had made the decision.
As so often in the UK with ECF, the facts are very hard to find. Misdirections and in some cases plain untruths, keep cropping up time and time again. Instead of Dragons Den, Crowdcube should really be using the National Lottery as a comparable risk reward illustration.
Wednesday, 1 April 2015
According to all the PR, ECF was invented in the UK in 2011. Again according to all the PR the UK is largest proponent of ECF in the World.
Why is it then that the Australians have had The Australian Small Scale Offerings Board (ASSOB) for the past 8 years. ASSOB has to date enabled $142m of investment to go to its companies - more than all the rest of the world's ECF platforms put together.
Looking at the ASSOB site and say Seedrs or Crowdcube in the UK, there is an immediate striking difference. Seedrs and Crowdcube have all singing and dancing platforms. Sexy and enticing - come on, they implore, 'Try Me'. ASSOB would be considered staid in Belgium, let alone brash Australia. It has a very measured approach, no gimmicks. They wouldnt do the Crowdcube style, London Underground ad campaign - its businesses, not some lingerie they are promoting. To prove the point they have a secondary market for their businesses shares - try that with underwear.
Looking in more detail at their conditions for pitching, the differences again are stark. ASSOB really do vet the businesses before they pitch. Businesses have to pay a fee to pitch , so ASSOB is not wholly reliant on completions for its revenues. This up front fee also deters the sort of punters who can been seen pitching on the UK sites - in the off chance they can fool enough people.
The UK sites deal with the pitch and then the business is added to the list of 'successes'. The site then moves onto the next pitch. They only deal with that business again if they want to raise more cash. ASSOB have a system where pitches sign up to provide quarterly managements accounts so that their progress can be tracked. Many businesses in the UK, funded through Crowdcube, will take the money and not report to shareholders until their accounts are filed. Under the UK system, these are more often than not small accounts so they tell you very little - just a basic balance sheet, which by the time it is filed is at least 9 months out of date. We have examples where even these accounts have been shown to be incorrect.
Surely the system would benefit all if it had reporting systems that were more open and clear. ECF PR claims that this is what ECF in the UK is trying to do - democratise SME investment. Well it is not working. Businesses are being enticed into using their business plans as equity sales pitches.They are missing these projections by very great margins. They are going bust or trying to raise more cash to fill the gap. Investors are seeing no returns and with every new raise a diminishing likelihood of any.
Cut the PR and BS. Take a lesson from ASSOB. It isnt perfect but it does at least have a track record. It has avoided the worst excesses of the UK's ECF propaganda machine. It has achieved all of this without the sugar coating of the UK Government's EIS and SEIS tax rebate schemes. It might be a hard lesson but surely we need to learn it before we end up like the England Ashes team.