Sunday, 9 August 2015
The increasing strength of the Crowd
In the past few months quite a number of pitches on Crowdcube have been forced to revalue their offer. Why, well because the crowd told them to and in the end they would have left empty handed if they had not. Some have been forced to offer another 20% of their equity to raise the funds.
So dont just give in to the usual clap trap you hear when you question a valuation - you know like its difficult to value a start up but so and so and such and such recently sold for £x million and we consider ourselves to be similar. Leave them to stew in their own stupidity and they will eventually be forced to react or leave with nothing.
This trend is partly a consequence of Crowdcube pushing companies to promote high valuations and partly the Crowd realising it can derail a pitch if it chooses. It will only increase as more and more new pitches pitch with more and more ridiculous valuations.
Watch out all you entrepreneurs if you come to an ECF platform with a high valuation and no room to lower it - like Mara Seaweed currently. They pretended to be raising £500k on their Crowdcube pitch but in fact £300k had already been raised beforehand.
Now the Crowd are telling them the valuation is way too high but as 300k has already gone in at that rate, it may not be possible for them to adjust. Had they been a little more honest and pitched for £200k then they could have renegotiated the deal more easily. So with half the pitch time passed, they appear to be doing well at £365k raised of £500k - but this is in reality only £65k raised of £200k.......... a ratio that at the halfway mark more often than not leads to failure.