Thursday, 24 September 2015

A very sophisticated Crowd

A lot has been made recently about the quality of investors that are getting involved in ECF. Ok so most of this is the usual platforms' PRing, but there have been instances of 'research' that purports to show the average investor is putting in over £2000 which must mean they know what they are doing. Of course using data provided by the platforms themselves rather negates the veracity of these findings.

Our purely empirical research, no Pring added, shows a different story. We have had various emails from investors in ECF who have wanted to get their money back, asked if we would buy their shares and wondered why the FCA sanctioned this type of promotion.

If you read some of the forums on the platforms you will find questions such as:

''I was an investor in round one of this company, so will my holding be diluted by this new round?''

''When will you start paying dividends''

''How much money will I make''

''What happens if you go bust''

''What are preemption rights''

''I wanted to give these shares as a present - will I get a share certificate''

''What is the difference between A and B shares''

''When will I get my rewards'' ( in an attempt to make it easier for small investors to get involved, pitches offer rewards as with the original Crowdfunding).

You get the idea.

Our guess and it can only be a guess, is that there are some sophisticated investors but the majority are just punters who have no idea what happens when a company issues new shares, have no idea about dividends and some who even think they can sell their shares. How many investors in say Crowdcube pitches know about their standard drag along clause which will, as in the case of the only exit to date, force minority shareholders to accept the will of the major holders?

We have had comments along the lines of '' We dont mind if the company fails, we have had a 50% rebate via SEIS and lots of perks that make up most of the rest''. 

So what we seem to have here is companies who often do not know how to create a realistic financial forecast, selling to punters who do not understand what they are buying, all promoted by platforms who want to make money.

Just as a Thursday aside, we see that Zero Carbon Foods (Growing Underground) have stated on their forum that will NOT need to raise more money in the next three years - how often have we seen that post on Crowdcube!

ps - new post on the Brewdog pitch asking how much he would own if he invested £100. He clearly has no idea how shares work or even the basic maths to work out the valuation of the company. Point proven. 

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