Monday, 28 September 2015

Three Ls to consider - Luke, Lang and Pinocchio



Crowdcube PRing is pumping out its usual bile  - see here http://realbusiness.co.uk/article/31537-what-does-the-first-exit-mean-for-crowdfunding

We thought that in the interests of honesty we would take some of Lang's comments and look at them against the evidence. Here goes -

''While E-Car will go some way to proving the doubters wrong, it shows a lack of understanding about the types of businesses raising finance through crowdfunding. The majority of businesses that raise funds via the crowd have a team with proven experience and serious business nous. They have a clear business plan with a keen eye on how an exit might be given and in what timescale.''

E-Car Club shareholders were forced to sell by Crowdcube's standard drag along clause. Why would they have chosen to sell for 3 times when this company will, with the substantial backing of Europcar, become worth far more? They had no choice.

The overarching common bond between all Crowdcube pitches is that they have run out of money. Look at the accounts. Some, the minority, do have good teams and even good ideas but the second most common theme is over valuation. The third is a general absence of good business plans especially on the financial side. So to date one small exit, forced, stands against a growing list of failures with a losses of over £5m. It's certainly very good news for the liquidators.
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''Far from being unsophisticated businesses for unsophisticated investors, they are increasingly established. Take JustPark, a platform that connects people with cars with unused parking spaces and driveways, who raised £3.7m earlier this year. Interestingly, they raised this money alongside more traditional investors like Index Ventures and BMW i Ventures, the VC arm of BMW.''

The last bit here is just nonsense. Both BMW and Venture index were much earlier investors in Justpark - not alongside. In fact it is our guess that it was Venture's idea to put JP into ECF - great exposure for a consumer product and free money for them - they are using the crowd. So this does not prove Lang's point. Interestingly since the investment went in the reviews of the JP service have been appalling - something we flagged up at the time. If you want to see the level of investor sophistication, then just read the forums. Sure it has gone up but from the basement and the lift is stuck at level 1.
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''We will start to see more equity returns come through company exits as early adopters of crowdfunding start to mature, with many showing promising progress and growth. Meaningful returns for investors are vital for the long-term success of the crowdfunding industry.''

We havent seen any show promising signs. Crowdcube pitches all without fail predict ROI in 3 to 5 years - so where are they? Take Easyproperty as an example - look at their site. They claimed to have 10,000 properties lined up before launch, but they nothing like that there now a year after funding. We estimate they have a maximum of 3000 on their books. If you look at the businesses that funded in 2011/12/13, the one thing they have in common is that they have not delivered on their promised growth - many missing their projections by 1000% plus.

Sure with this many businesses funded we are bound to get the odd the return but will those make ECF worth bothering with? Not the way Crowdcube do it. Investors are becoming wise to the platform's manipulation - time frames moving, over funding and the lack of any meaningful due diligence. We know because that's what we see and its what people tell us. The only reason that it hasnt folded already is the tax reliefs via EIS and SEIS are still tempting people to have a go.

It really is time to wake up and stop being spoon fed by Crowdcube's incessant PRing.

PS - As if to prove our point the newest pitch on Crowdcube is Amarya Ltd. Reading the pitch you would think this was a well founded successful company. Its been running for 6 years, has a solid following and subscription base. But look at the accounts. Oh dear no money, accumulated losses of £780,000 and net assets of £13k. Ooops - another one that has run out of cash. Why spin it? Business is about making money not losing it continuously. No wonder they have not produced a financial snapshot. Team not great either in terms of achievements. Market is well established, saturated and so why would you risk it?

2 comments:

  1. More good news coming in... though I'm sure you'll pick on dilution, no pre-emption etc.
    http://www.altfi.com/article/1605_equity_crowdfunded_company_on_brink_of_ipo

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    1. Clearly good news for Stelios and crew but there is no evidence this is good news for CC investors....yet. Altfi in our opinion are not a reliable source of information and despite the headline the IPO is not a done deal. You certainly cannot believe the PRing put about by Luke Lang.

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