Sunday, 22 November 2015

One of Crowdcube's largest raises way off target


The Red Advertising/Crowdcube/Syndicate Room story carries on and on and............   we've lost count of the number of posts its featured in here.

The company has raised almost £1m in several tranches on Crowdcube since 2012, tried to raise money on Syndicate Room and failed to raise money this year on Crowdcube. It's in the Crowdcube Hall of Fame and can be found on their website as a case study. Only problem being, its studying the wrong aspects of the case.

With regard to the company's SR raise, this was pulled by SR but not before they had accepted what can only be described as a highly dubious 'Lead Investor'. That begs a whole new set of questions which we will go into elsewhere.

Now the Red accounts to YE May 2015 have been published early - they are usually late. As anyone who has followed or invested in Red will expect, they dont make for good reading. More of the same massive losses are revealed to slap investors in the face - they have the fairytale projections from the various equity sales on Crowdcube for comparison. These projections show profits of over £1m by now instead of the £400,000 loss just posted. 2014 projections showed £160k profits against real losses of over £500k.

Looking briefly at the 2014 Crowdcube projections, the company that year had a turnover of £750k producing EBITDA of £160k - so for the company to report losses of £500k its turnover must have been almost zero. To then do it again in 2015 is some achievement. Again looking at the 2014 pitch, it gives 'historic' figures for June 2013 to Dec 2013. For that period the company made a net loss of £78k on a t/o of £182k. But the files accounts to YE May 2014 have losses of £640k or a loss made in just 6 months of £562k. Can we then assume the Crowdcube checked historic figures are wrong?

Time and time again the CEO has promised the earth to potential investors and delivered nought. Backed by the Crowdcube DD department, who must have checked his financials, he has continually misled. Nothing he has predicted or promised has come true. We'd like to think that this is an heroic story of the man who fought and fought to save his company and eventually made it......but the evidence for that isnt there.

Take for example the VC investment he stated was behind the company in 2014. Turned out that Johnson Capital was not a VC but an FA company of no great stature. Its impossible to see if they ever invested as the AR is late in filing.

Red's CEO assured investors ''We believe this represents fantastic value for Crowdcube investors as they are following a VC deal''.

He went to say ''that this is probably as good as it gets''.

We hope not.

Take for example the claim that the VC (who wasnt one) wanted a sale of the company by May 2015, which the CEO predicted was on the cards. Ahem.

Take for example the deals with Matalan and Dyson which had catapulted Red onto the 'Top Table' - deals that were confirmed in the Crowdcube pitch in January 2014.

Take for example the claim made in the 2014 raise, that sales figures were only slightly behind projections. 2014 projections showed a profit of £160k but the real loss turned out to be over £500k. Or the simple statement made in the raise before, when the CEO told investors that there would not be any further raises. - definitely, definitely not.

Take for example the CH filed accounts for YE May 2014, which stated in the 'Going Concern' paragraph that £150k of extra capital had been raised after YE (accounts were filed March 2015, so between May14 and March 2015) and that more funding was on the way. This capital has never appeared and the raised capital at YE May 2015 is the same as at YE May 2014. Naughty that.

Unsurprisingly the same paragraph for the 2015 accounts says pretty much the same thing. Is that legal? The company has been trading as an insolvent entity for the best part of two years on the back of these assurances. It owed current creditors £660k as at May 2015 and its only backbone is a highly dodgy intangible asset valued at £290k. We all know what that means.

It's time that something was done to protect investors and creditors from this sort of behaviour. As Crowdcube have shown themselves unable or at least unwilling to check the most basic facts, then a system where all documents are lodged with ECf platforms and a third party should be instigated. Then if a rogue company tries to come back for more funding, it cant hide the truth.

This is just one of many of the Crowdcube funded businesses that have used false information, hiding previous projections and delaying accounts. You can expect 2016 and 2017 to reveal some more.



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