Friday, 27 March 2015

FCA - Financial Clowns Association

We have been in correspondence with the FCA about a website offering financial promotions in the UK contrary to the Financial Services Act 2000.

We posted the first response we had here a week or so ago. We then sent the FCA more information and explained in as simple a way as possible that they had got the wrong end of the stick. They must like that end because they still have it.

The site in question is Simon Dixon's Bank to the Future. This was authorised via third parties by the FCA in 2012 and 2013. This is when the site was run by Bnktothefuture.com, a UK registered company.

The BTTF site now operating is run by Bnk to the Future - a company registered in the Cayman Island and Honk Kong. Simon Dixon now resides in Hong Kong, leaving the UK with a number of small business owners chasing him for refunds. 

The FCA seem unable to grasp the difference between these companies. Their own register states that Bnktothefuture (UK) was FCA accredited until October 2013 - this then ceased it states. It is not accredited any longer. The FCA claim that it is accredited via a company called Crowe Clark Whitehill. Their very own register states this is not the case. And even if it was, which it is not, then the current site is not run by the BTTF which had accreditation in 2013. Without some form of FCA accreditation the site is not allowed to promote the financial deal it has on its site, in the UK.

So what are the FCA playing at? We may never find out as they tell us that if they take action against the site, they cannot tell us what that will be. So we have to ask what is the point in the public helping them to do their job. Well as with all clown shows, if the audience doesn't get involved, the whole thing falls flat on its face.....................pause...............hahahahahahahahahaha.

Why do some ECF pitches fail?


Secura Management, a company that has been going since 2000, has just failed to raise its £150,000 on Crowdcube. Well failed is a polite way of saying it bombed. 12 investors put in £5,000 in total, with someone putting in £3,000 of that.

So what makes a pitch like this - where the founder claims to have built up the largest privately owned financial services business in the UK - The Greatminster Group - such a massive flop?

Maybe its because Greatminster went into receivership in 2000 and was only finally wound up in 2010. Maybe it's the founder's cricket score record of being a director of 54 companies, 49 of which have closed down. The pitch had very few questions on its forum so maybe the guy just hasnt got any friends?

You might well ask why Crowdcube have this type of 'entrepreneur' on their site. How desperate are they to have pitches? Not since Crowdcube had a pitch by BioProgress' former CEO Graham Hind has a business been so roundly rejected by the crowd. The two do have similarities.

Our guess is that this was as good a bet as most of the pitches the platform pushes out - which it wont surprise you to know is not a good bet at all.

Wednesday, 25 March 2015

When is a fact just a misdirection?


A current pitch on Crowdcube is illustrative of the sort of information manipulation the platform allows or maybe even encourages.

RaterAgent is trying to raise £75,000. The founder is Mal McCallion. Mal, the pitch tells us up front, was involved in the launches of Zoopla and Primelocation. Wow you go, then this guy is really something. If you look at his Linkedin entry, he was a big cheese in both. He also helped turn around a business called Propertyfinder Publishing - he was their MD. What you would a call a very solid record for someone offering to sell you equity in his next property based venture.

From records Mal has never been a registered Director of any trading companies. He currently holds three directorships but none of them active. He was never in the the executive management of Zoopla or Primelocation. Propertyfinder Publishing doesnt exist although the Zoopla Group own Propertyfinder Publications, which is and has always been dormant.

So from being some Billy Whizz who has powers not ordinary man could have in the property world, Mal is in fact just an ordinary guy who may have worked for Zoopla and Primelocation. We checked with Fastcrop, who founded Primelocation and then sold it onto DMGT in 2005 and there is no record of Mal having any significant role. His claim therefore in the pitch to be a veteran of the startup Primelocation is just not true.

So RaterAgent, a company that has only traded in beta, is now valuing itself at just over £1m (£75k for 7%). This valuation is based largely on the credentials of the founder; credentials which do not stand up to the briefest of checks.

Rateragent's strapline is 'Where transparency is key'. If it wasnt so serious, it would make a great joke. 

So much for Crowdcube's due diligence. Maybe if the platform spent a little less time on their own PR and a little more on checking facts, we might see some pitches that used facts and not fiction to sell investors equity.

Is that Superman or just more PR.




Modern use of PR illustrates both the best and the worst of our world.

Articles like this one by Crowdcube - the UK's largest ECF platform, fall firmly into the latter selection -
http://www.westernmorningnews.co.uk/Crowdcube-launches-Sprint-Programme-help-UK-start/story-26216916-detail/story.html

In it Luke Laing, Mr PR att Crowdcube, states that they want to continue to build on the company's success. What success? Why is raising funding for companies using completely undeliverable sales and cash flow projections a success? Most of the companies funded have closed, gone bust or are just trundling along with no hope of ever returning a penny to investors. Not one company since 2011 has managed to exceed its projections and only one has matched them. Investors have seen a negative ROI.

He goes on, he always does, about the £70m raised through the platform since 2011. He fails to mention that between 30% and 50% of this money is being paid for by all UK taxpayers - whether they like it or not. The misuse of the EIS and SEIS tax schemes is one a the greatest scandals never to be mentioned.

The only beneficiaries of this ECF explosion are the ECF platforms. With a hint of irony, even Crowdcube has missed its projections and is now a long way behind where it predicted it would be in 2015. For sure, without government aid and tax payers hard earned money via EIS and SEIS, Crowdcube would have closed by now.

Monday, 23 March 2015

Crowdcube's Seek and Adore failure


Seek&Adore.com raised £70,000 on Crowdcube in autumn of 2013.

By the end of 2014 the company had filed to be struck off. Their website http://www.seekandadore.com/ has a friendly message saying they closed on 1st August 2014.

Now in March 2015, this action is still pending. This time lag strongly suggests that either creditors or HMRC, or both, are unhappy with the the company's accounts.

Clearly they never reached the heady heights projected in their business plan - like nearly all of Crowdccube's pitches. Yet another sad story of a Crowdcube success.

Crowdcube's Ovivo failure.


Ovivo raised £500,000 on Crowdcube in 2013. By the beginning of 2014 it had gone dramatically and very suddenly bust.

Ovivo tried to run a mobile phone network, giving subscribers very tasty rates. Their contract with Vodafone was not upheld however as they failed to pay the bills. The lights went out leaving the management to post the pathetic excuse that they had been forced to close due to circumstances beyond their control. We assume they meant the ability to run a business.

As usual Crowdcube PR'd the £500,000 raise to death and then when the lights went out, the 'success' disappeared from the Crowdcube site.

It might have been more honest and would certainly be of more use to put an open and frank analysis on the site so that future Crowdcube investors would be able to judge how this catastrophe occurred so soon after raising such a large sum of money.

Saturday, 21 March 2015

Some cold hard facts


If you read the PR put out by the likes of Crowdcube, you would think that ECF is saving our nation.

Since 2011, when this all began, we have kept records on the companies that have successfully raised money on various ECF platforms. Later, when they have filed accounts, we compare their projections, the ones used to sell the equity, with the actual sales and profit/loss figure.

Here is a list of the results. The companies on the Mind the Gap List have missed their projections by at least 30% and in most cases somewhere between 100% and 1000%. The record to date is for a YR1 sales projection for £860k which became a real £86k. Many have tried to raise more cash, some successfully, quite a few have closed and the rest are just trundling along, nowhere near to the place they said they would be by now. We have also for sake of balance published a list of the companies that our records show have achieved their stated goals









MIND THE GAP LIST

Dr Jackson Ltd
Righteous
Purple Harry
i-comply
Seek and Adore - closed
Lawbit
The Printers Inc
Financial Fairy Tales
ineed
Marine & Auto Security - closed
Brupond - closed
Oriental Rugs
Kammerlings
Green and Pleasant (28 Broadwick St Ltd) - closing
Red Advertising
SDL
Crowdcube - !
London Distillery Co
7 Billion Ideas
Front Up Rugby - closed
Waterbabies - closed
Big Barn CiC
Stakis Daycare nurseries
Inspiral Visionary Products
Thoughtful Bread Co (Think thoughtful Ltd)
Carbon Lights Solutions
Pizza Rossa
Wild Trail Ltd
Quantock Brewery
PDB
IQden  - closed
IMD Europe - inactive
FabFob
Sweatly Stevia Ltd
Kinopto
Get Site Tracked (Sole Trader Ltd)
Glassfit Inc Ltd - inactive
Affresol
Bubble and Balm - closed
Ovivo - closed
Pixelpin
GF Foods York
Landbay Capital (now LB Partners and refunded)
Hopstuff
Zero Carbon Food
Farmdrop
Bnktothefuture.com  - inactive and under investigation by FCA.
ECarclub Ltd











THOSE WHO HIT THEIR TARGETS

St Vibes Ltd


That's it for now. As most of the activity on these sites has been post summer 2013, we can expect the Mind the Gap list to grow exponentially in the next year.

It does make a bit of mockery of the claims made by the people from Crowdcube. PR is king, long live PR.


Friday, 20 March 2015

The case of Glassfit Inc or Race Yourself and how to build a vitual World.


Back in 2013 a pitch by a company called Glassfit Inc Ltd successfully raised £120,000 on Crowdcube.

The company was developing an exercise app for Google's new interactive glasses. Their PR showed images of runners with a virtual world in front of them - a complete full vision world. Their website showed what was called a real demo with a full vision experience

Above is a picture of what you actually see with Google Glass - an image in the top right hand corner. So either driving as here or running as in the exercise app, you would do well not to crash or trip and break your neck. Just imagine if we all had this visionary experience; A&E would be the new Costa.

So what is this company selling? Despite what you can read now about them, they are selling nothing real. The web picked up on this idea and hearing that the Crowdcube pitch had been a success, promoted as it was by the Crowdcube PR mega megaphone, there was a flurry of activity. These articles are still there today, stating how Glassfit changed its name to Race Yourself, with images of a full screen virtual world exercise app. The articles talk about the founders and how they have successfully raised money on Crowdcube. They are easy to find with a google search..........

 www.finsmes.com/2013/10/race-raises-120k-equity-crowdfunding.html

www.pocket-lint.com/.../126612-glassfit-s-race-yourself-app-uses-googl...

The company, for some reason never disclosed, did not go through with its Crowdcube deal and the two 'entrepreneurs' went off to the US. They have done nothing since that we can find.

The point here is that it is so easy to create a true event on the web, even if it never took place. The Crowdcube raise is now there for eternity floating in the webether; yet it never happened. The app is still being applauded, but it never existed in the format they illustrated. In reality it was a con and one that Crowdcube investors fell for.

Given this, how can ECF platforms claim that the wisdom of the crowd filters good businesses from bad? And how can investors be expected to know what is real and what is myth?

Thursday, 19 March 2015

Another Crowdcube success misses its projections


There is a good reason why you hear this cry on the London Underground - to prevent you from breaking your neck. Gaps of most kinds are unwelcome. Gaps between business projections and real sales are especially onerous if you are an investor.

Affresol Ltd has just filed accounts to YE May 2014. Affresol raised £135,000 on Crowdcube in Summer of 2013.

The company projected it would be well into profit by May 2014. Accounts just filed show a loss of £460,000 for the year to May 2014 and a total accumulated loss of just shy of £1.5m. This figure is almost double the company's estimate.

The company currently has its own ECF pitch on its website, raising some £400,000. So were the other shareholders asked about their dilution, as this new share issue certainly wasnt mentioned back in the Summer of 2013.

It strikes us that you simply cannot build a sustainable business using plans designed to sell the company's equity. These are sales presentations not business plans. Affresol is just one example out of many we have on file, of a company encouraged to over estimate its sales in order to complete its pitch. Surely at some stage the crowd will realise this and stop investing?

This would be shame in our opinion - ECF could be a very valuable life line for SMEs. Just not the way the current model is run.

Are the FCA up to the job?




What are we to expect of the new financial regulator in the UK - The FCA?

A good level of basic competence must be a given. If we want them to prevent the type of fiasco that helped cause the 2008 crash, we need them to be at least awake on the job.

Late last week we sent a notification to them that a website was offering financial promotions without FCA approval. This is in most circumstances contrary to the Financial Services and Markets Act 2000. It was in this case.

The reply we had is copied below


After reviewing the firms website, I can inform you that there are circumstances where unauthorised persons are communicating financial promotions to clients in the UK which will be governed by the financial promotions order under section 21 of the Financial Services and Markets Act 2000 (the Act).

Section 21 (2) of the Act sets out the circumstances in which an unauthorised person can communicate financial promotions as set out in our handbook in PERG 8.9.1.

This is on the basis that the information has been checked and approved by an authorised person. 

If you have evidence that this is not the case you should let me know and I will refer it to the appropriate team within the FCA.

The firms website seems to indicate that their financial promotion has been approved by Crowe Clarke Whitehall.
Firstly this reply gets the name of FCA approval firm completely wrong - it should be Crowe Clark Whitehill. The company mentioned in the reply does not exist.
Secondly Crowe Clark Whitehill has not approved this site's promotion. They did approve a promotion by a company with the same name in 2012, as the current site now rather sneakily points out. This was under a different set of rules as set out by the then FSA (now the FCA). Since then the site has changed and is now run by a company of the same name, incorporated in the Cayman Islands and run out of London. It has no approval from any UK authorised FCA accredited company - according to the FCA Register. This is why we sent the notification to the FCA in the first instance.
All the information is on the FCA's own register so it shouldnt have been too difficult to check it. Clearly for this particular employee, it was.

It doesnt bode too well for the future if they cant get something this simple right. 

Tuesday, 17 March 2015

Why are UK taxpayers funding films?



Syndicate Room, a UK based ECF platform that specialises in linking VC investment with crowd investment, has just completed a pitch for £1.8m.

'Salty' will be a new film directed by Tomb Raiders' Simon West. Salty Ltd has been set up to make the flic and then distribute the profits to shareholders. Its based on a novel by Mark Haskell Smith, an American. The novel's reviews are very limited, so not exactly a best seller.

Ignoring the tiny $10m budget, the fact that West has never made a comedy and that reports suggest some of the $10m will come from pre sales of the film (that is some assumption), we would like to highlight the tax issue.

EIS was set up by the UK Government to stimulate private investment in UK businesses. Any UK tax payers can obtain an instant 30% rebate on their income tax for that year, against the amount they invested. Participants then have to hold these shares for three years. HMRC control this and the seed investment version SEIS. It is not free money - the total rebate from ECF and SEIS will have to be shared by all UK taxpayers.

Simon West is currently working on a remake of the The Blob - it seems a few projects have slipped in recent years  - for example Johnson the Rock in Protection, which as far as we can tell has never been released. So Salty will not be made anytime soon. Reports say that West wanted to try a non block buster approach. We wonder whether the shine from Tomb Raider and Con Air hasn't become a little tarnished?

Is this really what EIS was designed to do, promote one off, high risk, meaningless projects? What if the budget, which is by far the smallest West has ever worked with, proves unworkable? The project will fail and the £600,000 of UK taxpayers money will be wasted. Salty Ltd will have failed before it even begins.

The film is to be shot in exotic locations,; the novel is based in Thailand. So no real benefit to the UK there. The author is American. The stars - who knows if it will get that far.

Syndicate Room make a feature of the fact that investors can reclaim the tax in this tax year. What will Salty Ltd have achieved by 5 April 2015? The potential return is only there because of this 30% rebate.

If people want to feel part of the Hollywood Set, then let them. But dont use UK taxpayers money when we are constantly being told this is a time of austerity.

PS - readers of our other posts will know that a similar one off project Water Babies, which raised £1m, drowned without trace. At least Water Babies was a UK inspired and UK based project.

Monday, 16 March 2015

JustPark breaks all records

Today is the last day of Justpark's pitch on Crowdcube. The pitch was to raise £1m. It has broken all records.

The current investment stands at over £3.5m and who knows by the end of today it may well hit £4m. There seems to be no upper limit.

The pitch never presented a business plan - for 'commercial reasons'. It is backed by VC's Index Ventures (or will be if this ECF is successful) and has BMW as a business partner. You would have to admit its a neat idea, although questions over security with hidden cars in central London garages for months on end do seem to be unanswered. Likewsie their site pretends to offer parking in places where they do not have any spaces - St Andrews in Scotland for example. Asked why, they said they liked to be seen as offering spaces near all major attractions, even if you have walk 7 miles from your car to get there.

Its backers are certainly gold plated.

We understand that Crowdcube was not the first choice of platform. Crowdcube's model doesnt under normal conditions allow for a VC/crowd hybrid, where the crowd's investment is held by the platform under a nominee arrangement. The main proponent of this model in the UK is Syndicate Room. We assume Syndicate Room lost out to Crowdcube because they have a larger crowd base and this is essentially a consumer product.


What is interesting about this outcome is where it leaves crowd investors. Index's  history shows they more frequently enter at a later stage than this seed funding. The deal for the nominee shareholders is not exactly a good one. They have no rights and do not even need to be asked if Index wish to change the various share arrangements.

One thing is certain - to reach its goal JustPark will need several more rounds and each one will dilute the nominee shareholding. You just need to look at the types of funding that Index have been involved with in the past. The argument that increased company value protects the crowd is we feel a spurious one. Already valued at just over £20m in this round without really doing very much, it wouldnt take a great deal of dilution to make it difficult for the crowd to make any serious money.

From Index's stand point, the Crowdcube pitch offers the best of both worlds. They get to test ECF and the product JustPark are offering, They gain some great PR and several thousand evangelical JustPark supporters. Finally were the pitch to have failed they could have withdrawn their offer of funding. There is something of the guinea pig in all of this - well several thousand guinea pigs to be exact.

What is a sophisticated investor?


If you have been at all interested in the development of ECF in the UK, you will know that the UK's FCA has declared that only sophisticated investors should take part. Its a problem that the SEC has been wrestling with in America, since the JOBS Act - to regulate or not to regulate.

So just what does the FCA mean by 'sophisticated investors' and how have the platforms here coped with this level of regulation?

We have to say we havent a clue what they mean. We havent found a single platform that vets its investors in any meaningful way. Most of them have tick boxes that declare ''you are a sophisticated investor''. Page footers give wordy details about how only 'SI's will be allowed to invest on this platform and then they give you the option to self certify. Its a similar situation to the old self certified mortgage market. We have failed to learn the lessons that the  Americans have.

Most platforms are very simple to join. It's possible to have multiple anonymous memberships for a single person. Fake email address, a couple of clicks and you are in. This is in keeping with ECF and our modern drive for immediacy  - ease of access is essential to grasp and hold people's interest. Imagine if you had to go through a verification process that worked - people would simply switch off.

So what was the point of the FCA ruling? Again we havent a clue. Perhaps they feel that by giving this guidance, they absolve themselves and the Ministers in charge of them of any guilt should it all go tits up.

One of the FCA's main errors was instigating an enquiry process which was largely populated by ECF platforms and their supporters. Take the UKCFA as just one such example. It is hardly surprising that the conclusion was extra extra-lite touch and shift the burden onto the public.

We believe the FCA are looking the wrong way. It's not the investors they should worry about, it's the platforms. Regulate the platforms so that the information they provide has to be properly vetted or they face a fine and they will soon mend their ways. Remove the game show promotions and the hyped PR. This would also thin out the real investment opportunities from the rest - as platforms would have to start charging pitches.

People or investors can look after themselves; given real information. If they cant then they deserve to lose their money. Caveat emptor only works if the playing fields are level.

Sunday, 15 March 2015

Asymmetric Information


ECF platforms, like the UK's Crowdcube, provide potential investors with snapshots of the pitch's last period of trading and the next 3 years.

This information is crucial in helping people make informed decisions. The sites claim that where possible this information is thoroughly vetted.

So what if there was proof that the given information was not simply incorrect but had been manipulated to make the company's position look better than in reality it was?

There would be no way for even the most diligent person to check this out, without breaking into the company's offices to look over their management accounts.Filing of accounts is only required within 9 months of the year end date. The norm on ECF platforms is to pitch before the most recent accounts are due, so the details given in the 'prior period' have to be taken as read.

Without giving away any names or too much detail, we have records that show this has happened on more than one occasion. Here is one example.

This company was incorporated in July 2012 and would therefore not have to file its YR1 accounts until April 2014. When this pitch was live, Winter 2013/14, the filed accounts were not available. They were filed a few months after the pitch successfully completed. These filed accounts covered a period between July 2012 (incorporation) and October 2013 (YE). These dates are important because the company's pitch took place after the year end date of October 2013 - meaning they would have known the real situation. The pitch's 'previous' period ran to July 2013. So the filed accounts included the whole of this ''previous'' period.

The pitch's ''previous'' period showed a loss of several hundred thousand pounds. The filed accounts show the loss was in fact several hundred thousand pounds plus another hundred thousand.

On the Balance Sheet, the filed shareholders funds figure was out by a factor of 50% - to the bad.

The share capital figure shown on the balance sheet of the pitch was three times larger than the one recorded in the filed accounts. So in effect the company declared that in the period Oct 12 to July 13 it had new shareholder funds of X. The filed accounts show this to be a third of X.

This asymmetry seems hard to justify. Why for example did the pitch have different dates on its projections to the filing dates at Companies House? Even if the discrepancies in the P&L can be explained by the time lag, the balance sheet discrepancies cannot. The purpose of the projections in this pitch seems to have been to mislead rather than aid the investor.Mislead in order to obtain funding perhaps?

We will have to wait for the new accounts to be filed in a few months time to know the whole truth. If, as in this case, the company could have provided its filed accounts early, then this misinformation or misunderstanding could be avoided. Perhaps the ECF platforms should consider this as a prerequisite for launching a pitch? Otherwise what is stop this sort of practice becoming commonplace?

Friday, 13 March 2015

Bank to the Future 2 and 3


Bank to Future website is now active again - well it has one pitch from Spanish company First Vision. BTTF is now a HK registered company and a Cayman Islands regulated company. Is their such regulation? The UK version seems to be forgotten. On the site it states that it takes people's security very seriously. So how is it selling ECF in the UK without a current FCA license?

The site sneakily refers to a FCA proxy licence it had through Crowe Clark Whitehill in 2012 - for a different site by the same name. Checking the FCA Register, BTTF had two different proxy licences in 2013 both for just a few months. Since then they have had no FCA accreditation. Its a simple lie as this current BTTF site is run by a company in the Cayman Islands, not one registered in the UK. See our post on the FCA to find out what they are doing about this!!

How many sequels did the film get away with?

One assumes this might have something to do with the UK not giving BTTF a Banking Licence as per this ridiculous article by Cap Gemini -
http://www.capgemini-consulting.com/blog/ompi-blog/2014/09/crowdfunding-bank-to-the-future

Rumour is that Dixon and his family have moved to Hong Kong - owing many small self employed business people in the UK thousands of pounds. BTTF were taking money up front from them for their 'incubator' programme before they launched pitches on the BTTF site. These pitches were never launched as the site went dark but Dixon kept the money and legged it.

Bank to the Future Bitcoin, which has never traded, has been closed.

Thursday, 12 March 2015

Ex Crowdcube pitch goes into liquidation.

Angela Malik Ltd which in February was on Crowdcube, trying to raise money, has gone into liquidation. The last filed accounts for 13/14 didnt suggest this and it certainly wasnt trailed on the Crowdcube platform.

Maybe an example of the crowd choosing the right action as the Crowdcube pitch failed. We will never know. It was certainly a close call for those who had backed the business this time round.

Wednesday, 11 March 2015

I give up



A current pitch on Crowdcube, The Idleman, states it is raising £750,000. It has done very well so far. With 30 days still left, the platform rejoices that it has raised £530,660 from 124 investors.

Hang on...............on another page it says in small type (easily missed if you are new to the platform) that the largest single investment is £449,990. This appears to be from the Private Equity Group, Foresight, who are 'leading this round'. So it was arranged before the Crowdcube pitch launched.

So in fact the crowd have so far invested £80,670 not the headlined £530,660. That is not nearly so impressive.

The pitch is in fact raising only £300,010 from the crowd, not the headlined £750,000. You could hardly in all honesty call a PEG 'the crowd'. The point is that the pitch has not raised £530,000 from 124 investors - it has raised £80,000 from 124 investors and £450,000 from one professional investment company. Instead of the very impressive 70+% it is showing as raised on this pitch, it has in fact only raised 27%. Anyone who has read our other blogs will see that this falls below the magic 30% line.

This sort of misinformation is exactly what is giving this market a very poor reputation. Surely it is not necessary or good practice to use such tactics. We cannot believe the FCA would sanction them. The pitch really doesnt need this kind of help, backed as it is by some substantial professional investors.

Wouldn't it be more open and honest  - the very values that ECF purports to promote, to say this pitch is raising £300,000 of which it has currently received £80,000 or 27%. The plan could then mention the PEG investment. 

The case of Betpilot, Bank to the Future and shares or no shares. When is a lie the truth?

On the Bank to the Future website http://www.banktothefuture.com/, like most ECF sites, they have a list of completed pitches. This 'success' list helps show the general public that this site is active and worth taking a look at. It really does the business.

Sometime ago we copied this list off BTTF. On it, it had a company called Red Leader Ltd who were raising money for their new gadget Betpilot. The
company was incorporated in February 2013 and shortly afterwards launched its pitch on BTTF to raise £150,000 for 30%.

The 'Pitch Funded' listing for Betpilot (Red Leader Ltd) states that it successfully raised 29% of its target or £43,500.

Looking at the company now, this is hard to believe. There is only one shareholder and no new shares have ever been issued. The company has never filed any accounts and is now in the process of being struck off. As far as we can see it never traded.

This pitch was, according to the BTTF platform, eligible for SEIS - ie 50% of that money could be claimed back by investors on their annual tax return. We know from carrying out this procedure that HMRC do not bother to check or ask for any documents to verify the investment - you just tick a box and deduct the money from your total tax bill. 

So where did the money go, did it ever exist, is the BTTF site making false claims? What if anything was claimed back via SEIS tax relief? The only return by the company confirms only one shareholder.

This would appear to be the very tip of the iceberg.

What is almost amusing is that Simon Dixon, who is in sole charge of running BTTF, appeared a few days ago in the FT building at the behest of the FT, to deliver a talk on the future of Banking. God help us.

A very poor investment

Do the math.

Platforms helpfully recommend investors should spread their risk over say 10 pitches. So lets see how Joe gets on.

He invests £1000 in ten ECF pitches. Each pitch for sake of ease is offering 20% of the company for £100,000. So Joe now owns 0.2% of the post money operation, valued as it was at £500,000. These are class B shares with no preemption or voting rights.

Over the next 5 years, 5 of these companies close down. On closure they owed an average of £40,000 to o/s creditors and £100,000 to investors each. They lay off an average of 3 staff each.

2 of the companies trundle along never quite reaching their projected goals and make no return in terms of dividend.                               

2 of the companies burn through their cash and have to raise more, diluting Joe's holding by a quarter - leaving him with 0.05%. (ECF advocates would point out here that the company valuation would have increased which nullifies the dilution. However the evidence of second and third raises on sites like Crowdcube is that they are forced by poor sales and the new valuations in no way compensate for the diluting effect.)  One sells out for £1m in year 5 - giving Joe £500.

The final company out of the ten, makes progress and sells out for 6 times its pre money valuation ie £3m. Joe receives £6,000.

Of these ten companies, the five that went bust were all start ups and had SEIS relief at 50%. Of the other five, 2 were eligible for EIS at 30% and 3 received no tax incentives. So of the total £10,000 principle, Joe manged to claw back £2,500 from SEIS and £600 from EIS. He therefore invested a total of £10,000 less £3,100 or £6,900.

Joe received a total back of £6,500. So has made a loss of £400 (ignoring lost opportunity costs) when you take into account the tax rebates. He is still the owner of shares in 3 of the companies but is locked in as there is no market for them. Even if a market did exist why would anyone buy shares in a company that makes money for its founders and staff only. The chances of seeing any return from these are negligible.

The loss to HMRC is 5 companies bust at a 50% rebate each on £100,000 or £250,000 and loss to o/s creditors is £200,000. In reality a large slug of this would be owed to HMRC in vat, NICs etc. This HMRC loss is in effect a loss of taxpayers money.

In this example we have used data collected from ECF platforms since 2011 - mainly from Crowdcube. No single company on any ECF platform in the UK has yet returned a single penny to investors and we feel that the chances of having two investments that sell and make money, as in this example, is very slim. So you could argue that the example is over optimistic.

So who has benefited?  Platforms like Crowdcube make very loud claims about the number of jobs they create etc. They do not mention on their platforms any of the companies that have gone bust or why they did so. They also never mention the wasted SEIS and EIS money that these companies have used and the lost money owed to o/s creditors - with all the implications that this can have for those companies. They do not list the redundancies. Certainly Joe has not benefitted.

The only beneficiary of this whole process is the ECF platform, which takes a ~5% commission on the £1m raised or £50,000.

So given the above why are so many people pouring millions into ECF. Could it be the Game Show, ''Dragons Den'' promotions that the ECF platforms seem so keen on? Well that and pure stupidity. Cut out the SEIS and EIS reliefs and this would all stop. Maybe then we could take a serious look at how or if this type of SME funding might work for the benefit of all of us. As it stands at the moment we are just building debt and failing businesses.

Tuesday, 10 March 2015

Full Disclosure

Sometimes its not what you say but what you fail to say that could be important.

Squareknot is a young ECF site based in Glasgow. They only have a few pitches and only two equity pitches have completed successfully. One of them has as one of its Directors someone who is also a Director of the platform. This information is not supplied in the pitch. Does this matter? As the pitch only had 4 investors (what you might call a small crowd) then we believe it does.  ECF platforms have to build 'successes', which in turn create momentum and help build an investor base. Credibility and therefore activity, is all about how many successes you have had.

The whole point of ECF is that is supposed to be of the people, for the people. Unlike some of the practices that our bankers have been getting up to, it is all open and beyond reproach.

Monday, 9 March 2015

An introduction to self help due diligence

Over the past 4 years, we have seen pitches and investors' comments on the ECF platforms that show only too starkly how both have very little knowledge about starting and running a company.

More recently we have noticed that far fewer questions are asked of the pitchers. Why would you part with several thousand pounds when you really have little clue what the business will achieve?

So we thought a simple short crash course in self help due diligence might help - ignore this post if you know what you are doing!

Our advice is only invest in either something you are interested in or you have a special level of knowledge in. Forget what the platforms tell you about their own thorough DD - it doesnt exist. They cant afford it and they dont make any money by turning away business. The two key areas to check out thoroughly are the financials and the people involved. SME's are all about the people behind them.

Go over the financials, compare them where possible to filed accounts and competitors accounts - checking if you can for the norm when it comes to things like payment terms, GPM and marketing spend in relation to sales growth. Anyone breaking the trend is probably clueless and unless they have very good reasons to be outside the mould, they should be shunned. Ask them on the forum.

Ensure that the founders have a good slice of skin in the game . If you have read our post here  - Pre packed deals and Equity Crowdfunding, you will see why. As an ordinary shareholder, you will little control, if any, on the actions of the directors. Even if you have voting rights, your holding will be so small that they will be irrelevant. The only way to ensure that directors dont suddenly bunk off is to know that they have a lot to lose if this fails. You want them to have put cash in, in return for equity - not a loan.

Check that the market this business is in is one the founders have experience in. What experience? Running a company is rather different to working for one. Have they set up a company before? Its not the end of the world if they haven't but it certainly helps. If they make sure you check out how that company fared and if it closed why. Meet them if you can. Most platforms provide this service.

If you are dealing with a consumer product pitch or service pitch, check the web for reviews. Mumsnet, the student room and other gossip places are useful sources of independent information. B2B is more difficult - their own site will have recommendations so you could ring these companies up. It has been known for some of these to be fabricated. New tech pitches, unless you understand the market are a nono - exciting as they may seem. Forget about investing in the next Facebook; thats just the ECF industry sales pitch.

When using sites like Companycheck.co.uk that if you are searching for a director's history, they are often listed under different styles of one name. IE John Smith may well appear as John Smith and in another ID as John William Smith. As you need to know what what Mr Smith has been up to, you need to check all the variations. Some people we have found have 5 or 6 of them. Likewise always check their open companies documents page - although accounts maybe unavailable, recently filed company documents will give you some clues.

Check their status at CH. One company pitching on a FCA regulated ECF site turned out to run by a disqualified director - still serving his term.

Financials. This is where we feel the current model as operated by Crowdcube, fails. You have to assume from the outset that the sales projections will be over egged by a factor of between 2 and 10. Incredible yes, but all the evidence so far from funded pitches puts the average over egging at around 5 times the actual sales. Crowdcube is run by two PR people - they know very little about business. For them the pitches projections only have one purpose  - to sell you the firm's equity. Check that the cash flow has plenty of room for this fall in sales - ask the pitchers what ifs. If you get back the most common answer on Crowdcube to this Q - ''Our sales projections are very conservative'' - move onto another pitch. If they have a track record of taking a business from zero to £1m in sales in its first year, then of course it might be worth a punt, providing its in a similar market.

A trick we noticed recently was the re-arrangement of certain elements on the pitch's balance sheet to make things appear better than they are. Unfortunately you cant check this if their accounts have not been filed, so you just have to believe the figures they give you. Really the FCA should demand that any company pitching that is more than 18 months old, should have to produce filed accounts up to the current date, whether they are technically due or not. Filing in the UK has a 9 month lag. It could be made a prerequisite for EIS and SEIS.

Never believe statements like '' We have almost £1m in orders pending'' unless they can prove it.  A recent pitch on Crowdcube stated just that and then later, when they were back for more cash, it turned out only 20% of these orders had come to fruition. If a company is heavily reliant on one major customer, ask them about it. Large companies have a habit of using smaller ones for short periods, then moving on to the next best thing - especially in consumer goods. What % of the projected turnover is reliant on these large customers and what if any contracts are there. You will be the last one to hear about a delisting.

Be wary of claims that seem to good to be true.  Like a very rapid growth in a customer base from scratch. This maybe due to the brilliant product and marketing or it maybe the use of promotions on sites like Groupon. The latter will not necessarily deliver retained customers. Just ask them how they did it and search the web for clues.

Likewise beware of the term ''award winning''. Just because the business plan for a pizza start up won an award at the management school the founder was attending, has little or nothing to do with the public's reaction to the pizza.

ECF platforms have been known to confuse grants from bodies like Wayra with investment. Just because a pitch has won a grant of this kind does not mean it is more likely to succeed. Crowdcube's first failure back in 2012, Bubble and Balm, had won a BT business award for tens of thousands of pounds. Be sceptical.

You would be amazed at the number of projections that defy gravity. If you are producing a product that requires WIP or selling a product that requires certain monthly overheads to allow sales - then you need the cash in the bank before you start the month, not at the end. So if sales dip one month - maybe like the example we gave in another post here where they didn't realise that the City wasn't busy on a Saturday (!!), it will have a knock on effect if they haven't built this in. They will be unable to function the next month as they have no goods for WIP or they cant pay suppliers. Its one of the main reasons for failure and with thought, it is avoidable. If you look carefully at the outgoings per month on the CF and then check this against the cash coming in and opening cash position - you can see just how tight the pitch has made this. Too tight is not good and shows a lack of real experience.

Always check the dynamics of a plan - the numbers that go into the final projections. If a company has a six day sales week and it turns out that day six is not busy, as in the case of the City fast food pitch, then the figures will be out by a sixth before you start.

Finally whatever you read on LinkedIn - ignore it.

Information on some current pitches

In order to help people make better, informed decisions, we thought it would be helpful from time to time to give you some information on pitches currently on Crowdcube - that the platform seems to have left out. Its all information in the public domain but it is often what you are not told that is key.

Ineed - This company has raised money on Crowdcube before and has missed its projections by a long way to date. Its due to publish accounts to 08/14 in May 15 and we wonder why these accounts, which from previous filings will not be large, have not been brought forward to allow potential investors a look at them? Its also worth noting that they changed the accounting reference date from a year ago - then it was 02/14 so these accounts would have had to be filed by now.

JustPark - We recommend that investors check out the small print with regard to the powers that the VC investors have in relation to the Crowdcube nominee investors in the future - specifically their right to alter and override existing agreements without reference to ordinary shareholders. Its all there if you click the right button, although its not made evident in the pitch. Dilution on a grand scale is a given with this investment - check out the same VC's recent activity with BLABLAcar.com

Flavourly - This company raised £116k on another ECF site Angelsden in February 2014. Its progress since has not matched the projections used to sell that equity. It uses heavily discounted Groupon deals to build an instant subscriber base - then promotes these figures as the key driver for its future success when it pitches for ECF. But the reaction to the Groupon deal was very mixed, with many complaints about the service or lack of it. Also it seems to us that using this method will not play well when it comes to retentions. This method of building a subscription base is also used by another Crowdcube funded company Beer52, which has a noticeably similar management to Flavourly.They have both also raised money on Angelsden and Crowdcube.

One final point on this pitch. The use of ''overfunding'' by platforms in general but in particular by Crowdcube, should be stopped. Investment is made on the information (correct or not) supplied. However it appears that it is Flavourly's stated intention (not stated in the pitch we should add) to raise not the stated £300,000 but up to £500,000 in this round. So you guarantee this one will overfund. 

More will follow.

The general rule when dealing with Crowdcube pitches - if you want to have a chance of success - is to check out in very great detail all of the claims the pitches make. See if they have raised ECF before, if so where and when. Although the original pitch's projections will no longer be available, these companies tend to go large on PR and cant resist bigging themselves up. So scanning the web for articles usually reveals their anticipated plans. Compare these to the figures given in the current pitch. More often than not you couldnt make it up.



Sunday, 8 March 2015

Houston - We have a problem

One of the key problems with ECF as the Crowdcube model plays it, is the misuse of business plan projections.

It is obvious to anyone who takes a few minutes to think about it. If you wish to sell shares in your company, you will promote the best case scenario. Its not illegal and there are no rules; so why not? Encouraged by the platforms, who only get paid if the pitch completes, this is the norm on ECF sites. Our research shows that only one out 60 or so pitches that raised money managed to get close to its projections - most missing by miles.

The effect of this is two fold. Firstly new businesses that fail by miles to reach predicted sale targets, run out of cash and either refund, as below, or go bust. Secondly and more importantly we feel, this encourages existing and young companies to over trade. This then leads to crippling cash flow problems and either refundng or closure. In both cases closure doesnt just mean loss of investors money but loss of money to o/s creditors with all the effects that can have and waste of taxpayers money through the misused EIS and SEIS schemes.

There are many many examples that we have on file but one of the best was a recent one on Crowdcube. The start up company pitching had a YR1 sales forecast of nearly £1m from two outlets in the City. The credentials behind the company looked sound, backed as it was by one of the world's leading business schools.

During the pitch a few queries on the forum started to show some cracks in the plan. For example the dynamics used to work out this strong YR1 turnover included Saturday trading. This was pointed out by two separate people but ignored as the founders said their model was faultless and backed by an award from one of the world's leading business schools. What was pointed out and ignored was that the City is not busy on a Saturday and that therefore one sixth of the calculated t/o or £150k, was in jeopardy before they even launched.

The questions on this issue were erased by the site and the pitch went on to complete.

A year later they were back on Crowdcube. When asked what had happened to the predicted Saturday openings they stated that Saturdays in the City were not busy. This they claimed, having been told that their original pitch stated Saturday trading, was all part of a new businesses learning curve.

You might ask did the new pitch on Crowdcube mention any of this. Or the fact that the sales projections of almost £1m had in fact turned out to be just under £100k or a tenth of the predicted figure. All this with an award winning plan from ..................

No is the answer. The new pitch talked about the way customers loved the product. It mentioned how a few teething problems had been ironed out. Nothing about the enormous gap between reality and predictions.

In the first pitch over 100 investors took part. Of these under 20 chose to back the company in the second pitch and these were largely people who had only invested in this company - so not the crowd. Meaning that nearly 100 new investors would  not have been aware of the gap as described above.

We will let you how these guys get on.

Bank to the Future, Simon Dixon, Laalaa,Tinky Winky and Vince

The UK Crowdfunding Association (UKCFA) had as its founding member one Simon Dixon. Simon was the inspiration behind the creation of Bank to the Future - a Crowdfunding platform which, if you believe the PR, was the world's next big thing.

Simon is an interesting character. An author of various books on new banking, he has made a variety of claims about his past which belong in the land of the Teletubbies. Simon used to appear on Wiki as an investment banker until they were asked to check  - this was then removed. He has never been an IB - he may have worked for a few months in KBC Peel as a trainee but he has never done the enormous international deals his CV claims. His past businesses have either never traded and closed or gone bust having conned students who wanted to get in to the City. He claims to have resigned from Peels after 6 months as a trainee but stories abound about some missing money. Likewise his site, Bank to the Future has not raised the money it claimed at one stage - these claims have now been removed as has the site which is just a holding screen. He is a brilliant self publicist and the internet is his friend. However nearly all of his claims are simply not true.

We know all this because we looked at one of the companies that was pitching on his site. It turned out to be highly dubious and has since closed but not before raising money on the site - IQden for those interested. Another company that completed a £75,000 raise (it was originally £150,000 but was reduced to get it over the line) seems to have vanished - IMD Europe. IMD Global are based in Canada and do not have any EU operation, yet the logo, product and material in the pitch are identical. Ted Leavitt who ran the pitch, is sole director of IMD Health Ltd which seems to have benefited from the raise but has since done
nothing.



Last year Simon Dixon appeared on a business platform alongside Vince Cable. The video that Simon later cropped as only he can, shows him almost alone with VC in a heavy one on one, where VC is agreeing with all of SD's input. Has VC got early onset Alzheimers? How can he be so easily used to promote such a devious and manipulative set up?  Mind you Richard Branson also endorsed Bank to the Future and Simon still has his pic full frontal on what is left of the site. That beard!

One of Dixon's older claims to real status is that Peter Hargreaves (AKA multi millionaire) invested in his company Benedix Investments Ltd. This is the one he set up after he left the big smoke, which was so ridiculed by the very students it purported to help . Checking CH records reveals that a Peter Hargreeves owned 100 shares in the company which had £400 paid up SC. Possible typo? Benedix went bust.

UKCFA have recently removed Simon Dixon from their board - he resigned apparently. Bank to the Future no longer has FCA accreditation; it seems incredible to us that it did for over a year. So maybe this will be the end of Dixon's fantasy career - somehow we doubt it.

The truth is simply whatever you can get away with

A good example of the sort of misinformation that the ECF platforms use to achieve completions is the sad story of Waterbabies the Musical Ltd.

Waterbabies appeared on Crowdcube in late 2013 to raise £1m for the launch of what was hailed as the next West End blockbuster. It was an impressive pitch, big names and lots of gung ho success stories. Even more impressive was the opening of the pitch with £800,000 of the £1m total raised in the first few days.

As usual Crowdcube had been playing games with its potential investors. When asked about the pitch and the £800,000, the founder of the company admitted that the £800,000 was not part of the pitch. It had been raised separately and earlier and no commission was due to Crowdcube for it. When asked whether he thought this was deceitful - to make it appear as money raised via the site - he declined to answer. The questions were then removed.

The pitch went on to complete its ''£1m'' raise and Crowdcube still have this 'success' as one of their largest.

Does it matter? Well yes it does. Firstly it proves that Crowdcube's main aim is to reach completions, no matter what. Secondly as a platform regulated by the FCA this sort of manipulation should not be allowed. The platform makes loud claims to be democratising investment. And finally the poeple who invested the other £200k may have thought that they were riding on the back of something very well supported - by the crowd. ECF has two main sorts investors, people who lead and can be bothered to do some due diligence and followers - the vast majority who just pick pitches that are being well supported and take a punt. As Crowdcube know, the easiest way to complete pitches is to have a rush of funds at its opening. This is not the only time they have pulled this trick.

The Musical launched in Leicester and drowned instantly with the loss of all hands - it was famously described by one critic as 'water torture'. Now in liquidation, the company has no assets and owes investors and creditors £1.2m. Good job Crowdcube.

Saturday, 7 March 2015

Pre packed deals and Equity Crowdfunding


Somethings just dont mix. Pre packed deals and ECF are two of them.

In a recent example of just how badly wrong Crowdcube have got their ECF model, they allowed a pitch, Front Up Rugby, to come back for a third time to raise yet more money on the back of poor sales and missed projections.

The founder pitched all the usual stuff, Rugby WC in the UK in 2015, fantastic sales leads, big new customers signing up, worldwide potential etc etc. Amazingly he raised his third tranche. Of course he missed out the old projections and previous raises were not mentioned.

Shortly after this he ran out of many again - he was paying himself £30k pa on the back of large losses. A fourth time seemed unlikely so he did a pre packed deal with Lyle&Scott. They bought the assets off the administrators for £20k, book value £200k. They gave this guy a full time, well paid job and paid off his business loan. Sharp deal. Was this his plan all along?

He had on the various outings on Crowdcube always been very sure of the fact that he would put investors' interests first. Investors, by the time he closed had put in over £250,000 and outstanding creditors took the debts to over £300k. They all received nothing.

The moral here maybe caveat emptor but surely if we want this type of funding to succeed long term, investors need to know that businesses wont be closed under their noses at the whim of the directors just because they get a better deal and that it is all legal due to some rather flimsy company law. We hope that England's Rugby team have a better experience in the year's World Cup.

The current system will not work


It is very simple - ECF as the UK currently allows it to be run, will not work. This is not a guess or an assumption. It is a fact that is backed up by the all the available evidence.

What evidence? OK lets take a look.

1. Platforms have routinely manipulated the information presented to potential investors to improve the chances of pitches completing. They claim to carry out due diligence checks - the evidence suggests otherwise. Forums are used to promote only positive queries, any negative ones are removed. Some platforms have very poor security, Crowdcube being the worst. Anyone can join and then post comments supporting a pitch - thereby increasing interest in it.

2. Companies pitching and the platforms have used various tactics to prevent the company's real situation being known by potential investors. These include -

  • Moving accounting filing dates so the the pitch completes before accounts (which will be 9 months plus old) are filed. 
  • Pitching for only half or three quarters of the required amount - research shows that if companies can get over the 30% complete mark within the first 20 days of the pitch, their chances of completion are greatly enhanced. Platforms then allow them to 'overfund' and for some reason closely related to lemmings, this overfunding period always surges ahead.
  • Commencing a pitch for £200k with £120k already invested. This is often VC money which is dependent on the pitch completing (a fact not shared with crowd investors) - the better the pitch appears to be doing, the more likely it is to complete.
  • Playing with the time frames
  • Failing to mention that a pitch has already raised money on the site and that then, its projections proved to be very optimistic. Investors would only know this if they had been on the site at the time - maybe two years ago. Those projections are gone once the pitch is finished.
  • Failing to mention that a pitch has or is currently raising money on another site for ECF or P2P lending site.
  • Manipulating the financial snapshot - this is specific to Crowdcube. Pitches post previous 12 months 'accounts' but they do not always tie in with the later filed, Companies House accounts. For example a company might want to hide a LT loan or make it look as though founders have invested more than they really have.
  • Using highly emotive language in the pitch - essentially exaggerating the founders' credentials, the potential market, previous businesses' sales etc. These can on occasions be outright lies, but more normally it's what is not mentioned that is important. One example on Crowdcube was a claim that the founder had been involved in founding her own businesses, 3 of which she had taken to IPOs. It turned out she had been involved in some IPOs whilst working in the City and had founded 2 businesses - both of which had failed. The IPOs and her businesses where not connected although they appeared to be in the pitch.
  • Claiming pages and pages of order enquiries totalling many hundreds of thousands of pounds  - most of which will complete after the funding is complete. They do not materialise.
  • Reducing the funding total as the pitch nears the end of its term so that it manages to complete.
It is essentially a minefield of misinformation. The internet is an easy place to create an image and misinform. The current UK accounting system for SMEs means that even filed accounts show very little and they are 9 months old before they are filed.

This is all small potatoes when compared with the main problem. Pitches use their projections to sell their equity.

Business projections are supposed to steer a business through a middle course - where they can see that cash flow, debt and sales are achievable. If they exceed the figures that's a bonus but if they fall below them, it shouldn't be by much.

There are many examples of pitches on Crowdcube where the projections have been missed by factors of between 3 and 10 - so a company projecting a Yr1 t/o of £860k, in fact produced sales of £86k. All the records we have show that only 1 company to date of the all the ones that have filed accounts since funding, has managed to achieve it projections - all the others have missed them, most by a very long way. This either leads to a cash flow crisis, re funding and or closure. The trail of closures is building - it will take another two years before we see the full results of this hyped funding scheme. By then many firms will have closed, with the obvious knock on effects to o/s creditors and the loss of taxpayers money through EIS and SEIS.

Why are so many ECF reports so poorly informed?






NESTA is a highly reputable organisation. They teamed up with University of Cambridge and University of California, Berkeley,  to produce a definitive report on Crowdfunding in the UK - http://www.nesta.org.uk/sites/default/files/the_rise_of_future_finance.pdf.

In it they state UK equity crowdfunding, as opposed to the much larger P2P lending sector, is producing encouraging results from the funded companies; no evidence was supplied. In another extract, they stated that ASSOB, which has been helping Australian unlisted companies raise capital for the past 8 years, showed just how ECF in the UK could produce winning companies.

Taking the first assertion, not one of the 200 plus companies that have raised ECF in the UK since 2011 has returned a single penny to investors. Of 100 or so that we have records for or that have filed accounts since their raise, only 2 have come close to meeting their projected sales targets - the ones so colourfully published to sell their equity. At least 15 of these companies have already gone bust, not only losing investors all their cash but also creditors and the taxpayer theirs too. What Nesta have failed to highlight is that the data they are using includes the much larger P2P lending market - a market with far lower risks and as similar to ECF as chalk to cheese. This misinformation has already been jumped on by the hyper active ECF PR machine and recently appeared in a BBC report - http://www.bbc.co.uk/news/business-30101365. So now it is a fact - only its completely untrue.

The second NESTA assertion  - that UK ECF is in some way very similar to ASSOB is quite simply baffling. Even more so when the association is blatantly used to state that as ASSOB has only seen a 15% failure rate in its participating companies, that this somehow means a similar rate is relevant to the UK ECF market. ASSOB have very strict rules which no UK ECF platform's come close to. They tend to help Public Co's and have very little to do with start ups. Companies must report quarterly post investment and they operate a secondary market. They are more akin to AIM than anywhere close to the razzamatazz of equity crowdfunding. It is also unclear as to whether investors through ASSOB have seen any ROI - we have not found any examples.

We can only assume that NESTA knows this and so have chosen to misinform. 


What the FEC?

This blog is an attempt to shed some light on the real face of the UK ECF market. Its purpose is to expose the model currently being used in order for the Government and the FCA to see that it simply doesnt work. There is little point in developing alternative funding for businesses that cannot be sustained. It is our hope that someone will read this and take some notice of the facts it reveals. This might then lead to changes that could allow this form financing for our vital SME sector to flourish.  The alternative, as you will see from reading the posts, does not bear thinking about.

Over the past 4 years, since ECF started in the UK, this form of business finance has grown rapidly; unfortunately far quicker than the funded companies.





The data we have, which we will use over a series of posts here, shows the way that ECF sites have been manipulating information given to potential investors, ignoring facts that dont support the pitches and exaggerating the up sides. Driven by Government's misuse of EIS and SEIS tax rebate schemes, where investors can claim back up to 50% of this investment, this is an issue that should worry every taxpayer. This wasted money is currently in the region of £40m and growing exponentially.

Having tried to take this story to the press, we have become convinced that they along with the Government and bodies like the UKCFA have such vested interests in maintaining this growth that the truth will never out. Well now it will.