Wednesday, 10 February 2016

Seedrs failure Hokkei indebted to £466,000 in just a few months


Hokkei raised £320k on the ECF platform Seedrs last summer.

As far as we know the Chinese takeaway brand that was to change the way we looked at Chinese takeaways, never opened. It went into liquidation in the New Year.

The liquidators report is still warm and shows the company has been closed owing £466k to a mix of the usual suspects -  HSBC, creditors and shareholders. The company had no assets apart from cash at bank of £15k.

So you have to ask where did all the money go?

£320k from equity investors and another £60k from HSBC has been swallowed up with absolutely nothing to show for it apart from further debts. That comes to one hell of lot sampling of Chinese foods in 6 months - more than £2k per day, seven days a week. Talk about wonton, it would mean several extra tonne.

Surely if money was spent on the first unit fit out, some of this must be recoupable against the fixtures and fittings?

These guys should be banned from ever using this type of funding again.

Seedrs who are on the whole one of the better platforms, should be issuing reasons for the almost instant failure of this venture. If nothing else, we need to learn some lessons from it.

9 comments:

  1. Hi Rob

    Thomas Davies, CIO of Seedrs here. I just wanted to confirm that we are in constant contact with the Hokkei team as well as the liquidators who have now been appointed. We are updating the investors through each step of the process and will be providing them with a report on our findings, including a detailed explanation of where the money was spent. This will be happening within the 'closed' portal, accessible by only those who invested. I understand that this therefore means that it appears that Seedrs is not involved, but I wanted to confirm that we very much are.

    I completely understand that whenever these companies go down, investors are quite rightly frustrated and angry. It is also why I dedicate a lot of our resources to helping both the companies and the investors through the winding up process, so that we can ensure that everything is above board as well as educating them that just because a company fails, it does automatically mean that something dodgy happened. It is worth noting that Larkin, one of the founders of Hokkei, is the personal guarantor on that HSBC loan you refer to, and that remains with him long after the Hokkei winding up is complete.

    It is important for everyone to remember that this is a high risk asset class which will result in a lot of failures. As long as those failures are for the right reasons (people just didn't want to buy the product) rather than the wrong reasons (the company ran out of money because the founders bought a Ferrari) then crowdfunding is experiencing exactly the same as the top VC's who have been doing this for years. But I believe it is the platform's responsibility to be involved when things go wrong to ensure that this analysis is taking place, as well taking action on behalf of those investors if something untoward has happened. We see no evidence of that with Hokkei at this stage, and as anyone in the restaurant business knows, if you don't have any customers, you can burn through capital quite quickly.

    I think your comment about banning the guys from using this type of funding is a little unfair. I see a guy who tried something, worked 16 hours day while taking next to no salary, it failed, and who is personally left with some quite substantial financial scars. That represents the majority of the entrepreneurs in this space, and I hope that investors see this as an inevitable part of investing in this asset class. There will be some winners, and they will provide a healthy return to their investors: But I can assure you that even they would have been close to failing on more than one occasion.

    Best wishes

    Thomas Davies
    Chief Investment Officer

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    1. Thanks for taking the time to post this. It deosnt answer the core question though - where did all the money go? You have here a company setting up bricks and mortar food outlets. they raise £320k from investors and another £60k from the bank and in a very short space of time spend all of this with nothing to show for it. That's why we have posted on it - it does smack of something rather odd. You have not addressed this.

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    2. Hi Rob

      Without wanting to sound like I am avoiding the question, the reason why I can't answer that right now is we are in the middle of completing that analysis with the liquidators, and I don't think it is fair to start discussing that here before we have provide the investors in Hokkei with our detailed findings and analysis. Happy to come back and clarify once that process has been completed.

      I should also say that there is an unfortunate typo in my post above...it should read:

      ..."just because a company fails, it does NOT automatically mean that something dodgy happened.."

      Best

      Tom

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    3. I dont really buy that. The Liquidators summary of affairs is filed - its clear that between the time Seedrs gave them £308k, August 2015, and the closure which was around NY, ie 4 months, the company had spent in excess of £400k and very very oddly now has nothing to show for it apart from £15,825 of cash. Of course we will wait for a further report but it looks very very odd. We have posted your response a separate post as we think this is an important issue.

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    4. Hi Rob

      Just to be clear, that is not the liquidator's report, that is the statement of affairs from the company itself. The liquidator's (and us) are in the process of going through exactly what was spent on what. When we have completed that, we will then be providing those findings to the investors. I am not denying that a lot of money was spent, but I also don't think it is helpful to speculate before all the facts are in hand.

      I hope that helps clarify things.

      Best wishes

      Tom

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    5. Hmm - slightly splitting hairs. This is not simply a statement of affairs provided by the company - its signed off by the liquidators. Yes there can be changes made but it is declared as a factually honest statement by Hokkei so there is no reason to disbelieve it. Is there?? :))

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  2. It's an important distinction. It is filed the same day as when the liquidator's were appointed, which means the liquidators have not, at that stage, performed any analysis of the company. That is what they and us are doing now.

    Best

    Tom

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  3. In my experience (I was here before you) people very rarely lie to liquidators with this initial report so the distinction isn't really that important. Happy to wait though - it's like having a second Christmas.

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  4. If you look at the original cashflows and forecasts provided, you will see that they were flawed, in that cash introduced was accounted for twice showing a far better starting position than was the case - with debts to pay and still outstanding this accounts in part for the loss of the investment cash in such a short space of time

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