People say we are too harsh on Crowdcube. They were the pioneers and have built up a brand that in 5 years has grown to be worth £65m.
Its a fair point. They were the first and as such couldnt see their own shortcomings. However the problem now is that 5 years on, they still cant.
We dont judge Crowdcube by the failures, not many to be honest so far or the 3 exits - all of which are disappointing. We have taken time to collate a great number of the 350 Crowdcube financed companies' projections and compared them to the reality that follows. 99% of them fail to get anywhere close to the 'sales document' issued and checked over by Crowdcube. A number of them have incorrect historic data and dodgy claims about the management teams, inward investment and sales pipelines. These problems are not limited to 2011/12 or 2013. This has happened recently as well. They are very slow learners.
The PR is fantastic but it cant hide the widening cracks.
We have had a few people complain that its up to individuals to do their own checking. We agree - of course it is. However it is more often than not impossible for non professionals to access the level of information to do this checking. Take The Solar Cloth Company as a recent example. The CEO was using multiple names with HMRC to hide his business failures. Crowdcube themselves, with all their resources, didnt even know about them. Well that's what they say now.
As we have said many times, caveat emptor can only work if we have information symmetry. We clearly dont. Other platforms manage better due diligence so why cant Crowdcube? Well the answer is that up till now they have got away with it. Slowly, we are starting to see that businesses that funded in 2012-2014 have not lived up to the hyped pitches and claims. This all takes time to unravel - time Crowdcube have now all but used up.
We think the evidence is overwhelming that Crowdcube's days are numbered. No real exits so no ROI, increasing numbers of failures and scandals and a current cash grab that has fallen way short of their own expectations, all point to investors' exhaustion. Promises of a secondary market are just that - promises. How can you have a secondary market in failing companies?
In order for Crowdcube to just breakeven, they need to be completing £10 million of raised funds every month of the year - minimum. On today's figures and the way the market is playing out that is just a pipe dream. Dont forget the £65 million valuation is one created by Balderton Capital and Index Ventures to protect their own backs. It's nonsense in the real world. It seems that Crowdcube investors, certainly in this latest round, are being played.
Despite the thumping, endless PR, if you lift the sheets all is not too well. To date (with 4 days to go) the cash grab has attracted 3,400 investors out of Crowdcube's claimed 285,000 members. So when Luke Lang says he is thrilled that so many of our members are supporting us, is he being ironic? Just over 1% of Crowdcube members are supporting you Luke.
Despite the thumping, endless PR, if you lift the sheets all is not too well. To date (with 4 days to go) the cash grab has attracted 3,400 investors out of Crowdcube's claimed 285,000 members. So when Luke Lang says he is thrilled that so many of our members are supporting us, is he being ironic? Just over 1% of Crowdcube members are supporting you Luke.
Personally we will not be sad to see them go. Seedrs, Syndicate Room and Growthdeck are three much better run platforms that do at least have a chance of delivering equity crowdfunding that works for businesses and investors. Crowdcube's continued insistence on making theirs work only for businesses will be their end. After all, without some evidence of substantial ROI, what is the point in risking your cash when you can get good returns (7 to 8%) on secure loans with Funding Circle? The recent farcical exit by Wool and the Gang which has returned 5% to Crowdcube investors, is evidence that Crowdcube investments just dont pay up when they do pay up.
In terms of the difference between projections and reality, how do the different platforms perform in comparison with CC, e.g. Syndicate Room, Seedrs?
ReplyDeleteThanks for the Q. Direct comparison isn't possible as Seedrs don't publish financial projections on the pitch - you have to get those separately from the business and Seedrs do not pretend to verify the information. SR has a totally different model where you are investing alongside VCs etc and so they will have access to information not available to the general public and will have carried out real DD. The problem with Crowdcube is that they claim to do things that they very obviously don't. Would be better if they left projections as unchecked and stated so but then they would not get the buzz from companies telling investors they are the next FB!
ReplyDeleteLet's continue with the comparison:
ReplyDelete3 (minor) successful exits for CC vs how many for Seedrs, SR etc?
3,400 investors in their own funding round (many of them missing out on EIS relief) vs how many for Seedrs, SR etc?
Also, when VCs co-invest on SR then they are good guys as they've done DD, when they co-invest on CC then they are bad guys taking advantage of the illiterate crowd. Seriously?
I would urge you to at least a little research. Neither Seedrs nor SR have been plagued by he sorts of scandals seen on Crowdcube. We have NEVER said that VCs co investing on any platform is bad thing - providing it is done in the open. again Crowdcube used to (and still may) not reveal te full extent of investment from these types. _Pressure from revelations - mainly on here - has changed that.
DeleteWe have not said that any of the major 3 is perfect. But having dealt with all 3 as both fund raisers and investors we know what we know. You of course are entitled to diagree but if you wish your comments to be published here they will in future need some facts - one will do - attached.
To answer your Q's
None so far but they were a year later out of the blocks
No idea - as that was not the point. the point was after all the PR and hype is is our judgement that 3,400 out of 285,000 and £5.8m (taking out the Baolderton £) out of Crowdcube claimed pledges of over £40m is not a great result. Its an opinion with which you are entitled to agree or disagree. But do try to understand the argument. We made no comparison with Seedrs or SR over this - and can see no virtue in doing so.
Ok, here's a fact for you (and I know this might come as a surprise):
DeleteThe £1m from Balderton is NOT included in the 6.9m currently showing in the progress bar.
Interesting idea - how do you know this? I believe it is as the pitch states that the largest single investment is £1m and I just dont believe that any one individual would be stupid enough to put a million in at this valuation. So you will have to confirm this as a fact. If true, it really makes little difference to the overall failure if the figure is (now) £6.9m of £5.9m - both are still a way off what they wanted. Keep trying.
DeleteFor starters it's on the frontpage of the pitch:
Delete'Balderton Capital is investing £1m in this round (NOT on progress bar)'
If that's too cryptic for you it's also in the 'The curious case of the missing £43.5 million pounds' forum:
'Over the past four days, we’ve received over £6.5m of investment from nearly 3000 people on top of the £1m invested by Balderton Capital who are one of Europe’s leading venture capital firm'
Ah - yes of course as Crowdcube tell you it is, so then it must be so. Just like all the other bollocks they publish. Oh dear. Even if true if makes no difference to our argument - this raise has been a flop; they will have to raise more later (oh not they wont I hear you cry as they have stated they wouldnt need to in their Prospectus!!) and will not be at BE by 2018 - but they said they would cried the all believing gullible idiots who invested in this sham.
Deleteps - FYI the progress summary in the pitch reports that the largest single investment is £1m - so from what you and CC are saying we have to assume this is another £1m input from someone other than Balderton. So that means the 'crowd' has invested £5.9m as we stated above. Of course its entirely possible that this £1m is Baldertons and CC are just attempting their usual smoke and mirrors. Happy to help.
DeleteThe £40m was made up of people who would have wanted EIS. It is obvious that, once that was exhausted (which took a matter of minutes), the investment became a very different proposition, such is the generosity of EIS. It is therefore highly impressive that CC have gone one to raise over half as much again (notwithstanding a small number of expected dropouts). To deny this is either poor analysis or malintent. PS - I'm not the same Anonymous as above.
ReplyDeleteYou make a valid point - to a degree. You do not know that your first line is fact - you just made this up and i could accuse you of the opposite of which you accuse me. Crowdcube has raised funds for companies without EIS so it is not that B&W. Granted it will have put a lot people off, but over £30m of 'pledges' which we can never know really existed, has vanished. If £65m was a sound investment then I feel a lot of this would have come on board anyway. But that is just my guess based on my analysis of the facts we have - I would never claim it to be fact.
DeleteOther facts that support our view are that CC put the limit above which they would facilitate the sale of their shares by existing shareholders at £12m raised. As this 'secondary market' is one of their new centre pieces, it seems logical to assume that they expected to get over £12m raised. This would then have launched this key new strategy in the Prospectus. This has now flopped.
Another fact is that CC themselves state that they will not need to raise anymore capital before the BE in 2018. The £6.8m raised now will last them just 12 months based on their own burn rate of £750k pm - if they cut their out of control expenditure. So again analysis would suggest that they hoped for and definitely will need much more than £6.8m to get them to 2018.
Again this is just our opinion - but please if stating yours, produce some facts next time.
PS - just in case you dont know this - Mondo raised over £1m recently on CC in 96 seconds WITHOUT EIS. One assumes this was based on the fact that investors saw this as a good investment rather than a tax dodge.
Deletepps - just in case the facts above are not enough for you - if you need more proof that Crowdcube themselves expected and hoped to raise far more than £6.8m, just consider that they made available £12m worth of shares - their figure not ours.
DeleteLooking at things the other way round,
ReplyDeleteHave _any_ financial projections for the year post raise been anything like accurate on _any_ platform _ever_?
I suspect not - else it would be on the front page of CC/Seedrs/SR/Growthdeck/The Times.
By looking at their pages once a fortnight I think I see a slacking off in new raises and a drop in successful raises.
My theory is we are starting to see the exit of 'faith based' investors - and there are more present at CC than the other platforms.
Yes, SR tends to be more sober in tone, but some of the raises (the business propositions) look just as 'faith based' as the CC ones. The corrective mechanism on SR is that the prospect of writing a check for 4 figures and up tends to concentrate the mind a bit more.
My points here being:
1
Most projections are imaginary, this is because if you are realisitic, in comparison to the others, the numbers look weak and you get less funding or a lower SP.
There is no incentive for any one business to to be 'accurate' (ie realistic) with their projections.
IMO CC are not an outstanding offender here. One answer is regulation like the AIM Broker / Nomad structure where the broker punts shares and the Nomad stops the company publishing utter rot (in theory) - but if you are raising 100k, you need to keep costs down and I can see this checking process getting expensive.
2
I do agree that CC made an enormous strategic error in claiming to have done due diligence on historic facts.
It may be a little previous to claim this is because they did not check rather than they were misinformed or those numbers were not available - imo the mistake was to check at all.
However the Seedrs approach (no checking, historic facts provided by company) does not help provide reliable historic information to a PI either.
I think having a lead investor / vc in the funding round reduces this risk (again like SR) but even that is not a full solution.
3
It is a bit wild west out there, but the costs and ridigities of increased regulation (which is what you seem to be advocating) will just stifle small business access to money (speaking as someone who had 500 in tscc)
One thought
With SR, someone not connected to the company has a large stake in its success
With Seedrs, Seedrs has a stake in a company's success - it takes 7.5% of the profit on exit
With CC, no large unconnected player - or CC - has skin in the game.
Thanks for the input Andrew. Agree with most of it. Perhaps Im too old but back in the day there was certain level of trust and honesty but that now seesm to have disappeared. The truth is whatever you can get away with and currently the FCA are happy to let Crowdcube get away with everything.
DeleteIt's not just the financials, the due diligence on every aspect is poor - meaning that investors cannot rely on a single thing published on their site. We have a lot of evidence.
If we cant a system that prevents this then equity crowdfunding simply cannot work. We have 1 single record of a company that managed to achieve its projections - for its first year at any rate. A London Restaurant that funded back in 2012 St Vibe.
All 2014/15/16 pitches are still too 'early to tell' with the current system we have for account filing.
Its our opinion that a possible silution, or part of it, would be to alter the accounting requirment for companies using ECF. They would have to produce legally binding full accounts for the last 24 months and keep producing full accounts for the next 3 years. Its far to easy with the small company accounts system to hide things/get them 'wrong' and HMRC do not the resources to check. Companies should also be charged say £2000 (or more?) before they can pitch, which could be knocked off the % paid to platform if they were successful. Platforms might then have some cash to employ people to do some real DD.
In the end the problem is that platforms (CC ) are in this for the money and dont mind really what happens to companies they fund.
In the end, it will be the success or failure of the companies that will drive the success or failure of the platform, so they would be a bit short-termist to take that view. Let's see what happens in another 2-3 years when the likes of Cauli Rice etc start to either make real profits, or go bust.
ReplyDeleteThat is onviously the big Q - when are we going to see some ROI for CC's loyal followers? 5 years and counting - do they really have another 2/3 years? Cauli doing ok but disaster with winter cauliflowers, Righteous looking shakey and the fact that pre prepared, bagged 'health food' is a total misnomer do not do it for me. No doubt they are better than many and do try very hard but my goodness they have made some basic mistakes. 2 years max.
Delete