Tuesday, 6 September 2016

When fast food goes wrong - Seedrs success Pronto closes after just 3 months.


Pronto raised over £800k on Seedrs just 3 months ago - it has now closed.

That is very fast.

In a deal that included two institutional investors and another £1m to be raised in September this year, the plans for Pronto seem to have imploded almost as fast as the funds rushed in. It seems incomprehensible to us that a business model can be brilliant in June and a dead duck in September. It appears that the £1m anticipated for this month was not forthcoming and it looks very like this may be considered a false inducement to investors in the June round.

Last year the company raised another £1m  via institutional investors. At the time, co-founder James Roy Poulter stated to TechCrunch:


“We are building the food infrastructure of the future, replacing kitchens and supermarkets. Consumer facing apps represent less than 5% of our technology, it is the technology in the kitchens, at our HQ, and with our drivers that is important.”

We asked Seedrs for a comment and Jeff Lynn, the founder and CEO, was good enough to supply this - 

"Pronto raised money on Seedrs earlier this year in a round led by prominent institutional investors Seedcamp and Playfair Capital. As planned, the Pronto team invested the funds into a hyper-growth strategy, but unfortunately despite their hard work they have had to make the difficult decision to cease trading. It is always unfortunate when a company fails, but failure is a common part of early-stage ventures due to their nature. Alongside Seedcamp and Playfair Capital, Seedrs will work with the business to ensure any remaining assets are distributed to shareholders and those investors with eligible EIS investments are able to claim their tax relief. We will as always keep Seedrs investors informed throughout the process."

The fall out from a such a fast demise, should be interesting to see. Seedrs of all the ECF platforms, has the most thorough due diligence and does employ people with some experience rather than interns. However, this failure coupled with Hokkei and Upper St, shows there is some room for improvement. All three failed very quickly after funding and its simply not good enough to claim that this is part of the way start ups perform. 

Pronto's letter to shareholders from the founder, telling them of the closure would be better placed in a Mills & Boon novelette and should be accompanied by Barber's Adagio for Strings. Maybe it helps to explain Pronto's catastrophic failure. See below 

 All

It is with deep regret that I must inform you that we have had to make the decision to shut Pronto.

To be honest, there was hardly a decision; there was no choice. It was now our only option. As, over the last week we have had all fundraising options fall through. And now it would be wrongful for us to continue trading. We have had very lofty goals for this business. Goals that we knew, and have been clear, required significant funding to allow us to execute.

I have not managed to raise any of these further funds.

I think I will write in more detail about some things, however, right now, there are a brief few things I would say.

- You backed something that worked, and could have been unbelievably huge. There are no words that could understate the impact Pronto could have had.

- My entire team has given everything a human could be asked to do to make this work.

- There was no 'fat' in the business that we could have trimmed to give us any longer, everyone and everything was critical.

- As with everything Pronto, there is a lot more involved with our wind up than just sending everyone home, so closing will take some time.

- There are a number of parties that may be interest in our technical talent + technology. We have the most advanced tech for last mile delivery that is operating in London. However, our tech being entirely proprietary is designed exactly for our purposes. And as there is no one doing what we do in London, or trying to, and as repurposing it is probably impossible, there is more interest in just the technical team itself. I am pushing and will update if anything positive comes from this.

Finally, I am vividly conscious of every £ you have given.

Vividly conscious and thankful. I am writing this to an overwhelming portion of individuals who know my team or I, personally, and I can only again reiterate how much we thank you for your trust.

I am entirely sorry that I have not made this work. 

Adieu and again adieu mon amie. 

14 comments:

  1. I'm sorry but this is unforgivable! His exact words were 'we are trying to build 3 businesses in 1. A logistics, food and technology business'. First rule in start up is don't over scale too quickly! We see this far too many times and cutting your coat according to your size is key! Im sick of founders these days playing russian roulette with investors hard earned money and asking for far more than they need at the time. What happened to starting small and scaling slowly! No not now, these founders just want to raise big money via ECF and go all crazy on big marketing campaigns with negative conversion rates. I am a founder of a food tech start up and we are starting slow and growing slow! We don't believe in 'pronto' we believe in 'slow'.

    Great work as usual Rob


    David

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  2. Googling pronto finds the seedrs campaign, where it's listed as "convertible".

    As far as I can tell (correct me if I'm wrong), only regular equity qualifies for EIS. So if the seedrs funds were never converted then seedrs investors will have missed out on EIS relief too.

    PS. Posting anonymously because blogspot is broken, and taking me round in futile circles trying to identify myself. Once upon a time it worked with OpenID.

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    1. Interersting point - you may be right.

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    2. I'm pretty sure the Seedrs convertibles are structured to still be EIS compliant. We are a Seedrs-funded company (mentioned in the report actually) and we looked at doing a convertible recently and had to make sure it fitted with Seedrs' requirements.

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    3. I should expand on that - the "convertible" is "convertible equity" rather than "convertible debt" - which means the investment does not accrue interest, isn't senior to other debt etc. (if I recall correctly)

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    4. I would expect them to be, as that is how they are promoted. However it is worth noting that HMRC retain the right to overturn all EIS and SEIS rebates (plus interest) if companies fail to comply to the full set of regulations for 5 years post funding. As very few people know what these rules are and they are certainly not clear, this is a shit storm waiting to hit land. HMRC will only pounce once a company makes a major exit - ie a major gain for investors. We have not had one yet.

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  3. What a sad story for all involved. They had £800K 3 months ago and now they have nothing. They needed another £1 million which would presumably have lasted them another 4 months, and then they would have needed more. This was a house of cards that was bound to fall down. You have to wonder how much sales they had done - probably minimal. Rob, how much sales did they claim they had done when they did their recent fundraise?

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    1. Not sure as unless you have the business plan, Seedrs dont quote these figures. Whatever they claimed, its plain to see now this was a disastrous idea.

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    2. James Hurley is reporting in today's Times that only £140k came from the crowd investors in this deal. So you're actually talking about the failure of VC, not really crowdfunding.

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    3. Hey anon :)) its odd isnt it that in all the PRing about the raise prior to the collapse of Pronto Seedrs took the credit for full amount - now of course they are claiming that 'only' £140k was crowdfunded. However it still went bust in 3 months and that still stinks.

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  4. I don't think crowdfunding is the issue here. The issue is a founder spinning a web of lies to make his numbers look good and trick people into investing. The issue is a CEO spending £800K in 2 months (they closed the round end June and went bust end Aug) - and on what? Drones?

    Surely he knew in June that his business was not sustainable, and yet he still took money from investors. He should be held accountable for his actions.

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    1. Most the £800k came from VCs not the crowd - they all thought it was a good idea clearly. It maybe this was a just a blip as Seedrs generally do a decent job on their DD.

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  5. I really don't get this.. can someone explain? The company was valued at 5 million pounds in June 2016.. looking at the Seedrs campaign, there is not one number on how many deliveries they've made, growth rates, relevant metrics. So people just accept that something is worth 5 million pounds without knowing much about it. Is this not complete non-sense?

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  6. Could someone let me know if they needed £800K to run essentially a takeaway business?

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