Wednesday, 7 December 2016

Crowdcube customer service goes missing


Crowdcube sent an email to the unlucky investors in Flavourly, saying how sorry they were for their loss. Oh and giving them no advice on the state of their EIS relief.


Flavourly funded on Crowdcube in 2015. £500k was invested by over 300 people. A few days ago the main shareholders and the key Directors sent a one line note to investors to say they would now be forced to sell their shares - at a ~85% discount to the price they paid for them just over a year ago. We wrote about it here.

Today the same investors received an email from Crowdcube - see below - 

Hi [...],

We understand that the major shareholders of Flavourly Limited have issued a drag along notice to all other shareholders. As the value offered for each Called Share under this notice is less than the price paid by you during its Crowdcube round, you may be able to claim loss relief (if eligible).

If applicable, you should have received your EIS3 form to enable you to claim any tax relief you may be entitled to and if you haven’t yet done this, we recommend you do so. Income tax relief can be claimed within five years of the year you made the investment.

If appropriate, loss relief is also available under EIS. You should seek professional advice if necessary. For more information about EIS, please visit the HMRC website:

 HMRC - 'How to claim EIS tax relief'

Once again, we understand your disappointment and if you have any further queries please do let us know.

Kind regards,

The Crowdcube Team

We put a comment on this post that referred to the loss of the EIS relief as the shares had been sold within the 3 year period. 

To be more precise and to help Crowdcube investors who do not have access to expert advice, we have looked into this further and have found the following - 

1. EIS relief at 30% that has been claimed on this investment will be lost on the proceeds of the sale not the initial investment as the sale has resulted in loss. So for example if you invested £10k and have claimed 30% under EIS, you will have your EIS income tax relief withdrawn based on 30% of the sales proceeds ie ~ 30% of £1500 or a withdrawal of ~£500 of the initial £3k. The loss you can claim is then reduced by the balance of the relief you claimed ie ~£2500 will be taken off your loss claim.

2. So for example someone who invested £10k and had claimed £3k. They would now have £500 of that withdrawn so they could claim only £2500 against income tax. The loss they made when they received their sale proceeds of £1500 is £8500. But they have to reduce this by the relief not withdrawn ie £2500. So they can claim loss relief on £6000 only.  

3. If you have deferred capital gains into this EIS investment then this will also have to be corrected.

You should of course check this with a tax expert. We did. But we are not experts.

So the net result seems to be it would have been better for the company to close. You would then have kept all the relief and be able to claim on the full loss. 

Oh and what about the service from Crowdcube on this? There is none. The interns at Crowdcube simply dont have a clue. Sad but there you are. They really dont give a fig about their investors - but we do :))!!

6 comments:

  1. I'm not invested in Flavourly, but I have a feeling this might be relevant more often in the future and I wasn't aware of the rules, so thanks for sharing.

    Not sure your conclusion is correct though, £4000 in the pocket (1500 sale proceeds +2500 EIS relief) + £6000 eligible for loss relief still seems better than £3000 in pocket + £7000 eligible for loss relief

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  2. Consididering Crowdcube's DD and selection process, I don't know how unlucky these investors are. I mean at least they leave with 15%.

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    1. This is where CrowdCube stinks. Implying rigorous Due Diligence is done, and for a number of reasons you'll just have to trust them on that.........It took a few years for facts to surface (companies to formally fail) & realise that this is DEFINITELY NOT a good idea.

      Excuses for not showing things like management accounts:

      "we cannot reveal actual numbers b/c competitors are watching"
      "we think you'll agree xxxx amount of investors cannot be wrong"
      "we have -insert famous investor/VC-on board, do you really think you need to question us?"

      You are not having an educated punt here at all, you are placing a bet on a nag that is (and will remain) unseen. Where the seemingly 'independent' report you based your decision to invest on is pretty much, entirely produced by the horse (hopefully a horse at least!) owner.

      Good luck with that!

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    2. I think its clear now, to all but Crowdcube and Balderton, that the Crowdcube model stinks. Hopefully we can find one that works and I personally am trying to do this. We do need the FCA to wake up to the Crowdcube flaws first though - which is much like rolling a large bolder up hill - on a wet day.

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    3. Just to say, thank you so very much for the work you are doing here.

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  3. I-COMPLY has just gone the same way. Suggested growth in 2012 would be 3x the investment...
    Just got a drag-along notice that the company has been sold. Consideration is about 29.6% of the gross initial investment (before taking account of reliefs) I reckon about a 54% net loss on this one...

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