Friday, 17 March 2017

Here is a typical Crowdcube 'success' story. And you wonder why there has been no ROI.



Pizza Rossa raised twice on Crowdcube in 2013 and 2015. An LBS award winning business plan and Crowdcube accolades to die for, the Pizza chain is a sad sight 4 years on, with just the one solitary unit.


We asked the London Business School how they allowed their hard won barnd image to be used on such an obviously flawed project but have yet to receive a reply. LBS have asked Pizza Rosa to repspond and below is the email from them 'explaining' how things have gone so very wrong. Apparently the LBS connection is not significant, which rather contradicts the statement made by the CEO of PR 'Our Success Will be London Business Schools Success' on the video! Anyway the CEO very kindly gave us these 'clarifications'.......:)

'A few clarifications follow below.

1- The London Business School did not back the pitch. We won business planning awards not only at LBS but also in international competitions, in front of entrepreneurs in private incubators, with top accounting firms and were finalists in a national competition organised by one of the leading British banks. We were a business incubated at LBS but LBS as a business education institution did not endorse the pitch. Nothing different was stated anywhere and your sentence "Your pitch was backed by LBS" is incorrect.

2- The projections in the initial pitch were based on market research and benchmarked against existing businesses. All projections in the business plans were made to the best of our knowledge at the moment of writing them. The first pitch was based on a business plan for a start up and this was clearly stated in the pitch. 
Optimism is inherent to entrepreneurship otherwise none would leave a secure and comfortable life and get exposed to the risks of starting a business. 

The projections in the business plan for the second pitch incorporated the initial results after opening the second outlet (which opened 5 months after the first). The third outlet opened 10 months after the first (in a progression aligned with the initial business plan). We started commercial agreements with third parties ahead of the initial projections. There were a number of contingent, cultural, commercial and market conditions that forced our decision to close down the second and third outlets.  We were looking to raise more equity in the second round to target a different part of the market and rectify some of the initial assumptions that were proven wrong: we did not achieve that. Our bad, but the above delayed our plans.

3- An an LBS alumnus I found interesting your comment about having done a "real MBA at Cranfield".


4- Crowdcube clearly states that investments in start ups are at risk. It is up to investors to review the business plans to form their idea about investments. The Q&A section in each pitch is generally a very good platform for criticism and skepticism to be exercised on every projection/information included in the pitch. 

We have highlighted the 'reasons' for the closure of units 2 and 3 almost as soon as they opened. We thought this was highly informative.

Pizza Rossa sums up much of what is wrong with Crowdcube's model of equity crowdfunding. 

They came to Crowdcube in 2013 boasting the top award from the LBS enterprise competition. The CEO was typically arrogant - throwing back any advice and denying that there could anything wrong with the model. As it turned out it was fundamentally flawed for the most ludicrous reasons - which says volumes for the LBS enterprise programme.

Even when they returned at the start of 2015 for more cash, they refused to accept that things had not just gone badly wrong but had essentially not gone at all. Attempts to trade units in the City on Saturdays, a point made to them in the first round and flatly contradicted by the CEO, proved disastrous as did new unit openings. Promises in both rounds of a 'chain' have been shown to be total nonsense. There is still, after 4 years, just one unit costing an incredible £600k plus to open. 

Losses have mounted and the latest accounts due out any day will show us more of the same. It has been a total shambles.

Why?

Put simply the CEO and his team didnt have a clue what they were doing. And the same could be said for Crowdcube; although they still picked two lots of lovely commission. LBS seem to have gone to sleep in handing him his ace card of the award - he was not shy in bringing it out to hit people with when they commented on the flawed plans. Crowdcube lavished him with further awards and allowed the company back for a second round at the usual ridiculously increased valuation - £1m to £1.5m. 

Crowdcube vetted and allowed plans that were obviously flawed and projections that were Trumponian. Investors partly dazzled by the hype and in the second round, too afraid to cut their losses have kept this disaster afloat, burnt money and claimed back tax reliefs. 

Another great story for UK plc. 




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