Friday, 10 March 2017

Seedrs' Jeff Lynn explains why equity crowdfunding projections have to be fantasy


So now we have what has to be a first  - an explanation from one of the UK's leading equity crowdfunding platforms, as to why so many companies miss their financial projections by so far.

And we have this from the horse's mouth. 

We were asking about another issue about a specific pitch and its projections, which will become a post later, when Jeff Lynn, the much heralded founder and CEO of Seedrs, explained why projections in this sector had to be so far removed from reality.

Here is what he said - 

....financial projections for early-stage businesses are intended to be best-case portrayals of what success could look like, not a conservative view of the most likely outcome. That is how every institutional and professional investor in this space looks at them, and that is how every entrepreneur is taught to build them. I therefore feel, and have always felt, that the premise of your attacks on most Crowdcube-funded companies is very unfair to those entrepreneurs, as it expects something of them that is directly contradictory to the expectation set for them by everyone else you are working with. I don't think you care about that (and I am sure you will post some sort of snarky reply to this on your blog),......

So there we have it. In B&W. Its the norm and we are the only people who dont know this.

We dont agree and we have been involved with company start ups for over 30 years. Our evidence is irrefutable, as the report on Crowdcube will show. Entrepreneurs are not entrepreneurs because they have some idea and put together fantasy numbers to sell equity to 'investors' on Seedrs or Crowdcube. 

We'd like to hear from anyone who agrees or disagrees that projections used to sell equity to the public - as in the case of ECF - should be the fantasy figures that the company CEOs dream about, or if they should be at the very least middle of the road sensible, attainable figures. Of course CEOs can always state in the PD, that the figures are conservative and they expect to exceed them. Oh....actually that is what they often do. Which in turn begs the Q; what is that the CEOs know that Jeff Lynn doesnt? 

Not sure if this is snarky enough for you Jeff, but we tried.

The big story is to follow..........

7 comments:

  1. That's a very interesting topic! In a way I understand what Jeff says: do you remember the "new economy" of the 90s? That's exactly what happened, the companies had to justify their valuation by inventing "alternative" multiples (number of subscriptions or clients and so on, as there were no earnings). It's again a basic matter of offer and demand: you see that people are buying the Crowdcube projections, so probably also Seedrs has to adapt to the trend. You have to put your very best projections to be competitive. As usual I think soon the reality will kick-in and the bubble will burst. Difficult to predict exactly when. For the moment Seedrs & Co need to dance as Chuck Prince (Citigroup) said in 2007.

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  2. I dont believe it has to be like that - Jeff is wrong and Seedrs are wrong to do down the Crowdcube track. More patience is required.

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    1. I didn't said he is right, I said that I understand the trend and I think it is similar to 1999 or 2007. I think crowdfunding is an excellent tool, but the risk is that the current excesses will destroy it. My 2 cents.

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  3. Totally agree - thats why we are trying to change it

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  4. This is comedy. I am actually shocked too. I just think Jeff Lynn spouts such crap because his livelihood depends on it. What if those best case scenarios depend on events that have low probabilities?

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  5. Wow, best-case portrayals - in this case I would say that the financial plans should be even more optimistic. There is not limit to the best-case scenario in my opinion. This is really ridiculous.

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  6. What is also evident from the quote from Jeff Lynn is that he views these projections as an aid to the entrepreneurs to raise cash and not an aid to the investors make an informed choice. I am going to be very surprised if most of these crowdfunding sites will be around in five years. I'm afraid that I cannot see Seedrs surviving, at least in its current form. If the government withdraw EIS & SEIS that will only accelerate this coming trend.

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