Crowdrating PR spins fairy tales.

There is a certain delicious irony for a rating company with FCA registration giving out what can only be described as misleading PR about their own success. Crowdrating, run by some nice ex city folk in the West Country, has launched a new PR push with a story in Altfi. Story being the operative word. Altfi might consider changing their title to Altfac - as in Alternative Facts.

The article has the bold headline - 

CrowdRating demonstrates it can help investors improve their crowdfunding success rate.

Put simply - it does no such thing.

In the article, which is clearly advertorial, Crowdrating claim that they can help investors make better decisions about their ECF investments. We were curious as to how they would do that.

Well it turns out that they rate pitches into Gold Silver and Bronze. They now claim that 96% of their Gold ratings or 24 out of 25, rated a year or more ago, have gone on to see success - this being measured by positive news, exceeding projections or raising new funds (ones that were in the original projections) at an increased value.

They leave us with a very useful top 10 of their Golds - 4 of which were on Crowdcube. Actually one of these was also recently on Seedrs but they dont seem to know this. We cant really comment on the Syndicate Room or Seedrs pitches as we dont have the data. But the CC pitches are a useful guide to their overall accuracy.

So its really quite simple - do their claims stack up?

For their Crowdcube pitches, they receive a Bronze at best. Why? Well we have no idea, it's not that difficult to get it right but of the 4 they list in the top 10, not one could be called a success. 2 have failed to meet their CC projections, one has raised new cash in a down round which was not in the their plan and another simply hasnt done much in commercial turns. So how can you claim these are all a success. It stretches the word to breaking point. 

Witt Energy - raised on £2.4m CC and were always open about playing the long game. They have not gone bust but there is nothing to really suggest they are a success yet or even heading that way. They have made far greater losses than projected for YE2016 - £430k against CC projections of £240k. Whilst this isnt necessarily an issue longer term, they are about to embark on new £2m raise, so that may tell us more. They were due to bring home revenues of £1.8m for YE August 2017; where any of this will come from is not at all clear as they dont seem to have anything to sell

Inyourstride - raised twice on CC, tiny amount. Missed 2016 figures by a long way and have now raised far larger sum on Seedrs (Jan 17) at a lower valuation. How is that success? It may turn out to be but its way too early to tell now. If anything, a down round suggests the opposite for investors. 

Simply Cook - did exceed CC projections (ie smaller losses) but we think this is due to lack of activity not success. Raised another ~£1.5m on Envestors this year which was not in the original plan. Envestors website says the pitch is on hold but CH records the share allotment. All a little odd and it makes a valuation per round difficult.

Empiribox - Again another Co 'on target or better' but this is due to the failure to raise a planned £600k in 2016 - ie their last accounts show a bit a cash crisis. 

If the 4 in the top 10 are misleading, then what does that tell you about all the others. If you remove these 4, then the percentage falls from 96% to 80%? Who knows where it would end if we checked all the other CC pitches in the 25?

If I was you, Id do my own research. We dont give advice but if we did, it would probably be.............................. feel free to finish this off!

Crowdrating and Businessagent.com team up - is this Premiereship or.........

They claim this will help UK equity crowdfunding. Evidence is a little sparse.

Crowdrating is run by ex City investment folk who have no real direct hands on experience of business start ups  - except for Crowdrating and a few flops. It has been accused of pressing companies, already launched on their equity crowdfunding campaigns, for money to produce a good rating. A claim the company strongly denies. The CEO, Alex Heath, has no record of success in start ups and one quite large failure. His Linkedin page would appear to be ok. 

Businessagent is run by Sacha John Bright, whose experience is interesting but certainly doesnt inspire any confidence he has a clue about creating a successful business. Companies House records 8 businesses that show a very different story to the one he has created on his Linkedin page. For us this is a sure sign of things not being as they seem. A variety of very small or non trading companies, 3 of which have gone bust with zero value and sizeable debts - Mr Bright has resigned from all three just before the collapse. On one occasion his Linkedin page claims he sold out to fellow founders which seems odd as the company had achieved nothing and went bust shortly afterwards.

It is exactly the sort of misinformation that we have been highlighting as harmful for the already tainted image that UK equity crowdfunding has. And unfortunately it is exactly the sort of issue the internet allows to flourish.

The 'article' highlighting this news was in the equity crowdfunding PR rag Crowdfund Insider which really should come with a Government health warning for constantly spreading alternative facts.

One good point about this merger is that this new team will certainly be able to advise on liquidations when the final whistle blows.  

A response from Crowdrating's Modweena

We had an email from Modweena - the CEO of Crowdrating - to tell us that we had got this all wrong.

Sorry...............................

Crowdrating does not receive any money from pitches when it rates companies and publishes them. Quite independently another company, in no way attached to Crowdrating but run by the same people, approaches companies that are in line to publish an ECf campaign and offers them a 'campaign healthcheck' which if they accept, they are charged for. In Modweena's words -  

''This is a nascent Consultancy service that is entirely separate to our publication of Ratings. Being a customer of our Consultancy service cannot influence the rating as each rating is created by our Ratings Engine which always and only uses publicly available facts available to the entire crowd.''

As to our suggestion that the ratings are pointless because they are so diluted, she says -

''Regarding your opinion that our ratings are diluted.  I thought you might be interested to know that we publish the ratings as Appointed Reps of FCA regulated firm Sturgeon Ventures.  All our ratings are approved for compliance and regulatory purposes, and in operating under these rules, our ratings must present a fair and balanced view.''

We would like to make it clear that we are not appointed by anyone or beholden to any Government quango. Our opinions are ours and are based on what we see in front of us and what others tell us.

Nothing Modweena has told us changes our opinion - according to pitching companies who have contacted us, Crowdrating do try to sell their 'campaign healthcheck' and tell these companies that they will get rated anyway ie its better to have the check so we can get all the facts right. The idea of a totally autonomous 'ratings engine' sitting in some London office issuing reams and reams of ratings like something out of a Roald Dahl, is at least amusing. The dilution issue is plain to see.

Crowdrating too dilute to be of any use

We hoped that Crowdrating.co.uk would be a useful tool for investors in ECf.

However it is really very disappointing. Its opinions are way over diluted to be of any real use.

For some reason, most probably political, it is unable to call a dud a dud, instead opting for the more fluffy gold, silver or bronze categories. Of course this may all have something to do with its revenue stream - which has to come from the pitches it reviews.

To take one very recent example - MPB Photographics.

Crowdrating do not mention the valuation which is based on a multiple of turnover. This when the GPM is only a small % of this turnover, taken as it is from the commission on sales. In this instance a fairer multiple would have been that of EBITDA. Costs to achieve the current and future EBITDA are relatively high, leaving a small net profit margin and consequently a very large breakeven or profit turnover. This clearly up scales the risks involved; as the figures illustrate.

Crowdrating also oddly ignores the company set up. Shares are being sold in the new holding co - MPB Holdings Ltd which owns the UK operation and a US incorporated company. No mention of how this is US co doing, when it was established etc is given on the Crowdcube pitch. As the new growth is projected to be coming from the US, then this must be an issue.

The idea behind Crowdrating is a good one but in order not to create offence with its paying clients - the pitchers - it seems to have shot itself in the head.

Crowdrating is utter garbage

Crowdrating has reviewed the company we reviewed in the post below - Eat Well Play More.

This is their considered view of the CEO and CTO's experience - ''The CEO and CTO have formed businesses before and while neither have achieved a successful exit, both have amassed significant experience running these companies''

This CEO, Oliver Pugh, is the guy we described as having set up 6 companies, only one of which traded and even that was for a very short time with a tiny turnover. The CTO is Spanish and has no record of starting or running any companies. How in God's name is that experience of anything apart from applying to Companiesmadesimple.co.uk.

As we said before these guys at Crowdrating are just leeches.  Avoid.

ps - we notice that Crowdrating have declined to rate Brewdog. It has been generally agreed in the press that their equity offer on Crowdcube is too hot and the lack of support for it seems to confirm this. So why have they not commented, could it be Brewdog have enough fire power to sue?

Crowdrating looks more like Crowdbaiting.

It seems news travels fast in the CF community. This was posted on the Telegraph article about Crowdrating.co.uk -

Discussion on Telegraph 10 comments

Crowdfunding charlatans to be named and shamed by new rating start-up

Reply View in discussion

Tom 3 hours ago

We had these jokers contact us with their abysmally written, critical "report" that was full of factual errors, grammatical errors and schoolboyish criticism of our crowdfunding campaign.
They sent an email with the "preview" report, which was of course terribly critical. They'd never spoken to us and it was full of opinion, factual errors and obviously written with the sole purpose of making us worried it would be published. Then when I replied saying their shoddy and unresearched report is nonsense. They got back to me with the canned email (looked like it was copy and pasted) not addressing any of the issues but a vague "I understand you are unhappy with your rating, you can pay for a review to see if we can change it".
They are complete scammers and I told them so. Luckily their website will have no traffic and anyone who reads the reports (Im guessing the others are similarly terribly written and worthless) will see that these guys are just blackmail artists.
These parasites can't create anything of value themselves so they've resorted to blackmailing small businesses and startups who are trying to raise funds with the threat of publishing a negative report.
I shall consider making a complaint the FCA if they do publish it, not that anyone will read or take any notice of their abysmally written "report".
I've informed the crowdfunding platforms too - hopefully they can warn other startups not to pay these leeches a penny for their mafia style shakedown.
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Pretty much exactly what we said below - we do love to proved be right!

Crowdrating just a me too.

It's always the same - get something going and everyone wants a piece of it.

The latest me too venture to hit ECf is Crowdrating. The idea is that this company will help remove the uncertainty of obtaining real information on pitching companies by producing a report for them before they pitch. They charge £2000 for this service although it is not clear if you get a poor report what you can do about it - see this article http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11868437/Crowdfunding-charlatans-to-be-named-and-shamed-by-new-rating-start-up.html

The problems we have with this are many  -

1. In their own PR, Crowdrating do exactly what they claim they are trying to stop others in ECF doing - exaggerate. Mr Heath's stories are fictional or at best highly glossed.

2. The current system in this country allows SMEs with a turnover of less than £6m to file a single page balance sheet for their annual accounts. This is filed nine months after YE (even later for start ups) and is for the purpose of due diligence almost worthless. So Crowdrating will have to rely on the honesty of the information provided by the companies who agree to take up their services. This is pretty well where we came in.

3. What happens to companies that do not agree to pay for the service is not made clear - do they get a bad report and what could the legal position be if the company were to suffer commercial damage as a result. Likewise if you are being paid to produce a report, which to be of any worth to investors must be rigorously independent, what are the chances that it will be? What happens if you find the claims of the company are not quite as they might be - interpretation is a wonderful screen for hiding the facts? The site doesn't tell you if the report you are reading is paid for or not.

4. From 4 years of research, it is clear to us that it is almost impossible to be sure about any 'facts' at Companies House, on the internet or at any of the other information points Crowdrating will use. So given the need to produce data for their clients - who is going to guarantee its truth? Certainly not Crowdrating I will bet.

5. Finally you might expect one of the founders to have a real grounding in start ups and SMEs - consulting does not count! They appear to have none.

It just isnt possible to offer this service at any meaningful level - not doubt it will be a resounding success.