More Alternative facts for Equity Crowdfunding

Borrow My Doggy was reported as having raised £1.5m at the end of 2015. Many of the usual publications picked up the story and issued it as fact. It wasnt.

Reports range from City AM, The Sun, Yahoo Finance and numerous online ECf publications and this release which suggests very strongly that the money was 'raised' - http://www.prnewswire.co.uk/news-releases/uks-first-live-crowdfunding-summit---crowdfinders-live---today-announces-19m-funding-goal-reached-after-four-hours-of-sme-pitches-534962631.html

We were contacted by a shareholder in BMD recently to see if we could find out what happened. The £1.5m was reported as raised by IW Capital through one of their live events - 'Crowdfinders - Make your Business Rock!' - ahem. So successful was this raise that BMD cancelled a scheduled Crowdcube raise. This shareholder told us that several investors were puzzled by the outcome. The news reports were very clear - yes the full £1.5m had been raised at the event.

The Crowdfinders website carries the Yahoo piece and the City AM piece links but they have been disabled. The City AM headline as shown on the Crowdfinders site states -  

''BorrowMyDoggy fetched £1.5 million at Crowdfinders Live. City A.M.''. We would read fetched as raised?

So we spoke to IW's main honcho Luke Davis - a man closely associated with our favourite lady, Ms Horlick. He started by saying that he couldnt understand what all the fuss was about and was this a story being put about by a well known pundit; whom he had just expelled from IW. The story has no connection to the gentleman 'named'. Luke went on to explain that at the event, money is only pledged and that as far as he knew, they had eventually tied up around £1.25m but certainly not £1.5m as reported; although he couldnt be sure of the exact amount. In the reporting, IW is never quoted as saying they had raised £1.5m or any sum. The reports seem to get this figure from an unknown source and they never bothered to check it.

One of the shareholders has said that they believe the amount raised was only just over £1m.

Does it really matter? Well it matters that reports in credible publications can be so far from reality and it matters that companies have made claims that are not true. But then this is equity crowdfunding and the pond is teeming with sharks.

Crowdcube finally admit that their Due Diligence is pitiful.

So at last we have it in writing. Crowdcube have admitted that one of their now failed companies was poorly scrutinised by the platform and they missed a crucial piece of information off the campaign. A piece that would most likely have made investors think at least twice before jumping in. They, as usual, have now last all their money.

According to Crowdcube, they have now corrected the error in their systems and this couldnt happen again. Which is an interesting comment - because it has. A whole year after this company raised its first CC round, the Solar Cloth Company raised £1m. We now know that the information supplied on the platform about the SCC was missing crucial elements - like the CEO's bankruptcy and failed businesses. It is a similar story here - no lies just massive, glaring chasms in the information supplied. The result of a totally amateurish approach. This is the information asymmetry we have been banging on about for years. 

So we have made some progress - Luke Lang never normally admits to anything and to be fair he didnt admit to this - his PRinger did. But it comes to the same thing.

But Crowdcube are still living in the Land of Nod if they think their DD is fit for purpose. We have the evidence that proves otherwise. 

Crowdcube's financials begin to show the stretch marks

Just in case we didnt already know, Crowdcube's latest accounts show just how stretchable their version of the truth really is.

I dont suppose it was mere coincidence that Crowdcube chose to release their latest accounts at the same time as the GE results and 3 weeks early.

According to a piece which appeared in Business Insider just after the successful 2016 £6.5m CC cannibal raid, Crowdcube's stated aim was to break even by the end of 2018. So that would be towards the end of the next financial year. 

Anyone who has read our other piece on Crowdcube's latest accounts will find this very hard to believe. It would mean that for 2017 and 2018, the company would have to hold costs and margins and grow at a rate of 150% pa (based on £4m revenues for 2016). That is a growth rate they have never got close to and considering the last two quarters of YE 2016 had stagnant growth, it seems unlikely. Certainly completion rates since October 2016 have not shown any signs of this kind elevation. Returns for investors have dried up altogether from the small puddle that appeared for a while. Disasters are now monthly. The secondary market has been pinched by Seedrs and IPO's, which appeared in this article to be their Holy Grail, are non existent. 

There is a certain ring to this that reminds me of Theresa May. Ask a question, dont like the answer and so carry on regardless. Totally pointless.

Crowdcube 2016 results are as we predicted - abysmal.

Crowdcube, the UK's largest ECF platform, has announced more heavy losses on falling margins and increasing costs. Pretty much as we expected. You might say, as predictable as The Donald.

The big time backers of Crowdcube must be worried. A 48% rise in revenues has resulted in a considerable fall in GPM and large increases in costs. Net result - an increase in losses for the year to £5.4m. At this rate the company has roughly another 18 to 24 months before closure.

The fall in GPM, caused by their rather panicked urge to make larger deals for PR reasons, from 57% to 52% must be a cause for concern. And the increase in revenues of £1.3m has been more than wiped out by this and their increased costs. It all looks out of control.

The really bad news is that even with these increased losses, they are not heading in the right direction - large deals are clearly impacting margins and the smaller ones are stalling - other platforms do these better. They have now lost their first mover advantage. The accounts are for YE September 2016, the same 2016 that Luke Lang predicted would be such a great one for the company - endlessly. Now the spin doctor is way out of his depth. 

As with all things, the end game will take a while to play out, but end it must. Maybe a white knight will step up and take over - god knows they need radically new management and some sensible strategy to turn this loss making business around. Accrued losses now sit at £12.7m as at September 2016 and will right now be way higher as we predict even greater losses for 2017. 

In the 2016 raise, that they performed on their own platform, they had some interestingly colourful graphs showing their success. One of these showed quarterly (stated calendar) revenue increases. So for Q4 15 and Q1 16 they showed 78% and 125% respectively. As we now know, the overall annual increase in revenues was 48% for YE September 2016. You do the math. Q2 and Q3 16 must have taken a vacation in Acapulco.

In the same MI, Crowdcube stated that their revenues to March 2016 or the first 5 months of its financial year, were £2.07m - this is the section where they try to explain their £65m ticket price......unsuccessfully. According to Crowdcube, the March to September period is more productive than the October to February one on a month by month basis - or that's the line that was sold  Yearly revenues for YE September 16 were under £4m. Bummer.

Management were careful not to include simple revenue projections - too easily scoffed at later on. But just to give you an idea of how clueless these guys are, in their 2012 pitch on CC, they predicted 2014 net profits of £3.7m on revenues of just £4.4m. Where are we in reality? Revenues of £3.95m with loses of £5.4m. That is staggeringly inept even for CC. Do you think people would have invested if the real figures had been known? It may help to explain why Darren and Luke have never run a successful business. 

On these current figures, they need revenues of over £16m or at a 5% average commission rate (their stated rate is only 4%) annual completions of £320m just to reach BE. This year saw revenues of under £4m. At the current rate of increase pa, we are looking at a minimum 4 to 5 years to break even. So that's roughly another £25m of losses. That's without any increase in costs and a continued 40% increase in business every year. Unlikely? You bet. Their dream of a secondary market is just that and is already being trialled (rather weakly) by their arch rivals Seedrs.

Who will go first - the orange guy or the spinners? 

Is Ernest mad?

Ernest is on Crowdcube. He's a fintech app. Either we are mad or he is.

Ernest doesnt really exist yet. He doesnt have any customers and hasnt been sold to anyone. Ernest is apparently worth £4m in his underwear.

That's not the crazy bit.

This year Ernest will bring in under £10k of revenue - projected.

Next year Ernest will bring in over £1m of revenue from around 15,000 newly acquired customers. The CPA this equates to, is approx £10, based on their answer to a CPA query. Now that's the mad bit. (We have ignored revenues from the white label plans given the time frame). 

The idea might work but the budgets certainly will not. They will run out of money well before they obtain 15k new customers and will need a lot more to get there. So dilution or extra investment is a given.

You do have to worry a little about the management that put together and stands by this budget.

We love you we really do possums!

Oh Powervault - you returned, again. So lovely to see you. A fourth time? Yes that's four times on Crowdcube and still you cannot get anywhere close to your projections. Oh well, we love you little critters with your energy packs anyway.

For all you possums out there, trying your hardest to lose your money, this one is a dead cert. Luckily Crowdcube have decided not to mention all the other 3 rounds with increased valuations against failed KPI's. On the pitch forum the outstanding Q is so far  - 'how many times have you raised on CC?'

We can tell you that this is PV's 4th time. That's probably a record. Those naughty little generators are so thirsty. 

We can tell you that they have missed their projections from the 2016 CC campaign by a very handsome margin - in this KPI they are consistant. And that they expect to sell this company after 2020 making all you possums a pretty penny. We dont know when they expect to make a profit but then it deosnt matter as their predictions are nothing if not totally unreliable. 

So invest invest invest. You know you want to.

Fake news is all the rage in Equity Crowdfunding

Just when you thought it was safe to go  - BAMM - more crap hits you in the face

We wrote about this here  and now we have the finale to prove the point we made before.

Satago was one of this high flying jam tomorrow internet nonsenses we are seeing so frequently. It burnt through its money raised on Seedrs and promptly arranged a pre pack deal to sell itself out of administration. The cash realised was enough to pay off some of the creditors debts but investors lost it all. 

This was reported by none other Beauhurst as a successful investment!

They wrote - 

What happened to the startups of yesteryear?

This week has been rewarding for investors in high-growth companies: Xafinity Consulting raised £190m in its IPO on the LSE; Ramsdens raised £15.6m with an IPO on AIM; and Satago, Customade, Root6, and SecretSales were all acquired.

What they say is not untrue - it was acquired but investors might baulk at the idea that got any reward. 

This is what Jeff Lynn CEO of Seedrs said about Satago in June 2016 just after they had secured further institutional funding - it makes for great reading when you consider Seedrs claim that any of their businesses that go on to raise more money at a higher value have produced real ROI for theie investors. This proves that to be total BS Jeff -

Satago was one of the first businesses to raise funds on Seedrs, shortly after we launched in 2012 so we’re thrilled to see their on-going success. The £4.6 million institutional investment they have just raised is wonderful validation for a great company, and shareholders who invested in Satago a few years ago on Seedrs are enjoying a huge increase in share value as a consequence.”

As administrations go this one does look legit - creditors did benefit or at least they got some money back. But isnt it time that with the rise of ECF we started to consider ECF investors as creditors? As ever the only people really making anything are the insolvency practitioners.

Note - we had previously stated here that Satago raised £1m on Seedrs. This was incorrect and has been altered. Thanks to Steve Renwick for pointing this out.