Strategically Closed

A pitch from Action Petz popped up on Seedrs yesterday, they run indoor dog parks – think along the lines of a children’s soft-play centre but for dogs.

Their model is franchise based, they currently own and run a site in Newport and have a site running under franchise in Bridgend having ‘strategically closed’ a site they previously ran in Cardiff – They’re yet to branch outside South Wales.

I’m not sure what ‘strategically closed’ actually means, maybe it’s  a phrase  Idea Squares came up with when they helped with their pitch. In my cynical mind it doesn’t sound good, but it is perhaps a better than saying it didn’t do too well. They do go on to say that they are going to re-open the site at some point in the future, so maybe things aren’t so bad?

Putting the ‘Cardiff’ question to one side, I remain unconvinced by the proposition. As I mentioned, the model is Franchise based, in order to start a franchise you have to have a proven product and business, it feels to me like they are jumping on the franchise model far too early. I’m also not sure why anyone wanting to run a dog park would feel the need to go down the franchise route and give away 8% of their turnover. The closest thing I can compare this to is an indoor soft-play centre, the majority of which are run independently, if I wanted to setup a dog park I think I’d do the same.

Birds Flying High

Bird Cycle Works published their accounts to CH a couple of weeks ago – I just got the notification today (thanks CH). Micro accounts as usual, so we only get to see a balance sheet. But we can at least see their PnL Account has gone from -£21,445 for y/e 30th September 2015 to -£4,536 for y/e 30th September 2016 implying they made a profit last year – Excellent news!

I last talked about them back in March I suggested they were doing well despite being a bit quiet on the update front. Since then, they’ve been a bit more forthcoming with updates, recently announcing the ability to supply bikes with certain 2018 components before anyone else. I still want a full suspension bike and they’re top of my list when the rule of s-1 (see #12) swings in my favour.

A Good Storii

Today I’ve been accused of only writing negative blog posts, whilst I’ll admit the majority of my posts aren’t filled with positivity, I do occasionally find something to be positive about and today is one of those days.

StoriiCare pitches itself as “a care management system with life stories at its core”. In short, probably the best way to think of it is as a social media platform for people in residential and care homes. It allows residents to (with help from their care workers) connect with their families and loved ones who then share pictures, memories and such like. When put like that, it seems ridiculously simple, they do a much better job of explaining things in their pitch on Seedrs, which when I read it for the first time I found compelling.

Whilst I don’t personally know anyone in residential care, I can see how this platform could be useful for those in care, their friends and family as well as care home staff. I feel their list of benefits speaks for itself:

– Improved family interaction with those in care.

– Improve staff recognition for their care.

– Reduce paper, ink and stationary costs for providers.

– Reduce staff time spent filling in outdated paper forms.

– Improved care ratings.

I’m not sure about reduced ink and stationary costs being a key driver, the other four are probably more than enough in terms of justification. Given this is one of a few small niggles I have about the pitch, I’m inclined to let them off.

On the subject of niggles, as Seedrs investors we’re used to seeing pitch decks and projections attached to most pitches – these are notably absent in the case of this pitch. I mentioned this to them in an email yesterday, they’ve assured me that a deck is in due to be attached very soon but it’s just undergoing review – A good sign in itself. I also mentioned the fact that their accounts were due two days after the pitch closes, again they were forthcoming and have offered to share their accounts on request – another good sign.

In my opinion, the good far outweighs the bad on this one, it’s refreshing to see a compelling idea combined with a decent pitch. I’m not even going to mention the valuation (£3.3m) other than to say it seems a little high, I’m just going to invest a modest amount.

Pitching for Dummies – Lesson 1

I’ve been away again so haven’t had a chance to keep on top of what’s going on in the ECF world. One thing that I did notice whilst I was away were a number of emails from Seedrs notifying me of responses to document requests.

As you probably know, Seedrs allows companies who are pitching on the platform to upload a number of documents – usually there’s a pitch deck and possibly some financial projections. Instead giving potential investors automatic access to these documents, each potential investor has to request access, it’s then up to the ‘lead entrepreneur’ whether you get access. The precise reason for this hoop-jumping exercise is unclear – Seedrs do point out that these documents are not vetted by themselves so perhaps this has something to do with it.

Anyway, I like to request access to the documents for most pitches as part of my due diligence. Most companies respond within a couple of hours and at worst a couple of days. However, recently I have noticed a number of responses coming back weeks after initially requesting access. Companies who can’t be bothered to answer in a timely fashion don’t deserve my investment – other investors must be thinking along similar lines as the very same pitches seem to have a tendency to struggle – One I could mention is currently begging investors to invest just a little bit more on the discussion boards so they can limp over the line.

So, for anyone thinking about pitching:

Lesson 1: Respond to all document requests within 24 hours for the duration of the pitch.

 

A Final Flourish

Tonight sees the close of the first secondary market trading window on Seedrs – I presume the absolute deadline is midnight but given Seedrs reputation for removing pages that show them in anything but a positive light and my lack of interest in staying up that late I thought I’d do a quick round-up now before anything disappears (10pm Monday 12th June).

If you read my last update you’ll know things stagnated after the opening day with only a handful of new transactions. Things look to have picked up a little over the closing weekend, with another £4k worth of transactions between 8th and 12th bringing the total to approximately £14,700 representing an overall take-up of 37% in monetary terms.

The main takeaways from the final figures suggest both Glentham Capital and Torch should be avoided at all cost, they had the highest value of shares on offer (£3,804 and £3,600 respectively) with the lowest take-up in percentage terms (0% for both).

At the other end of the scale we have seen some movement over the course of the 7 day window. At the end of the first day, just £154.20 of the £3,153 available Wriggle shares (split over 6 lots of varying sizes) had been snapped up, take-up increased as the week progressed, with an additional lots being reserved on both 7th and 8th. As of this evening, all lots in Wriggle have sold making them the biggest seller in value terms. Wriggle have raised three times on Seedrs between February 2014 and April 2016, I’m guessing with an ever-increasing valuation – I suspect this is a case of early investors cashing out and later investors seeing a degree of potential in the underlying company. I’ll have to do some more in-depth research on this one!

As mentioned in my first article, bother Swogo and Adludio F.KA Future Ad Labs proved popular. Perhaps a little more surprisingly a single lot valued at £1,000 in Times Place Brasserie went through in the final days – As a (very small) holder I can’t really see the attraction, my recent article called into question the makeup of the shareholders and whether Nicola Horlick was still involved, the company provides naff all in terms of updates and I see little in the way of opportunity for positive returns – I feel only Seedrs are going to make any money on this one.

It’ll be interesting to see what happens next month… There’ll almost certainly be more lots available now that people have had a chance to test the water. Hopefully, Seedrs will do something about the platform to improve things for buyers and sellers – in its current form, it’s little more than a minimum viable product. As a minimum, we need:

  • The ability to bid on partial lots.
  • The ability set bid/offer prices.
  • The ability to buy/sell outside our current holdings.
  • The ability to see full prior campaign details, forum posts and communications for all lots on offer.

I feel the last two are wishful thinking at the moment, the issue transparency still remains. I very much doubt Seedrs will offer us a chance to buy outside existing holdings without some very big caveats.

One Daylui Left

It seems an age ago that I first spent some time looking at the Daylui pitch on Seedrs. This lot never really got off the line with just £36k committed against a target of just over £115k with less than a day to go.

I seem to recall I sent them an email asking about their pending strike-off notice (as with most emails I send, I didn’t get a direct response), that now looks to have been resolved, I’m sure that didn’t help their cause but the main problem with this one was the poorly thought out idea and the amateurish team that shone through in the pitch… And I still don’t know how to pronounce Daylui!

A Second (and Third) Look

The Seedrs seven day secondary market trading window has now been open for three days. I gave a round-up of the first day of activity on Tuesday. Since the initial flurry of activity, the tumbleweed has started rolling with just four more lots being snapped up since my initial analysis.

There’s been some take-up on two lots in Wriggle and one lot for both Stamplay and Moteefe taking the total value of all trades to approximately £10,890 (up from £9,060 on Tuesday evening).

It seems all the perceived bargains are now gone, I don’t think we’re going to see much movement over the remaining four days except for maybe a few toe-dippers wanting to get involved for no other reason than to be involved.

Secondary Analysis

It’s just after 9pm on Seedrs’ first ‘Trading Tuesday’ – The 7-day secondary market is open for business. Those wishing to sell had until a few days ago to make their intentions known so their listings would appear first thing this morning, sellers who missed the boat will have to wait until July.

Seedrs members received an email from Thomas Davies boasting of 111 live buying opportunities – let’s take a look what’s happened since launch.

Of the 111 lots listed, 49 (>44%) are currently marked ‘Under Offer’, however lots can only be bought in the blocks in which they are offered by the seller and they range in value from £10 to £1,000 so the number of blocks sold tells us nothing.

Based on Seedrs’ idea of market prices, the 111 lots are offered at a total of more than £39,000 (Euro denominated offerings have been converted to GBP @ 0.87), the sum of those that are currently ‘under offer’ totals just over £9,000 (just over 22%), not quite so impressive.

Looking at the companies on offer we can glean a few things some of us probably already know. Glentham Capital takes the prize for most shares on offer (£3,804 worth), they also win the prize for fewest shares under offer (zero). They are followed closely by Torch with £3,600 on offer and again zero under offer. There are plenty more with zero take-up, but none as bad as these – the next in line would be UnderTheDoormat with £1,483 on offer.

At the other end of the scale Adludio F.KA Future Ad Labs (snappy name) have 100% take-up on the £1,695 of shares offered, the same goes for Swogo (£1,486) (as predicted), Wonderush (£993), Veeqo (£766), No Agent (£522), Hummos Bros (£493), Frenzi (£492), Pap (£492), Gearbox Records (£200) and YellowDog (£177).

When looking at these numbers its worth keeping in mind that the degree of take-up is unlikely to be driven by price alone – the number of shares on offer in each lot and consequentially the total lot value is likely to have a significant impact with smaller lots more likely to sell than large (average value of those under offer is just over £184 vs £493 for those that remain on the table). So those companies with zero take-up mentioned above may just represent one big block – I can tell you that this isn’t the case, in fact Glentham Capital rules the roost in terms of number of separate lots on offer with seven, torch again takes a close second with six lots available.

Once you’ve digested all of that, don’t forget Seedrs are set to recognise over £600 in revenue and have lined themselves up for multiple bites of the cherry by keeping everything within their platform. It’ll be interesting to see what the next six days bring and if anyone is brave enough for those Glentham Capital shares on the table.

 

 

And They’re Gone

So Sugru has apparently gone from a company who almost failed to fund were it not for CrowdCube’s generous pitch extension to a company who exceeded their target to raise £2m (33% more than their initial target).

I personally never thought Sugru was a good value proposition and didn’t invest, I think others initially held off for the same reason. I’m not clever enough to answer the question of why this pitch closed at £2m – Maybe I’ve missed out… I’m going to be following them closely over the next few years.

Secondary Thoughts

I’ve been thinking a lot about this secondary market thing Seedrs announced the other day. As described in its ‘beta’ model, Seedrs are dictating prices based on their own valuation model, effectively valuing shares at the price of their most recent raise, assuming the raise took place in the last three years.

In my opinion, this model is wrong on several levels. We’ve seen businesses raise significant funds, blow the lot and wind up in well under 3 years, I’ve been burnt by Hokkei, Delivery Club and Read Bug myself – all raised on Seedrs less than three years ago and are either winding up or have already been dissolved. These are the companies who’ve been relatively honest about their shortcomings or have just completely run out of money very quickly. There are plenty more companies still burning through their money, missing their targets and going nowhere.

By limiting buyers to companies they already hold, I think Seedrs are trying to say that existing investors should have a better view of the company, by having access to the original pitch and the subsequent updates and discussions. For some companies, this might be true, but if you read this blog you’ll know that getting updates from some of the companies I’ve invested in takes a degree of public shaming and even when they do materialise they are often vague. It’s worth noting that these updates are completely unvetted, Seedrs have a big box saying as much at the top of every ‘updates’ page, there is nothing to stop a company adding a shiny gloss to these updates or worse still just plain lying. The only thing any of these crowdfunded companies are obliged to do is file accounts 9 months after their year-end, and we all know a lot can happen in the space of 9 months.

This is simply not enough to form a view on price. If there are questions about the state of the company through a lack of updates or disappointing accounts have been filed then the price should arguably be lower than the Seedrs ‘fair value’ but we won’t get the option to sell at that lower price.

We also have the issue of transparency and privileged information – I was thinking about this issue a few days ago and have asked Seedrs directly to respond to a few questions, since then a similar question has been asked on the Seedrs discussion board. Jeff’s response:

“we can’t (and wouldn’t want to) regulate the communications between investors, but as you say, we can make very clear that it is not regulated, and there will be other things in the relevant documentation to make clear that, if the seller misleads the buyer, the buyer could potentially have a right of action against the seller.”

So they admit that communications between different investors in the companies can vary and they immediately cover themselves by citing the fact that these communications are unregulated. They also state that anyone who might have been misled may have the ability to take action, whilst that may be true I’m not sure it’s the sort of action the average small-scale investor might want to take given the potential cost, complexity and uncertainty around the outcome. There seems to be a disregard for the damage this sort of thing might do to their reputation if and when questionable trades hit the platform, there’s certainly no suggestion that Seedrs would even help out in such a case.

Whilst we’re on the subject of the discussion boards, it’s worth noting that Seedrs’ discussion board is only available to Seedrs investors – There have already been a lot of useful discussions that I think all Seedrs members would benefit from – Let’s see what they think of publishing to a wider audience.

More thoughts soon.

Lowest Common Denominator

Late last year, WeSwap managed to attract 2,961 investors to raise over £2.4m, during their raise they offered an array of investor perks, perhaps they’re not the most straight-forward criteria but I think I’d be able to work out what I’m due based on any investment.

Since completing, the discussion board has been awash with questions, queries and pointless statements to the point where I’m now completely fed up with reading them.

“Hi. I accidentally hit the ‘today’ button when buying and have incurred 1.4% charges. Is my mistake covered by my shareholder perks? I have not got a shareholder card, but I have invested £5000. Thanks in anticipation.”

Oh dear, you’ve also wasted my time by posting an inane comment – Suck up the fee and move on as quietly as possible. I should point out that the fees are clear on their website and so are the perks, why this chap has to waste the time of 2,960 other investors to get an answer to a question he could get bilaterally with WeSwap I don’t know. He’s even posted his name, there’s a good chance he’s a news broadcaster.

“I recently withdrew €100 from a Societe General ATM in France. They charged me an outrageous €1.75 for the privilege. I cannot find out if this isa fixed fee or a fixed percentage. I know when I go to South Africa there is a fixed fee so I withdraw the maximum. It would be useful for WeSwap to have a help page on this issue.” [sic]

This question has sparked a never-ending thread about ATM fees, with one responder proposing to somehow monetise a database of ATM fees. There is some hope; one sensible responder rightly called into question the obsession with monetisation, which did bring a smile to my face when I read it.

“Hi all I’ve bought shares (actually for a different company) on this platform on the second hand market. Please note that the EIS benefit is lost so anyone looking to sell has to understand the price is likely to be considerably below what they paid (e.g. Around 50%).” [sic]

This one doesn’t even seem to apply to WeSwap, the original poster never bothered responding but that didn’t stop a string of pointless posts.

How do i sell my shares” [sic]

This is a very worrying comment, anyone throwing money at the companies raising on Seedrs should know how to sell. Perhaps it is innocent but poorly worded and they weren’t aware of the process. I doubt it though, the FAQs state that sales require a private agreement with another investor. The subsequent discussion does suggest she may have been successful in her sale.

“Ive moved house and am struggling to put my new address in can anyone help ?”

Yeah, I can help, just post the long numbers on all of your credit cards, the three-digit security codes, the expiry dates, your address and date of birth and I’ll update your records for you.

 

This sort of thing goes on for pages, I haven’t seen this sort of thing on any other company I’ve invested in but suspect it may be a sign of things to come. WeSwap was high-volume raise in terms of investor count, I would speculate that a decent proportion were Seedrs virgins, perhaps investing purely for the perks as current WeSwap customers. With this, perhaps they don’t realise the etiquette of the discussion boards, i.e. don’t post stuff that other investors aren’t going to be interested in, don’t post things that make you look stupid and don’t post things that are unrelated to the company. Whilst not written down I don’t think it takes much common-sense to work it out, after all, we are supposed to be experienced investors.

Look At Them Go!

Sugru’s still open for investment and they’re 12% over their target with three days to go – The very same Sugru who struggled for weeks to hit their 100%. I’m not sure what (other than hitting 100%) has made Sugru a more compelling investment today than it was a few weeks ago?

Self Assessment

The Chapar are currently raising on CrowdCube, they’re an online men’s personal shopping service – You register, tell them a bit about your style and they send you a box of clothes they think you might like. You pay for what you like and return the rest – The exact same model as Enclothed, who failed to hit their target in their latest raise a week or two ago.

I had a bit of time to give their pitch the once-over today, as usual, the most interesting part was the discussion board, specifically a post from Kunaal (thanks Kunaal!) questioning the veracity of their Google reviews. Currently, The Chapar have, what on the surface appears to be an impressive score of 4.8 on Google reviews. Dig a little deeper and you’ll notice that a few of the reviewers (Jessca Ong, Ellis Yates, Olivia Haith, Tammy Barratt, Victoria Higginson, Casey Foster, Olivia Austin, Rachel Murtagh and Christopher Seddon) work for The Chapar (according to LinkedIn) as opposed to being actual customers. So of their 18 reviews, 9 are from staff members in what appears to be a coordinated effort, all of the reviews were left three weeks ago! To make matters worse, I have question-marks around a number of the other reviews, only a few (less than 5) reviewers have a track-record of actually reviewing things on Google, the remainder only felt the need to review The Chapar and nothing else.

The Chapar did respond to Kunal’s initial shaming with this flim-flam:

I take issue with this response; if the Google review system is meant for sneaky self-promotion, why do they provide the ability to flag ominous looking reviews for conflicts of interest?

To make matters even worse, now that they have been pulled up on their sneakiness they’ve gone quiet on the subject – Do you think burying your heads in the sand looks good to potential investors…? We know you can see us, you are responding to other posts!

Seedrs Go Secondary

This morning Seedrs officially announced their intention to open a secondary market on their platform. Whilst this will hopefully stop the increasing number of discussion posts from investors looking to off-load their positions, the announcement does raise some interesting questions.

Seedrs look to be treating the roll-out as a ‘work-in-progress’ starting “this summer”, in its initial form (labelled the beta phase) the market will be ‘open’ for one week, starting the first Tuesday of each month – At the moment we’re not sure if that’s going to be 6th June, 4th July (get ready for a predictable marketing campaign) or 1st August (hopefully their definition of summer doesn’t stretch further than that). On that Tuesday, sellers will be able to offer their shares up for sale for the duration of the week. Potential buyers will have to already hold shares (presumably via Seedrs) if they wish to buy, in other words, they can only increase an existing position. As far as valuation is concerned, shares will be offered at Seedrs’ definition of fair value – Effectively, this is the value of the company at their most recent fund raise. The release goes on to note that some companies will be ineligible for listing at some times to deal with significant corporate actions.

With these constraints I feel this initial launch has limited appeal, I can only think of a handful of scenarios that would result in someone putting their shares up for sale:

Investors wanting to liquidate because they need the money. Despite the warnings, we’ve already seen this on the forums. If you need the money, you have to question why you are investing on the platform in the first place. I’d have to be in serious trouble for me to even contemplate listing for this reason and even if I did, I don’t think I’d admit to it.

Investors who have the foresight (or think they do) to know that the 7.5% hit they’ll take (yes, Seedrs are charging their fee to the seller any sale) is the best they can hope for as far as any return is concerned. Having thought about this, I’m going to go through my portfolio to see if there are any I think fit this category, even if I do find some – I’m still going to need to find a buyer.

Investors in companies who’ve raised multiple times with increasing valuations and bought in early rounds. This is the only way that a seller can make a positive return through the mechanism at launch. Whilst multiple raises seem to be on the up they are far from the norm so the number of companies falling in the ‘viable for positive return’ category is immediately limited. The percentage return on total investment is dictated by a combination of the level of dilution and the investment decisions taken on subsequent rounds. I did some quick sums on my Seedrs investment; if I’d stuck with my original investment I’d be up 85%, however with my investment in the later round I’d be up 35% if I sold my entire holding. There is actually scope here for me to leave myself with a small completely risk free position, even taking Seedrs’ fees into account. I’ll review my portfolio tomorrow to see if any of my other investments give me this option.

Whilst we’re on the subject of subsequent raises and Seedrs’ valuation policy, I believe the valuation policy would allow a company who have subsequently raised on competing platform CrowdCube to have their valuation set at the level at which the funds were raised on the CrowdCube platform. CrowdCube are getting a bit of a name for themselves for their high valuations and we’re seeing more companies turning to them for follow-on raises. So we’re now in a slightly dubious position where the biggest returns could come from companies that have switched platforms.

Finally we come to investors who want to balance their portfolio, nothing much to say here other than the fact that portfolios should (if Seedrs’ advice is being followed) be pretty well balanced anyway. As already mentioned, sellers will need to pay 7.5% for the privilege.

I have much more to say on the subject, but it’s getting late. This is certainly an interesting development and it’ll be interesting to see what happens as the secondary platform matures. With its ‘beta’ model, the only winner I can see is Seedrs themselves, they’re effectively automating a presently disjointed and clunky revenue stream. There will be a few wins for those who invested in multiple rounds but the majority of sales will mean losses for the sellers and we haven’t even talked about the buyers yet. Needless to say, I’ll be looking long and hard at anything listed on the secondary platform and making sure I’m confident in the current state of any company I’m considering. As to whether I’m going to be listing anything to sell, I’ll be reviewing my portfolio over the next few days – It’ll certainly be interesting to see the platform working first hand but I need to work out what the tax implications are before I do anything – A subject for a later post methinks.

 

Unstuck

Sugru have done it, they’ve hit their target and are now in over-funding thanks in large to a generous extension provided by CrowdCube. They’ve posted an update to say that over 50% of investors are already shareholders and that they’re limited to £2m, get in while you can, that funded boost has already seen them break their £1.5m target by more than £80k (5th May).

I remain unconvinced, the valuation just doesn’t add up to me and I won’t be adding to their boost.