Pick a number

Someone made the excellent point today that Bird Cycleworks is currently valued at £0 by Seedrs if their ‘fair-value’ model is to be believed. Yep, that’s the same Bird Cycleworks who posted their company accounts a week or two ago highlighting a modest profit.

“We calculate fair value by looking at two share prices: the share price at which the investor invested; and the most up-to-date fair value of the shares (which we calculate when we obtain relevant information about the company in question).”

Bird Cycleworks fail to receive any value because they didn’t do their initial raise in the last three years, they haven’t had subsequent raises in the last three years. They have presumably produced a zero valuation because they “have conducted a substantive valuation analysis with a presumption of decline in value” . I’m not sure what this substantive analysis is based on or when it was performed – I presume it was around September 2016 when Seedrs produced their extensive valuation report and started publishing these valuations alongside the IRR.

This issue highlights a few more important points about the Seedrs valuation model.

How is ‘relevant’ information being used to determine a valuation when a company doesn’t meet the 3-year criteria? With the 3-year rules, at least the valuation method is transparent, regardless of whether it is accurate.

Are Seedrs actively seeking information from companies who’ve raised money on the site, particularly from those who fall outside the 3-year rules?

If Seedrs are using CH filings to determine valuations, this raises yet more points. How can accounts that are up to 9 months out of date when published possibly indicate the value of a company particularly when they are more than likely in the form of micro accounts that contain only a simple balance sheet?

If all companies who fall outside the 3-year rules received zero valuations I don’t think I’d mind so much, but there are other companies with positive valuations whose only raise(s) took place more than three years ago, here’re the first two I could find, there are many more:

  • Daredevil Project – Raised in Feb 2014, nothing on their Twitter feed since March 2016, nothing on Facebook since 2015, a website under ‘re-design’, recently filed accounts showing mounting losses. Shares currently available on the secondary market @ £0.61 per share.
  • Times Place Brasserie – Raised in Jan 2014, (still) unclear ownership, mounting losses. Shares currently available on secondary market @ £10 per share.

A couple of final points.

Does a successful trade on the secondary market constitute validation of the valuation and effectively override the 3-year rules?

Are the rules of valuation helping or hampering the ECF arena? At the moment you can sell a company you bought last week, but you can’t sell one that you bought more than three years ago if Seedrs’ opaque valuation model says it’s worthless… Go figure.

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