Fair Value

The Seedrs secondary market opened for the third time today and with it a listing for Blue Crow Media. I have nothing particularly interesting to say about Blue Crow as a company, only that it publishes maps and turned a modest profit for the y/e 31st July 2016. No, what makes the Blue Crow lot interesting is Seedrs’ valuation.

Blue Crow completed their one and only raise on 29th May 2014 or 3 years, 2 months and 3 days ago. With this, as the opaque Seedrs ‘fair’ valuation model goes, because they haven’t raised for more than three years they are subject to “substantive valuation analysis”. I’m not too sure how substantive this analysis is, the lots available are offered at the same price as at the last raise.

If we then compare Blue Crow’s current ‘fair’ value with that of Bird Cycleworks which currently stands at zero (yes I’m moaning about that again) then it calls into question what exactly Seedrs are doing to keep their valuations fair and current? Both companies made a small profit last year (£17k for Bird and £6k for Blue Crow), they have similarly sized balance sheets with positive net current assets (£35k for Bird and £7k for Blue Crow) and have both filed accounts recently. The pre-money valuations at raise weren’t even that different with £450k for Bird and £950k for Blue Crow with Bird giving 10% away for £45k and Blue Crow £58k for 5%. With that information alone, in my opinion, Bird is arguably worth more than Blue Crow.

I think it’s about time Seedrs start publicising their valuation strategy for companies that fall into the ‘3 years since raise’ category. In theory, the number of companies falling into this category is going to increase, are Seedrs just going to leave the values alone so that lots can continue to be listed on the secondary market? If so, what’s to happen to companies who were valued before the launch? I’ve been asking Seedrs to clarify via email and Twitter to no avail, I will keep pressing.

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.

News!!!

I’ve done it again, just a day after writing about Bird MTB they’ve posted an update this afternoon! Sales are up 40% for the last 5 months vs last year and they’ve sold out of the first batch of their new Aeris 145 model – Well done guys, this investor appreciates it!

No News Is Good News???

I’m a sucker for a cycling related pitch and back in the second half of 2013 I and 112 other investors took a punt on Bird Cycleworks (trading as Bird MTB) designers, builders and sellers of a range of high-end mountain bikes direct to consumers. This week they take the award for most sustained radio silence of any of my Seedrs investments. We last heard from them on October 19th 2016 when they announced a new model.

I’ve had a scout about and they seem to be doing alright, their Facebook feed seems to be well organised and they have demo days coming up over the next month or so. They also announced a new race team at the end of Feb, partnering with the cycle clothing brand Morvélo, this seems to be contributing well to their image with a few decent results under their belt already. The only concern is the disappearance of their Twitter feed and the resulting broken link on their website.

Their accounts don’t look too alarming either, although they only have accounts made up to September 2015 available on CH. Their loss account only grew by a few thousand on the year before. It also looks like they’d taken on twice as much stock as the year before – a positive sign of growth. Being a seasonal market, much of the stock is on-boarded in time for the start of the season, from what I understand there are significant lead-times for many of the components so it makes sense that they hold a lot of stock to allow them to build bikes with sensible delivery dates. There are many a bike company who have suffered from poor reviews as a result of late orders – often caused by a lack of component stock. I can well imagine it being a difficult balancing act, trying to decide how much stock to hold, something I’m sure they’ll get better at as the company matures.

I’ll take this one!

The MTB (mountain bike) market attracts a certain kind of person and a certain more laid-back way of life – What with my city desk job, it’s one I’m jealous of. I get to head out on the bike far less than I’d like, but if I could chuck it all in and be financially comfortable and do something I really enjoy, I’d setup a cafe/bike shop or if I had a lot of spare money, a bike park. These guys aren’t in it for the money, they’re in it because they love it. I didn’t invest for a return, I invested because I’d buy a bike from these guys and I’d like to think with my investment the potential discount and personal touch they offer will be worth it when I can justify a purchase to the other half… Hopefully they’ll be around that long, or at least long enough to get them off the top of the radio silence list!