Summer’s Gone

I haven’t posted for a while, too busy entertaining the kids over the holidays and I’ve been spending my evenings trying to build myself a wood store before winter sets in, as usual I under-estimated how long it would take.

I have however been keeping half an eye on the ECF platforms and since I last posted I’ve made a few small amounts on Plum, Revolut and Edge10.

I’ve also been spending quite a lot of time trying out the many financial applications, bots and services that have pitched recently as well as their competitors, I’ve got some reviews in the pipeline but suffice to say, I liked Plum and Revolut enough to make investments. Revolut’s well polished banking platform is especially impressive.

In other news, Maily looks to have fallen on its ass and has run out of money – it’s still listed as active at the moment but I can’t see it lasting much longer. Enclothed have posted their accounts for the year ended 31st October 2016, their profit & loss account now shows they’re over £1.2m in the hole, from £500k the year before – I do like their offering, but they need to turn things around.

Finally, Crowdcube are now offering £2,000 (for the month of September) to anyone who recommends a company who successfully funds on the platform. As of writing they have just 10 active pitches (versus 18 on Seedrs), it may well be a quiet time of year but this sort of offer doesn’t send a great message to me at least. I haven’t punted on a CrowdCube pitch for quite some time, I admit I don’t look at it as regularly as Seedrs, but I have no cause to – They offer practically zero in the way of follow up, at least with Seedrs I’m regularly checking the discussion and update boards and it takes seconds to scan through any new pitches – Crowdcube really have made a rod for their own back.

 

Artificial Money

PSD2 (EU) and the Open Banking Standard (UK) are regulations that will require banks and other payment servicing providers to provide APIs that allow third-party solutions to access their customers’ data (with consent). The exact timeline for the enforcement of the regulations is unclear, however, they should be in place by the end of 2018

In short, this means a company will be able to develop an application that combines a user’s financial data from a range of sources (e.g. current account, savings account, loans, credit cards etc.) in order to provide a consolidated view. Applications will be able to take this data a stage further and perform analysis in order to provide insights and suggestions about how to manage their money – That’s the theory anyway.

The reason I mention all this is because I’ve seen a spate of pitches recently that will be heavily dependent on these regulations as their solutions roll out. Right now there are live pitches for Plum Fintech and zuper on Seedrs as well as Folio on CrowdCube. We’ve also had a failed pitch from Ernest. Whilst obviously not identical, they are all very similar, they aim to access your account information in order to help you manage your money better, of course, the buzzword of the moment ‘A.I.’ is mentioned in every pitch but how to differentiate and pick the winner, if there’s to be one?

As I’ve already said, Ernest is out – they’ve already failed to raise. Folio and zuper are struggling, they’re both over the halfway mark but traction appears to be slow with tumbleweed currently rolling across both discussion boards. Plum Fintech on the other hand, is seeing a lot of attention, three pages of discussions and over the 100% mark. Does their product justify the marked difference in the success of their pitch? When I read it when it initially went live I didn’t see anything that particularly stood out, it’s savings focussed and their revenue is expected to come from savings interest (split with savers), fees on investment returns and commission earned from getting customers to switch things like their electricity or gas suppliers. I should also mention that the pitch is a convertible with a 20% discount on valuation at a trigger event (another raise, change of control etc.) or after 12 months (at which time a £4.25m valuation will apply).

Plum Fintech on the other hand, is seeing a lot of attention, three pages of discussions and over the 100% mark. Does their product justify the marked difference in the success of their pitch? When I read it when it initially went live I didn’t see anything that particularly stood out, it’s savings focussed and their revenue is expected to come from savings interest (split with savers), fees on investment returns and commission earned from getting customers to switch things like their electricity or gas suppliers. I should also mention that the pitch is a convertible with a 20% discount on valuation at a trigger event (another raise, change of control etc.) or after 12 months (at which time a £4.25m valuation will apply). Finally, I’ll also mention that Plum features heavily in Seedrs’ current advertising campaign on the London Underground. If I recall, WeSwap and VPAR have also recently featured in Seedrs’ LU advertising and they ended up over funding with 2,961 and 346 investors respectively.

I should also mention that the pitch is a convertible with a 20% discount on the ‘valuation’ at a trigger event (another raise, change of control etc.) or after 12 months (at which time a £4.25m valuation will apply).

Finally, I’ll also mention that Plum features heavily in Seedrs’ current advertising campaign on the London Underground. If I recall, WeSwap and VPAR have also recently featured in Seedrs’ LU advertising and they ended up over funding with 2,961 and 346 investors respectively.

The fact that this is a convertible is enough to put me off, I’m still bitter over the Den convertible. Also, despite the regulations, there’s nothing to say that the APIs offered by banks and payment providers have to follow a specific standard – Whilst they will undoubtedly make things easier for third parties things are unlikely to be simple. At least we’ll get to see what’s going on in 12 months time when they come back for more money.

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.

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.

Tea-Saw

Another flip-flop from Seedrs to CrowdCube, this time it’s Charbrew, recent holders of the ‘No News is Good News?’ title. Reading the post-investment discussion board I got the feeling the crowd were losing their patience with them after their recent pivot from teabags to ice tea and surprising move into the Australian market.

I briefly read the CrowdCube pitch on the train earlier (no up-front mention of the previous Seedrs raise, obviously, although it has been mentioned in the discussion board) – I’ll admit, I found myself thinking I might invest in this if I had been finding them for the first time. Perhaps this is their angle, however I feel the investor base on CrowdCube has plenty of overlap with that of Seedrs so if targeting new investors was the reason for the switch, I’m not sure it’s a good one.

I’m still waiting for a good reason (from the view of the investor) for switching platforms to emerge from one of these flip-floppers, I’ve been trying to think of a theoretical one for months and I’m stumped.

Us Seedrs investors haven’t been given our pre-emption notice yet, I’m 95% certain I’m going to let it slide when it does arrive.

Extended Deadline

Browsing CrowdCube today I noticed LightVert still had 8 days to go before their deadline… Strange, I’m sure they had 9 days left over a week ago. It turns out CrowdCube had generously extended their campaign by 7 days citing “ongoing investor discussions”.

One of the few things I prefer about CrowdCube (over Seedrs) is their shorter raise period, limiting businesses to 30 days (vs 60 days on Seedrs) – Quite right, if you can’t raise the funds you need in 30 days then you need to start questioning the merits of your business and/or the terms of your offering.

Apparently it’s fine to bend your own rules when the businesses raising money are having ongoing discussions with investors. I find it increasingly more difficult to take the platform seriously when things like this so obviously tilt the playing field in favour of the businesses raising money.

 

Still No

Exciting news, All So Pro have had a re-think about their valuation and have generously reduced it to £500k.

It hasn’t helped, they’re still flailing around with just £11,370 pledged, an improvement on the £950 they had back on 5th March when I first posted about them, but still well short of their £100k target. Only 5 days to go until this one is put out of its misery.