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As this has happened recently in the property sector, the below article inspired me to start a thread on this topic.In June, three aspiring London entrepreneurs struggling to raise money for a food-delivery startup turned to a crowdfunding website called Seedrs that helps fledgling businesses solicit money from people online. In exchange, backers get a stake in the company—and a payout if it prospers.
The founders had about 700,000 pounds ($875,000) in the bank from outside investors, but brought in an additional 100,000 pounds online. The company, named Pronto, saw crowdfunding as a bridge to keep the business afloat until it could raise more money from venture capitalists. It ended up being a bridge to nowhere.
By September, three months after taking money from people online, the money was gone."It is with deep regret that I must inform you that we have had to make the decision to shut Pronto," Chief Executive Officer James Roy Poulter wrote investors. No money would be returned. "I am entirely sorry that I have not made this work," he said.
Apology letters are becoming a regular occurrence for U.K. companies that raise money via crowdfunding.Full/source story Crowdfunding is becoming increasingly popular in the property sector, whether that is to buy a property or raise money for a property-related business. What I would like to understand is - what happens to the money if the business fails? Does it have to be returned? If not, it seems to me that people can use crowdfunding for nefarious activities. I do also wonder at the robustness of their due diligence process. Property TV was initially offered crowdfunding by both CrowdCube and Seedrs, until a journalist brought it to their attention that the man behind the company was a disbarred company director and that Ben Rogers was involved. Both platforms cancelled the fund raise. Even we at PT knew about the issues surrounding this company, but the crowdfunding platforms didn't!I thought it might be helpful if people could share their stories - both positive and negative - of investing in property-related crowdfunding projects. How much did you invest, what was the return, what was the end outcome?DON'T MISS - Debating crowdfunding/P2P lending in propertyUP NEXT - Crowd-funding - what are your thoughts?SEE ALSO - FCA issues warning about crowd funded property projects NOW WATCH:
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I have looked into a few - but have found that once you start delving deeper into their business models they just don't make sense with valuations that any sane person would just walk away from.
To me crowdfunding is not dissimilar to these dodgy property mentor/traning programs. Get money from investors who cant be bothered to do proper due diligence. People who invest based on the information provided on the crownfunding websites deserve to lose their money for being so lazy.
Raising money for a venture (just like making money from property) is supposed to be hard - thats how we weed out the rubbish. What crowdfunding does is it allows half-baked ideas to see the light of day by getting inexperienced investors to put in (usually) small amounts of money that they can afford to lose. A bit like the lottery...
Most of these businesses will crash and burn - there will of course be a few winners but then even a broken clock is right twice a day...
Does anyone know what happened here?
Stewardson Developments Ltd.
Burson Land Ltd. & Jennings & Gilchreaste Ltd.
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Connie Cheuk & Mark Alexander had an exchange about that
half the money was spent, the other half is in the company bank account
Ironically, some of the money crowdfunded by the P118 Portal was used to pay for advertising on Property TV! See my summary of the backstory to Property TV.
Let me just say that starting a Property Portal is rather silly in my view the competition is immense and would need more than the valuation of the company just on Advertiseing.This was such a small niche - for a business that needs eyeballs from buyers, to attract listings from sellers and agents.Many have tried in this space and not had good results.
I had a chat with Property118s Mark about this venture:"All investors received SEIS certificates from HMRC to reduce their tax by 50% of their investment.The company is now in liquidation and the Directors have waived their rights to the funds being distributed.It is a solvent liquidation and cash at bank is just over 45% of funds invested. Minor shareholders will see a small profit on their investment after factoring in tax relief."
So its not good news but certainly could be worse.
It sounds like the investors are on the break-even line - a small profit, breakeven or a small loss.Once the remaining funds are distributed and the SEIS Tax Benefit is applied to their returns.
Its not an investment id of made - but - the saying "nothing ventured, nothing gained" comes to mind.
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This should not be a supprise, that investing in Start Up companies is risky.
You invest money for the start up to spend for operational costs. It is not sat in the bank ready to be returned if all fails.
Never invest more than you are willing to loose.
If you want security do not use Crowd Funding (funds in exchange for shares).
Instead use P2P lending which typicaly comes asset backed and with a payment schedule. Not projected profits.
I think you are missing the point. No one is disputing that investing in startups/early stage companies is risky. The question is do these armchair investors know what they are doing? Do they know how to analyse these types of companies? Its prospects? Its management teams? Product? Market? Technology etc.. etc..
Most of these companies post a 20 page glossy sales presentation and a few paragraphs about how great thery are and how they will get x% market share in a £ybn market.
Crowdfunding as a concept is wrong - its great for companies to get financing but horrible for novices to invest in things they dont understand and don't know how to analyse and value.
Risky is when a VC fund invests in a start-up. When a member of the public invests in a company via a crowdfunding site, with the information available, its called gambling.
Its not called Gambling. Its called investment-based crowdfunding. In the FCA own words "We regard investment-based crowdfunding in particular to be a high-risk investment activity."
It is not "as a concept wrong" it was only a few weeks ago PropertyTribes as well as others were useing CrowdFunding on a high-risk legal challenge and everyone who gave money (including me) lost it. Was that wrong? I dont think it was.
When it comes to CrowdFunding - I have given a few pennies to lots of ventures. The only ones that I have seen bear any fruit (though I have no returns despite this) is eMoov and a cloud accountancy website like sage ( I forget its name ).
It is high risk and that should be disclosed to people ( im sure it is ) and there is no guarantees of any returns, one should only invest what they are able to afford to loose. It does not mean it is wrong - I helped two companies that I thought the concept was good and they are running, providing a service and employing people. Thats good!
I dunno - maybe I support crowdfunding because I know Banks do not fund startups well.
( Im reffering to investment-based crowdfunding by the way and not loan-based crowdfunding wich is completly different.)
Infact The FCA thing is an interesting read, here:
If you think investing in crowdfunding is different to gambling then go for it. My point is the due diligence that is afforded is insufficicent to call it an "investment".
You make the point of giving a few pennies - that's actually my point - people don't do proper due iligence - they play because they can afford to lose the money. So its fine - call it a hobby. But lets not call it "investing". I'll probably give some money if I see soemthing compelling - but I won't call it investing unless I can get a hell of a lot more detail than what is generally provided. It will be interesting to see what the success rate is as time goes on - I am willing to bet the ratio of winners to losers (in terms of numbers of deals) wuill be very very small.
The FCA advice tells you what to do - due diligence, risk analysis and valuation - they dont tell you how to do it (and nor should they since thats not their job). But I would hazard a guess that 99% of people investing in crowdfunding dont know how to do this.
As for crowdfunding for the legal challenge - I have stated many times that it was a waste of time and money - people threw the dice and got snakes eyes as was the most liklely outcome.
I think that all crowd funding companies and their investors/suppliers are not equal.For example we're in discussions with a crowd funder who will simply be our regulatory and administration platform for the investors we already have. They will provide the AML and KYC background on each investor and then collect the funds, arrange the drawing up of the shareholder's agreement and pay us the funds when the agreements are in place. We will already be bringing our investors to them and they'll benefit from having a strong brand on their site and we'll benefit from not having to deal with the regulatory side of having investors. It will allow us to focus on what we prefer to do - developing great properties.
But Adam says, you should never invest into anything unless you can afford to lose the money.At least with crowd funding property the investor has their investment secured on a property as they are the legal owner of the shares of the business which own a property. It's up to their lawyers to ensure that the articles are drawn up in such a way that it protects them from the property being sold out from underneath them etc.
East London based property developer, investor and speaker
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