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What you see is what you get? – a blog by Philip King FCICM

18 May 2017

James Hurley, Enterprise Editor of The Times, is a frequent commentator on crowd-funding and the risks associated with it. We swap notes occasionally, and I’ve been outspoken in arguing that too many investors are putting hard-earned money into ventures about which they know very little. Our own Credit Management magazine has covered the issue a couple of times over the last year or so.

The latest example reported by James Hurley earlier this week was Vulpine, a cycle clothing start-up set up in 2012. Some 582 individuals invested more than £1m through Crowdcube in October 2015. A further £750,000 was offered on Crowdcube last month and almost £200,000 had been pledged (though not, fortunately, invested) before the fundraising was scrapped.

James highlights question marks over the disclosure of information during both fundraising rounds. Apparently, the original crowdfunding followed the resignation of two of the company’s professional investors and the business was clearly in a parlous and deteriorating state. It is now being placed into administration.

If investment is being sought to support and/or recover a failing business, that’s fine but it’s vital that all the facts and the context are made available. In this case, it was suggested in April that the company’s valuation had increased by 50% to £7.5m from the numbers used in the 2015 fundraising.

People willing to put money into companies through the crowd-funding platforms need to do so with their eyes open. Due diligence is vital – as one of our CICM trainers often says: “Accept nothing, Believe nobody, Check everything” – and they need to understand the real risk.

You wouldn’t lend money to someone without knowing who they are, and whether they’re willing and able to pay you back. That’s why the principles of credit management are so important. Funny that, credit management doesn’t just touch businesses who supply and lend to businesses or consumers. A much wider audience needs to understand its techniques and value.

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