Monthly Archives: March 2020
Rehearsal
This afternoon I took part in a rehearsal of full chorus and orchestra.
That’s for one of this spring’s cancelled (or postponed) concerts. And sadly it wasn’t a normal rehearsal. The orchestra and chorus came together from our respective homes, online via Zoom. All credit to our enterprising and dynamic conductor Marcus for thinking of and organising it.
Naturally I thought the most likely thing to happen would be chaos: lots of players and singers couldn’t possibly keep together. We could follow Marcus’s very clear beat and instructions, but the motley collection of devices and acoustics, not to mention the net’s various and random lags, would surely throw us. In the event he’d thought of that, and used some cheats to substitute for chaotic music-making. And rehearsing was interspersed with cheery chat, and only went on an hour.
More an exercise in morale than serious music, but a great idea anyway. I understand we’ll be doing this regularly until we’re allowed to meet up again, so maybe we’ll evolve it into something yet more interesting.
Cancellations
Hard on the heels of my blog post on the subject of the new lurgy, I find myself succumbed to a lurgy. Only a mild one, but I’ve removed myself from this evening’s concert and meal out and will check NHS advice before resuming social life.
Or rather, I removed myself from the meal out with my friends, that Jen had arranged for after the concert. ‘Cos the concert itself was one of many cultural events to be cancelled by its organisers. This evening I’d’ve been in the audience, but three concerts I am (or was) due to perform in this spring have also been cancelled or are at risk.
Yet our government, unlike many others, hasn’t actually banned events like these. They’re leaving it to event organisers. I suspect there’s an important beneficiary of that: insurers of all kinds of events could be on the hook for financial losses if the government forced them to close down, but can escape that if the decision comes from event organisers. Perhaps they’ll legislate but are leaving time for events near enough to have incurred substantial costs to be cancelled beforehand?
I also heard on t’wireless a discussion programme on coronavirus that included a number of callers. A couple of interesting nuggets emerged from that: quite a few callers described symptoms very similar to mine (evidently it’s a lurgy “doing the rounds”), and many callers complained that they wanted to get tested for coronavirus but couldn’t. Even those with very good reasons (for example a GP keen to know whether he would be personally safe to treat virus sufferers once he’s recovered) had faced an impenetrable wall of bureaucracy.
So we’ve moved from attempting to refusing to count cases, thus perhaps paving the way to fudge relevant statistics. They’re talking about “herd immunity”, which would imply a large majority of the entire population going down with the virus. At a 2% death rate, that could be a million deaths!
Quite a contrast to the draconian and stupid measures we had to rid ourselves of Foot&Mouth (against which a vaccine is available) back in 2001. Have Brits really changed so much in less than a generation that we’ll no longer obey rules? Particularly when the threat this time is to humans, and the rules (if well-considered) have a purpose other than to support the economic interests of a small number of very big and very rich farmers!
Unclean!
(title inspired by treatment of lepers in the distant past)
We’ve passed from futile quarantine to self-isolation. From evacuation to lockdown in varying degrees. From headless chickens in charge to … well, headless chickens. The new lurgy, that’s apparently sufficiently different from regular lurgies that there’s no herd resistance in the population.
Government moves in under a week from reserving the right to close the stable door (but definitely not until after the horse has firmly bolted[1]) to explaining how closing the door would be counterproductive. People wonder if closing their own doors can help, and what are the implications.
Latest advice is to self-isolate if you show even mild symptoms of a lurgy, and government moves to help avoid penalising people for doing the right thing. Splendid: it seems they can at least do something right! Now, how about urging people similarly to self-isolate when suffering a regular lurgy? It’ll surely benefit the population in general if those are spread rather less. Even for employers, paying sick leave for an employee or two to stay home is surely better than having another dozen or many more getting ill and at best losing productivity.
Coronavirus could leave a really good legacy if knowingly spreading germs could become as socially unacceptable as smoking. But I wonder if yesterday’s budget might prejudice the chances of that, by associating sick leave for a lurgy with Stuttley and his new yes-man’s fairy castles?
Meanwhile there’s a more immediate concern: how will attitudes be towards a regular cough, sneeze, or sniffle? Will sufferers from chronic symptoms – the cough or sniffle that’s been with them for years – suddenly face ostracisism? And the hay-fever season is approaching!
And the personal decisions. I think my lifestyle is fairly low-risk: I don’t travel much, and such big gatherings as I participate in tend to be the same groups, such as my choirs. I tend to the view that it would probably be futile to make changes. If I do go down with a lurgy, I’ll be happy to self-isolate in a basic sense of keeping my distance from people, but there’s no way I could sit at home and not go out for at least my daily walkies – even if that gets curtailed if I get too ill to go far! And if I perish of it, they’ll apply the convenient label of existing health condition to avoid panic.
[1] Not least the horses at Cheltenham, in a big event for people far too posh to inconvenience.
Winners and Losers
As promised in my last post, the stories of my recent winner and loser, with hints at possible lessons to be learned.
The Loser
When I invested in the first funding round of the Den, a startup developing a home automation product, the company was already attracting quite a lot of coverage in the national media and some serious backers. Since then it has raised a further five million from the Crowd (more from bigger investors including a major distributor), won various awards and endorsements, and developed and marketed its product. On the downside, lots of delay, unrealistic promises, and often-poor communication with investors. Then the company ran out of money and went into liquidation.
At the time of the liquidation, it was launching a crowdfunding campaign to raise yet more money, but that was pulled by seedrs – the platform. I don’t have the gory detail – like what the company’s prospects might have been if it had successfully raised further funds – but it seems to have been pretty bad. Very probably one or more bigger prospective investor had turned the tap off. An ex-employee joined the investors forum and was very bitter: apparently she and others had gone unpaid for some time, while the proprietor continued to live the high life. OK, we’re getting a picture here: a young proprietor showing a cavalier attitude but getting loads of publicity and awards: clearly an accomplished bulls***ter. An aspiring Stuttley, with the character to go far in life, and perhaps make a big success (for someone) of a future venture.
This was my third crowdfunding flutter to go belly-up, but the first where the Crowd didn’t quietly accept it and shrug off the loss. There was quite a lot of anger that they had raised (more) funds less than a year earlier, and had been due to do so again without communicating how bad it was (that’s of course speculative: we can’t know for certain what the campaign would’ve told us). The word fraud has been mooted, though I suspect that may be naïve.
I think the core of investors’ disquiet over this has been the lack of timely information about the state of the company. The idea that a further funding round would have been throwing good money after bad (how was this even contemplated?), and the questions it raises over the last fundraising, as recently as February 2019. This was exacerbated by a history of poor communication from Den management to investors – although they were by no means the worst offenders there. It also cast a grim light on seedrs’ valuation, on which subject more below.
But this story isn’t just about a bust and questionable circumstances. This was a company with real assets – albeit severely damaged by the bust, and not least the turning off of IoT cloud services that affects existing customers. There was speculation about a pre-pack administration in bad faith: the kind where you wipe out debts and cannon-fodder investors and carry on as if nothing had happened. A rescue bid was discussed, and an individual from the Crowd with relevant entrepreneurial experience stepped forward to lead an effort. But whether a team from the investor crowd (for example, I was far from the only person who might have contributed on the techie side in reviving those IoT cloud services) could have made a go of it, we’ll never know.
For in the end (or at least the current state of the story), is that a pre-pack/rescue did happen, but it was led not by the crowd, but by an individual much bigger investor. I don’t know where he’ll be taking it, nor what relationship he may have had with the failed management team. But most interestingly, it’s been announced that existing shareholders (including the Crowd) will get 50% equity in the new company – which seems on the face of it to be putting us ahead of creditors – unless they’re being implausibly-well-treated. Our working assumption is that he’ll be looking to raise more funds from existing investors including the Crowd, though how many will consider it is unknown.
The Winner
The happier investment was Pod Point, a company in the business of charging points for electric vehicles. They are (now) a major vendor to consumers – EV owners wanting to be able to charge at home. They also have quite a lot of chargers in public places such as car parks of supermarket chains Tesco, Lidl and Sainsburys. Apart from the Crowd (both seedrs and crowdcube platforms), Pod Point’s investors include mainstream Venture Capital from Draper Esprit, and a major investment from Legal&General, both of which had large parts of their stake in preference shares (convertible, I think) that were not offered to the Crowd.
Press reports in the autumn speculated that EDF – a major provider of energy to consumers as well as a major generator of electricity (and indeed, my recent nemesis) – was in talks to buy out Pod Point. A deal was recently confirmed: EDF will pay approximately 24p per Pod Point share. I expect EDF will now be marketing deals to consumers with electric vehicles, including a home charger along with tariffs that’ll suit their usage patterns and perhaps help balance the load.
Given that my original investment five years ago was at 8.53p/share – or 6p including EIS tax relief – this represents a profitable exit for me. But not everyone has been so fortunate. The seedrs secondary market[1] trades a company at a fixed price, and that was set at 27p after the Legal&General investment at that price. Investors who paid 27p in the expectation of long-term growth are now forced to sell at a loss. I’m not entirely clear on whether L&G’s preferred shares are getting a guaranteed price: I suspect they are getting their 27p.
Now secondary market trading of Pod Point was suspended several months ago, presumably when seedrs was notified of the buyout talks with EDF. But there’s a big unanswered question over seedrs’ book price for Pod Point:
Seedrs Valuation £95.3m. Reported sale value £110m. So that’s a 15% premium. Ordinary shares should presumably be getting a lift of at least 15% from that, right?
Sale price for shares: about 24p. Seedrs “market” price 27p. A loss of 11% for recent investors on the seedrs secondary market.
In other words, a realisation at both 15% premium and 11% discount to an implied book value! And that’s discounting any gearing due to the existence of preferred shares!
It would appear that Pod Point shares were trading well above their book price. Seedrs must have known – they have more information than we do – but they allowed it to happen and made no efforts to point out the discrepancy. No wonder there’s disquiet amongst investors!
[1] I’ve always considered the seedrs secondary market defective. There’s no mechanism for price discovery – which means that a company that is underperforming and needs to be valued downwards will never trade. And there’s a lack of information on prospective investments – except those in which one is already invested and might top up. And now evidence of discrepancies in valuation. But I accept, the market is a work-in-progress and will hopefully improve in time.
Governance for crowdfunding
I don’t think I’ve blogged about it before, but over some years now I’ve made a few crowdfunding investments in (near-)startup companies. I regard them as a bit of a flutter: some people bet on the horses, I bet on companies. With the added bonus that when a bet comes good and the company prospers, I’ve supported a company’s growth, benefiting more than just its investors. And for (most) UK investments, there’s the added bonus of EIS tax relief.
In recent weeks, two of my investments (coincidentally both originating from the same time, March/April 2015) have reached sharply contrasting outcomes. A winner and a loser, the one bought out by a big company, the other went bust. Actually neither outcome is quite that simple, and maybe they offer useful lessons in the fledgeling business of crowdfunding. Both have – in different ways and for different reasons – left at least some investors deeply dissatisfied with the experience.
In the interests of brevity I’ll separate out the stories of the two companies into another post. But from these and others, I think it may be time to learn some lessons about crowdfunding. It’s an emerging phenomenon: each platform works differently, and there is no universal governance model. A generation ago the then-new VCT industry – arguably a good precedent – produced some big winners but a greater number of big losers for investors; since then it’s stabilised and consolidated and for a while became quite a gravy-train. Now it’s the turn of the new kid on the block seeking a successful model.
When a VCT invests, they typically appoint a Non-Executive Director to the board of an investee. Ideally he/she not only represents the VCT’s interests as investor, but brings a depth of experience to the board that complements the business founders’ expertise in their own field. Crowdfunding comes without such representation, so an inexperienced entrepreneur may be left without that guiding hand. One mainstream crowdfunding platform, SyndicateRoom, always has a Lead Investor with skin in the game – typically (I think) an experienced business angel investing much larger sums than my little flutters. Elsewhere many individual companies have their own lead investors/advisors filling a comparable role. But that’s ad-hoc, and in any case they don’t represent anyone but themselves.
Now here’s the interesting thought. It’s not (in general) realistic for the Crowd to appoint a NED to represent us, but perhaps we can do better than that?
The platforms provide a forum for discussion of each investee and communication between investors and management. At best, companies engage actively with investors, and some investors bring valuable expertise and ideas. Better still, the best investor engagement is not lost in noise: in most cases noise is low, and the best ideas are readily appreciated. Sometimes an investor also asks searching questions: if an investee’s reporting leaves unanswered questions, there will be an investor whose own job description is financial controller of a small company who has exactly the expertise to ask the right questions.
At worst, companies don’t engage at all, nor even report to us. As of now there seems to be nothing we can do about it when that happens (or should I say doesn’t happen)?
So to my thoughts about governance in crowdfunding investments. We have no NED, but we have an engaged and interested crowd, with a range of expertise. What we should be thinking about is formalising the interaction between crowd and investee, building on what works well and spreading Good Practice more widely.
One approach to that would be to mandate scheduled shareholder meetings as a contractual requirement for raising funds on a platform. These would be held online and could be chaired by a representative of the platform, and held either at regular intervals (e.g. every six months) or alternatively appended to a company’s board meetings. They should be sufficiently formal to have an Agenda, to accept Resolutions and (non-binding but indicative) Votes, and be empowered to request (though not force) Actions on a management. Being online, every meeting will be archived and referenced, just as campaigns and discussion are.
That is, of course, in addition to the informal engagement through ad-hoc discussion boards, which work well and serve a useful purpose if (and only if) a company’s management engages constructively with investors there.
niq's soapbox 