As more companies turn to crowdfunding to raise money to either launch or develop their businesses, financial ratings experts Company Watch examined the financial strength of some of the firms that commanded national media attention over the past three years.
Company Watch deploys its proprietary H-Score evaluation methodology to rate a firm’s financial strength, from zero to a maximum of 100, the higher the score, the stronger their financial position.
Out of the 30+ high profile crowdfunded ventures Company Watch reviewed, four had yet to file a full set of accounts with Companies House. Several were not UK incorporated, and others, including Supertoy Robotics, that promised the first talking teddy and to which actor Stephen Fry had donated £5,000, appears to have stopped operating and has since been accused of being a scam.
But of the 22 firms that had filed at least one set of full year accounts with Companies House, seven were in the bottom quartile with H-Scores of 25 or fewer.
Company Watch calls this its ‘Warning Area’, where firms are approximately 50 times more likely to suffer distress than a typical company outside of it.
At rock bottom, with an H-Score of zero, is EstatesDirect.com Limited, whose founders includes Steve Smith, the man who successfully built and sold the highly profitable Poundland retail business. Despite targeting new investment via Crowdcube, EstatesDirect.com Limited currently has negative net worth of minus £490,000 and negative working capital of minus £871,000.
Other companies in the Warning Area whose crowdfunding efforts were featured in the national press include Odyssey Airlines, JAM Vehicles, Lovespace Limited and That Device Company.
First class business air travel firm Odyssey Airlines, which was raising £5m in June 2014 via Crowdcube, has a far from first class current H-Score of 4.
Lovespace Limited (current H-Score of 3) sought £1m via Crowdcube for its ‘by the box’ storage solutions, while That Device Company, which looked for £600,000 via Crowdbnk for its Breezie website software, has an H-Score of 3.
Others in the Warning Area include meal planning website business SiansPlan Limited (H-Score of 8), and Sourced Market Events Limited, a farmers’ market delicatessen business (H-Score of 16).
And so to the firms with the highest H-Scores. The best performer in terms of H-Score is 1partCarbon Ltd (H-Score of 91), which sought crowdfunding via Kickstarter for its VeloCityLight cycle safety device. While it is clear that the company is taking much longer than expected to bring its product to market, its balance sheet indicates it is sufficiently robust to cope with delays to sales because it has a healthy cash pile.
Other companies with high scores in the top quartile with H-Scores from 75 to 100 include Barking at Trees (H-Score of 89), a film company set up to finance the movie ‘Winter’, which was backed by Ronnie Wood of the Rolling Stones and Wow! Stuff Limited. With a current H-Score of 88, Wow! Stuff is another Kickstarter funded venture, reported to have raised £500,000 for its Real FX car racing game.
One of the best-known businesses backed by high profile crowd funding is independent beer makers Brewdog. It has completed several highly successful fundraising rounds using the Equity for Punks section of its own website. Its current H-Score stands at 85 due to continually improving sales and healthy profits, climbing from its previous H-Score of 62 since raising £4m in new funds in 2013.
Ewan Mitchell, Head of Analytics at Company Watch, commented: “Just as in private equity or venture capital funded enterprises, crowdfunding produces some clear winners and many others that don’t perform nearly as well as either the company or external investors had hoped.
“Many others in our sample have made solid progress, which is reflected in their financial positions. A good proportion have H-Scores between 25 and 50. But some already have very strong financial performance, notably Brewdog, which is now looking to raise £25m via crowdfunding.”