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What does a crowd know?




By Ryan Weeks on 16th October 2015


The CrowdView column has felt a little bit like the SyndicateRoom show lately, primarily because the platform is ahead of the game in terms of disclosure standards. It’s tough to produce a measured and clinical analysis of a crowdfunding campaign if you have no information to work with save for an enthusiastic version of the future, as told by the entrepreneur!  

 

So to veer somewhat away from the “campaign spotlight” model, this week I’ll be looking into a pair of old Companisto campaigns, with a view to determining the true value of an exit. Companisto is one of the leading lights of Germamy’s equity crowdfunding sector. No platform in the world has yet secured two exits. But Companisto could have, had its community of private investors chosen to act differently.

 

Between June and September of 2012, 446 investors channeled €100,000 into Companisto’s inaugural fundraising campaign. The fundraiser? None other than Companisto itself. In November 2014, some 2 years later, those investors were suddenly faced with the option of doubling the value of their investment. An outfit by the name of Lake of Constance Ventures GmbH had offered to buy out all of the shares from the Companisto pitch for €200,000. The stage was set: if 75% of the investors voted in favour of a sale – the offer would be accepted.

 

In a sector that has been largely starved of returns – due in no small part to the youthfulness of the majority of equity crowdfunding investments – you might have imagined that the Companisto investors would have jumped at the chance to exit. Not so. Of those investors that participated in the vote (73.18%), 68.11% declined the offer – choosing instead to hold onto their shares in Companisto.

 

But that wouldn’t be the end of Companisto’s opportunities to secure an exit. “5 CUPS and some sugar” – a producer of bespoke tea blends – raised €300,000 from 742 private investors via a Companisto fundraise in June 2013. Less than 2 years later, in March this 2015, 5 CUPS had made a redemption offer to those 742 investors. 5 CUPS proposed to buy back the shares that were distributed in the initial fundraise for €436,000. That amount equated to a 45% return for investors. Once again, at least 75% of the 742 investors had to be in favour of accepting the buyout offer in order for the shares to be sold. 93.79% of the investors took advantage of their right to vote, and 98.41% of those voters opted to walk away with a 45% return on investment.

 

Two potential exits, both promising a healthy return. One, a 100% return over 2 years – and yet seemingly unpalatable. The other, a 45% return over a similar time frame – accepted by overwhelming majority.

 

These Companisto case studies may become fascinating litmus test for gauging the so-called “wisdom of the crowd”, due largely to the simplicity of each scenario. Rarely, I suspect, will future buyouts or trade-sales involve the purchasing of shares that are held exclusively by equity crowdfunding investors.

 

Take the recent E-Car Club sale, for instance, as demonstrative of how future crowdfunding exits may play out. E-Car Club raised £100,000 from 63 investors in 2013, via the Crowdcube platform. The business has now been sold to Europcar for an undisclosed sum of money, becoming Crowdcube’s first exit. But how much say did Crowdcube’s investors have in determining whether the Europcar buyout offer would be accepted? 

 

The average investment size in the original E-Car Club fundraise on Crowdcube was £1,500. Those that invested £15,000 or more received A Shares, those that invested less – the vast majority – received B Shares. Europcar would have more than likely bought out the shares of the existing E-Car Club management team, perhaps some external investors and Crowdcube’s investors en route to the acquisition of the company. The voices of those B Shareholders would have likely been fairly muted in the negotiation process. 

 

But in the case of the pair of potential exits that were sourced by Companisto, the platform's investors had total control over whether to exit from their investments, or whether to hang onto their shares. We’ll be keeping an eye on the fortunes of both Companisto and 5 CUPS, for they may well come to play an important role in evidencing (or obliterating) the much-hyped notion of the wisdom of the crowd. 

Comments

Robmb

21 Oct 2015 05:56pm

The deal with Europcar was set by the standard Crowdcube t&C for B shareholders. This includes a drag along clause so no B SH would have had any say whatsover - they had to sell. E-Car Club were struggling badly to open new hubs and it's my guess that shareholders were told we either take the Europcar deal or it maybe curtains.

Steve Hayes

19 Oct 2015 09:20pm

Just checking, and having a profound loathing for Europcar (trustpilot rating 0.5/10), did they actually buy out the B shareholders or leave them twisting in the wind?


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