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Introducing the LemonFools Personal Finance Calculators

Any other investment discussions eg. peer to peer lending
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Postby Pendrainllwyn » July 1st, 2018, 3:04 pm

Clearly risks a plenty, but I would be interested in feedback from anyone who has used the crowdfunding platform Maybe you invested or investigated and ultimately decided not to. Or perhaps you would recommend another crowdfunding platform.

Thank you,

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Postby Gengulphus » July 2nd, 2018, 3:21 pm

I've been using Crowdcube for a year now. Not for any remotely serious investing - this is strictly 'fun money' only. My first investment with them is an example of what I mean: my brother told me that a small craft beer company near where he lives, and that he had been a customer of and liked, was using Crowdcube to raise funds for improvements to their brewing and other facilities and he was considering making a small investment. I ended up trying out a few of their beers and liking them, running an eye over what they were raising the funds to do and not seeing anything obviously false or misleading about it, and making a small investment myself (as did my brother). The amount I invested was in the region of 0.01% of my investable wealth, or about 2 days' worth of the dividend income from my HYP (that's at the averaged-out daily rate of dividend income from my HYP, of course - only about 25% of all days are dividend payment days for any of its companies), so really a very trivial amount in terms of my overall finances. But quite fun - e.g. when I visit my brother, a trip to their bar or shop to 'keep an eye on our investment' is always worth considering! :-)

I've made some investments in further companies raising funds on Crowdcube since, some with somewhat larger sums - but only somewhat: the total amount I've invested is still well under 1% of my investable wealth. I could lose the lot and I'd still only suffer financially about as much as I would on a moderately bad day on the market for my main stockmarket investments. And I fully expect that I will lose the lot on quite a few of them: that's the nature of investing in early-stage unlisted companies. And as far as accessible capital is concerned, I basically have lost the lot: I'm generally not expecting to be able to cash them in until and unless they produce an 'exit' in the form of a trade sale of the entire company to a new owner (which if and when it happens will probably oblige me to include my shares in the sale and will certainly entitle me to include them, as the terms and conditions of the shares include 'drag along' and 'tag along' provisions to that effect) or a stockmarket flotation (which if and when it happens will presumably make me able to choose whether and when to sell). I have the general impression that trade sales rather than stockmarket flotations are the normally-expected 'exit' route.

One should be able to arrange to sell privately to another investor who is interested in buying them if you can find one (though with complications if one invests enough for the shares one owns to have 'pre-emption rights', which require one to offer the shares at the price concerned to existing holders of the same type of share, and sell to them instead if they want to buy), and more organised opportunities to sell to other investors might be arranged before an 'exit'. But I wouldn't rely on either of those, so basically I regard myself as losing all control over the money I invest, with the timing and amount of any returns on it (including sale proceeds) pretty much entirely determined by the company and not by me. And there may well never be any such returns: if you invest in such companies, expect nothing back in a good proportion of them, only mediocre returns from a lot more, and with luck (which you will need unless you invest in an enormous number of such companies or are exceptionally skilful at picking them) a small proportion of outstanding returns that make the whole exercise worthwhile overall.

Moving on to Crowdcube itself, it's important to realise that one is not investing in it - one is investing in the companies that put their fundraising 'pitches' on Crowdcube. They are facilitators, making it easier for (generally) early-stage companies seeking funds and investors seeking opportunities to invest in such companies to get together, and handling the associated admin (payment, production of share certificates, etc) if that does result in the investor investing in the company. As such, they're much like execution-only brokers when they facilitate stockmarket trades between buyers and sellers - and one is not investing in them any more than one is investing in one's execution-only broker.

Anyway, on that understanding, I've found Crowdcube themselves efficient and business-like as regards that 'facilitator' role: I've not had any significant problems yet as regards them letting me know about what opportunities they've got, keeping me informed about the progress of ones I've said I do want to invest in, letting me know after a 'pitch' has closed that they my investment is accepted, but I still have a period (at least a week, I think) during which I can have second thoughts and withdraw from the investment before then if I wish, giving me a day's notice when they intend to take the money from my card, etc. About the worst I can say about them is that at one point, I encountered a case where their website indicated that a 'pitch' was still open after it had closed, and then behaved oddly if one tried to look into the 'pitch', and that was quickly and efficiently dealt with after I contacted them about it.

I have no experience of other crowdfunding websites, so can't compare Crowdcube with them.

As far as the investments I've made are concerned, the jury is still out on all of them and expected to remain so for quite a few years to come. This is no surprise - typically, a 'pitch' says that the company is thinking in terms of an 'exit' five years down the line, and I would generally expect that and other timescale details to be on the optimistic side rather than pessimistic. Even my earliest investment in a company via Crowdcube is only just over a year old by now, so it's far too early to come to any verdict about them.

Finally, I realise that a lot of the above may well be 'teaching my grandmother' - and indeed, I hope it is! But I make no apologies about that because I do regard it as important that all readers and not just you yourself understand that my good experiences with Crowdcube themselves are NOT a recommendation of the type of investments you can make using them. I'm happy with my own use of such investments, but that happiness is very dependent on the small size of the investments that I'm making, my own financial circumstances and the fact that I'm only choosing investments I regard as quite likely to be fun to own. I'm certainly not willing to recommend such investments to people generally - all I can recommend is treating them with great caution, accepting full responsibility for the consequences if one does decide to invest.


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Postby UncleEbenezer » July 4th, 2018, 8:30 pm

I came to crowdfunding a few years ago: a few small flutters. I made the decision back then to focus on another crowdfunding site, seedrs, on the grounds that they seem to offer better protection against a range of risks. Obviously there's always the risk of an investee failing, but my impression was that seedrs offered better protection against other risks, such as actions by a majority shareholder that are not in the interests of crowdfunding investors.

Before investing with crowdcube, you might want to browse . You may want to take him with a pinch of salt at times, but he's certainly food for thought.

p.s. Crowdfunding occasionally comes up on the VCT board here. There is, after all, some commonality!

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