1 00:00:07,600 --> 00:00:11,600 Speaker 1: The steering wheels on the wrong side. Here all right, 2 00:00:12,760 --> 00:00:17,920 Speaker 1: first time driving on the right side. See how this goes. 3 00:00:19,520 --> 00:00:22,880 Speaker 1: The voice you're hearing, that's Adam Satriano. He's one of 4 00:00:22,920 --> 00:00:25,279 Speaker 1: the reporters on our team in London and he moved 5 00:00:25,320 --> 00:00:27,400 Speaker 1: there from San Francisco just a few months ago to 6 00:00:27,480 --> 00:00:30,640 Speaker 1: cover the European tech scene. And that tape we're listening 7 00:00:30,680 --> 00:00:32,840 Speaker 1: to I recorded that just as I was getting into 8 00:00:32,880 --> 00:00:35,600 Speaker 1: a rental car to drive to the eastern coast of Scotland. 9 00:00:36,200 --> 00:00:38,440 Speaker 1: I was about midway through the ninety minute drive from 10 00:00:38,520 --> 00:00:41,640 Speaker 1: Edinburgh Airport on a narrow two lane road in the 11 00:00:41,640 --> 00:00:45,519 Speaker 1: Scottish countryside, headed to the town as St Andrew's, and 12 00:00:45,560 --> 00:00:47,519 Speaker 1: I was thinking, how great is this job that I 13 00:00:47,560 --> 00:00:50,600 Speaker 1: get to travel here for a story like this? When 14 00:00:50,640 --> 00:00:56,760 Speaker 1: there was a bit of a snap foo, Well, I 15 00:00:56,800 --> 00:01:00,960 Speaker 1: got a flat tire. So I am in the middle 16 00:01:01,120 --> 00:01:06,440 Speaker 1: of the scott this countryside, have a few cows off 17 00:01:06,440 --> 00:01:08,760 Speaker 1: to my right here on the two lane roads some 18 00:01:10,120 --> 00:01:13,200 Speaker 1: and in this rental car there is no spare, so 19 00:01:13,280 --> 00:01:18,679 Speaker 1: I am waiting for a tow truck. Um, we'll be there, 20 00:01:18,720 --> 00:01:27,000 Speaker 1: we'll make it. We're gonna do this. Hi, I'm Brad 21 00:01:27,040 --> 00:01:30,720 Speaker 1: Stone and I'm Adam Sacian, and today we're traveling across 22 00:01:30,760 --> 00:01:33,560 Speaker 1: the Atlantic to explore a new way that startups are 23 00:01:33,640 --> 00:01:36,840 Speaker 1: raising money in the UK, not from venture capital firms, 24 00:01:36,959 --> 00:01:40,120 Speaker 1: not from banks, but from regular people like you and me. 25 00:01:40,800 --> 00:01:43,600 Speaker 1: And I was making this somewhat fraught journey to St 26 00:01:43,640 --> 00:01:46,640 Speaker 1: Andrew's to meet the guy who, through a blog, has 27 00:01:46,680 --> 00:01:49,000 Speaker 1: become one of the most vocal critics of this brave 28 00:01:49,040 --> 00:01:52,720 Speaker 1: new world of investing. These services that are making equity 29 00:01:52,800 --> 00:01:56,120 Speaker 1: crowdfunding possible. Are they matching the brightest minds of the 30 00:01:56,200 --> 00:01:59,080 Speaker 1: UK with much needed capital or are they making it 31 00:01:59,160 --> 00:02:02,840 Speaker 1: too easy for investors without enough experience and with incomplete 32 00:02:02,840 --> 00:02:06,040 Speaker 1: information to dump money into these startups that might never 33 00:02:06,080 --> 00:02:08,600 Speaker 1: have a chance of succeeding in the first place. Stay 34 00:02:08,680 --> 00:02:14,239 Speaker 1: with us as we hear from both sides. So back 35 00:02:14,280 --> 00:02:16,680 Speaker 1: in May I moved to London and soon after I 36 00:02:16,800 --> 00:02:20,040 Speaker 1: arrived I started noticing this peculiar ads in the underground 37 00:02:20,080 --> 00:02:23,720 Speaker 1: and online. Uh. These were ads encouraging ordinary people to 38 00:02:23,720 --> 00:02:28,040 Speaker 1: put their own money into funding startups. So what started 39 00:02:28,160 --> 00:02:30,760 Speaker 1: as a quick, easy way of paying for coffee is 40 00:02:30,800 --> 00:02:34,760 Speaker 1: beginning to reboot the world of payments. Now everybody has 41 00:02:34,800 --> 00:02:38,560 Speaker 1: the option of creating their very own secure economy free 42 00:02:38,600 --> 00:02:42,480 Speaker 1: of banks and fees. At Crowdcube fund raise target is 43 00:02:42,560 --> 00:02:45,960 Speaker 1: five hundred thousand pounds. This will enable us to invest 44 00:02:46,040 --> 00:02:50,480 Speaker 1: in marketing, PR and promotion, to continue to develop a 45 00:02:50,600 --> 00:02:54,639 Speaker 1: strategic partnerships for user acquisition, and to further develop the app. 46 00:02:55,400 --> 00:02:58,320 Speaker 1: Did you know that over half of pet dogs are overweight? 47 00:02:59,080 --> 00:03:01,520 Speaker 1: That's where we rease a re launched our first product, 48 00:03:01,880 --> 00:03:07,400 Speaker 1: just like a fitbit, but for dogs. The model is 49 00:03:07,400 --> 00:03:10,639 Speaker 1: similar to Kickstarter, which many of our American listeners will 50 00:03:10,639 --> 00:03:13,000 Speaker 1: know as the website that lets you donate money to 51 00:03:13,040 --> 00:03:16,280 Speaker 1: an artist or a young company and in return, if 52 00:03:16,320 --> 00:03:18,680 Speaker 1: the project raises the money at needs, you get some 53 00:03:18,720 --> 00:03:21,400 Speaker 1: sort of product at the end. The difference is that 54 00:03:21,480 --> 00:03:24,440 Speaker 1: with these funding sites in the UK, you're not investing 55 00:03:24,480 --> 00:03:28,600 Speaker 1: in a new fangled coffeemaker or a new health monitoring bracelet. 56 00:03:28,960 --> 00:03:32,280 Speaker 1: You're buying a piece of somebody's company. The biggest platform 57 00:03:32,360 --> 00:03:35,560 Speaker 1: is called crowd Cube, but there are others too, one 58 00:03:35,600 --> 00:03:38,960 Speaker 1: called Cedars and others called syndicate Room. And the idea 59 00:03:39,000 --> 00:03:41,000 Speaker 1: is that if you decide to back a startup and 60 00:03:41,040 --> 00:03:44,040 Speaker 1: then it turns into a successful business, and then it 61 00:03:44,080 --> 00:03:47,040 Speaker 1: decides to sell to another company or even files for 62 00:03:47,080 --> 00:03:49,880 Speaker 1: an I p O. You, brad Stone will get a 63 00:03:49,920 --> 00:03:54,240 Speaker 1: piece of the action. I can't wait. Ordinary people investing 64 00:03:54,280 --> 00:03:56,840 Speaker 1: in startups. That's something that only just became legal in 65 00:03:56,880 --> 00:04:01,000 Speaker 1: the US earlier this year. President obamallingly called it the 66 00:04:01,120 --> 00:04:04,440 Speaker 1: Jobs Act. Previously, you could only invest in startups if 67 00:04:04,440 --> 00:04:07,560 Speaker 1: you are really rich. But even with these d regulations, 68 00:04:07,680 --> 00:04:10,040 Speaker 1: there's still a lot of restrictions here in the US 69 00:04:10,120 --> 00:04:13,280 Speaker 1: that just don't exist in the UK, and crowdfunding just 70 00:04:13,360 --> 00:04:17,000 Speaker 1: hasn't taken off at this very early stage. In the UK. 71 00:04:17,200 --> 00:04:19,640 Speaker 1: On the other hand, policy makers have been eager to 72 00:04:19,720 --> 00:04:23,200 Speaker 1: embrace it and it's become a pretty big industry. And 73 00:04:23,240 --> 00:04:26,200 Speaker 1: the back drop here is that after the global financial crisis, 74 00:04:26,240 --> 00:04:30,320 Speaker 1: banks became reluctant to lend to small businesses. So the ideas, 75 00:04:30,520 --> 00:04:34,839 Speaker 1: let's allow small business to go directly to consumers for financing. 76 00:04:35,480 --> 00:04:38,920 Speaker 1: Some companies use crowdfunding along with traditional investors, and it's 77 00:04:38,960 --> 00:04:41,520 Speaker 1: kind of a marketing technique. You get your customers more 78 00:04:41,520 --> 00:04:43,680 Speaker 1: engaged with the company if they own a piece of 79 00:04:43,680 --> 00:04:47,120 Speaker 1: what they're buying. You can see how investors would be 80 00:04:47,200 --> 00:04:49,799 Speaker 1: drawn to this. You could park your money and government 81 00:04:49,839 --> 00:04:53,760 Speaker 1: bonds and basically earn zero interest, or you could take 82 00:04:53,800 --> 00:04:56,719 Speaker 1: this leap of faith and maybe just maybe make a 83 00:04:56,839 --> 00:05:00,880 Speaker 1: crazy return at Darren Westlake because the CEO of Crowdcube 84 00:05:00,880 --> 00:05:04,359 Speaker 1: described it to me as the democratization of investing. The 85 00:05:04,360 --> 00:05:07,920 Speaker 1: Internet has brought prominence to this kind of investing, and 86 00:05:08,240 --> 00:05:11,160 Speaker 1: VC investing has become kind of sexy, I guess, and 87 00:05:11,560 --> 00:05:13,800 Speaker 1: people see that stuff and they want to see if 88 00:05:13,839 --> 00:05:16,640 Speaker 1: they can get that little part of them. And here's 89 00:05:16,640 --> 00:05:18,799 Speaker 1: what one investor told me who I met at a 90 00:05:18,800 --> 00:05:22,719 Speaker 1: crowdfunding event. I'm Adam or Squake, and I've invested in 91 00:05:22,880 --> 00:05:26,520 Speaker 1: over a hundred ext charac funding campaigns, and in particular 92 00:05:26,560 --> 00:05:30,320 Speaker 1: I'm excited by extra crowdfunding because there are a lot 93 00:05:30,320 --> 00:05:32,480 Speaker 1: of problems and things to six in the world, and 94 00:05:33,200 --> 00:05:36,200 Speaker 1: starts to take components are one way to address it. 95 00:05:39,600 --> 00:05:42,120 Speaker 1: So listening to guys like Darren and Adam, it all 96 00:05:42,200 --> 00:05:46,080 Speaker 1: sounds really promising and it is. But like every good experiment, 97 00:05:46,160 --> 00:05:48,120 Speaker 1: you need to keep a close eye on the results, 98 00:05:48,440 --> 00:05:51,000 Speaker 1: and very few people are tracking what's actually happening to 99 00:05:51,040 --> 00:05:54,520 Speaker 1: these startups after they raised money on these websites like crowdcube, 100 00:05:55,360 --> 00:05:57,400 Speaker 1: except for the guy you tracked down on your ill 101 00:05:57,480 --> 00:06:01,080 Speaker 1: fated road trip to Scotland. Yeah, guy named Rob Murray Brown. 102 00:06:01,560 --> 00:06:05,200 Speaker 1: So we sent you there to meet him. I how 103 00:06:05,279 --> 00:06:11,279 Speaker 1: you doing right? Kind of day? Well, kind of sound 104 00:06:11,360 --> 00:06:14,599 Speaker 1: they didn't have the time. What do you what? I 105 00:06:14,640 --> 00:06:16,719 Speaker 1: met Robin a bench at the top of the cliffs 106 00:06:16,720 --> 00:06:19,680 Speaker 1: overlooking the north Sea in St Andrew's. It's a beautiful 107 00:06:19,760 --> 00:06:22,720 Speaker 1: point town with one of the world's most famous golf courses, 108 00:06:23,160 --> 00:06:28,160 Speaker 1: lots of stones, seventeenth century buildings, student cafes, golf shops, pubs. 109 00:06:28,800 --> 00:06:30,640 Speaker 1: And this guy Rob, you were telling me, he looks 110 00:06:30,680 --> 00:06:34,080 Speaker 1: a little bit like the British actor Bill Knight. Yeah, 111 00:06:34,120 --> 00:06:36,400 Speaker 1: you know, the guy from Love. Actually he also played 112 00:06:36,480 --> 00:06:40,159 Speaker 1: Rufus and Harry Potter. Anyway, it was a windy day 113 00:06:40,200 --> 00:06:42,279 Speaker 1: and he was bundled up in a thick tan coat. 114 00:06:42,600 --> 00:06:45,919 Speaker 1: And even before you got into your minor car crash, 115 00:06:46,120 --> 00:06:49,719 Speaker 1: getting to this interview was a little bit of a challenge, right. Yeah. 116 00:06:49,760 --> 00:06:53,040 Speaker 1: When I first reached out, Rob was understandably wary of 117 00:06:53,080 --> 00:06:55,680 Speaker 1: a journalist coming in using all his research that he 118 00:06:55,839 --> 00:06:58,520 Speaker 1: compiled on his blog and not giving him any credit. 119 00:06:59,120 --> 00:07:01,479 Speaker 1: I offered to fly to St Andrew's in Scotland to 120 00:07:01,520 --> 00:07:04,320 Speaker 1: meet with him. At his home, and I understand he 121 00:07:04,360 --> 00:07:07,400 Speaker 1: didn't want you to. He didn't, but after a couple 122 00:07:07,400 --> 00:07:09,640 Speaker 1: of days of back and forth, he agreed to meet 123 00:07:09,680 --> 00:07:12,200 Speaker 1: me for a beer and dinner in town. It's here 124 00:07:12,200 --> 00:07:14,480 Speaker 1: that Rob told me about how he stumbled into this 125 00:07:14,520 --> 00:07:20,400 Speaker 1: world of equity crowdfunding. Well. I got interested back in 126 00:07:20,480 --> 00:07:24,280 Speaker 1: two thousand and eleven when the equity crowd funding market 127 00:07:24,320 --> 00:07:29,440 Speaker 1: in the UK started and crowd Cube, who are now 128 00:07:29,960 --> 00:07:33,440 Speaker 1: the world's largest equity crowdfunding site, launched in the in 129 00:07:33,480 --> 00:07:35,640 Speaker 1: the middle of two thousand and eleven, and I started 130 00:07:35,680 --> 00:07:39,320 Speaker 1: following them U then I invested in a small company 131 00:07:40,800 --> 00:07:44,400 Speaker 1: which is still going um and I've got a bit 132 00:07:44,440 --> 00:07:48,080 Speaker 1: concerned about the way companies were being promoted on the 133 00:07:48,200 --> 00:07:51,880 Speaker 1: site and the amount of due diligence, and so I 134 00:07:51,880 --> 00:07:53,800 Speaker 1: asked him to look get into a little bit more 135 00:07:53,800 --> 00:07:57,120 Speaker 1: of the specifics. You just look at a company and 136 00:07:57,160 --> 00:08:00,880 Speaker 1: you read what they said about themselves as the founders, 137 00:08:00,960 --> 00:08:04,320 Speaker 1: and you check back through the records on the Internet 138 00:08:05,120 --> 00:08:07,760 Speaker 1: and find that what they were saying about themselves wasn't 139 00:08:08,160 --> 00:08:13,920 Speaker 1: entirely true. It was generally exaggerated quite often actually wasn't 140 00:08:13,960 --> 00:08:16,560 Speaker 1: true at all, And they never told you any of 141 00:08:16,600 --> 00:08:19,440 Speaker 1: the bad stuff, only the good stuff if there wasn't it. 142 00:08:20,400 --> 00:08:23,720 Speaker 1: And Rob, he's been running small businesses basically his whole life. 143 00:08:23,880 --> 00:08:25,800 Speaker 1: He knew how hard it was to borrow money from 144 00:08:25,840 --> 00:08:29,440 Speaker 1: the banks. He wanted crowdfunding to work, so he reached 145 00:08:29,440 --> 00:08:33,760 Speaker 1: out to Crowdcube. I sent them a very nice email, 146 00:08:33,800 --> 00:08:35,599 Speaker 1: I thought, saying, you know, I would. I said I 147 00:08:35,600 --> 00:08:39,360 Speaker 1: would offer them a free of charge service for six 148 00:08:39,440 --> 00:08:43,000 Speaker 1: months to do their due diligence. I would basically do 149 00:08:43,040 --> 00:08:45,200 Speaker 1: the job that I felt they weren't doing. I knew 150 00:08:45,240 --> 00:08:47,880 Speaker 1: they weren't doing it because I and according to Rob, 151 00:08:47,960 --> 00:08:51,000 Speaker 1: Crowdcube basically told him thanks, but no thanks, and then 152 00:08:51,040 --> 00:08:55,000 Speaker 1: ignored them. But Rob kept at it, so he was 153 00:08:55,040 --> 00:08:57,160 Speaker 1: told to go away, and of course that got him 154 00:08:57,160 --> 00:08:59,920 Speaker 1: more interested. So clearly this is a guy who really cares. 155 00:09:00,920 --> 00:09:04,200 Speaker 1: He really does. And I asked him why I have 156 00:09:04,240 --> 00:09:08,640 Speaker 1: spent my life running sms, and to be honest with you, 157 00:09:08,720 --> 00:09:12,800 Speaker 1: I really hate both. And I got really annoyed about it, 158 00:09:13,600 --> 00:09:15,600 Speaker 1: in fact that it annoyed him so much that he 159 00:09:15,679 --> 00:09:18,559 Speaker 1: kept looking into the company's raising money on these sites, 160 00:09:18,960 --> 00:09:21,079 Speaker 1: and his kids got tired of listening to him talk 161 00:09:21,120 --> 00:09:23,640 Speaker 1: about it, so they suggested that he set up a 162 00:09:23,640 --> 00:09:27,520 Speaker 1: blog that was in and this is the blog ominously 163 00:09:27,600 --> 00:09:30,400 Speaker 1: called The Truth about Equity Crowdfunding. That's made him a 164 00:09:30,400 --> 00:09:33,760 Speaker 1: tiny bit famous in the industry. Yeah, maybe a little 165 00:09:33,760 --> 00:09:37,440 Speaker 1: more infamous than famous. When I brought up Rob's website 166 00:09:37,440 --> 00:09:39,920 Speaker 1: to people in the crowdfunding industry, I got a lot 167 00:09:39,960 --> 00:09:43,760 Speaker 1: of tight smiles and grimaces. The website doesn't have a 168 00:09:43,800 --> 00:09:46,760 Speaker 1: big audience, maybe a thousand people per week, but it's 169 00:09:46,800 --> 00:09:50,040 Speaker 1: having an impact. Some London papers have picked up things 170 00:09:50,080 --> 00:09:52,600 Speaker 1: he's written, and it's even led to some new business 171 00:09:52,679 --> 00:09:57,079 Speaker 1: opportunities for Rob. Yeah. He's been getting the intention of 172 00:09:57,080 --> 00:09:59,240 Speaker 1: of startups who are trying to raise money this way, 173 00:09:59,280 --> 00:10:01,480 Speaker 1: and they've been reached out to him for advice. He 174 00:10:01,600 --> 00:10:04,280 Speaker 1: set up a little consulting business on the side. Yeah. 175 00:10:04,320 --> 00:10:06,280 Speaker 1: I could see how we'd get attention for the blog. 176 00:10:06,320 --> 00:10:09,000 Speaker 1: There's so much interesting stuff there and so much interest 177 00:10:09,000 --> 00:10:11,479 Speaker 1: in the industry. But how do you think the investors 178 00:10:11,520 --> 00:10:14,840 Speaker 1: feel about this? Are they worried like Rob about being 179 00:10:14,880 --> 00:10:17,800 Speaker 1: misled by these sites? That's what I asked the investor 180 00:10:17,840 --> 00:10:22,040 Speaker 1: we spoke to earlier. Some of them are going to fail. Um, 181 00:10:22,080 --> 00:10:25,040 Speaker 1: you know, if you treat early stage investment as part 182 00:10:25,080 --> 00:10:28,640 Speaker 1: of a balance and broad approach, then you know you 183 00:10:28,760 --> 00:10:30,640 Speaker 1: do risk yourself and it is at the high end 184 00:10:30,920 --> 00:10:34,520 Speaker 1: of of a risk profile. Um. And I'd certainly not 185 00:10:34,559 --> 00:10:38,679 Speaker 1: advocate putting everything having to startups. You know as an individual, 186 00:10:38,800 --> 00:10:43,520 Speaker 1: these investments you know of them could fail. Um. You know, 187 00:10:44,280 --> 00:10:47,840 Speaker 1: so that's the game. I don't have put anything in. 188 00:10:48,080 --> 00:10:51,840 Speaker 1: I would be to lose Adam as war Kick is 189 00:10:51,920 --> 00:10:56,320 Speaker 1: making the conventional wisdom point there about maintaining a balanced portfolio, 190 00:10:56,440 --> 00:11:01,120 Speaker 1: But the question is will investors heed that advice. Let's 191 00:11:01,120 --> 00:11:02,920 Speaker 1: take a quick break and when we come back, we'll 192 00:11:02,960 --> 00:11:05,199 Speaker 1: go through the juicy details of some of the startups 193 00:11:05,240 --> 00:11:07,680 Speaker 1: have never made it. We'll also tell you exactly how 194 00:11:07,679 --> 00:11:10,680 Speaker 1: many of these startups have actually made money for their investors. 195 00:11:13,880 --> 00:11:16,559 Speaker 1: Hey guys, it's Ocky. You heard from me an episode 196 00:11:16,559 --> 00:11:18,960 Speaker 1: three about the d n C hack and I helped 197 00:11:18,960 --> 00:11:21,920 Speaker 1: produce the show. I just wanted to say thank you 198 00:11:21,960 --> 00:11:24,720 Speaker 1: to everyone who's left us a rating and a review 199 00:11:24,840 --> 00:11:28,360 Speaker 1: on iTunes. It goes so far in helping us climb 200 00:11:28,480 --> 00:11:30,920 Speaker 1: up the rankings, which in turn helps put our show 201 00:11:30,920 --> 00:11:33,400 Speaker 1: in front of more people. If you'd like to leave 202 00:11:33,440 --> 00:11:36,840 Speaker 1: us a review to open your podcast sap on your iPhone, 203 00:11:36,920 --> 00:11:40,280 Speaker 1: tap the search button on the bottom right, type DECRYPTID, 204 00:11:40,480 --> 00:11:42,520 Speaker 1: tap on the show and then tap on the tab 205 00:11:42,600 --> 00:11:45,720 Speaker 1: in the middle of the screen that says reviews. Then 206 00:11:45,760 --> 00:11:48,000 Speaker 1: you can tap on the purple link a little lower 207 00:11:48,080 --> 00:11:50,800 Speaker 1: down that says write a review. And I promise it's 208 00:11:50,880 --> 00:11:54,160 Speaker 1: less complicated than it sounds. Now back to the show. 209 00:12:00,280 --> 00:12:02,600 Speaker 1: We've been talking about how startups in the UK are 210 00:12:02,679 --> 00:12:06,800 Speaker 1: using crowdfunding platforms to raise money from ordinary people. It's 211 00:12:06,800 --> 00:12:09,400 Speaker 1: something that's really starting to take off there, but at 212 00:12:09,440 --> 00:12:12,960 Speaker 1: least one person, Rob Murray Brown, who we heard from earlier, 213 00:12:13,160 --> 00:12:16,400 Speaker 1: has been watching the space closely and has some serious 214 00:12:16,440 --> 00:12:20,400 Speaker 1: worries about whether companies are disclosing enough information to us, 215 00:12:20,720 --> 00:12:23,719 Speaker 1: the people they are raising money from. So Adam, let's 216 00:12:23,760 --> 00:12:25,680 Speaker 1: dig into that some more. Let's take a look at 217 00:12:25,720 --> 00:12:29,880 Speaker 1: a few of these startups. Every few days, Rob publishes 218 00:12:29,920 --> 00:12:32,439 Speaker 1: fresh examples of a small company that he thinks is 219 00:12:32,480 --> 00:12:35,360 Speaker 1: headed for trouble. One of the more high profile flame 220 00:12:35,360 --> 00:12:38,079 Speaker 1: outs was a company called Pronto, which was a food 221 00:12:38,080 --> 00:12:41,320 Speaker 1: delivery startup. That's a great name for a food delivery company. 222 00:12:41,360 --> 00:12:43,679 Speaker 1: It actually makes me kind of hungry. It raised more 223 00:12:43,720 --> 00:12:46,360 Speaker 1: than a hundred thousand pounds from the crowd along with 224 00:12:46,440 --> 00:12:49,479 Speaker 1: another seven hundred thousand pounds or so from outside investors. 225 00:12:49,840 --> 00:12:52,920 Speaker 1: The company valued itself at five million pounds on Cedars, 226 00:12:53,000 --> 00:12:55,880 Speaker 1: which is one of crowd cues rivals. Here's what they 227 00:12:55,880 --> 00:12:59,320 Speaker 1: told potential investors in their pitch video. We're growing up 228 00:12:59,320 --> 00:13:02,040 Speaker 1: at the six and week on week over the last 229 00:13:02,040 --> 00:13:04,600 Speaker 1: twenty four weeks, but we've missed a majority of our 230 00:13:04,679 --> 00:13:08,400 Speaker 1: growth every single day because of our delivery area. And 231 00:13:08,480 --> 00:13:12,120 Speaker 1: this raises first and foremost all about growth, about rolling 232 00:13:12,120 --> 00:13:15,200 Speaker 1: out and expanding our fort here. It sounds exciting, right, 233 00:13:15,520 --> 00:13:18,520 Speaker 1: We're lucky to have some alone's top investors to went 234 00:13:18,559 --> 00:13:20,920 Speaker 1: out of business about three months later. I asked rather 235 00:13:20,960 --> 00:13:23,319 Speaker 1: about this. I mean, if you if you read the pitch, 236 00:13:23,960 --> 00:13:27,840 Speaker 1: which I have done it, you know it sounds good. 237 00:13:27,920 --> 00:13:30,520 Speaker 1: They talk a good game. It's all seems to be 238 00:13:31,640 --> 00:13:33,560 Speaker 1: take deboot. I think. I think one of the problems 239 00:13:33,559 --> 00:13:38,000 Speaker 1: with these companies is that they they come for money 240 00:13:38,040 --> 00:13:44,600 Speaker 1: before they've stress test tested their model, and and so 241 00:13:44,800 --> 00:13:46,520 Speaker 1: when when when they get the money and then they 242 00:13:47,640 --> 00:13:53,080 Speaker 1: hit the starting button, it all the wheels start to grind, 243 00:13:53,080 --> 00:13:55,520 Speaker 1: and the and the cogs come off, and they don't 244 00:13:55,520 --> 00:13:57,800 Speaker 1: know what to do. You know, I mean clearly, to 245 00:13:58,200 --> 00:14:00,880 Speaker 1: lose eight hundred thousand pounds and three moms is gone 246 00:14:00,880 --> 00:14:06,720 Speaker 1: an achievement. The frownder Pronto, the guy in the video, 247 00:14:06,880 --> 00:14:09,560 Speaker 1: declined to comment to us for the story. He did 248 00:14:09,559 --> 00:14:12,240 Speaker 1: write an apology letter to investors that said the company 249 00:14:12,280 --> 00:14:15,720 Speaker 1: didn't have the resources to scale and compete against larger rivals. 250 00:14:16,240 --> 00:14:19,840 Speaker 1: Or what other horror stories have you heard? Another company, 251 00:14:19,880 --> 00:14:23,440 Speaker 1: a clothing manufacturer went bus just the past few weeks, 252 00:14:23,760 --> 00:14:28,240 Speaker 1: as did a subscription snack business uh Rob's blog as 253 00:14:28,280 --> 00:14:31,440 Speaker 1: several mentions of companies financial results didn't live up to 254 00:14:31,480 --> 00:14:34,800 Speaker 1: what they were projecting. The report last year by Alt 255 00:14:34,880 --> 00:14:37,320 Speaker 1: five Uh, this is kind of a research firm that's 256 00:14:37,360 --> 00:14:39,480 Speaker 1: been looking into this. They said that one in five 257 00:14:39,520 --> 00:14:42,480 Speaker 1: of the companies that use crowdfunding from two thousand eleven 258 00:14:42,520 --> 00:14:45,760 Speaker 1: to two thousand thirteen have since gone bust. So, Adam, 259 00:14:45,800 --> 00:14:48,400 Speaker 1: none of this is unusual. There's a lot of risk 260 00:14:48,480 --> 00:14:51,280 Speaker 1: and start up investing. It's very typical for startups never 261 00:14:51,360 --> 00:14:53,680 Speaker 1: to make it. Even the big ones funded by tons 262 00:14:53,720 --> 00:14:56,800 Speaker 1: of venture capital can can eventually fold, like fab dot com, 263 00:14:56,800 --> 00:15:00,200 Speaker 1: which we profiled in our very first episode. Yeah, that's 264 00:15:00,200 --> 00:15:03,320 Speaker 1: something that Darren Westlake the CEO crowd Cube pointed out, 265 00:15:03,400 --> 00:15:08,560 Speaker 1: the most successful companies won't materialize until later. Failure comes first. Still, 266 00:15:08,680 --> 00:15:10,880 Speaker 1: the bigger question here is are there a couple of 267 00:15:10,920 --> 00:15:14,640 Speaker 1: breakout successes to balance out all the failures? Okay, then, 268 00:15:14,680 --> 00:15:17,840 Speaker 1: so stepping back, what is the tally of the more 269 00:15:17,840 --> 00:15:20,880 Speaker 1: than thousand companies that have used crowdfunding to raise money? 270 00:15:20,920 --> 00:15:24,480 Speaker 1: There's been three exits. One was a craft beer maker 271 00:15:24,560 --> 00:15:28,720 Speaker 1: called Camden Brewery that got sold. Investors there nearly doubled 272 00:15:28,720 --> 00:15:32,479 Speaker 1: their money. And I've had the beer. It's pretty tasty. Okay, 273 00:15:32,520 --> 00:15:35,560 Speaker 1: So not a gangbuster return if you're a venture capitalist, 274 00:15:35,640 --> 00:15:40,440 Speaker 1: but certainly respectable. Yeah. Another company was E Car Club, 275 00:15:40,560 --> 00:15:44,200 Speaker 1: which sold up for about three times what their initial 276 00:15:44,240 --> 00:15:47,560 Speaker 1: investment was, so also respectable. And the third was wool 277 00:15:47,600 --> 00:15:50,440 Speaker 1: in the Gang, a garment company. It's sold for a 278 00:15:50,520 --> 00:15:53,680 Speaker 1: touch more than what it raised. This one was cute. 279 00:15:53,680 --> 00:15:56,440 Speaker 1: They offered gift certificates instead of the small game it 280 00:15:56,560 --> 00:16:02,000 Speaker 1: generated for investors. So beer are sharing and garments and 281 00:16:02,000 --> 00:16:05,640 Speaker 1: and that's it. That's it. Three exits out of more 282 00:16:05,640 --> 00:16:09,400 Speaker 1: than one thousand startups. That's a little depressing. Here is 283 00:16:09,480 --> 00:16:14,400 Speaker 1: rab again, the model that the platforms put out is 284 00:16:14,440 --> 00:16:18,040 Speaker 1: that that you should spread your investment very sensible. So 285 00:16:18,360 --> 00:16:20,520 Speaker 1: what the model they give you is you need to 286 00:16:20,560 --> 00:16:24,680 Speaker 1: invest in ten companies, of which one will give you 287 00:16:24,720 --> 00:16:27,520 Speaker 1: a good return, too might give you a small return, 288 00:16:27,600 --> 00:16:31,080 Speaker 1: and seven will go bust, which as we're looking at 289 00:16:31,160 --> 00:16:35,560 Speaker 1: it now, I'd say it's quite optimistic. The problem is 290 00:16:35,560 --> 00:16:38,320 Speaker 1: that the one giving you the good return, if you 291 00:16:38,400 --> 00:16:42,800 Speaker 1: imagine it, has to give you almost ten times the 292 00:16:42,880 --> 00:16:46,880 Speaker 1: return to make up for the losses. And we're not 293 00:16:47,040 --> 00:16:51,160 Speaker 1: even there's no hint of that happening at all. And 294 00:16:51,280 --> 00:16:53,800 Speaker 1: yet there's more and more money coming into this industry. 295 00:16:54,080 --> 00:16:56,600 Speaker 1: I have some numbers here and when Adams showed them 296 00:16:56,600 --> 00:17:01,000 Speaker 1: to me, they were surprising. Two only and pounds were 297 00:17:01,040 --> 00:17:04,879 Speaker 1: invested in crowdfunding services last year, which was three times 298 00:17:04,920 --> 00:17:07,960 Speaker 1: the previous year, and one study said that about fifteen 299 00:17:08,040 --> 00:17:11,640 Speaker 1: percent of all early stage investments and UK startups came 300 00:17:11,720 --> 00:17:15,159 Speaker 1: from crowdfunding. I called professor of Saul Estron at the 301 00:17:15,160 --> 00:17:18,320 Speaker 1: London School of Economics. He spent some time studying the sector. 302 00:17:19,880 --> 00:17:21,960 Speaker 1: They're bound to be favored in this sort of area's 303 00:17:22,040 --> 00:17:26,240 Speaker 1: very early stage, so that you keep you know about 304 00:17:26,280 --> 00:17:29,640 Speaker 1: that you're investing, know that these whisky so there shouldn't 305 00:17:29,680 --> 00:17:33,959 Speaker 1: be surprises in failures in the fact that their failures, 306 00:17:34,040 --> 00:17:37,159 Speaker 1: I think more serious is that as yet they've been 307 00:17:37,280 --> 00:17:41,040 Speaker 1: very limited numbers of great successes. On the other hand, 308 00:17:41,160 --> 00:17:46,400 Speaker 1: it also relates to the early stage feature. I mean, um, um, 309 00:17:46,440 --> 00:17:49,560 Speaker 1: you know that the this really got going to any scale. 310 00:17:50,320 --> 00:17:54,000 Speaker 1: I suppose in early twenty fifteen it will be very 311 00:17:54,000 --> 00:17:56,600 Speaker 1: you'd be very lucky to get big successes in that 312 00:17:56,680 --> 00:18:00,960 Speaker 1: sort of time scale. So we don't start seeing first 313 00:18:01,000 --> 00:18:05,159 Speaker 1: of all, uh not that many of these figures, and 314 00:18:05,240 --> 00:18:09,040 Speaker 1: second of all, some really visible successes. I think the 315 00:18:09,160 --> 00:18:13,280 Speaker 1: last you know, the shine may go from this new idea, 316 00:18:13,640 --> 00:18:15,600 Speaker 1: but I don't think that has I don't think we're 317 00:18:15,640 --> 00:18:17,679 Speaker 1: exactly at the point where that is going to happen 318 00:18:18,080 --> 00:18:20,600 Speaker 1: now or in the next few months. I think, you know, 319 00:18:20,640 --> 00:18:24,960 Speaker 1: the window is in the next few years. It's a 320 00:18:25,000 --> 00:18:28,040 Speaker 1: tough call because the companies aren't doing anything illegal here, 321 00:18:28,440 --> 00:18:31,320 Speaker 1: but the material that potential investors see online might be 322 00:18:31,359 --> 00:18:35,199 Speaker 1: misleading or at least not representing the full picture. Like 323 00:18:35,320 --> 00:18:37,679 Speaker 1: last week's episode where you and Ellen talked to the 324 00:18:37,800 --> 00:18:42,000 Speaker 1: entrepreneur Antonio Garcia Martinez, Antonio said he lied to his 325 00:18:42,080 --> 00:18:45,520 Speaker 1: investors that he jacked up his growth projections and lowered 326 00:18:45,560 --> 00:18:48,480 Speaker 1: his company's legal costs in order to raise enough money, 327 00:18:49,160 --> 00:18:52,520 Speaker 1: and sure that was definitely unethical. In Antonio now admits it. 328 00:18:52,880 --> 00:18:55,520 Speaker 1: But in that episode, one of his investors, a guy 329 00:18:55,600 --> 00:18:58,640 Speaker 1: named Russell Siegelman, formerly at one of the big Silicon 330 00:18:58,760 --> 00:19:02,120 Speaker 1: Valley venture capital for Kleiner Perkins, told us he doesn't 331 00:19:02,160 --> 00:19:05,199 Speaker 1: even look at projections for an early stage startup. And 332 00:19:05,240 --> 00:19:09,159 Speaker 1: that's coming from Russ, a professional investor, incredibly experienced and 333 00:19:09,280 --> 00:19:12,680 Speaker 1: very savvy. These investors on sites like crowdcube and cedar 334 00:19:12,760 --> 00:19:15,399 Speaker 1: trying to hit the jackpot, though that might be a 335 00:19:15,400 --> 00:19:18,320 Speaker 1: different matter, and that's what's bothering Rob. He thinks these 336 00:19:18,359 --> 00:19:21,679 Speaker 1: platforms need to do more to weed out the bad companies, 337 00:19:22,200 --> 00:19:24,840 Speaker 1: to be more of an honest referee and make sure 338 00:19:24,880 --> 00:19:28,960 Speaker 1: the entrepreneurs, however well intentioned, aren't spinning fairy tales to 339 00:19:29,040 --> 00:19:32,600 Speaker 1: gullible investors. And he blinks it partly on the business model, 340 00:19:32,800 --> 00:19:35,320 Speaker 1: because the companies like crowdcube take a percentage of all 341 00:19:35,359 --> 00:19:37,800 Speaker 1: the money that gets raised on their site. And what 342 00:19:37,840 --> 00:19:41,240 Speaker 1: does crowdcube say about this? As you can imagine, the CEO, 343 00:19:41,359 --> 00:19:46,520 Speaker 1: Darren Westlake definitely disagrees well First of all, people investor 344 00:19:46,520 --> 00:19:50,160 Speaker 1: relatively small amossive money. Yeah, so people are best investing 345 00:19:50,320 --> 00:19:53,480 Speaker 1: betting that life savings on this stuff. The average investments 346 00:19:53,520 --> 00:20:01,280 Speaker 1: to two thou pounds and the other The other mile 347 00:20:01,400 --> 00:20:04,000 Speaker 1: point to that kind of argument is I think it's 348 00:20:04,080 --> 00:20:07,760 Speaker 1: quite patronizing to think that people don't understand the risk 349 00:20:07,920 --> 00:20:10,960 Speaker 1: and don't have the ability to pick and choose what 350 00:20:11,040 --> 00:20:16,840 Speaker 1: they want to invest in. And even vcs and professional 351 00:20:16,840 --> 00:20:27,800 Speaker 1: investors aren't that great to added them, and I'm taught 352 00:20:27,840 --> 00:20:30,200 Speaker 1: to this. It is worth noting that crowd cube makes 353 00:20:30,240 --> 00:20:32,760 Speaker 1: you take this test before you're allowed to be an investor, 354 00:20:33,000 --> 00:20:35,320 Speaker 1: so they make sure you're getting into this with some 355 00:20:35,440 --> 00:20:38,480 Speaker 1: level of knowledge about the risks. Adam, did you take 356 00:20:38,520 --> 00:20:43,119 Speaker 1: the test? I did? Tell us your score. It's a 357 00:20:43,160 --> 00:20:46,840 Speaker 1: series of multiple choice questions like what happens to most startups? 358 00:20:46,880 --> 00:20:49,240 Speaker 1: Do they fail? Or do they become big successes and 359 00:20:49,320 --> 00:20:52,560 Speaker 1: make investors lots of money? Or what happens if a 360 00:20:52,600 --> 00:20:55,440 Speaker 1: company fails? Will you lose your money? Or will crowd 361 00:20:55,480 --> 00:20:58,600 Speaker 1: cube Brian burst you for your losses? So I clicked 362 00:20:58,600 --> 00:21:01,000 Speaker 1: through all the wrong answers just to see what would happen, 363 00:21:01,680 --> 00:21:04,960 Speaker 1: and it said I didn't pass what they call the 364 00:21:05,000 --> 00:21:09,239 Speaker 1: sufficient knowledge test needed to become an investor. But then 365 00:21:09,280 --> 00:21:11,399 Speaker 1: they let me take it again. Did you take it again? 366 00:21:12,480 --> 00:21:18,040 Speaker 1: I did? I passed. So what does crowd cube think 367 00:21:18,080 --> 00:21:21,240 Speaker 1: about your friend Rob up in Scotland. When I first 368 00:21:21,240 --> 00:21:24,000 Speaker 1: talked to Darren, I wasn't planning on centering our story 369 00:21:24,040 --> 00:21:26,480 Speaker 1: around Rob, so I didn't ask him. But when I 370 00:21:26,480 --> 00:21:28,960 Speaker 1: went back to Darren recently, he declined to go back 371 00:21:29,000 --> 00:21:30,879 Speaker 1: on tape to talk to me for the story, but 372 00:21:30,920 --> 00:21:33,520 Speaker 1: he sent over a statement. Whenever you get the statement 373 00:21:33,560 --> 00:21:36,040 Speaker 1: from a company, you know that you're on sensitive territory. 374 00:21:36,119 --> 00:21:38,240 Speaker 1: So do you want to read it out loud? Yeah, 375 00:21:38,359 --> 00:21:41,639 Speaker 1: I'll read it, he said. Crowd Cube welcomes quote constructive 376 00:21:41,640 --> 00:21:45,840 Speaker 1: commentary on the industry. We're constantly improving our processes to 377 00:21:45,960 --> 00:21:50,399 Speaker 1: ensure investment opportunities are presented fairly and our investors are 378 00:21:50,440 --> 00:21:52,800 Speaker 1: aware of the risk. And so he goes on to 379 00:21:52,880 --> 00:21:55,800 Speaker 1: say that investors know about the risk involved here and 380 00:21:55,840 --> 00:21:59,040 Speaker 1: that the that the problems are are made clear. Reading 381 00:21:59,080 --> 00:22:04,600 Speaker 1: between the lines see suggesting that Rob's criticism is not constructive. Well. 382 00:22:05,000 --> 00:22:08,640 Speaker 1: Crowdcube has been a particular target for Rob Cedars, which 383 00:22:08,760 --> 00:22:11,119 Speaker 1: was started by a former corporate m and a attorney 384 00:22:11,359 --> 00:22:13,639 Speaker 1: has a bit of a tougher due diligence process and 385 00:22:13,720 --> 00:22:17,000 Speaker 1: serves as a representative for the investors with the funded companies. 386 00:22:17,680 --> 00:22:20,000 Speaker 1: And when I reached out to Cedars, it's CEO Jeff 387 00:22:20,080 --> 00:22:24,000 Speaker 1: Lynn said, failure is inevitable. He expects sent to fail. 388 00:22:24,600 --> 00:22:27,000 Speaker 1: He said, anybody who doesn't know that shouldn't be investing. 389 00:22:27,280 --> 00:22:29,639 Speaker 1: And there was one other company you mentioned earlier in 390 00:22:29,640 --> 00:22:33,720 Speaker 1: the program, Syndicate Room. Yeah, that's one requires people to 391 00:22:33,760 --> 00:22:35,760 Speaker 1: put more money in. Is a way to ensure that 392 00:22:35,800 --> 00:22:39,359 Speaker 1: there are more sophisticated investor and only list companies that 393 00:22:39,440 --> 00:22:43,719 Speaker 1: have money from a an angel investor or another accredited backer. 394 00:22:44,119 --> 00:22:48,520 Speaker 1: Can you can you crowdfund investments into the crowdfunding companies themselves? 395 00:22:49,520 --> 00:22:51,200 Speaker 1: You know, I think that's a good idea. I did 396 00:22:51,280 --> 00:22:54,320 Speaker 1: see a company that has that. It is now scoring 397 00:22:54,440 --> 00:22:57,119 Speaker 1: crowdfunding companies. So there are a lot of different variations 398 00:22:57,160 --> 00:23:04,000 Speaker 1: popping up. So I guess what rob is pushing for 399 00:23:04,160 --> 00:23:06,640 Speaker 1: is a combination of more vetting from the websites as 400 00:23:06,640 --> 00:23:10,480 Speaker 1: well as better regulation. The UK government is taking recommendations 401 00:23:10,520 --> 00:23:13,080 Speaker 1: from the public right now. In industry groups are also 402 00:23:13,160 --> 00:23:16,359 Speaker 1: putting in their ideas for tightening the system. In the meantime, 403 00:23:16,440 --> 00:23:20,159 Speaker 1: the platforms are looking to expand into China, India, and 404 00:23:20,240 --> 00:23:23,200 Speaker 1: some even have their sites set on the US. So, Brad, 405 00:23:23,520 --> 00:23:25,639 Speaker 1: let me get your take. Would you invest through one 406 00:23:25,680 --> 00:23:28,119 Speaker 1: of these platforms? You know, I'm gonna come at it 407 00:23:28,160 --> 00:23:30,680 Speaker 1: from a Silicon Valley mentality, and we don't have these 408 00:23:30,680 --> 00:23:36,119 Speaker 1: crowdfunding investment sites here. Any entrepreneur you know, with experience 409 00:23:36,200 --> 00:23:38,199 Speaker 1: or with a great idea is going to go to 410 00:23:38,320 --> 00:23:41,359 Speaker 1: professional investors, and so my sense is that you'd be 411 00:23:41,359 --> 00:23:44,679 Speaker 1: getting the kind of bottom half of the opportunities on 412 00:23:44,760 --> 00:23:48,160 Speaker 1: these services. And given that there is inherently so much 413 00:23:48,280 --> 00:23:53,359 Speaker 1: risk in startup investing to begin with, uh, coupled with 414 00:23:53,440 --> 00:23:55,600 Speaker 1: the fact that we are here at them all on 415 00:23:55,680 --> 00:23:59,080 Speaker 1: journalist salaries, I think I might skip it. How about you? 416 00:24:00,840 --> 00:24:03,600 Speaker 1: I tend to agree. I like the idea that there 417 00:24:03,600 --> 00:24:08,240 Speaker 1: are these alternative forms of finance, and not all companies 418 00:24:08,280 --> 00:24:11,080 Speaker 1: need to end up being a unicorn or a multi 419 00:24:11,080 --> 00:24:13,440 Speaker 1: billion dollar business. There are a lot of others that 420 00:24:13,640 --> 00:24:15,680 Speaker 1: just need a bit of seed capital to get off 421 00:24:15,720 --> 00:24:18,800 Speaker 1: the ground. There are a lot of restaurants or other 422 00:24:18,840 --> 00:24:21,800 Speaker 1: types of companies that are taking advantage of this. But 423 00:24:21,920 --> 00:24:24,920 Speaker 1: I do think that Rob makes Uh is laying out 424 00:24:24,920 --> 00:24:27,280 Speaker 1: a pretty good argument about some of the problems, and 425 00:24:27,320 --> 00:24:41,480 Speaker 1: so I would tread very carefully. Well, that's it for 426 00:24:41,520 --> 00:24:44,800 Speaker 1: this week's episode of Decrypted. Thanks for listening and let 427 00:24:44,880 --> 00:24:47,720 Speaker 1: us know. Would you consider becoming an investor on an 428 00:24:47,720 --> 00:24:50,920 Speaker 1: equity crowdfunding site or if you've done it already, tell 429 00:24:50,960 --> 00:24:53,040 Speaker 1: us what you got out of the experience. I'm on 430 00:24:53,080 --> 00:24:58,720 Speaker 1: Twitter at at Bradstone and I'm at at Satriano, And 431 00:24:58,760 --> 00:25:00,639 Speaker 1: if you have an iPhone, be sure to subscribe to 432 00:25:00,680 --> 00:25:02,879 Speaker 1: the show on iTunes or in any of your favorite 433 00:25:02,880 --> 00:25:05,680 Speaker 1: podcast apps out there. And while you're there, please take 434 00:25:05,720 --> 00:25:08,080 Speaker 1: a moment to rate and review our show. It really 435 00:25:08,119 --> 00:25:10,840 Speaker 1: helps get our show in front of more listeners. This 436 00:25:10,960 --> 00:25:14,280 Speaker 1: episode was produced by aki Ito, p I gut Kari, 437 00:25:14,560 --> 00:25:18,520 Speaker 1: Magnus Hendrickson, and Liz Smith. Aaron Black assisted with recording, 438 00:25:19,000 --> 00:25:21,600 Speaker 1: and Alec McCabe as a head of bloom Bird Podcasts. 439 00:25:21,720 --> 00:25:22,680 Speaker 1: We'll see you next week.