UK Crowdfunding's largest loss-maker, Rebus Group, has hit back at critics who claim that it mislead investors when it raised equity via crowdfunding last year. Crowdcube, meanwhile, is in more apologetic mode. The Exeter-based platform who hosted Rebus' equity round, has published a statement today to try and set the record straight
Unpleasant details came to light after Rebus went into administration which, frankly, we think investors should have known about before. Somebody, somewhere, did not do their due diligence. Or, as the report who originally broke the story, FT Alphaville's Kadim Shubber put it, this morning: "Investors don’t like your company? Try crowdfunding!"
In an industry sector that's trying to educate investors about risk, and take a more transparent and responsible approach to managing risk and rewarding risk-takers, the story of Rebus has lessons that we all need to learn from, and quickly. So, let's look at this week's developments, from both sides.
"Rebus cash flow fluctuates with the timing of success fees."
Business Insider reports information only came to light once the firm appointed administrators. Allegedly, Rebus Group brought in restructuring experts Resolve in 2014 because of "difficulty in generating the required cash to continue to trade." That difficulty was a material fact in the company's eventual failure.
But the meetings with Resolve were not a material fact worth disclosure, according to former Rebus Chairman Adrian Cox. Business Inder puts it thus:
"The restructure Resolve was called in to do never happened because Rebus took more equity funding rather than the loan that required the restructure. Therefore, it didn't seem important to tell investors about an event that almost but didn't happen."
Aare you convinced?
"we review and verify evidence supporting any claims being made"
Crowdcube, to begin with, says that investors were supposed to understand that it was a risky venture. The company had cashflow issues, because it had very variable cashflows. But what Rebus didn't disclose, or Crowdcube discover, was that Rebus had prevously held meetings with a financial company called Resolve, and had discussed the possibility of a loan facility, but had decided to go down the equity route instead.
"We ensure that all the information presented to investors is fair, clear and not misleading" said Crowdcube. "As part of that process we review and verify evidence supporting any claims being made by the business, such as market size, contracts and partnerships, to ensure the information provided is accurate. We also conduct due diligence on the company, its legal structure, financials and directors."
Whose job was it to get that information out into the open? Crowdcube, it seems, don't think it was theirs. And quite a few people seem to feel unsettled about that. From now on, we'd recommend investors make a point of asking "what other avenues of financing have you explored, and why have you settled on this one?"