We have been saying this for 7 years – taking a nice little business and scaling it is not always a good idea. Equity Crowdfunding demands scale. QED ECF is not always a good idea.
Hummus Bros was a small business, running for 7 years before it started to use equity crowdfunding. It took £600k off Seedrs investors to grow large. Now it has collapsed – blaming all sorts of reasons but the one that did it in.
For example, in the letter to SHs, the company blames the fall in the pound after the Brexit vote. However the second Seedrs round was in 2017, so after that vote and collapse. Did they mention this then – NO.
To put it simply for you, this was a business that might have made the owners a living and paid its staff and dues. It was not a business to scale and in the old days a bank manager, whose job was on the line if he got it wrong, would have said so. They wouldnt have scaled as they wouldnt have been funded. They would have continued for many years happily running their 2 or 3 outlets. Since the funding started coming in in 2015, the only consistent rise for the business has been the magnitude of its losses.
ECF platforms are not in the habit of turning away businesses with a little sex appeal and the restaurant trade has always been considered that – despite the failure of so many.
So who is really to blame. Its a mix between the actions and reactions induced by ECF – need to scale and need to exit. The lack of business sense of most of the investors on these platforms. The lack of the management team to do scaling and in the end the false idea that this was ever achievable.
At some stage more people will wake up to these facts and ECF will alter direction for the better. It’s not happening yet though. So you can expect this example to be repeated many times more.