Easy come, easy go? On crowdfunding and the wisdom of crowds

Easyproperty has launched on Crowdcube at a crazy price. If successful Crowdcube investors would invest £1m for a tiny 1.5% of the business, resulting in a post money valuation of £66m.
Stelios Haji-Iannou of Easygroup fame is lending his name to the business but it’s not clear what his involvement will be beyond licensing the brand name.
stelios_2012732bPhoto from Daily Telegraph article
 
We have noticed that credible founders can quickly raise surprisingly large amounts on equity crowd funding platforms e.g. Kevin McCloud with Hab Housing  and sometimes these are at surprising valuations but Easyproperty is the most surprising to me.
I had thought that the wisdom of crowds was working as the deal had only received pledges for £50,000 of the £1m by this Wednesday and the forum in Crowdcube was alive with posts asking whether the equity on offer was meant to say 15% rather than 1.5%. (The company replied saying 1.5% and £66m post money valuation are correct)
One investor asked repeatedly what their £2000 investment would be worth if the company sold for £1 billion (the approximate valuation of Zoopla after 7 years and an IPO). Unfortunately the company replied incorrectly saying 20x. But buyer beware! If the company never raised any more money and didn’t issue any more share options to staff than currently expected and didn’t ever issue shares in return for partnership deals and had no equity based mergers, then the return would be 15x, but those caveats are very unlikely to transpire.
For example, I was an angel investor in Zoopla from the first angel round, and there were several rounds of finance and several equity based mergers and partnership deals. The multiple from the first angel round was more than 15x which is great of course, but that’s because the first round valuation was way way less than £66m.
When we as a professional VC investor assess a deal we think about three main things:

  1. is this a great market which is ready for disruption in the way proposed?
  2. is this a great business with a great team with a good shot at becoming the market leader?
  3. is this a great deal i.e. at a great price and with no funny business in the terms so we would share fairly in the eventual success?

For me, Easyproperty fails most obviously in terms of the deal so we wouldn’t touch this with a bargepole. I also think that it fails the other tests. Although the rental market could be disrupted, as some of the forum posts have pointed out, landlords need the management service and not just tenant finding, and that needs local knowledge not just a national website. Also there’s too little information on the management team so we would question whether they can compete with physical estate agents and online estate agents like Purplebricks on one hand and Zoopla/Rightmove on the other.
Right now, the Crowdcube deal is up to £127,000 of the £1m and it looks feasible that the company will raise its £1m over the next 11 days. The jury is out for me on whether the crowd is acting wisely.
 

Simon

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