Investment platform Crowdcube has told Estate Agent Today that defunct online estate agency Emoov revised down its company valuation from £104m to £51.8m at the end of its most recent crowdfunding exercise.
However, this was within the cooling-off period when investors can review their investment and change their mind if they wish.
EAT raised a number of questions with Crowdcube following Emoov’s move into administration on Monday afternoon.
Emoov used Crowdcube on a number of occasions to raise funds. In its most recent crowdfunding bid, which closed in late July, it raised a reported £1,923,060 from 1,119 investors.
Just over three months after the bid closed the agency was reported by Sky News to be seeking a buyer, and Emoov told EAT shortly afterwards that it was expecting “far, far less” than the £100m or so it said was the value of the agency after its merger with two other online companies - Tepilo and Urban - in the spring.
There has at no time been any suggestion of any improper activity by Emoov or anyone associated with the company.
EAT asked Crowdcube for more information on the Emoov pitch and Crowdcube’s own processes at authenticating pitches put forward by clients, and began by asking how the platform could verify valuations put forward by companies when making crowdfunding appeals.
A statement from Crowdcube said: “A business' valuation is very subjective and not an exact science. As outlined in our Due Diligence Charter, while we do provide guidance on valuations, it is the company’s decision to price their investment offer and ultimately the crowd then decides if they are willing to invest at that price.
“Investors discuss valuations openly on our forums, and sometimes a company will re-evaluate its position based on feedback from the crowd. We believe that in this way, the Crowdcube model provides a fair and transparent model for valuing companies.
“It's also worth highlighting that in the case of Emoov, investors were informed of the company's decision to change its valuation from £104m to £51.8m during a cooling off period in which investors can review their investment and cancel should they wish to.”
EAT then asked what checks were conducted on the financial viability of companies that sought to raise funds on Crowdcube.
Crowdcube said: “A company's pitch is reviewed according to our Due Diligence Charter, and approved as a financial promotion. This process entails the following:
“- conduct background checks on the company and its directors including personal credit and bankruptcy checks, director’s disqualification checks, previous company checks and accreditation checks. Using Creditsafe, a leading third-party provider;
“- conduct checks on the directors to confirm there are no un-discharged bankruptcies;
“- fact check all statements and claims made in the pitch text to ensure it is fair, clear and not misleading by obtaining, where possible, independent evidence. Certain statements may rely on the company’s own systems - for example, stock or customer management systems;
“- obtain any commercial contracts mentioned in a pitch, and
“- verify any material professional accreditations.
“If applicable, check whether the company has received SEIS or EIS Advance Assurance and make clear to potential investors the availability of such tax relief.
“Our publicly available Due Diligence Charter outlines the full due diligence undertaken on every business that lists on the platform.”
Crowdcube told EAT that Emoov “followed the same standard process as all of the businesses that raise on our platform, as outlined above” and that “the company’s pitch was reviewed according to our due diligence charter, and approved as a financial promotion.”
Crowdcube concluded: “As always, we will continue to carefully consider every company on its merits and ensure that we have carried out due diligence in accordance with our charter. As we underline on our platform, there is a very real risk of a negative outcome when investing in startups and growth companies.”
The former chief executive of Emoov has been asked for his comments.