Rebus, a company that raised over £816,790 on Crowdcube in 2015, has gone into administration making it one of the largest equity crowdfunding failures in the UK to date. According to data provided by Crowdcube, the company sold a 6.63% stake in the firm to 109 investors. The largest single investor committed £135,000 to the now failed firm. There is a touch of irony as Rebus Group is a claims management company that sought to assist investors who were misled into buying “flawed complex financial solutions- a market which is estimated to be £55 billion”. Rebus attested at the time of the crowdfunding offer to have been managing claims worth over £30 million in fees. Chairman of the firm, Adrian Cox, was previously European CEO of ASK Jeeves, a company that was eventually sold to IAC for $2.2 billion. Rebus had started in 2010 with a staff of 3 but their site states the company had grown to 29 full-time employees managing 1700 claims with a total value of £930 million. As recently as last month, Rebus was promoting its growing operations. Today, Simon Harris of ReSolve Partners are acting administrators of the Rebus Group of companies as they determine if any value remains in the company.
Nesta, the UK research and innovation charity, stated the Rebus bankruptcy was the largest equity crowdfunding failure on record. While the company may have failed, at this time there are no indications nor claims of fraud. For Crowdcube, the high-profile demise of Rebus is a painful reminder of the risk of early stage finance. Crowdcube has raised money for around 300 different companies so far, about 6% of the funded companies have failed, according to the company. But if you go back to the early days of Crowdcube, that number rises higher.
Speaking to the FT, Julia Groves of the UKCFA stated;
“We should be in no doubt that there will be failures like Rebus [but] . . . the question is whether people understand the risks they are taking.”
Rebus is not the first company that raised capital online, and summarily failed, and it will certainly not be the last. While all investments possess intrinsic risk, early stage companies hold a steeper level of risk as many are expected to fail. Professional investors, such as VCs or Angels, manage this risk by investing in many different companies. Few startups become unicorns, most may bump along, and more than a few cease to exist. All UK equity crowdfunding platforms promote the concept of portfolio diversification and the fact that investors are putting capital at risk. But is this same risk that allows innovative, young companies to raise funding, create jobs and perhaps become a successful firm while boosting economic growth.
Of course Rebus may yet rise again. That is a decision driven by the administrators. Rebus representatives have so far been quiet on future prospects (if there are any at all). Crowdcube investors may benefit from the EIS status of the shares. This allows investors to gain some amount of loss relief to mitigate the impact to investors.
The FT used the Rebus collapse to clamor for “greater protection of private investors who venture into the fast-growing sector”. What is really needed is ongoing education. Every investor in any investment (be it crowdfunded or not) must understand, and be willing to shoulder, the possibility of loss of investment.
You may listen to Crowdcube co-founder Luke Lang address the Rebus failure and how his platform is managing risk below.
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