crowdfunding

meurigjones

WeSwap are looking for investors to expand into Asia.
Firstly, is crowdfunding safe, and secondly, is WeSwap safe?

Zanderman

Crowdfunding is funding a business. Usually to expand. Usually into the unknown.
It's neither safe nor unsafe.
It's you gambling on whether a business will succeed or not.
If the business succeeds it's safe.
If it doesn't, it isn't.
The question you should be asking is 'how good is WeSwap's business model and how likely are they to succeed?'
And then gamble your money, or not, depending on what you think the answer is.

PS personally I'd never crowdfund anything unless it was a good cause of some sort or it was a business I personally fully understood the details of, and the risks.
Most crowdfunding requests I've seen seem to be designed to make people who don't know the business at all to part with their money!

JohnRo

The first question should be, can I afford to lose all of this money.

Malthusian

Crowdfunding in general is the exact opposite of safe, and subsidising currency exchange barely qualifies as an investment at all.

(Making money out of currency exchange is not difficult. It is not a technological problem which needs risk capital to solve, like self-driving cars, or a cure for cancer, or how to allow people to easily communicate via the Internet. When a bureau de change has been operating for eight years and is still making losses of £5.8m on turnover of £1.1 million, then what we have here is not an exciting new business, but a charity which pays people to exchange currency for less than cost using investors' money. This is terrific for anyone who gets cheap currency but has little benefit for anyone else other than the founders.)

Weswap was supposedly going to list on the AIM market at the end of last year but couldn't find any greater fools (which takes some doing on AIM), hence it is tapping up Seedrs again.

Who suggested you put your money in this?

MallyGirl

WeSwap sent something to all its members/cardholders

couriervanman

meurigjones wrote: »

WeSwap are looking for investors to expand into Asia.
Firstly, is crowdfunding safe, and secondly, is WeSwap safe?

If you don't know the answer to the first part of your question......don't invest

Malthusian

MallyGirl wrote: »

WeSwap sent something to all its members/cardholders

Oh Christ on a bike, not another one. That's the fifth fintech firm I've counted (Monzo, Chip, Nutmeg, MoneyDashboard and now WeSwap) tapping up its mailing list for venture capital investment, most of whom ultra-high-risk venture capital will be totally unsuitable for. (As in the OP's case.)

Imagine if Lloyds emailed all its customers inviting them to buy Lloyds shares and telling them they could use their overdraft to do so (Monzo actually did this).

londoninvestor

This was a good piece IMO on crowdfunding in general:
https://www.bloomberg.com/opinion/articles/2019-06-19/private-markets-could-be-more-public

It's written in the US context, but goes even more so for the UK where even smaller investors can buy in crowdfundings (as long as they sign the form to say they're not investing more than 10% of their assets etc etc):

Bloomberg wrote:

Here is my model:

1.Some really hot private company wants to raise $100 million. It calls a dozen prominent venture capitalists. They all compete to offer it the best terms and to show off their capabilities in advising and nurturing hot startups. The company chooses the best terms from the best VC and raises the $100 million from one or a handful of them.

2.Some slightly less hot private company wants to raise $100 million. VCs aren’t fighting to get into the deal, but the company goes around pitching VCs and gets a few of them to believe in its vision. It raises $100 million from perfectly fine VCs on perfectly fine terms.

3.Some lukewarm private company wants to raise $100 million. It struggles to convince prominent VCs when it pitches them, but is able to find a few outliers: people who left big VC firms and are setting up on their own, people who got rich working at other startups and are now trying their luck as investors, etc. It raises $100 million from a motley assortment of venture-capitalist-ish funders at terms that reflect the riskiness of the operation.

4.Some ice cold private company wants to raise $100 million. It hires a call center in Florida to dial up all of the dentists in America and ask them to invest $10,000 each. It raises $79.4 million in small lots from dentists, good enough, whatever.

Look look look this is not a perfect model, it is not always right, some tiny startups that are neglected by prominent VCs and raise their money in small lots from dentists end up being huge home runs, and then those dentists get very rich. But in general it seems reasonable to expect a sort of waterfall of private funding, in which most of the clear home-run ideas will tend to get funded by sophisticated professional investors who are able to write large checks and provide useful expertise to young companies, while most of the ideas that get funded by cold-calling dentists will be the ones that sophisticated professionals would pass on.

Not always! And sometimes the sophisticated professionals are wrong! But the point is:

1.Small-time but accredited individual investors are not generally offered the same private investing opportunities as big sophisticated professional investment funds, and
2.There might be systematic differences in the quality of those offerings.

In other words - if you're buying in a crowdfunding, you need to be aware of the risk that the crowdfunding was made necessary because venture capital firms passed up on the opportunity to invest.

(This is general investing commentary and in no way specific to WeSwap, a company I know very little about.)

bowlhead99

londoninvestor wrote: »

(This is general investing commentary and in no way specific to WeSwap, a company I know very little about.)

Being more specific to Weswap, a company I know very little about:

Weswap raised money from the crowd at a pre money valuation of £24 million in 2016 and £28m a year later. Back in November/December last year they were looking to raise new money through an IPO on AIM at circa 40m valuation, which would have helped fund their Asian expansion. But gave up on the idea as markets in December weren't strong and they wouldn't have got it away. This is all public domain via search engines.

After being unable to raise that IPO money from institutions and the public (what would have been a pretty small raise in AIM terms), they will still need to get capital from somewhere to keep themselves afloat. So maybe it's not too surprising to see them trying to tap up 'the crowd' again.

While no doubt they were happy to get thousands of shareholder brand-ambassadors on board three years ago, (many of whom are travelers and use the service) - it would be fair to say that over 99% of their customers don't have the relevant skills or experience to assess whether £24 million or £28m or £30m or £40m is a fair value for a fintech business in this particular sub-sector, at this stage of its development, in its current position, even if they had all relevant information.

And if you are considering investing a few hundred or a few thousand - rather than a few hundred thousand - you can be sure you are not going to get all relevant information. You would only get a few slides, the standard crowd pitch-book. Not a seat at the table with management to ask them searching questions over their detailed management accounts. Even if by some quirk you do know what searching questions are worth asking, because you're an investment professional (which, no offense intended, you're not):without seeing all the data, you are taking a leap of faith.

So basically:
- Is crowdfunding safe? No it is risky and most participants will lose most or all of their money.

- Is WeSwap safe? As with other unlisted pre-profit companies you could invest in, you could lose all your money, so it can't be called safe. If you had professionally evaluated its valuation based on a high level of personal knowledge and experience of valuing private companies, and a high level of financial and other information being made available to you, and you though the valuation fair, it might come across as safer than other opportunities pulled out of a hat. By the nature of your questions, you don't have such knowledge, experience, or inside information.

Lakeuk

Year ago I came across a company looking to crowdfund, they had an interesting idea in a sector I worked in so a little relatable for me, in the end I didn’t ‘invest’, while i understood these types are very high risk I was thinking of testing the water so to speak. But in the end I didn’t as it became clear these platforms are only interested in marketing to drive the money in and once that initial party for them is over then getting details on progress of ‘investments’ is next to zero.

Couple of months ago I came across this blog that raises the failures you never hear about - http://fantasyequitycrowdfunding.blogspot.com

Malthusian

londoninvestor wrote: »

In other words - if you're buying in a crowdfunding, you need to be aware of the risk that the crowdfunding was made necessary because venture capital firms passed up on the opportunity to invest.

Very true. But in the case of WeSwap it is not a risk. A risk is an unknown. Whereas it is a known fact that WeSwap's previous VC funders, of which it had quite a few, have declined to throw any more good money after bad. Hence it is tapping up its mailing list.

The VC wrote WeSwap off after they paraded it in front of AIM investors six months ago and it went down like a lead balloon full of wet farts.