A few weeks ago I commented on the case of Nutmeg, which contacted its customer base to encourage them to invest in Nutmeg itself via crowdfunding platform CrowdCube.
Given that Nutmeg offers medium-risk fund solutions to inexperienced investors (more experienced investors would generally prefer a cheaper DIY platform), it is doubtful how much intersection there is between its customer base and wealthy, highly risk-seeking individuals for whom venture capital investment in loss-making startups is a suitable investment.
Nutmeg was the third fintech firm by my count to do so, following challenger bank Monzo and savings app Chip.
With the Financial Conduct Authority apparently happy for fintech firms to tap up their customer bases for investment, two more firms have joined the party in recent weeks, namely MoneyDashboard (an “open banking” service which displays all of your savings and debts in one place) and WeSwap (a currency exchange service).
Both companies have contacted their customers directly to promote their latest crowdfunding, on CrowdCube and Seedrs respectively.
Money Dashboard’s fundraising closed at £3.9 million across 3,489 investors, an average of just over £1,000 each.
Money Dashboard’s last accounts for April 2018 show that the company continues to be loss making, with the profit and loss account falling from minus £9.4 million to minus £10.5 million. The accounts were not audited and did not include a profit and loss account.
WeSwap’s fundraising on Seedrs appears to be still open. The pitch available on Seedrs waxes lyrical about their revenue growth, but does not mention the company’s continuing heavy losses, and does not specify how the company intends to achieve profitability.
WeSwap.com’s last accounts were for December 2017 and to their credit did not use small company exemptions. Net losses narrowed slightly from £6.1 million in 2016 to £5.8 million in 2017.
Nobody would deny, least of all the companies themselves, that investing in WeSwap or MoneyDashboard, in the hope that they can figure out how to make their apps profitable (having failed to crack it yet after 8-9 years of operating), or sell up or IPO, is extremely high risk with a high chance of total loss.
WeSwap has already attempted an Initial Public Offering on the LSE’s AIM Market towards the end of 2018. It was cancelled due to lack of investor interest.
MoneyDashboard runs regular features on its blog of its typical customers. Many are heavily in debt and use MoneyDashboard to “get on top of things”.
Recent examples on page 1 of their blog include Sally “who learned a costly lesson about buying a car on PCP”, Mark: “Beforehand I can honestly say that my financial affairs were chaotic… cards, loans, direct debits, kids, bills, all those sorts of things” and Rebecca who “recommended it to my boyfriend who was complaining that he couldn’t see how much he had on credit cards and how much he had on various bank accounts”.
There is no suggestion that MoneyDashboard is encouraging debt-laden MoneyDashboard customers to punt their available cash into the company in the hope that it will solve their financial problems, but it is nonetheless a concern how much intersection there is between the MDB customer base, and the kind of sophisticated, wealthy investors for whom venture capital is suitable.
To be clear, I have no problem if an inexperienced investor goes to CrowdCube on their own impulse and decides to punt the meagre £1,000 in their bank account on a venture capital investment. That’s their lookout, just as if they’d gone to eToro.com or Ladbrokes (probably with the same result).
It becomes completely different when the company who helps you manage your money tells you that investing in their shares would be a terrific idea and sends you a link to CrowdCube.
Promoting a high-risk investment in your own company to your entire customer database is completely different from promoting it to investors who have already self-selected as interested in high-risk venture capital investment by signing up for CrowdCube or Seedrs.
The danger is that inexperienced investors will think “I like the service so it must be a good investment”, which any experienced investor will know is not true. When tens of millions are pumped in to keep a loss-making service afloat, it would be a surprise if it wasn’t any good.
The fact that the amounts at risk are relatively small at £1,000 per Money Dashboard customer is not important. If that £1,000 is part of a widely spread portfolio then fine and dandy. If that £1,000 is all you have to lose, because MoneyDashboard was the only company that tapped you up for investment, and because you were under the delusion that you use the service and therefore have inside knowledge, then it’s still going to hurt.
The fundamental question remains: what would the FCA do if Lloyds or Barclays used their mailing lists to email all their customers and encourage them to buy their shares? And why aren’t they doing it here?