Two food brands with national supermarket listings have collapsed less than two years after raising hundreds of thousands of pounds from crowdfunding investors.
Lick Frozen Yogurt and gluten-free manufacturer Feel Free, which both used Crowdcube, appointed insolvency firms last month after running out of money.
Lick raised almost £300k from 293 investors in April 2015 - valuing the lossmaking business at just shy of £3m - to support its supermarket growth strategy. Founded by Owain Williams and Ky Wright in 2008, Lick sells its yogurt tubs in Sainsbury’s, Waitrose, Ocado, Yo! Sushi, Budgens and Wholefoods. It also branched out into the music business with its own record label in November 2015.
Feel Free, which supplies gluten-free doughnuts and other lines to the likes of Tesco, Sainsbury’s and Morrisons, as well as Ocado, Budgens, Nisa and Holland & Barrett, secured £210k in October 2015 from 147 investors to invest in its Yorkshire factory. It had already raised £162k from a previous campaign on Crowdcube in 2013.
GF Foods (York) Ltd, which trades as Feel Free, appointed administrators from recovery firm Redman Nichols Butler in late February. The recovery firm is currently seeking a buyer for the business and its two factories in Yorkshire and Sussex.
The directors of Lick Ltd have instigated a creditors’ voluntary liquidation, appointing insolvency firm White Maund on 22 February.
Investors in the crowdfunding campaigns will be towards the back of the queue of creditors of both businesses and are unlikely to get their money back.
Feel Free previously went bust in early 2012, under the registered name GF Foods Ltd, leaving creditors more than £400k out of pocket, according to documents on Companies House. It also had overdrawn loan accounts of £42k, which were legally chased but never paid.
It has made losses since reforming as GF Foods (York) Ltd in 2013 and generated revenues of £600k in year to 31 March 2016 but financial projections on Crowdcube, which run for the calendar year and not the company’s financial year, forecast sales of £7m and profits of £2m by the end of 2017. Its fundraising campaign valued the business at more than £2m.
The Financial Conduct Authority (FCA), which has regulated the industry since 2014, decided in December its rules governing crowdfunding needed to be tightened. One of its main concerns was protecting investors from being given incorrect information in financial promotions.
The FCA said crowdfunding is a “high-risk investment activity” and warned investors “it is very likely you will lose all your money”.
“Projections are always far too optimistic and companies always underestimate what it will cost to get to where they say they going,” added Rob Murray Brown, an equity crowdfunding consultant and blogger.
Crowdfunding has become an increasingly popular amongst food and drink startups, with 36 businesses in the sector securing £22.8m from Crowdcube pitches alone in 2016. Of this total, £10m was raised by BrewDog, the UK’s fast growing craft beer company and veteran crowdfunder (racking up £26m since 2009). Crowdcube has amassed a crowd of more than 300,000 members who have contributing £210m to companies since 2011, with £66m going to 132 food and drink pitches.
“Since launching in 2011, Crowdcube has funded over 440 businesses, and 93% are still trading,” Crowdcube said. “Equity crowdfunding investments are high-risk and unfortunately not all businesses will be able to give investors an opportunity to exit so it’s important investors consider the risks and invest as part of a diversified portfolio, which we make very clear to investors.”
Both Redman Nichols Butler and White Maund declined to provide any details relating to their respective cases. The directors of Feel Free and Lick could not be reached.