Calling economic bubbles is a no-lose situation for a blogger. If you’re correct, whoop-de-do, celebrate your foresight. If you’re wrong, you’re a grumpy pessimist but no worse off. With that caveat readers may recall a couple of weeks ago, in the last Full English, I mentioned that Curve had completed crowdfunding with a pre-money valuation of £201,000,000 (1). Yes, that is the correct number of decimal spaces. It left me asking, how the hell are people valuing these companies?
Turns out I’m not alone in wondering that (2). The hard data suggests that the price paid for a percentage of the company by the crowd is far higher than private equity pays (3). For your more expensive price you get B class shares and rarely see information about the valuation in the prospectus. How did we reach this point?
In a world of low interest rates investors are looking for returns. We’ve all read Smarter Investing, we know we should be avoiding active funds that would typically partake of Venture Capital. We exist in an economic climate that favours growth over value strategies. We see success stories like Facebook, Instagram, Monzo, Brewdog, Uber. We want a slice of that growth, and there are new and exciting ways to access it (4). So we apply some cognitive biases; illusion of control and confirmation bias. We can surely pick the winners.
We look to platforms like CrowdCube, Seedrs, etc to find a way in at the ground floor of the next unicorn. Because our purchase is fuelled by optimism (and a whole lot of sales psychology), we’re willing to pay over the odds for the ground floor. This drives competition for shares and increases the valuation of the company. Basic economics. When the company lists on the stock market you get off at the penthouse suite, suddenly a millionaire. The tech IPO procession continues (5).
But that competition for a slice of the pie ignores the companies bottom line. Crowdfunding platforms are slick presentations to consumers, not like the due diligence of a traditional capital firm. The position of power is with the listing company, not the lender. This again drives up the valuation of the market.
The companies, overvalued with optimism, get valued by the market fairly and fall from their listing price. The tech companies that have gone through the IPO process are losing money (6). And people are taking notice. IPOs are being shelved, most notably the recent WeWork delay (7, 8). Traditional institutions do not want an overvalued investment, because in the long run they won’t get a return. They don’t want to see their shares costing billions of dollars through the efficient market (9). While the stock is unlisted the return and gain/loss is not realised.
This isn’t stopping profitable and strong companies going public. AirBnB continues to voice that it will soon, now setting a timeline for next year (10). However as Crowdfunding grows it will continue to offer a window into murky investments, promising a lot but with little to report. It will continue to inflate prices with optimistic opinions of growth. At some point all the optimism becomes a little too sweet, and it’ll be interesting to see if we end up in a crowdfunded private-company rerun of the dot-com crash.
Have a great week,
The Shrink
Other News
- RICS reports Brexit uncertainty continues to drag down the housing market (11)
- The BoE has kept the base rate at 0.75%, and is forecasting it being low longer, again due to Brexit (12)
- With the knock-on that most banks are cutting their interest rates (13)
- And the added misery that Britons reportedly are still worse off than we were in 2008 (14)
- At least computer games are cheaper, driving down inflation (15)
- Leaks of Sulphur Hexafluoride from the energy industry are compromising emissions targets (16)
- 1,400 restaurants closed in the last year, mainly mediocre chains (17)
- Energy companies have been given more time for the smart meter rollout (18) – people just don’t want them!
- Sirius Minerals share collapse as they fail to secure funding (19)
- And some idiots are moaning because they lost their life savings on it (20)
- Almost as bad as those complaining about their pawned possessions (21)
Opinion/ blogs:
- An article on CNBC about FIRE late-starters (22)
- MMM addresses the Michael Burry suggestions that index funds are the cause of the next recession (23)
- While ERN actually looks at the indicators and why (24)
- TI considers whether the financial industry will ever focus on the FIRE community (25)
- TA admits his biggest fear is status anxiety (26)
- And The Details Man (formerly YFG) covers master trust pensions (27)
- The UKVI looks at Mitie (28)
- CFC considers how all your spending shows pattern (29)
- TEA has a go at translating US FIRE to the UK (30)
- And discusses risk, with a link to his Maven Money appearance (31)
- The DIY Investor UK does a bit of speculation on AFC Energy, a hydrogen fuel cell company (32)
- Along with First Solar (33)
- And reviews the first year returns on Bluefield Solar (34)
- The Frugal Cottage reiterates that they’re still aiming for FIRE (35)
- Little Miss Fire has reinvented her blog (36)
- And lays out how she’s going to try and achieve FIRE through side hustles (37)
- MsZiYou has been to Fincon, and thinks politics (38)
- And has her August numbers (39)
- TFS just escapes the deadpool, with a big update post (40)
- The Saving Ninja has some tips on how to get a free BA first class upgrade (41)
- And August numbers (42)
- A Simple Life with Sam has an August update (43)
- David at I Retired Young has his August costs (44)
- Pursue Fire also has an update of August results (45)
- And a general life update (46)
- The Eagle is doing some retirement tax planning (47)
- The FI Foxes have a new proposition, the Investing Rate, an upgrade from the Savings Rate (48)
- Ermine talks defined benefit pensions and inflation protection (49)
- GFF on the importance of earnings to FI (50)
- And quits his job (51)
- Indeedably really dislikes phones (52)
- And considers how the boundaries and beliefs we hold hide or define who we are (53)
- And the world changes (54)
- And finally, Weenie is doing pretty well out of FreeTrades free share scheme (55)
The kitchen garden:
- Tanya at Lovely Greens has tips for starting a new veggie garden (56)
- And Jack Wallington updates about his allotment (57)
What I’m reading (affiliate links):
Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.
References:
- https://www.crowdfundinsider.com/2019/09/151157-fastest-startup-to-ever-hit-4-million-crowdfunding-on-crowdcube-curve-kills-it-now-at-5-5-million/
- https://en.wikipedia.org/wiki/Unicorn_bubble
- https://www.forbes.com/sites/goncalodevasconcelos/2015/05/27/valuations-in-crowdfunding-are-we-all-barking-mad/
- https://monevator.com/venture-capital-investing/
- https://www.theguardian.com/technology/2019/mar/30/lyft-ipo-stock-market-unicorns-uber-airbnb-slack
- https://www.spiked-online.com/2019/09/13/uber-and-out-why-the-tech-unicorns-keep-losing-money/
- https://www.bbc.co.uk/news/business-49687338
- https://moneyweek.com/515081/proof-that-the-tech-company-unicorn-ipo-bubble-is-bursting/
- https://marketrealist.com/2019/09/wework-ipo-shelved-unicorn-stocks-lose-luster/
- https://www.bbc.co.uk/news/business-49761461
- https://www.thisismoney.co.uk/money/mortgageshome/article-7452637/Never-ending-Brexit-saga-continues-drag-UK-housing-market-RICS.html
- https://www.bbc.co.uk/news/business-49752883
- https://www.thisismoney.co.uk/money/saving/article-7468833/Almost-half-banks-cut-fixed-rate-savings-August.html
- https://www.theguardian.com/business/2019/sep/17/britons-are-still-worse-off-than-in-2008-new-research-claims
- https://www.bbc.co.uk/news/business-49738869
- https://www.bbc.co.uk/news/science-environment-49567197
- https://www.theguardian.com/business/2019/sep/16/more-than-1400-uk-restaurants-close-as-casual-dining-crunch-bites
- https://www.bbc.co.uk/news/business-49721436
- https://www.thisismoney.co.uk/money/markets/article-7472389/Sirius-Minerals-shares-crash-fails-secure-funding-mine.html
- https://www.bbc.co.uk/news/business-49766418
- https://www.bbc.co.uk/news/business-49720446
- https://www.cnbc.com/2019/09/20/you-may-have-more-time-than-you-think-to-achieve-financial-security.html
- https://www.mrmoneymustache.com/2019/09/12/michael-burry-index-funds/
- https://earlyretirementnow.com/2019/09/17/market-peak-upcoming-recession/
- https://monevator.com/weekend-reading-how-could-the-financial-services-sector-better-cater-for-the-likes-of-us/
- https://monevator.com/my-biggest-fi-demon-status-anxiety/
- https://monevator.com/what-is-a-master-trust-pension/
- https://www.ukvalueinvestor.com/2019/09/mitie-dividend.html/
- https://cashflowcop.com/csi-finance/
- https://theescapeartist.me/2019/09/18/translating-financial-independence-from-american-to-british/
- https://theescapeartist.me/2019/09/11/the-ice-sculpture-the-turkey-and-the-rollercoaster/
- http://diyinvestoruk.blogspot.com/2019/09/afc-energy-portfolio-addition.html
- http://diyinvestoruk.blogspot.com/2019/09/first-solar-new-addition.html
- http://diyinvestoruk.blogspot.com/2019/09/bluefield-solar-trust-full-year-results.html
- http://www.thefrugalcottage.com/aiming-for-fire/
- https://littlemissfire.com/erase-and-rewind/
- https://littlemissfire.com/why-im-the-fire-underdog-and-thats-ok/
- https://www.msziyou.com/money-is-political/
- https://www.msziyou.com/net-worth-updates-august-2019/
- http://thefirestarter.co.uk/random-update-aka-what-the-hell-have-i-been-up-to-over-the-last-3-months/
- https://thesavingninja.com/how-to-get-a-first-class-flight-for-free/
- https://thesavingninja.com/savings-report-14/
- https://asimplelifewithsam.com/2019/09/13/august-review/
- https://www.iretiredyoung.net/single-post/2019/09/13/Early-retirement-costs-targets—August-2019
- https://pursuefire.com/monthly-update-15-august/
- https://pursuefire.com/pursue-fire-updates/
- http://eaglesfeartoperch.blogspot.com/2019/09/tax-planning-for-retirement-savings.html
- https://thefifox.wordpress.com/2019/09/12/how-to-calculate-your-personal-investing-rate-the-usability-update-that-savings-rate-desperately-needs/
- https://simplelivingsomerset.wordpress.com/2019/09/12/db-pension-options/
- https://gentlemansfamilyfinances.wordpress.com/2019/09/13/the-importance-of-being-earning/
- https://gentlemansfamilyfinances.wordpress.com/2019/09/15/exit-strategy-update-is-it-best-to-quit-your-job-face-to-face/
- https://indeedably.com/telephone/
- https://indeedably.com/volte-face/
- https://indeedably.com/own-goal/
- http://quietlysaving.co.uk/2019/09/19/random-shares/
- https://lovelygreens.com/tips-for-starting-a-new-vegetable-garden/
- https://www.jackwallington.com/allotment-month-46-tomatoes-edamame-apples-raspberries-and-sunflowers/
The FIRE Shrink 
Thanks for the shout out and the little laugh of me extolling the benefits of working /earning and then in the next line of how I’ve quit my job.
Sent from a stress free holiday in the Italian Alps.
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