The House Crowd property crowdfunding business model got a roasting in BBC TV’s Dragon’s Den.
Founder Fraser Fearnhead went to the dragons looking for a £1 million investment in return for a 5% share of the business.
But the dragons were astonished that a business Fearnhead admitted had never made a profit and turned over £375,000 in sales was valued at £20 million.
The fiery investors wanted to know how the business was worth so much and Fearnhead was left explaining other venture capitalists had put the valuation on the firm and that because of the special nature of the business, normal business rules did not apply.
Viewers and the dragons never got to the bottom of the mystery valuation
Dragon Peter Jones claimed no one could value The House Crowd at £20 million ‘unless they were completely stupid.’
Other dragons were concerned that dealing with the firm could have a backlash on their business reputations as they feared investors buying shares in the company’s projects could easily lose control of their money.
Fearnhead also confessed to the cameras that he suffered serious financial hardship for four years after the downturn when he lost a £2 million property business to the financial crash.
He told the dragons he lost his Aston Martin sports car and struggled to pay bills.
The dragons also heard The House Crowd had shown growth of 149% in the first year of trading and 211% in the second year, with £7.5 million ploughed into the company’s venture by investors.
All five dragons declined to invest in the business.
The House Crowd web site remains upbeat despite the roasting from the dragons.
“Despite the dragons deciding not to invest, we’re excited to reveal that we have plenty of interest from potential investors and are confident we will raise the investment we are looking for within the next few weeks,” says the statement.
Watch The Dragon’s Den House Crowd episode (Available to August 9, 2015)
Property crowdfunding is when a group of investors pool their cash to finance a project.
In many cases, a crowdfunding platform forms a company to buy, refurbish and let a property. The investors become shareholders.
Some of the issues raised by the dragons about property crowdfunding included what happens if property prices crash and how do investors withdraw their cash.