This is a previous version of Crowdcube's Due Diligence Charter, which outlines Crowdcube's Due Diligence process between 29 April 2017 - 20 July 2017. You can view the current version of our charter, here.
Crowdcube approves every pitch on the platform to ensure it is fair, clear and not misleading. Our Due Diligence Charter outlines the analysis and verification that is conducted on equity fundraises on Crowdcube by our legal, compliance and finance teams as part of that approval process.
In line with our company values, our guiding principles for this Charter are:
- Integrity; to act with integrity and treat our investors and fundraising companies fairly
- Diligence; to act with skill, care and diligence
- Transparency; to be open and transparent with our customers at all times
Our Due Diligence Charter
Investor protection and transparency are of the utmost importance to us, so we continually review and build upon our existing due diligence processes to ensure we remain at the forefront of the investment crowdfunding market. This Charter outlines Crowdcube’s current standard due diligence process. Any material changes to our processes will be added to this Charter to reflect any further enhancements we make.
Due to the diversity of businesses that raise finance on Crowdcube’s platform, we cannot cover all situations in this Charter, which should be read as guidance. Crowdcube does not endorse any of the businesses raising finance on our platform, nor do we provide investment advice of any description, so before deciding to invest we strongly encourage all Crowdcube members to undertake their own research. Prospective investors should also take care to:
- carry out their own due diligence and read all information and documents on the pitch page carefully. This charter outlines areas that are not reviewed as part of standard due diligence;
- read the risk warnings; and
- understand that forward-looking statements and entrepreneur opinions may not turn out to be correct and many early-stage companies fail.
This charter is intended as guidance and for information purposes only. Investors are asked to carry out their own research and if there is uncertainty, to receive independent advice before investing. Investors acknowledge that Crowdcube relies upon information from businesses raising funds and third party tools in carrying out some checks. Crowdcube’s investor terms and conditions, including Crowdcube’s limitation of liability, apply to investments made on the site and can be found here.
Legal Due Diligence
Crowdcube’s legal team carry out the following due diligence on each company raising finance on our platform:
- check the company’s share structure against Companies House filings and seek clarification of any discrepancies;
- review the Articles of Association to ascertain the share classes and their rights, and agree to amend or disclose any provisions that differ materially from Crowdcube’s standard Articles of Association to ensure the crowd is treated fairly;
- review any existing Shareholder Agreements, Subscription Agreements or Investment Agreements to check whether the shareholder rights and company obligations are compatible with a crowdfunding round. Based on this review we may, if we consider necessary, recommend amendments to the documents or make appropriate disclosures to investors to outline investor rights or risks;
- review any known commercial loan agreements, convertible loan instruments and any director and/or shareholder loan agreements, and require any undocumented loans to be documented;
- a full search and review of intellectual property rights is not carried out but claims of trademark, patent, or URL ownership in pitch text are checked by seeking verification from the company and searching public registers. Require transfer of ownership to the company if it is clear that such rights are not wholly owned by the company; and
- if applicable, check whether the company has received SEIS or EIS Advance Assurance and make clear to potential investors the availability of such tax relief.
In addition, every company that applies to raise on Crowdcube's platform must confirm:
- that the share capital table accurately reflects the fully diluted position, which means all dilutive elements, such as granted and unallocated share options, are taken into account in calculating the percentage of equity on offer to investors;
- that the company is not party to any current litigation and that no litigation is contemplated;
- that none of the directors of the company are, or have been, disqualified as directors;
- that none of the directors are undischarged or discharged bankrupts;
- that the company is not a phoenix of another company; and
- whether the company has any subsidiaries and, if it does, make the necessary disclosures in the Explanatory Note.
Any necessary disclosures from the legal due diligence process are set out in an Explanatory Note, which is available on the pitch page.
The following information is not always reviewed as part of our standard legal due diligence, so investors should assume that the following have not been checked:
- commercial contracts;
- employment contracts;
- ownership of assets or the potential that a company infringes third party intellectual property rights;
- property related documents such as leases;
- complete site visits to a company’s offices; and
- licensing and regulatory arrangements.
Financial Due Diligence
Unless stated otherwise in the financial section of a pitch, Crowdcube’s financial analyst team carry out the following due diligence:
- review historical financial performance of the fundraising company using statutory accounts, management accounts and/or other relevant documents disclosed to us;
- review the company’s cash position using the most recent bank statements for all disclosed material cash accounts;
- review the company’s forecasts using its financial model or budget, looking closely at assumptions and key drivers;
- review forecast cash burn and any further planned financings in the context of the proposed crowdfunding round;
- request the company to provide justifications behind its revenue and cost projections as needed;
- discuss the company’s valuation and suggest adjustments where we see significant deviations from our own internal estimates;
- obtain a credit report on the company to gain further insight into the company’s financial position and group structure; and
- request additional documentation and verification as needed depending on the stage, sector and nature of the investment opportunity.
We do not:
- set the valuation. Whilst we do provide guidance on valuations, it is the company’s decision to price their investment offer and ultimately the crowd then decides if they are willing to invest at that price;
- audit the management or filed accounts of the company;
- contact the key suppliers or customers of the company; or
- conduct sensitivity or scenario analysis on financial forecasts.
Our team of financial analysts also work closely with our legal and compliance teams to cross check relevant documentation such as loans, cap tables and group structures.
Under special circumstance, where a company is raising less than or equal to £150k, eligible for tax relief and is a single company with no subsidiaries there is no review of historical and forward-looking financial performance. These investment opportunities are more restricted in scope with respect to the financial information they can share as part of a Crowdcube approved pitch. This will be highlighted in the financial section of the pitch text. Legal and compliance reviews are completed as normal.
Compliance Due Diligence
Crowdcube’s compliance team carry out the following due diligence on each company raising finance:
- conduct background checks on the company and its directors including personal credit checks, director’s disqualification checks, previous company checks and accreditation checks. Using Creditsafe, a leading third party provider, these supplement the legal due diligence checks;
- conduct checks on the directors to confirm there are no undischarged bankruptcies;
- fact check statements and claims made in the pitch text to ensure it is fair, clear and not misleading by obtaining, where possible, independent evidence. Certain statements may rely on the company’s own systems - for example, stock or customer management systems;
- obtain any commercial contracts mentioned in a pitch and refer to the legal team for review, and
- verify any relevant professional accreditations.
During the time the pitch is live on Crowdcube's platform, the compliance team will also:
- review any investment patterns notified by Crowdcube’s pitch manipulation tool to ensure investments are genuine and not made to unduly enhance the performance of a pitch; and
- review marketing material being used by the fundraising company in relation to the raise, when we are made aware of it, in advance of it being made public.
We do not:
- review business plans or content of investor events that aren’t organised by Crowdcube.
Under Crowdcube’s Terms and Conditions, every applicant company, acting by its directors, must ensure that all information which is provided to Crowdcube is true and accurate.