Crowd for Angels Rating Review

Stable

Investment Rating

Expire date: 2018-07-01


We assign the Crowd for Angels project a "Stable" rating.

Crowd for Angels is a crowdfunding platform which enables private companies to attract investment capital through equity or debt financing. Crowd for Angels has been authorised in the UK since 2014. The chief managers have worked together for many years and certainly have the qualifications and experience required for this project.

The company is not staging an ICO in the usual sense of the word, but is inviting investors to participate in the offer of a Liquid Crypto Bond, an off-exchange five-year bond with a 4% interest rate coupon denominated in GBP. This is a high yield for bonds in GBP with such a duration. However, we are not sure that it completely covers the issuer's risks.

The ANGEL token could increase profitability for investors in the Liquid Crypto Bond, accrued automatically to each bondholder. The team at Crowd for Angels has worked out the tokenomics in detail. Its current version contributes to the growth of the value of ANGEL tokens in the long term. While this is a way of aligning the interest of bondholders with that of the company it is also a form of subsidy by the issuer.

The company will operate in a highly competitive and fast-growing market. The financial resources raised through the sale of Liquid Crypto Bonds will make it possible to earn not only through commission payments but also via the difference in interest rates between price of funding and price for the placement of assets.

Crowd for Angels is a crowdfunding platform designed to fund both private and listed companies  through the offer of shares and bonds (loans) to investors. Investors have an opportunity to participate in small and medium-sized private and listed companies’ businesses in the capacity of lenders or shareholders. Crowd for Angels has been in operation for 4 years.  According to the data supplied, it ranks fourth in traffic volume among UK-based crowdfunding platforms, the UK being the second largest crowdfunding market in the world.

Crowd for Angels accepts applications from all companies but pitches undergo due diligence and KYC before being placed on the platform. Thus, Crowd for Angels ensures that investors are only exposed to attractive pitches.  This helps avoid conflicts of interest and additional costs of pitch management in many respects, via internal selection mechanisms. It should also be noted that investors do not pay for platform services and companies pay fees only in the case of a successful crowdsale.

The Crowd for Angels project gives serious consideration to legal aspects due to the high degree of financial regulation of share and debt transactions in the UK.

Crowd for Angels (UK) Limited was authorized by the Financial Conduct Authority (FCA) in January 2014 and is incorporated in the jurisdiction of England and Wales under the registration number 03064807. The company’s office is at 8 Little Trinity Lane, London, EC4V 2AN, London, UK. Crowd for Angels is registered with the FCA as a crowdfunding platform for loans and equity financing. The company is approved by HMRC as an ISA manager for the Innovative Finance ISA (IF-ISA) which enables investors to receive interest free  from income tax.

The documentation indicates that the AIM listed investment company Legendary Investments Plc (LSE: LEG) recently took a 9.7% stake in Crowd for Angels, valuing the business at £3.7 million. Crowd for Angels simultaneously offers Liquid Crypto Bonds (hereinafter referred to as LCB bonds) and tokens. LCB bond investors automatically receive a defined number of tokens as reward for participating in the offer.

Thus, Crowd for Angels divides the offer into fixed income bonds and tokens with unusual but  interesting mathematics. We also note that the project's tokens are primarily a marketing tool and a only secondarily a price tool. The goal of the token sale is to attract an audience to the platform by creating a system of internal bonuses in tokens and giving them value through internal calculations (partial bonuses, discounts, redemption). Project tokens and bonds will have a secondary marketplace on the project platform.

Blockchain performs an accompanying supporting role of infrastructure for issued tokens and the system for their circulation.

Website

Whitepaper

Simultaneous ICO and LCB placement

Token: ANGEL – LCB, ANGEL - token (ERC20 standard)

Platform: Ethereum

Token Issue Volume: 5 billion ANGEL tokens.

The accrual of tokens occurs automatically based on the amount of participation in the LCB loan under the formula:

  • 99 tokens per £1 for investments of or above £90,000
  • 93 tokens per £1 for investments of or above £5,000
  • 90 tokens per £1 for investments below £5,000

Public sale

Start: Has just commenced

End: N/A

Soft Cap: £0

Hard Cap: £50 million

Maturity: 5 years

Interest rate: 4%

Minimum Buying Transaction: £100

Use of proceeds: Investment in bond issues on the Crowd for Angels platform. The bond fund is created virtually from funds raised from the bonds offer.

Accepted currencies: Fiat, ETH, BTC, DASH

Additional:

  •  Legal classification of the token - AML / KYC.
  •  Unsold tokens will be used as a means of attracting users to the platform
  •  New emission of tokens will not be conducted without new bond issues.

In this section we discuss existing and planned project services and also pay attention to technical issues.

Regarding investment in the Crowd for Angels project, it should be understood that the project has fully and successfully operational for 4 years. During this time several million pounds sterling have been raised in both equity and debt instruments as a result of crowdfunding.

Description of the service:

1. A company intending to attract financing is registered on the platform and undergoes a security audit procedure.

2. The company creates an online pitch with a detailed description of the business and financing objectives. The offer should include two key elements: The desired amount of funding (soft, hard-cap) and an indication of what exactly the investor is acquiring: stocks or bonds.

3. The company pitch is available to the large database of investors registered on the platform. Investors transfer money to the marketplace. When the financing goal is achieved, funds intended for investing in the company are exchanged for pre-emitted shares or bonds. If the campaign does not reach its minimum goal, funds are returned to investors' accounts. The company pays between 3.5-6% in commission for the crowdsale and a service charge for legal and nominee costs of between £1,750 and £2,500 once the pitch is completed. The fees include a nominee charge of £300 per year.

The blockchain component of the Crowd for Angels platform will be limited to an ability to pay with tokens for an ANGEL fundraising campaign and charging user fees in ANGEL tokens.

As a result, the project has the following scheme for interaction:

  • Investors invest in debt or shares in companies and use either fiat or ANGEL tokens as payment method, with a small discount on the investment price.
  • Companies raise funds on the platform; they pay fees to the platform operator partly in ANGEL tokens, partly in fiat.
  • Crowd for Angels burns tokens received as fees.
  • Traders are members of the Crowd for Angels marketplace.
  • The marketing service provider uses ANGEL tokens as marketing tools to attract clients to the platform.
  • Exchange – a marketplace for ANGEL tokens.

The technical development of the project is strong; Nevertheless, blockchain technology is only a superstructure and does not currently constitute the essence of the project.

Market analysis

The modern model for crowdfunding implies interaction between an initiator who offers an idea or a project for financing, a crowdfunding platform (a specialised website for announcing crowdfunding projects and fundraising) and sponsors (backers) who support the project and receive tangible or intangible rewards.

Crowdfunding in the modern sense appeared in 2006; its brief history is the history of the launches of such platforms:

  • in the USA: Sellaband (2006), SliceThePie (2007), Hyper Funding (2008), IndieGoGo (2008), Pledge Music (2009), Kickstarter (2009), RocketHub (2009), FundaGeek (2011).
  • in the UK: en: Sponsume (2010), PleaseFund.Us (2011), Authr.com (2012), OnSetStart (2012).
  • in France: Ulule (2010).
  • in Germany: Startnext (2010).
  • in China: DemoHour (2011), Dreamore (2013), Fundator (2013).

Crowdfunding has grown rapidly in this period. According to the Crowdfunding Industry Report, $2.7 billion was raised through crowdfunding worldwide in 2012 (an increase of 81% compared to 2011). In 2013 this volume almost doubled to $5.1 billion and in 2014, according to various estimates, revenues ranged from $10 billion to $16 billion. In 2015 the market reached $34.5 billion.

Over the past few years crowdfunding has evolved from private companies raising funds for e.g. CD launches, to a multibillion-dollar market. By 2020, according to the Crowdfunding Industry Report, the market will reach $100 billion and create 2 million new jobs.

Segmentation of the crowdfunding market is organized as follows. Of $34.5 billion collected in 2015, $17.25 billion was for the USA (82% growth), almost $6.5 billion – for Europe (98.7%) and $10.54 billion - for Asia (210%). From a country level perspective, the crowdfunding market has become regulated in most developed economies: in the US - from 2012, in the UK and France - from 2014, in Spain - from 2015.

The market is divided according to function as follows:

  • The most voluminous type of crowdfunding is crowdlending which occupies two thirds of the entire market ($25.1 billion in 2015).
  • Crowdinvesting with the option of acquiring a company's shares or a share of its profit is 3% of total market volume ($1 billion).
  • The remaining 23% of the market is for charitable crowdfunding which is not considered an investment, as it assumes gratuitous material assistance or non-material reward for the sponsor in the form of a discount on manufactured goods, advertising on the platform and other benefits ($8.4 billion).

On the other hand, there are a few obvious drawbacks for crowdfunding that investors need to understand:

  • Fraud. Funds are invested by sponsors through a website. There is no personal contact between the funder and the owner of the idea. Only website-based information is available.
  • Choice of the size of investment. The cap for crowdfunding investing may not cover what is practically necessary and a business may require additional investments.
  • High management cost. In cases of successful project development, business angels will be involved in a business on one level or another. At the same time, many investors may be out of geographical reach which makes contact impossible.
  • Conflict of interest. Project management involves not only the entrepreneur but also investors; thus there may be conflicts of interest regarding direction of business development.

Summing up, the overall market for Crowd for Angels and its direct competitors can be estimated at $25.1 billion with a possibility for growth to $75 billion by 2020.

Competitors

In this sub-paragraph we will discuss Crowd for Angels’ place in a market with a volume of $25.1 billion.

The first online crowdfunding platform was created in 2008; it is still in force and is known as IndieGoGo. Another successful project is Rockethub; undoubtedly though the most famous platform is Kickstarter.

The volume for crowdsales on these platforms cannot be estimated due to closed data; however, judging by published articles in this area, these volumes range from several hundred thousand to tens of millions dollars.

The next aspect we wish to highlight is the appearance of blockchain-based crowdsourcing ICO platforms in the market. We think that any crowdfunding platform could significantly increase their competitive advantage in the market by entering the ICO market. Kickstarter declines to work with ICOs; however Indiegogo  has already begun supporting projects that want to attract money in this way.

A comparison of Crowd for Angels and key competitors is given below:

Competitive analysis

Company

Crowd for Angels

Kickstarter

LendingClub

Seedrs

ICO platforms

Type of investment tool

Bond / share

Charitable enthusiasm

Debt instrument

Share

Decentralized token

Return on Investment

 

Letter of Appreciation

Fixed payment on a debt instrument

Sale at the IPO, M&A

  1. Speculative income;
  2. Payments on the part of the issuer;
  3. Payment for products/services

1. Speculative profit on the marketplace;

2. Fixed payment on the debt instrument; 3. Sale at IPO, M & A

Liquidity risk

Low debt risk, high shareholder risk

100%

Low risk

High (shareholder) risk

High

Issuer

Start-up, ready-made business (undergoes primary verification)

A startup based on the finished product

Proven business history

Local start-up

Start-up

Undoubtedly, the Crowd for Angels project operates in a highly competitive market. What direct share of this market it occupies is not possible to estimate; Crowd for Angels has been operating for four years and has  successfully funded several companies which raised up to £3 million. The main way to compete is through marketing to attract new users/investors; it is estimated that current methods take up to 30% of the company’s operating cost.We also note that most crowdfunding platforms charge commission to successful projects; there are also payment system processing fees (about 10%). Crowd for Angels’ commission varies from 2% for bonds to 6% for shares.

The founders are also planning to attract a blockchain audience to the project through the use of their ANGEL tokens.

The Crowd for Angels team has relevant experience in the investment and crypto markets. The core team has been working together for more than 4 years, and is supplemented by experts in the fields of blockchain, ICO and data technologies.

Tony De Nazareth – Founder and CEO. Tony has 40 years’ experience in finservice projects. He has served as executive director of investment banking units in London, Luxembourg, Hong Kong and the Cayman Islands, led a financial and venture business in Arab International Trust Company Ltd and founded an independent financial intermediary, EC Capital, in 1999.

Danesh Varma – Director. Has 40 years’ experience in corporate banking, investment, corporate finance and auditing. Danesh manages finance and strategy as a member of the board of directors of extractive companies such as Aureus Mining, Canadian Zinc Corporation, Feronia Inc. and Ovoca Gold. Danesh worked as CFO at Anglesey Mining plc, Xtierra Inc., Conquest Resources Ltd. and Minco plc. He is also a member of the Board of Directors of Labrador Iron., Mines Holdings Ltd and Iron AB, and CEO of Global Preservation Strategies Ltd.

Andrew Adcock - Chief Marketing Officer. He has been CMO at Crowd for Angels since 2014; a marketer for NinetyTen, a web application developer and provider of Private Social Networks whose clients include Nokia, Channel 4 and Shop Direct.

Richard Gill – Compliance Officer. CFA, Expert with a background in financial and investment analysts and experience in the financial markets since 2007. Richard joined the Crowd for Angels team in 2015, and co-founded Align Research in 2016.

Kenrick De Nazareth - Finance Officer. An expert in finance and business administration, he has worked for NinetyTen Limited and E.C. Capital.

The advisory board includes the following experts:

Dr. John Collins - Technology Advisor. Commercial Director of the UK National Center, founder of Innovation Foundry Ltd., an expert in new technologies, headed the Emerging Technologies and Industries program for the UK Government for many years.

Ismail Malik - ICO Marketing Advisor. ICO strategist and founder of ICOCrowd and Blockchain Labs, more than 20 years of successful cooperation in the field of new technologies with Vodafone, Cellnet and News International.

Prof. Wilson Ng - Investment Advisor. PhD, MBA, MA, CDipAF, FHEA, Professor at the University of Roehampton.

Henry Watkinson - Institutional Advisor. Director of Headstart Advisers Ltd., fixed income expert with work experience at Credit Suisse Asset Management, Morgan Stanley and ANZ Emerging Market Fund Management.

Ken Tachibana - Marketing Advisor. Expert FutureSmartTech, professional in the field of ICO, venture investment and blockchain technology.

Dr. Theodosis Mourouzis - Blockchain and Strategic Advisor. Expert in cryptography, blockchain technology and information protection, project researcher for the UK Technology Strategy Board (TSB) and UK CDE.

Dr. Stylianos Kempakis - Statistics & Data, Scientist. Data expert, member of the Royal Statistical Society, researcher in the field of blockchain having experience with the UCL Center for Blockchain Technologies.

Technological partners for the project:

Jita – a commercial hub.

Claranet - hosting and data service.

Online Productivity Solutions Pvt - IT service provider.

The Crowd for Angels team has a strong background in financial services, investments and venture projects. The fact that the platform is already functioning gives the team further credibility.

The team considers the ICO and the ANGEL token as tools for marketing. The placement of tokens does not have the purpose of raising capital by itself. Capital is attracted by placing a 5-year "Liquid Crypto Bond". Let us try to understand both instruments.

Primarily the project is selling bonds. As far as we are able to understand, the term of the bond is 5 years, the coupon is 4% per annum payable annually, the denomination is in GBP and the face value is 1 GBP. This crowd funded bond will be traded on the Crowd for Angels domestic exchange; it will not be traded on organized exchanges. An ISIN code is not assigned to these bonds; a prospectus is currently unavailable. We did not manage to  acquaint ourselves with the issuer’s financial statements either.

The funds raised during the bond placement are planned to be used to purchase the bonds of companies that are raising funds on the Crowd for Angels platform. These bonds, according to the team, will be secured by the company’s assets.

Thus, we are dealing with non-stock (and therefore potentially illiquid) five-year bonds from an issuer without a credit rating secured by payments on the bonds of companies attracting investments on the crowdfunding platform. We have analyzed the bond and eurobond market denominated in GBP; there is no offer of comparable duration and profitability in the market, which makes Crowd for Angels competitive. However, it is high-risk, therefore one must only buy this bond with knowledge of all risks identified by us and described by the team. At the same time, in our opinion, it is doubtful that the project would have managed to attract capital under 4% in the traditional way, for example via a bank or through a full-fledged bond issue.

According to the project team, an issue of ANGEL token to each bond buyer could increase the attractiveness of the Liquid Crypto Bond.

ANGEL tokens will be used to popularize the platform. The team has provided the following example of how this could work. Issue 25 ANGEL tokens as rewards to a new registered user, 75 ANGEL tokens for each KYC passed and so on. A referral program is also planned, with a reward structure nominated in ANGEL tokens.

Tokens belonging to the project will be used for marketing purposes. Their number is unknown due to the token allocation system described in the second chapter. However, it is important that all tokens will be pre-issued, i.e. the less LCB purchased by investors, the more ANGEL tokens will be accumulated by Crowd for Angels. The documentation does not disclose how the project will operate in case of exhaustion of tokens.

In addition to paying ANGEL fees, tokens will be used as a payment instrument on the Crowd for Angels platform. Users will have an opportunity to invest in projects placed on the platform, paying for transactions in ANGEL tokens with a discount of 1%. This mechanism is not disclosed in detail but, apparently, the platform takes on the problem of converting ANGEL tokens into fiat, otherwise the motivation for projects is not clear. The 1% discount in this case is provided for by the Crowd for Angels margin.

In addition, a portion of the fees paid by pitches will also be nominated in ANGEL tokens: This is equivalent to 1% of loan amount and will be burnt on receipt.

The introduction of the ANGEL token on the Crowd for Angels platform is not based on any objective reason such as introduction of blockchain or other technical features. However, the team carefully approached the development of the token economy concept, offering a working scheme in which token demand is internally generated through a requirement that a portion of the fees paid by funded pitches be via open market purchase of ANGEL tokens. This can be thought of as a form of subsidy from the the token issuer’s margin. This scheme, subject to Crowd for Angels running at planned capacity, will ensure a consistently high demand for ANGEL tokens.

Advisors to the team have provided the token economics and a model for the future value of the token:

These calculations are based on a number of assumptions of which the key ones are: 2250 projects will attract financing through Crowd for Angels, and total amount of investment attracted will reach £1 billion GBP. This is planned to be achieved by 2023 according to the roadmap.

From our point of view, such an exponential growth in the value of a token is an overly optimistic scenario. However, we agree that a) the token economy contributes to token demand; b) burning provokes growth in their value.

As a result, an investor buying a 4% five-year bond will receive a higher yield in GBP: an annual increase of 4% will be added to the value of the token.

The first risk for the project placing bonds is a lack of financial reporting. However, it would hardly have permitted objective assessment of the risks in the current situation given that change in the Crowd for Angels business model depends on success of the issue. If the company earns mainly from commission income, it will earn via the difference in interest rates between cost of its funding (4%) and the cost of a loan for start-ups after selling LCB. Business loans in GBP are issued at fairly low rates of 3.5-12% (https://www.money.co.uk/savings-accounts/peer-to-peer-isas.htm), thus, the interest margin for Crowd for Angels could reach 8%. This margin is high in traditional banking terms, but does not cover the risk of a start-up default. Therefore, the quality of Crowd for Angels’ project selection expertise and the quality of expertise of assets taken as collateral will be vital. These are things that an investor (or a tokenholder) will not be able to influence.

To go back to the discussion of the economic model, it should also be noted that the viability of the token economy concept largely depends on Crowd for Angels foregoing its 1% margin. Stimulation of the token economy will be deducted from net interest income, whose approximate maximum we calculated in the previous paragraph.

Another risk is highlighted in the documentation. Everything written above concerning future growth in token value is based on the assumption that they will be internally created by demand, and tokens acquired will be burnt and removed from circulation. However, the documentation says that a new issue of tokens is possible if the new Crypto Bond is placed. This could negatively affect the value of ANGEL tokens.

In conclusion, we also note PLC investments in the Crowd for Angels project. The Legendary Investments’ website does indicate an investment in Crowd for Angels in its portfolio (http://www.leginvest.com/portfolio/); however, this investment was not so far available in the audited financial report for 2017:

Legendary Investment is listed on the LSE; however, the company's capitalization is only 3.65m GBP, i.e. even less than the declared amount invested in Crowd for Angels.

The total investment portfolio of Legendary Investments as of December 31, 2017 was estimated at 4.2 million GBP.

 

 

The information contained in the document is for informational purposes only. The views expressed in this document are solely personal stance of the ICOrating Team, based on data from open access and information that developers provided to the team through Skype, email or other means of communication.

Our goal is to increase the transparency and reliability of the young ICO market and to minimize the risk of fraud.

We appreciate feedback with constructive comments, suggestions and ideas on how to make the analysis more comprehensive and informative.