As Burning Night goes into administration, MCA news editor Finn Scott-Delany looks at its track record of raising investment, and asks whether more accountability is needed to protect investors in crowdfunding campaigns.
Burning Night is a business whose management have turned to crowdfunding repeatedly throughout their life in the sector.
Chief executive Allan Harper first used it to fund an early pub vehicle, later going on to launch a £2m campaign in Crowdcube to roll out the Sportskeller concept.
Authentic Alehouses, another Harper-led pub development venture, raised £6.4m on peer-to-peer loan platform Crowdstacker – part of an ongoing target to reach £10m.
Meanwhile Burning Night’s raise on Crowdstacker was so popular the business went back for a second bite, eventually reaching a total of £7.5m.
Citing an overwhelming response, Harper outlined how the initial £3.5m had enabled the group achieve its initial goal of opening complexes in Nottingham and Birmingham, while updating its existing bar in Leeds.
The extended phase, with a target of £7m, would fund openings in Leeds, Harrogate, Cardiff and two other cities, Harper told investors, allowing them the opportunity to “continue to share in our growth”.
After such a bullish 2017, Burning Night had a quieter 2018, and the summer was abruptly marked by the closure of its Cardiff Bierkeller complex, with the ongoing city centre development blamed for poor trading.
If Cardiff was a sign of trouble, the bubble was burst yesterday after it emerged the company had been placed into administration on 28 September.
The turn of events has raised questions over the group’s use of crowdfunding, and whether the ongoing problems at Cardiff should have been a warning sign to investors.
Rob Murray Brown, an alternative finance expert specialising in equity crowdfunding, said of Burning Night’s return to Crowdstacker: “These guys were running an established business, and asked for £3.5m. Why do they take that up to £7.5m? Because it’s such easy money that they can’t help themselves.”
Brown, a fierce critic of crowdfunding, calls the move by Crowdstacker to place the group into administration “drastic action”, and said it also raised serious questions of the platform.
“The whole point of peer to peer loans is they’re not supposed to go to companies that have a chance of going into administration. You are supposed to get everything back.
“I would suggest Crowdstacker haven’t done enough due diligence. The problems in Cardiff were clearly there in the early summer because they were in the accounts in July 2017.”
While Burning Night’s first raise had a clear purpose, the second round was less so.
According to the company’s investment brochure, the additional loans were planned to go towards new sites in Leeds, Harrogate, Cardiff.
Yet while the marketing materials focus on Burning Night’s core brands – its three in one complex of Bierkeller, Around the World, and Shooters brands – the concepts that have gone on to open or be earmarked for these sites are Potting Sheds, a concept which does not come under the group.
While the Burning Night team developed and supported operations of the Potting Shed and its sister brand Firepit, they came under Ormsborough, a bar operating company funded by Downing LLP.
In Harrogate and Cardiff, Potting Sheds have opened, while Leeds Trinity was the target for the team’s most ambitious concept yet, PS Tiamo, a multimillion-pound destination bar concept with fashion designer Tiziano Mazzilli.
Any ambiguity over who was in charge at Ormsborough was put to rest yesterday, after it emerged Downing had terminated its agreement with Burning Night amid concerns over the latter’s financial position and overrunning costs at two major sites.
While Downing distanced itself from its former partner, it emphasised the success of established and operational pub and bar sites, which are generating “impressive levels of sales and profits”.
The events of the last few months leave Harper and co with a significantly reduced estate of sites to operate, though administrator Begbies Traynor stressed the companies which own the Bierkeller leases “are not in administration”.
The administor is currently seeking a buyer for the venues “in order to bring about the best outcome for the company’s creditors, staff and customers.”
A source close the company said a number of buyers had shown interest, and it was hoped a sale would be completed within a week.
Meanwhile Brown believes the c900 investors will be first in line and likely to get their money back – even if they do lose some interest accrued as the problems are resolved.
But he said the story was not a positive indictment of the platform, adding: “What it does more damage to is the reputation of Crowdstacker. FCA regulations are still very light. People are looking for a place to put their money and are overly optimistic.”
Another expert in the field said the events showed more accountability was needed.
Rupert Taylor, of AltFi Data, added: “Failures like this underline the need for third party verified and standardised performance figures that enable lenders to demonstrate their willingness to be held accountable for the performance of the loans that they originate.
”This approach has now been adopted by most of the major UK p2p lenders but many others continue to provide no independently verified measurement of their performance.”
As Burning Night Group goes into administration, MCA news editor Finn Scott-Delany looks at the bar group’s track record of raising investment, and asks whether more accountability is needed for crowdfunding campaigns.