British crowdfunding investors have suffered the biggest loss in the market place to date as legal advice firm rebus called in administrators.
Rebus raised £816,000 from platform Crowdcube last year promising that investors would see a return of between 6.4 and 10 times their investment within three years.
The investors have lost all their cash now the firm has gone bust.
Rebus made a name as a legal claims firm chasing down cash for clients who had lost money in tax avoidance schemes.
The firm represented many celebrity and sports clients who had lost millions in outlawed loss-making film production partnerships.
No financial safety net for investors
At the time funds were raised on Crowdcube, the firm had posted a pre-tax loss of £1.4 million for 2013-14.
Regulators recommend crowdfunding is only suitable for sophisticated investors with a high net worth and the investment is outside the UK’s Financial Services Compensation Scheme.
This leaves investors with no recourse to a financial ombudsman and the only avenue to reclaim lost money is through the courts.
In the crowdfunding pitch, Rebus projected profits would increase to £12 million by 2017.
The company web site states the firm was managing 1,700 claims worth more than £1 billion for clients.
Many have paid an upfront fee towards their claim and that money is also likely lost.
Around 100 crowdfunding investors had staked between £5,000 and £135,000 in the firm.
Fifth of crowdfunded firms go bust
A Crowdcube spokesman commented that investors should diversify their money to minimise losses when taking shares in a crowdfunding business.
Industry monitor NESTA confirmed the Rebus collapse was the largest crowdfunding deal to go to the wall in the UK.
“Failures are inevitable said a NESTA spokesman. “The future of crowdfunding depends on how often this occurs.”
Meanwhile law firm Nabarro, which specialises in the sector, stressed the importance of investor due diligence and assessing accurate valuations of crowdfunding businesses.
“One in five companies raising money from crowdfunding between 2011 and 2013 have gone bust,” said a spokesman.
“Investors have handed over £5 million or more to companies that are no longer trading or are showing signs of financial stress.
In January, mini drone maker Zano, which had raised £2.3 million from a campaign on Kickstarter was the largest European crowdfunding project to fail.