Sugru

Crowdfunding a startup is a risky business. Last month FormFormForm Ltd (FFF) — the British firm behind a moldable material called Sugru — disappointed investors after it sold out to German adhesives specialists Tesa for a knock-down price of £7.6 million. That’s almost £25.4 million less than it told investors it was worth when they backed it on Crowdcube.

That means the investors are losing 90 per cent of their money – and needless to say, they are pretty bummed.


“I’m very disappointed as the funding literature indicated high growth plans,” says a Crowdcube backer who wishes to remain anonymous. “The marketing material was clearly inadequate and did not highlight the risks and threats especially with the bank funding. Sugru should have advised us months ago.”

This investor lost 91 per cent of his £500 investment. He says he would have invested more had it not been his first time investing on Crowdcube. Asked if he’d use the platform to back startups again, he shakes his head: "Most likely not”.

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So why did Sugru come unstuck?

Founded in 2004 by Irish inventor Jane ni Dhulchaointigh, along with James Carrigan and Roger Ashby, FFF is a London-based startup. It launched Sugru, its main product, to online consumers in 2009, and built a web community of over two million makers and DIY enthusiasts around it.


FFF says that its patented material is ideal for making cables last longer, fixing toys, piecing together ceramics, and a million and one other things. The product, which looks and feels a lot like Play Doh, was ranked as one of the best inventions in the world by Time in 2010. FFF raised millions of pounds on Crowdcube to help it expand Sugru (derived from the Irish language word "súgradh" for "play") into stores around the world.

But Sugru’s Crowdcube investors didn’t quite get the return they were hoping for. Many of them found out at the end of last month that they’d lost up to 90 per cent of their initial investment as a result of the German adhesive manufacturing giant Tesa acquisition, and dozens have been expressing their outrage on social media, with some claiming they were misled by the company.

“The challenge of explaining the vast potential of mouldable glue and how it can be relevant to any given consumer has proved to be a lot harder than anyone imagined,” said ni Dhulchaointigh.

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Pressure mounts: Clydesdale Bank withdraws £2m

Prior to the second Crowdcube funding round in March 2017, FFF valued itself at £33 million and Crowdcube backers were keen to secure a chunk of equity in what looked like a fast-growing business.


But FFF found itself in financial difficulty at the end of last year after Clydesdale and Yorkshire Bank pulled £2 million in debt funding. The funding, which FFF said was “secured” in its second Crowdcube campaign, was withdrawn in November 2017.

FFF received the first half of a £4 million funding package from Clydesdale and Yorkshire Bank in November 2016 but the bank got cold feet after Sugru failed to take off in the way that FFF wanted it to.

Despite some significant commercial achievements (thriving online sales, a growing presence on Amazon, getting onto shelves in Target), building mainstream awareness for Sugru took much longer and needed much more investment than FFF had planned. “Driving people into store was far more costly than we anticipated,” said ni Dhulchaointigh. “Yes, we were able to fuel spikes in our growth, launching in big store chains, but the critical challenge was driving enough people into store to maintain the ongoing sales needed.”

FFF said it had little choice but to sell the company after Clydesdale and Yorkshire Bank withdrew the second round of debt funding. The Tesa acquisition, which went through on 24 May following Tesa’s initial offer in March, saves FFF and its remaining employees but values shares at 9p each and leaves most of its backers significantly out of pocket.

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FFF takes more than £5m from investors

FFF raised £3.39 million on Crowdcube in May 2015 and a further £1.6 million in March 2017. According to The Irish Times, almost half of those who backed FFF on Crowdcube invested less than £100. However, some investors backed the company with larger amounts. The average investment was between £1,000 and £2,000, but some reportedly pledged in the £10,000, £20,000 and £50,000 brackets, and one pledging £1 million, according to Crowdfund Insider.

When it raised its second round of funding on Crowdcube, FFF said they were targeting 50 per cent year on year growth for the next three years, aiming to triple revenues from £4.6 million in 2016 to £13.8 million by 2019. It failed to mention any risks associated with the loan from Clydesdale and Yorkshire Bank.

FFF claims that the 2017 Crowdcube campaign was run with a scaled back business plan in the context of slower than anticipated growth after the 2015 campaign. FFF’s Crowdcube backers have been questioning why the company didn’t inform them that it may have to sell at a knock-down price when it went live with the second crowdfunding campaign. Some believe that FFF was aware of the risks associated with the Clydesdale and Yorkshire Bank loan when it went live with the second campaign.

Sugru’s sticky history July 2015 FFF raises £3.39 million on Crowdcube and launches Sugru nationwide with Target in the US. It achieves 53 per cent YoY growth. January 2016 FFF invests in expanding a lab and manufacturing space in London, but it scales back in May 2016 when it cuts ten staff along with overall budgets for the year. June 2016 In a bid to improve its margins, FFF starts to move Sugru manufacturing operations to Mexico. August 2016 Sugru launches in South Africa with retailer Massmart. In October 2016, Sugru launches with DIY giant Leroy Merlin in France.

November 2016 FFF secures the first half of £4 million funding package from Clydesdale and Yorkshire Bank. December 2016 Company growth slows to just 30 per cent YoY. In the same month, FFF makes further redundancies as part of a plan to cut £1 million in marketing, project and overhead costs. March 2017 A second crowdfunding campaign raises £1.6 million. June 2017 Sugru launches in Australia and New Zealand. In September 2017 a new family-friendly version of Sugru launches online. A month later, Sugru becomes available in Canada. November 2017 Clydesdale Bank withdraws £2 million in funding. December 2017 FFF reveals that growth has slowed to just 20 per cent YoY.

Another Crowdcube backer who wishes to remain anonymous says that even though they accept that businesses fail, “what gets me is that in the last fundraiser little over a year ago they were spouting all sorts about growth, and having secured funding, which clearly wasn’t true. This suggests that they were peddling mistruths simply to secure another £1 million, knowing full well their business was failing”.

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One person WIRED spoke to plans to ask the Financial Conduct Authority to investigate why FFF failed to indicate the risks in its second crowdfunding campaign. When WIRED approached the FCA, a spokesperson said they “never confirm or deny if we are or aren’t investigating a firm”.

When asked why Clydesdale Bank decided to pull its funding and when FFF found out that this might happen, FFF said that the bank continued to support the company into the second half of 2017, “but with growing concern as to our ability to fund our losses until we reached break-even”. Then in October 2017 the FFF management were notified that the bank had decided not to extend the second tranche of the loan. “This was mainly due to the fact we had a material breach of our covenants with the bank in September 2017,” FFF explained in a statement.

“Their risk assessment processes concluded we were vulnerable unless we found either a very substantial investor or a buyer for the business,” Sugru’s parent company said. Clydesdale Bank did, apparently, agree to provide further funding in December 2017 – “but with the condition that this was matched by existing shareholders, and with the understanding that the sale of the company would make meaningful progress by end of January 2018,” FFF added.

The finger has also been pointed at Crowdcube, with some questioning whether it did all the necessary due diligence. But a Crowdcube spokesperson said that “FormFormForm’s pitch was fair, clear and not misleading; we take our role as a regulated platform extremely seriously, and we are confident that our due diligence process, as outlined in our publicly available charter, was adhered to.”

A groundbreaking product?

Startups that raise money from the crowd often go out of business and this isn’t the first time crowdfunding investors have been left upset. Drone company Zano raised $3 million only to go bankrupt, for example, and 3D printing company Pirate3D failed after raising $1.5 million on Kickstarter.

In the case of FFF, not everyone appears to be as disappointed with the exit as those who are expressing their outrage on Twitter.

Sugru was also backed by investment firms such as Medra Capital, Antipodean Ventures, and LocalGlobe, and their comments have been much more subdued. Andrew McPhee, a product lead at Snap (Snapchat’s parent company) and a Sugru investor through Antipodean Ventures, says that “as entrepreneurs, the Antipodean founders have experienced every twist and turn of the startup rollercoaster, and we know just how much Sugru wanted to win big for everyone who backed them and believed in them.


“Jane and her team went after a bold bet, in a difficult space,” says McPhee. “They managed to put a groundbreaking product into market and scaled it significantly across the world. We think this should be celebrated.”

Elsewhere, Robin Klein, a venture capital investor and cofounder at LocalGlobe in London, wrote on 18 May in a blog post on Medium that LocalGlobe lost “most” of its investment. “Sugru struggled to realise its commercial ambitions and grow the business in line with targets,” he wrote. “To build mainstream awareness for Sugru, along with mass retail distribution, takes much longer, and requires more investment than any of us imagined.

“Venture capitalists are famous for trumpeting their successful investments (and we’ll continue to do so) – sometimes we need to talk about our failures – especially when they are successes in other ways.”