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Crowdfunding – A look behind the scenes

We recently completed an independent, financial due diligence for a £2.1m Thin Cats investment in an Anaerobic Digestion plant. The Thin Cats investment process requires independent experts to review proposals to ensure sufficient accuracy and robustness of the investment case.

This is a key part of the Crowd Funder’s business model and is designed to reduce risk and provide confidence to the many potential investors seeking to participate in new but uncertain projects. If investors lose trust in the system through a series of investment failures, then the very existence of crowdfunding is threatened.

The work typically involves reviewing the borrower’s business plan, the principal contracts associated with the project together with the accompanying financial model which usually consists of a standard, discounted cashflow analysis.

The activities undertaken during these reviews (called financial due diligence) typically include:

  • Identifying the key underlying assumptions and uncertainties whose actual outcomes will have a major impact on financial returns. Potential investors need to understand both the principles and quantification of such matters in order to judge whether the project risks and rewards meet their criteria for investing.
  • Confirming that the financial model makes sense: is consistent with the rest of the proposal, matches physical volumes of inputs and outputs, treats tax and inflation properly etc.
  • Checking the contracts to ensure no onerous commercial terms which could unnecessarily jeopardize the investors position.

Tight timescales are the norm which places a premium on efficiency and previous experience with similar projects.

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