What’s the deal with the Atherton Bikes Ltd share issue CrowdCube campaign?

If you have been following the journey of the Athertons and how they are spreading their pro wings beyond just mere racing and into a number of businesses over the last year or two then you will be aware that you currently have an opportunity to buy into their company yourself. But what is the deal here? Is it just a crowdfunding money raising deal or can you actually be a legit shareholder in Atherton Bikes?

Many companies, big and small, run crowdfunding campaigns to raise capital for investment or even individual product development. Big names like Knog have done it to kickstart a new bell for example. As a company it can be a way of testing the waters on a product before going full steam ahead on production. Some would say it’s a bit of a cheeky move as all the risk of the product investment going wrong is diverted from the company directors/shareholders to the crowdfunders who stand a chance of losing their cash if it goes belly up. But then if everyone who throws cash at such a scheme is aware of the risks then all is fair, many would argue.

The Atherton Bikes Ltd – Not just a crowdfunder

Last week Atherton Bikes announced that they were running a crowdfunding campaign to sell shares in their company. This is what differentiates this offer from the normal crowdfunding operation process outlined above. You are not supporting the company with a cash donation in return for perks – you are buying into the company itself.

Atherton Bikes is a private company and it’s important to understand that when a private company offers up shares these are not the same as the shares you may buy on the stock exchange, which are publicly tradable and have value that changes day to day. Privately owned shares bestow on the owner a stake in the private company but they can’t sell them like they would a stock market share. Depending on the how the company operates its constitution it could be that you can’t sell your shares without approval of the board of directors at all. Which means you are stuck with them, come what may, until someone steps in and buys them with the approval of the board. If that happens you will be paid your share of the overall amount paid.

There are complications and very tight rules about what you can and can’t do with private shares and there are also complicated rules around how much power you have as a shareholder to influence the running of the company you partly own. Typically, unless you own more than 5% of the total shares of a private company, in general (and there are exceptions) you don’t have any say over what goes on in the company day to day. At the other end of the scale if you own over 50% of the shares then you are in control and you can really do what you like with the company. There are also interim levels of control assigned to shareholders at other points between these two figures.

Some key Atherton Bikes Ltd company info

Here’s some background info on Atherton Bikes that we have been able to find out. Don’t worry, there are no skeletons in the closet here – it’s all looking just fine but if you are considering getting onboard it may be prudent to understand how the company is set up.

From companies house records we can see that Atherton Bikes Ltd was created on 14th February 2018 and as of the date of publication they have filed a single set of accounts dated 31st December 2018. Those accounts were basically empty and it appears they did not trade in that period. Their next set of accounts are due for filing on the 31st December 2020, so the public record currently gives us no information of the trading affairs of the company to date.

Shareholders

Atherton Bikes currently has 12 shareholders. There are three types of shares, A,B & C. Information here is subject to change as filed information may not reflect the situation at the time of publication.

Andrew Hawkins	11k	Ordinary A	11.58%
Ben Arnold	1.5k	Ordinary A	1.58%
Benjamin Farmer (Director)	11k	Ordinary A	11.58%
Daniel Atherton (Director)	11k	Ordinary B	11.58%
Daniel Brown (Director)	11k	Ordinary B	6.84%
David Weagle	5k	Ordinary C	5.26%
Edward Haythornthwaite	11k	Ordinary A	11.58%
George Atherton (Director)	11k	Ordinary B	11.58%
Joanne Martin	2.5k	Ordinary C	2.63%
Piers Linney (Director)	10k	Ordinary B	10.53%
Rachel Atherton	11k	Ordinary B	11.58%
Robert Gow	3.5k	Ordinary A	3.68%

Rachel, Gee & Dan along with Ed Haythornthwaite, Benjamin Farmer and Andrew Hawkins are the largest shareholders with 11.58% each. There is no individual with overall control although there are three types of shareholdings declared. These being Type A, B & C. 

It’s not uncommon for companies to have different classes of shares in their makeup. The most common purpose is to assign a different weight of voting rights/control to those shareholders. Sometimes they will allow the shareholder to claim a greater or lesser proportion of the dividends.  We don’t know exactly what the constitutional differences are between these three types of shares but all the CrowdCube shares are categorised as type C, which states they offer voting rights and entitlement to dividends according to the declaration on the campaign site. In other words, they are normal type shares as you would expect to find in the majority of ordinary private companies. If you have them you will genuinely own a piece of the company. You will have the right to turn up at shareholder meetings and you be able to vote on any issues that require shareholder approval.

The board of directors consists of Piers Linney, Gee Atherton, Dan Brown, Ben Farmer, Dan Atherton as of the last filing at Companies House.

Dilution of shares.

The shares that Atherton Bikes Ltd are offering are newly created shares. This means they weren’t created at the time the company was formed in 2018. When a company creates new shares any existing shareholders stake in the company are diluted as a result. This means that while they still retain the same number of shares in the company the percentage of the company they own has decreased. Sometimes a company can create new shares to sell while altering the existing shares to retain the same level of actual ownership and therefore control. It’s not clear whether this type of share has been assigned to any existing shareholders of Atherton Bikes Ltd. So it’s not clear if the existing shareholders’ stake will be diluted. However, in a Q&A on the crowdfunding campaign a representative of Atherton Bikes Ltd has said that any future issue of shares following this current campaign will dilute existing shareholders’ stakes. 

This means you may buy in today and end up with say, 0.2% ownership of the company but if the board decide to issue more shares in the future which are sold then your percentage stake will likely reduce depending on how many shares are issued. You will presumably be given the opportunity to buy any of those future shares if you want to maintain your overall stake in the company. The amount of any future dividend payments is dependent only on the percentage of the company you own and not the number of shares you own, which means any dilution of your shares will negatively affect the amount you receive in any dividend payout from profits.

The Business Plan

Another important point raised on the Crowdfunding page was what the actual plan is for the company and what the likelihood of returns through dividends are. Again a spokesperson for the company has confirmed that the current plan is to reinvest future profits in the company to create growth. This suggests that paying dividends out of profits is unlikely, at least in the short term.

We contacted Atherton Bikes to ask them a couple of questions – in particular what shape would any return on investment look like to investors and what the general business plan was for using the cash raised. Co-owner Dan Brown quickly got back to us.

The return is based on our laser focus to build a valuable, scaled and profitable global business.  Many UK investors benefit from EIS where capital gains are not taxed after 3 years which could be attractive for higher tax payers. We expect the main return to come from a buy out in the future – similar to the $600m proposed sale of the bike manufacturer Canyon.  Such a buy out (or exit) may be in form of a full buy out of the entire company or a partial buy out of investors to provide a return.  We are committed to provide our investors with a return and our Chairman, Piers Linney, is an experienced investor with a background in venture capital and mergers and acquisitions.  If the company generates profits that are not reinvested to generate capital growth, the board may consider payment of dividends in due course.

In terms of the usage of funds, we’re setting up a larger facility to enable us to house our own machine and increase capacity. We will also invest in sales and marketing including the finishing and launching of the e-commerce website, We will have some great job vacancies opening up in the coming months some of those will be focussed in the engineering department where we have an awesome and ambitious range of bikes to deliver.  

The manifesto claims.

All companies offering up shares to members of the public, whether private or publicly traded, tend to create a manifesto full of marketing scenarios and incentives. They are trying to sell you something after all. The Atherton pitch has a few key selling points. Firstly, we note that they are expecting to hit sales of 7500 bikes (Units) within 5 years. At the current time we understand they have offered up 50 for sale as part of their soft launch earlier this year.

What is the company worth?

At the time of publication (9th November 2020) the campaign has raised just over £1m on an initial goal target of £600k, which suggests investors are keen to get on board.

There are currently 1800+ investors and total equity purchased so far is estimated by CrowdCube to be around 22%. The lowest amount that can be invested is £11 and currently the equity sold and money raised equates to a company valuation of just under £4 million with a share worth £3.81. The largest single investor has bought shares worth £105k.

This all adds up to the company looking to issue around 1 million shares, including the 100k that were issued at the creation of the company and distributed to the existing shareholders. We understand that at the present time and for the duration of the campaign the shares have not yet been issued. The final tally of issued shares will depend on the money raised during the campaign. The share price is set, however at £3.81.

So how does this all stack up as a investment proposition?

Firstly, everything looks above board here and there’s no suggestion or signs that there’s anything going on other than a genuine attempt to raise cash to push the company forward. The shares being offered confer a genuine stake in the company and have been declared to HMRC and given a clear bill of health from a tax standpoint. New shareholders will get voting rights and the full benefits of being a shareholder including access to dividends on profits. But it’s important to understand that these are not publicly traded shares so as a shareholder it will be hard to ‘cash them in’. The return on the investment will be through dividends or if the company is sold. 

It seems that dividends, at least in the early years, are not part of the directors’ plans. This paints a picture of an investment for the long game. It may also not pay off if the company fails in its goals and you could lose some or all of your investment if that happens. That’s the risk you take with investing.

There are some perks on offer at the moment and if you chip in more than £20k you will become VIP shareholders with access to a limited list of perks like discounts on bikes and some other VIP treatments like access to Atherton coaching. But to all intents and purposes, unlike more traditional crowdfunding schemes that generally don’t come with equity, you are principally getting anything a genuine stake in Atherton Bikes Ltd. If that’s enough for you then invest away.

More questions?

We still have many and the team at Atherton Bikes Ltd have agreed to answer them for us in a podcast that we will be recording later this week. If you have any questions you’d like us to ask then post them in the comments and we’ll see what we can do.

Don’t listen to us!

This article is based on a combination of publicly available company information and the information declared in the Atherton Bikes Ltd CrowdCube campaign by the company and its spokespersons. This article does not constitute investment advice. It’s your money, make your own choices and we urge you to do you own research before you spend it.

Watch out for our podcast episode later this week featuring members of the board at Atherton Bikes Ltd.

Correction: The original article incorrectly stated that Ed Haythornthwaite and Andy Hawkins were current directors of the company. They both resigned separately earlier this year but remain shareholders. Also Ed’s first name is actually Merlyn, which is frankly very cool (sorry Ed)

We will update this article with clarifications and further details as we get them.

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