We look in a lot of places for young companies we might want to work with or invest in. One arrow in the quiver is crowdfunding websites: I’ve met hardware founders in particular who’ve bootstrapped their companies that way, although pickings seem to be slimmer these days.
Last summer, I saw a peculiar one go past. Someone was trying to raise angel sums – £420,000 – against Cornish Tin Ltd, a new tin mining concern in Cornwall, with plans to extract minerals themselves and build all the infrastructure around that, all of it via crowdfunding. They said in their materials that there some lithium down there too. Now, mining is not a sector I have any knowledge or competency in, and nor do any of my colleagues, so we skimmed over it, moved on and didn’t think about it for a year.
Then earlier this week, another crowdfunding newsletter came past, flagging the same project, which is engaging in another small funding round, by the same crowdfunding method. This time the materials suggested that they might well be sitting on top of the largest lithium deposit in Europe (and then went very quiet on the matter and doubled down on tin again).
Are alarm bells ringing for you yet, independent investor? They should be. What are the problems here?
- Why is the company raising such low sums? Cornish Tin Ltd has raised £2.8m across three rounds, from crowdfunding platforms. I don’t know much about the tin mining industry, but I do know that you need capital of at least some hundreds of millions of pounds to embark on the sort of project they’re describing. Total fundraising since the company was founded up to 2023, which was the latest date I could find data for, reaches only £2.08 million across three rounds, with valuations climbing from £15 million to £27 million pre-money by 2023.
- The company has no current mining operations, production capacity, or revenue streams. They own some land, they’ve done some exploratory work: that’s all. There have been two drilling exercises, in 2022 and 2024, totalling 9,290 metres, in which they found grades up to 6.28% tin. None of this points to this being “the richest tin mine in the world”.
- I dug further. The company holds only exploration permits under General Permitted Development Orders. No mining licenses exist for extraction, no production timeline has been established, and no path to securing the hundreds of millions you’d need for mine development has been outlined.
- Wait a second. Imagine for a moment that you ARE, as Cornish Tin Ltd says they are, sitting on top of what you think is the richest tin mine in the world. Why are you crowdfunding it? Why aren’t you on the phone to some land lawyers, conveyancers and a bunch of mining companies with deep pockets?
- Hang on – isn’t there a functioning mining company with good revenues, a solid valuation and a proven track record with a very similar name in the same region? There is! Cornish Tin Ltd is not the same company as the publicly trading Cornish Metals Inc (AIM/TSX-V: CUSN), whose flagship tin operation shows a post-tax net present value of $201 million. Why would you opt for a company name that’s bound to cause confusion?
Tin market fundamentals are not something you need to be familiar with to smell a rat here.
Crowdfunding is a useful tool for founders who are looking to escape due diligence. I’ve seen absolute horror shows in my time in the hardware industry: there’s the feedback loop where crowdfunding founders run out of money to deliver on their first product, so crowdfund a second so they can use the revenue from that to fund the first, then have to develop a third to complete the second…it’s turtles all the way down. These projects can best be categorised as failures rather than scams, but the two start to bleed together the further down the tunnel the founder goes. Hardware is capital-intensive: crowdfunding is not a good way to build a hardware business.
Mining’s pretty capital-intensive too.
And then there are the crowdfunding founders selling things which are not what they seem to be: the dropshippers claiming to have hand-crafted the Shenzen-production-line fountain pen you’re holding. That’s more nakedly a scam rather than a failure.
And then there are the founders selling things which don’t exist, and will never exist. When you see a crowdfunding project go past, try to figure out whether it’s one of these before you dip a toe in.