SupChina apparently raised $ 1 million through crowdfunding. Is it a good investment?

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Opinion commentary by Chris Devonshire-Ellis – December 20, 2021

  • Owners value SupChina at US $ 45 million based on revenue of US $ 500,000
  • The company suffered losses of US $ 1,595,498 in 2020
  • SupChina did not say its website was blocked in China in its investor prospectus

SupChina, yes guys who “Borrowed” the title China Briefing for some time last year until legal action took place, have apparently raised just over US $ 1 million in a call to raise five times as much. Having achieved revenues of US $ 515,335 in 2020, they value the company at a breathtaking US $ 45 million. Yes, you read that right – a multiple of ninety times their actual income from their last accounts. Their 2019 figures showed revenues of just US $ 503,288, meaning their sales increased by US $ 12,047 in the previous 12 months.

Almost half of SupChina’s revenue comes from promoting events, with titles such as “Beyond Shang-Chi” (about Chinese superheroes), “Read the Red New Deal” (about entertainment in what they call “Xi Jinpings Nanny State”), “Getting a job in a think tank” (making the most of your skills in China), and “Is the career in China dead?” “ etc. It’s not exactly revolutionary, and more focused on the low-end type of high school content, although a handful have addressed standard content business issues. None of this is particularly original or essential, nor is anything that is covered elsewhere on other blogs.

The nature of SupChina’s main content is the same, with the current titles as follows: “A suicide of star workers at Tencent”, “Another trial for the initiative of the Ministry of Justice in China in difficulty”, “Cultural repression in China” indicating that SupChina hasn’t really progressed much from being a opinionated outlet for substandard writing. So what is an investment in SupChina – and remember they raised US $ 1million from over 100 investors – buying them?

The Sup China prospectus, published at the end of October of this year, can be consulted here.

We can make the following remarks on the basis of the content appearing in the prospectus:

Risk factors
SupChina says, “We are a China-focused news, information and business services platform, providing nuanced, authentic and contextual reporting on China without bias. We believe SupChina provides the superior insight, perspective and analysis on China that is needed for the period we are entering, a period in which China’s rise to power will steadily increase its relevance to all of us.

Investors might then be surprised to find that SupChina is blacklisted by websites in China and that they have not mentioned it in their investor prospectus.

I discuss other very problematic issues in their prospectus as follows:

Property
“The company leased the property until August 2020. Due to limitations related to COVID, the company has decided not to renew the lease and is currently operating virtually. “

Read: Sup China has no physical assets. We all work from home.

Current business situation
“We may not have enough funds to support the business until it becomes profitable.”

“If the business cannot raise sufficient funds, it may not be successful”

Read: We could soon become insolvent.

“We are in a business based on reputation”

To note: Their earlier legal dispute in 2021 with Asia Briefing regarding unauthorized use of the “China Briefing” trademark.

“The company is focused on being a content and service provider in China. “

To note: It’s hard to almost impossible to accomplish when SupChina’s website is blacklisted from China.

“Our websites and internal networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations. “

Read: We do not own and have not invested in an internal website or sufficient security systems.

“Our founder controls all shareholder decisions because she controls a substantial majority of our voting shares. We sell non-voting shares.

Read: Investors have no say in their investment.

“No guarantee of return on investment”

Exactly what he says.

“You can’t easily resell the titles. “

Read: No one is likely to be interested in buying this stock from you.

“The management of the company has the discretion to use the product. Future fundraising could affect the rights of investors.

Read: You don’t have a say in how we use your money. If we ask you as a shareholder to invest more money in SupChina, if you don’t, we can dilute your equity.

“Investors in this offering may not be entitled to a jury trial with respect to the claims”

Read: As part of your investment with us, you have waived the ability to sue us for any reason.

Product use
SupChina provides a breakdown of where investor money will be spent, without acknowledging any debt. Interestingly, they state that they intend to allocate only 10% of the revenue to their most revenue-generating sector, their events program, which was responsible for almost 50% of their total revenue.

Otherwise, 30% of the total investment is allocated to future content, which essentially means covering salary overhead. More than half of the revenue is spent on future marketing, product development and administration.

financial state
“The company’s net sales for the year ended December 31, 2020 were $ 515,335. Operating expenses in 2020 were $ 2,134,761, an increase of 11.7% from $ 1,910,446 in 2019 ″. The company’s net operating loss was $ 1,595,498 in 2020. ”

“The company has suffered significant operating losses since its inception. As at December 31, 2020, the company had a working capital deficit of $ 7,206,611 and negative equity of $ 7,200,611.

“The company had approximately $ 303,707 in cash as of December 31, 2020. Currently, we estimate our depletion rate (net cash out) to average $ 120,000 per month.”

Sense: SupChina is operating with a substantial loss. Currently, there was a shortfall of $ 1,595,498 in 2020, against reported assets of $ 303,707. Based on reported figures for 2020, for that year alone the company was in the red to the tune of $ 1,291,791.

Interestingly, majority shareholder Anla Cheng sent a thank you email to all the over 100 investors Sup China has attracted so far – for a very similar sum.

It seems pretty obvious where the investor money will go and this is inconsistent with the statement on the use of the product. This is important because nowhere in the Prospectus does it say that the existing shareholders of SupChina are planning to invest. So who covers the losses? SupChina shareholders or their new investors? And if these are new investors, how will one of the “Use of Proceeds” allowances be met? These points remain unclear and are not unreasonable questions for an investor to ask.

Employee costs
“A 14.5% increase in employee spending to $ 963,706”

To note SupChina says it employs ten full-time staff, which means average employee overhead costs are around $ 96,370. This is at a level comparable to that of journalists employed at the Wall Street Journal.
https://www.glassdoor.com/Salary/Wall-Street-Journal-Reporter-Salaries-E22431_D_KO20,28.htm and is roughly double the average salary of a journalist in the United States.

Benefits for investors
“SupChina Swag – T-shirt or mug”

We are not kidding. But there are invitations to future events – if there really are. So far they have listed only two for 2022.

Dividends
“We have never declared or paid any cash dividends on any of our equity and do not currently plan to pay any cash dividends after this offering or in the foreseeable future. “

As it says on the box. Investors are very unlikely to receive anything in return.

Annual Report
“The company has not filed annual reports to date”

There is no publicly available company report to verify anything.

To be fair to SupChina, they’ve listed – with the fairly large exception of their China blacklist, which they should be well aware of – all their business issues. These as can be seen above and a lot. The business model doesn’t work and it’s hard to see how, without significant changes, it has a chance to be successful. The very high salary overheads and the fact that they only reinvest 10% of their prospectus income back into their core business – their events, which, as I noted, accounted for half of their 2020 income are particularly worrying. With only two events scheduled by April 2022, the prognosis does not look good.

If I was handed such a prospectus under these types of terms, I would see it as a desperate attempt to consolidate the red losses and try to persuade people to invest in an already problematic business model. Nothing in such a prospectus can cure change. If a car is totally broken, there is no reason to keep filling it with gasoline. Unless you particularly want a keepsake mug or t-shirt to do so.

Readers can form their own opinion and consult the prospectus at the attached link. The SupChina investor link is here.

Me? No chance. China Briefing meanwhile, it turned away 10 million US dollars from Singaporean investors just a few weeks ago.

Warning

Any views or opinions represented in this blog are personal comments, belong solely to the contributor, and do not necessarily represent the views of Asia Briefing Limited or Dezan Shira & Associates.

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