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Thursday, February 10, 2022

The British Journal of Photography

BJP was sold a few days ago. Sold, I should remark, again. It has been sold many times.

What makes this sale notable to me is that the sale is being touted by, uh, people on twitter, as a huge fraud, a Ponzi scheme, a criminal action, and so on. Let us just say libels have most likely been made, but in all probability nobody is going to pursue action against anybody.

Let us unpack the history of this! Why? Because it's fun!

In 2013 Marc Hartog led a management buyout of BJP. At the time, BJP was (I think) one many properties held by Incisive Media which was, and perhaps still is, a publisher of magazines. This was in the midst of some sort of transition to digital, Hartog had been leading or at least involved in the internal program to bring out digital editions of BJP.

Hartog created an empty company, Apptitude Media, and sold off 25% of it to investors for some money on the basis that he was going to buy BJP from Incisive. When the deal closed, Incisive held 15% of Apptitude, Hartog 60%, and 18 other investors held the 25%. Hartog almost certainly put in a significant investment of his own, but if and how much are privileged information. It would be normal for him to have put in a large chunk, though. Incisive likely got a chunk of cash, and 15% of Apptitude, and in exchange transferred BJP to Apptitude. Some of the invested cash would also have been used to provide operating capital for the new company.

At this point Hartog owned a majority stake in a company, Apptitude, that owned all the bits and pieces that make up BJP. The new company began to search for ways to make a photography magazine work as a viable, ideally large, business.

Many things were tried, I guess. I don't really know or care about the details, the point is that they don't seem to have worked. In 2016 they decided to try fundraising. They used the Crowdcube platform which, insanely, allows ordinary citizens to invest in private companies. The pitch was quite rosy, and valued the company at several million pounds which is, well, optimistic. As these things are. Financial statements were provided, which of course the punters who put in £10 to buy 68 shares almost certainly did not understand.

The point of this fundraising is obviously to create a little financial elbow room to try some stuff out. Whether you view it as money raised to try the new stuff, or money raised to make payroll while other money is used to try stuff is a personal choice. Money is fungible.

In 2016 they raised £399,720 by selling off %13.55 of the company to all comers. Half of this investment came from Stephen Henly and Jonathan Mitchell who invested £100,000 each and were duly appointed to the board of directors.

In 2018 there is essentially a repeat. They raised £779,510 by selling off %14.2 of the company (note that shares seem a lot cheaper this time around, the outlook, while still optimistic, is less optimistic!) In this round, Jahan Mobasher and Simon Bishop invested £100,000 each and were appointed to the board.

In 2020 there is yet a third round, raising £379,280 for a mere %5.44 of the company! The outlook was much rosier this time, somehow. Jonathan Woyton invested £200,000 (twice as much as necessary to get a board seat) and Joseph Phelan invested £100,000. Again, they were duly appointed to the board.

In all this fundraising a total of £1,558,510 was raised by selling off something like 30% of the company (you can't just add the percentages together, but roughly.) Of that, £700,000 was from people who became directors of the company. At some point in there Apptitude changed its name to 1854 Media.

So has there been fraud up to this point? I cannot see it. 6 separate people made enormous investments based on the rosy, optimistic pitches, and became directors of the company with access to everything. Having been a director, I can attest that this doesn't mean that they went through the books carefully, but they were on the inside, they did have fairly detailed, fairly accurate, financials read out to them, and they had at a minimum of a rough idea of what was going on.

I assume, I think reasonably, that at least a few of these 6 would have noticed something amiss and raised a fuss if there had been real malfeasance in the fundraising efforts, or in the company itself, up to now.

It is possible that there was something crooked going on, but if so it was very well hidden, or all these directors were In On It or something. As we shall see this, while unlikely on the face of it, is even less likely than you might think.

The high estimation of the company's value in January of 2020 seems peculiar, but I think they'd opened a bunch of initiatives which were about to get crushed by, um, a thing I have promised to not talk about.

By early 2021 they were thinking hard about NFTs, which makes me sad, but what are you gonna do? From a business perspective, it's not a terrible idea. Sure, people like me were saying NFTs were going to be a short-term fad, but plenty of people were saying the opposite.

At this point, early 2021, I think management has decided they are extremely short of options. The photography magazine business was not going well for anyone, virtually all the magazines have long since shuttered and the ones that are left were pretty small operations. At best the choice was between downsizing to a tiny but viable shop, or trying one more large-scale initiative to build a more substantial business. At worst it was a choice between closure and this last go-big attempt.

At this point the public financials were at least consistent with them borrowing money and selling more shares simply to make payroll. Combinations of selling shares and borrowing money is pretty normal at this stage of the game. You're simply trying to buy breathing room to figure out what to do.

Something has been made about the fact that the most recent share sales were at the previous, fairly rosy, price. Fun fact, you kinda have to sell them at the previous price. You can't just sell shares for whatever, because selling even one share at a price implicitly values the company. If I sell you a share for 1p, and there are 27M shares, I am stating that the company is now worth £270,000. You don't make moves like that on a whim (I'm not even sure it's legal?) So anyway of course the shares were sold for whatever the most recent share price was.

It's even money that former director Stephen Henly (see below) was the buyer for many of those shares, and possibly also the lender. This would be, at least, not unexpected.

So, in early 2021 they launched ART3.io, a platform for NFTs under the BJP brand, and whatever, it does something. It was successful enough to be interesting to Marc Hartog, at least.

By the end of 2021, a decision was made to spin out the ART3.io brand. Hartog once again created an empty company to contain the ART3.io bits and pieces (domain name, intellectual property, branding, assets, whatever.) At the begining of Fed 2022, former director Stephen Henly (who invested £100,000 in 2016) purchased the company (now called 1854 Media) in some sort of deal, probably not involving a great deal of cash, and Hartog left 1854 Media to lead the new ART3.io.

Oddly enough, what has social media afire is that Hartog seems to have acquired the BJP twitter account as part of the package. This twitter account was largely worthless, having about 250,000 followers and low engagement. For reference, that is not enough following to support one (1) influencer. By like an order of magnitude.

As part of the sale, a sum of £50,000 was provided to pay out the shareholders. All 27 million-odd shares. This is privileged information, but has been publicized widely by, um, irresponsible people. It's the sort of private information you don't seriously expect to stay private, though.

The guys who bought 38 shares for £10 are not gonna be very happy with their 7p and that's understandable. Note, though, that Mitchell, Mobasher, Bishop, Woyton, and Phelen will be getting a few hundred pounds back for their much, much, much, larger investements. And let us recall that these men have lawyers.

Again, is there fraud at this point?

It certainly is being pitched by, um, individuals, as some sort of "someone ran off with all the money" situation, but there's no evidence that there was any money. The publicly available financials indicate debt, rather than cash.

No matter how I slice and dice it, there just doesn't seem to be any way any meaningful pile of money ever accumulated in this thing. In fact, I can't see how any money at all actually accumulated. It's possible that all the filings are completely fraudulent, but at this point we're assuming a conspiracy involving a whole bunch of people, and the fraud would have to be fairly monumental to even give the 6 directors their £700,000 back.

While, I suppose, theoretically possible, I am having trouble visualizing how a massive fraud fits inside a photography magazine, a business type not noted for have vast revenue streams to hide money in. You might as well propose that BJP was just a cover for a massive drug dealing operation, and that there are millions in illicit fentanyl money lying around, at which point we really seem to have lost the thread?

People are mad because they lost their money, and sure, I get it. That sucks. They clearly had no idea what they were getting into, and feel lied to. That's kinda on them, but also kinda not.

Other people are mad because Hartog acquired a twitter account on terms that are definitely not known, and are much more likely reasonable and fair than otherwise. Which, ok, those are just crazy people I guess?

Yet other people are mad because of the NFT connection. I think NFTs are dumb and bad too, but these are business decisions, and as business bets go, that one doesn't seem any dumber than the underlying "let's run a photography magazine" idea.

There's literally no room anywhere in here for any kind of actual fraud or malfeasance. To seriously propose that, you have to assume that all public information is simply falsified, which seems dicey to me.

But, in the end, nobody is seriously proposing that, they're simply performing for social media klout, or because they're upset, or because they're bullies.


  1. Financial statements for UK based companies can be found by anyone who wants to look on the UK Companies House website. ART3.io Ltd was incorporated too recently to have anything but the articles of incorporation. 1854 Media Ltd (formerly Apptitude Ltd) has filings going back to 15 Jan 2013, when they incorporated.
    Credit reports are available in the UK for not very much money, and basic ones are even free, e.g. at companycheck.co.uk. If I was going to invest in a company in the UK, I'd certainly get credit report for it. The free one mentioned above shows Key financials going back to 2016: net worth, total assets, total liabilities, etc. If the company is not paying its creditors, that would also show up in the credit report, as there would be some probably be claims against it.

    1. Indeed! The crowdcube prospectus materials supplied, I think, further details if you went looking. Making meaning from any of this stuff requires a certain expertise, though.

      Anyone who wants to put 10 pounds into a private company should be, in my opinion, forcibly prevented.

  2. Thanks for the analysis and the financials.

    I was on the inside, and I can say that you are broadly correct. No one has run off with a lot of money.

    But people are pissed that a much loved photo magazine that they invested in by way of support was hijacked by the CEO's new business venture (NFTs), and in truth the magazine was very nearly bust – not for the first time.

    People are also pissed because the value of the business was constantly talked up in raises. Lots of very rosy forecasts were made, and maybe the CEO even believed his own hype.

    The truth is that each raise came with new commitments that weren't delivered on, and brought new pressures.

    Hartog was good at raising money through creative forecasting and hype, but bad at keeping hold of it. He and the commercial director, Pax Zoega, were out of their depth, making optimistic forecasts based on spreadsheet predictions, believing themselves to be genius startup entrepreneurs. There was a surfeit of self confidence. And BS. But they couldn't explain ideas to staff, never mind bring them along, because they weren't properly thought through. No real research was done. Who needs to know the market if you are going to disrupt it, right?

    It's a shame, because there were good and talented people there, who remain and are now trying to undo the damage and keep the magazine alive.

    Staff were largely bemused that people – the bigs with £100k to spend – were investing in a company that had never made any profit.

    Hartog and Zoega had long since lost any interest in the magazine. They wanted to build an 'Etsy of photography', a community they could spin off as a major sale one day, and often referred to the French startup, Meero, which raised a lot of investment on the back of an idea that already existed – freelance photography on demand. No doubt Beeple had the same trigger. Elon Must was spoken of frequently too, particularly when an insane idea with an insane timeframe was presented as the only possibly future.

    They were just gamblers really, without very good business instincts, or any real knowledge or love of photography. NFTs are perhaps the perfect fit for Hartog.

    Photography magazines aren't very profitable, but the remaining team and new owner probably aren't in it for that. Hartog clearly thought he could make himself rich one day. The fact that he picked a photo magazine to do that says it all really....

    1. I published this comment in some bemusement, and feel I ought to add some caveats.

      First, there are several people who would cheerfully write a pack of lies to smear Marc Hartog. They're all idiots, and I don't think they have the ability to write the above as a fiction. I accept it, tentatively, as an honest testimony.

      Second, on that basis, I think I smell a schism. I suspect that a "Big! Digital!" group, and a "Safe! Small!" group existed at BJP. If so, this schism has been actualized by the spinoff of ART3. Also, though, we ought to read the above remarks as partisan.

      Third, I gently remind my readers that director after director turned up. Marc Hartog, while holding a controlling stake in BJP and serving as a director, nevertheless worked *for* the board of directors in his role as CEO. If incompetence played a major role, there must have been plenty to go around. Yes, the power dynamics were surely murky and weird.

      Finally, the fact that a photo mag failed is not prima facie evidence of incompetence.

      Thank you for your remarks, and I hope you don't feel too slighted by my caveats!

  3. This might all work better as fiction, than a days-long twitter tantrum by riled up punters, viz.:

    “What suits me,” Keogh used to say, “in the way of a business proposition is something diversified that looks like a longer shot than it is–something in the way of a genteel graft that isn’t worked enough for the correspondence schools to be teaching it by mail. I take the long end; but I like to have at least as good a chance to win as a man learning to play poker on an ocean steamer, or running for governor of Texas on the Republican ticket. And when I cash in my winnings I don’t want to find any widows’ and orphans’ chips in my stack.”

    The grass-grown globe was the green table on which Keogh gambled. The games he played were of his own invention. He was no grubber after the diffident dollar. Nor did he care to follow it with horn and hounds. Rather he loved to coax it with egregious and brilliant flies from its habitat in the waters of strange streams. Yet Keogh was a business man; and his schemes, in spite of their singularity, were as solidly set as the plans of a building contractor."

    (and so on)

    -- O. Henry, writer, fugitive, and convicted embezzler

  4. Thank you for the blog post Amolitor. Some additional context in the statement just released.