Saturday, 29 April 2017

FT gets it all wrong on Crowdfunding bonds

A recent article in the Financial Times is wholly wrong about the Crowdfunding Bond - but good to see they read our blog!

You would expect journalists with the FT to have a higher standard. Aime Williams' piece on Brewdog here  makes you wonder.

She is right in her interpretation of the recent 2800% ROI for round one investors in the Scottish punk brewer - it is not a 2800% return as we pointed out sometime ago here. She is wrong in the description of the TSG deal - out by 100% on the money paid.

But the misinterpretation of how the Crowdcube bonds work is not so good. To claim that people would be better investing in shares - which as we all know have no market - when they can invest in a short term bond at 8% is hard to explain. And she doesn't try.

Whilst the bonds have no security, on the sort of life span that they have and with the background of the sorts of companies that have issued them, they really dont need any. Take for example the bond issued by the River Cottage Group, also on Crowdcube a few years back. River Cottage have missed all of the targets the financials for the bond projected - they are not doing well enough to generate the spare cash to repay the bond. They are, however, doing well enough to pay back the bond holders, as all they need to do is use their brand to borrow more cash when the time comes. You have to take a view before investing as to whether old Etonian, Hugh Firmly-Withastool, is going to default on his debts; in the glare of the media. They are not going to default in the bond as this would almost certainly mean the end of the business. There is your guarantee. Meanwhile you are getting your 8%. Its a similar situation with The Eden Project, where revenues have come in way short of projections since their Crowdcube bond but it is still going to repay its debt. Shareholders get nothing unless the company IPOs or is sold - which is entirely outside their control and has no time frame. Their shares are worthless bits of paper in reality.

What Williams has ignored, is that bonds are only issued by companies of some substance and with a track record. They are not issued by start ups - which is where the equity side comes in. They are not issued by start ups for the simply reason that people wouldn't buy them. Her reading of this situation is simply wrong - and surprisingly so. Its seems pretty obvious to us. Bonds offer a good return for a lower risk, set over a short term. Equity, as Crowdcube run it, offers god knows what.

It is not a question of either or - both offer totally different outcomes for totally different reasons. At least the bonds give investors a modicum of control.


  1. FYI, Daisy Green are paying back their ~750k 11% bond (Bondi Bond) early (2 years early) after securing debt facility with large UK bank. T&Cs of loans allow Bond Issuers to redeem bond early with no penalty, which I view as an issue for ensuring that interest from good loans compensate for any defaults.

  2. Thanks - how do you know that? DM me.