It’s time for what seems to be becoming a regular feature on The Missing Drink – Should I Invest in that Brewery? This month it’s Innis & Gunn that wants your money, so they can stop contract brewing in Glasgow and move all production activity to a site in the South East of Scotland. But the thing is, they aren’t doing it like Camden and BrewDog – investing in Innis & Gunn buys you bonds, not shares of the company. In other words, you don’t own a negligible percent of the company, but they owe you interest on a mini loan.
After my scornful look at the BrewDog and Camden Town crowdfunding schemes, and a breakdown of the laughable numbers behind those deals, the Innis & Gunn deal caught my eye as pretty decent – or rather, more decent than buying shares. So I thought I’d take a closer look, just to make sure I wasn’t being fooled by a simple change of tack.
Investing in Innis & Gunn
Innis & Gunn seeks to raise £3million to fund the building of a new, all-in-one brewery, through the release of “BeerBonds”. Bonds cost £500 and come with a 7.25% gross interest rate per annum if you choose the cash option. There is also a “BeerBucks” option, where profits can only be spent on Innis & Gunn’s online shop, which gives a 9% interest rate. For the sake fairness, I’m going to focus on the cash option.
So to raise £3m, the company will have to sell 6000 bonds. The maximum they can sell is twice that. 12,000 bonds, or £6m worth.
Let’s assume that you decide to buy one bond, for £500 with a 7.25% gross interest rate. If you’re a basic rate tax payer like me, that’s actually 5.8% interest annually.
The Invitation document gives us this handy little chart to see how much we’d get (assuming the company doesn’t choose to pay off the debt before the end of the four-year fixed term, as is their right).
But what do I get if I invest the minimum£500?
You can’t get your cash back before the end of the four-year fixed term, but the company can give you it back as and when they choose. Theoretically then, you may only see a £29 gain if they choose to pay out after only one year. That is unlikely though, as they’ll be using that cash. After the fixed term, you can keep your bonds and keep gaining interest if you wish (unless the company pays them off). With six months notice at the end of the fixed term, or any subsequent years, you’ll get your £500 back.
Innis & Gunn Bonds are an IOU – the company will use your five hundred quid to build a brewery and kickstart greater growth, and after they’ve done that you’ll get your five hundred quid back, with a fair bit of interest every year. That’s awfully nice of them, isn’t it?
What Do I Get Out Of It?
You get the promise of real, tangible cash in return for your investment (assuming the company does not fold and your investment is lost). The previous crowdfunding schemes we’ve looked at don’t make the promise of a cash return, but simply leave the door open for potential dividends in the future – at least with Innis & Gunn, you are making money whilst the company is making money, right from the off.
And the deal is pretty darn good one.
In addition, you get 10% off orders from the online store (billed as 12.5% but actually reduced once the tax man considers this perk). That’s not too shabby.
What you don’t get is the warm fuzzy feeling inside that comes with owning a miniscule percentage of a company. Bonds are not shares. You don’t own anything other than the cash you’ve loaned them, and you’ve committed to lending it to them for at least four years.
What Are The Risks?
This is an unsecured debt, and it is not covered by the Financial Services Compensation Scheme. If the company goes bust, there is no way to recover your investment.
Much the same as the risk involved in investing in any small business, including BrewDog and Camden. There is a risk you’ll lose your capital, if the business fails as so many do. However, the Innis & Gunn brand is successful and well recognised. It has grown year on year and shows promise of future growth. That’s the same as BrewDog, so why am I being less critical here? Because there is the promise of an increase of your capital should the business continue to operate. Your potential profit is clear and easy to calculate, so you know what to expect and know that you can expect a return.
Of course, the risk is greater with Innis & Gunn than it is with BrewDog because the minimum stake is larger – more than five times larger actually. If the company does fail, you’ll lose your £500 – but I honestly don’t see that happening.
As a mini-bond, it cannot be traded. If you choose to invest, you are committing to a four-year investment. The only way you’ll get out early is if the company chooses to pay off the debt it owes you.
So What’s the Verdict*?
You get a return on your investment, a similar discount and your name on the wall of the new brewery, all for essentially the same risk as investing in breweries that will give you no return (for the forseeable future). One day, BrewDog might pay a huge dividend to all its shareholders and even those that only paid £95 will be a little bit wealthier, but it isn’t obliged to and they might not bother. With a mini-bond offer like this, you at least know you’ll make a little money whilst the company is still running.
Assuming that the company doesn’t fold (I have equal faith in both Innis & Gunn and BrewDog), your investment will pay off better than your average high-street savings bond. It’s “nearly four times the average 1.98 per cent paid on comparable three-year, fixed-rate savings bonds, analyst Moneyfacts has found.” And as we all found out in 2007 with Northern Rock, banks can go bust too.
Obviously, putting your money into a business is riskier than into a bank, but that’s the price you pay for a return. The return is much better than a regular savings account too, so if you have a spare £500 that you know you won’t need in the next four or five years, this might be worth looking at.
I, however, don’t have a spare £500. I doubt anybody on the basic tax rate does either, so you have to factor in the fact that those who can afford investing will get a lower net interest rate and therefore a lower profit margin. The potential gains are reduced but the same risk factors remain.
*Please Note: I like beer, I like reading about beer and I like writing about the things I read about beer. The views given here are the views of some dick that likes thinking about beer stuff. The “verdict given here is intended as the informal opinion of an individual, similar to the experience of listening to any old bloke in any old pub prattle on about any old shit. It is not intended as sound financial advice. If you would like osund financial advice, please consult a sound financial adviser. (Not that I thought anybody would ever see this as any sort of financial advice.)
Care to Compare it to BrewDog?
I’m not sure if I should. I hope nobody from BrewDog tells me off for making a comparison literally everybody will be making.
Sod it, let’s do it. How does owning a tiny bit of BrewDog compare to owning Innis & Gunn Bonds?
Investing in BrewDog: You’ll spend a minimum of £95 and receive discounts on products, invitations to things you probably can’t go to and first dibs on new releases. “Invest” more and your discount goes up, but that only means you’ll need to spend more in their bars to make your original investment back. Spend £500 investing, and you’ll have to spend nearly three and a half grand make your money back. But then you’re down three and a half grand. You’d have to spend £22,800 to make that back. And then £152,000 to make that back.
But, on the plus side, you can make a profit by selling your share on a trading platform. You’d make a return there, but you don’t know how much. You also might get a dividend, maybe, one day, possibly, but not for the forseeable future. But maybe. Unless the company goes bust, but that’s a risk with every investment.
Investing in Innis & Gunn: You’ll spend £500 and get an annual return (5.8% for basic tax rate payers). Over four years, you’ll gain £116 interest for every bond you hold. That’s a 23.2% increase on your money. You’ll also get a discount on the online store. Unless the company goes bust, but that’s a risk with every investment.
I’d personally favour an investment in Innis & Gunn because I know where I stand in regard to returns. I wouldn’t have to hope for a favourable result come trading time or hope for a big dividend as and when they decide to give one. All I’d have to do is hope that the company stays afloat (which I’d have to do with BrewDog too).
Pretty simple, I think.
Invest Aware and remember that your capital is always at risk.