Remember a few months ago I wrote about investing in BrewDog? Remember, they announced the fourth round of their crowdfunding scheme Equity for Punks, that sought to raise £25million and valued the company at £305million? Remember how I called the scheme out because there were no clear ways on how you would make money on your minimum of £95 “investment” and that it was essentially an expensive membership club that had to be cleared by the Financial Services Authority? Remember I included this meme?
Well it would seem that BrewDog have seen my point – they have announced the first ever BrewDog Bond.
What is it?
I’ve already explained bonds in an article about the Innis & Gunn bond offer, but we’ll recap quickly.
A bond is a loan. You do not own any of the company you buy a bond from, they just owe you money and interest. They set the rate of interest and the period over which they will keep your money (though this period is subject to change).
BrewDog’s bond offer carries 6.5% interest over four years, and each bond costs £500.
So, assuming you’re a basic rate taxpayer, here’s what you’ll be looking at:
After four years, your £500 investment would return you just over £100. That’s fairly decent.
How does it compare to the Innis & Gunn Bond?
The Innis & Gunn Bond offered 7.25% interest. After tax, that would leave you with £116, £12 more than BrewDog.
It’s not a huge amount more, but more it is.
Overall, BrewDog can probably be considered a more successful and therefore more stable company than Innis & Gunn, who are fundraising to afford the first brewery of their own. An investment with BrewDog is therefore slightly less risky than an investment in Innis & Gunn, and with less risk comes less profit.
Again, the risk isn’t massively lower, but the profit difference reflects that.
Why are BrewDog offering a mini-bond?
Aaaaand now we get to the good stuff.
According to Business Insider
BrewDog trumpeted the fact in May that Equity for Punks IV raised £5 million ($7.68 million) in just 20 days. But in Tuesday’s release announcing the launch on Crowdcube the company says it has raised “almost £8 million ($12.2 million) to date.”
Remember, that’s out of the £25million set as the original goal. BrewDog have raised about a third of their target, and the income is slowing to nothing.
Is it surprising? To raise £25million, 263,158 “investors” (assuming all bought the minimum two shares) would have had to buy into the scheme. More than a quarter of a million people would have to join what I described as a membership club.
To put that in perspective, CAMRA have been around since 1971, charge a quarter of the price for membership, offer discounts in a number of different retail outlets, including the UK’s largest chain of pubs, and they only have 170,000 members.
In the recent Labour Party leadership contest, a mad rush of interest saw the party grow to 250,000 members. BrewDog would require a membership base comparable to the largest political party in the country.
So with fundraising stalling, BrewDog must have had to review what they are offering in return for your cash. And they have settled on more cash. In other words, they are now offering a return for your investment.
And if I’m an equity investor?
Put it this way: if you don’t get a dividend after 4 years, I’d be pretty annoyed.
As it is, nothing changes for equity investors. No dividend on the horizon, because all profits are reinvested in the business.
That is all profits that aren’t being paid to bond-holders in interest. And interest is paid twice yearly, so that money will start going out immediately. But not to you.
Bear in mind also that the bond issue must devalue your equity investment given that now, the company has higher debts.
If the move to offer bonds is construed as desperation, then it is surely going to harm your chances of selling your equity on for profit. With the company now holding more liabilities, they cannot be as valuable as before. The only people you would be able to sell to anyway are other equity investors, who knew the original price and – oh look at that – can still buy shares at their original price because two thirds of them are still available, so you are unlikely ever to sell them on for profit. Not a great investment.
So, Bond or Equity?
Bond. Definately bond. BOND BOND BOND. Boooooooooond.
With equity you aren’t paid anything, are down £95 and get discounts.
With the bond you are paid interest and still get discounts.
Is this “the best Scottish Bond since Sean Connery”?
No. Innis & Gunn’s offer was better. About 11.5% better. And it was only a couple of months ago. If you’re going to lie, at least wait until people have forgotten about the other one.