The Innis & Gunn BeerBond: will debt-based crowdfunding catch on?
The Innis & Gunn BeerBond seems to have hit a note with investors with the brewery announcing that it has raised £2.5 million with its crowdfunded beer bond. Innis & Gunn launched the funding drive at the end of April seeking to raise £3 million to build a new brewery. Whilst crowdfunding is seemingly all the rage for craft breweries with ambition Innis & Gunn have taken a different route. Rather than offering shares in the business they’re borrowing money.
Is this the start of a trend in crowdfunding? And is this a smart move from the brewery?
What exactly is the Innis & Gunn BeerBond?
Despite the fancy name the scheme is raising finance via debt. In other words, if you invest in the Innis & Gunn BeerBond you’ll be lending the brewery money. There are two bonds on offer. The cash beer bond offers a gross interest rate of 7.25% per annum with a minimum investment (loan) of £500.
The second option is for interest to be paid in BeerBucks redeemable via the Innis & Gunn online store. Lenders who go for this option will be paid interest at 9.00% gross per annum. As with any crowdfunding scheme there’s plenty of risks and there’s no shortage of views on this type of bond from investment sites and the craft beer community.
The company will no doubt have thought long and hard about all the finance options available both from traditional sources and newer channels such as peer-to-peer & crowdfunding. Without being party to those conversations it’s difficult for commentators to judge the financial soundness of the scheme. From the business’ perspective however, this is potentially a smart move. Here’s why.
Standout from the crowd
Raising funds via debt is more expensive for the business. BrewDog and Camden Town took the equity route offering shares in the business. There’s some justified cynicism about these schemes with questions being asked of the returns likely to be earned. Innis & Gunn’s bond offers a fixed return at a good rate of interest. Incurring debt costs will no doubt keep management focused on growth.
It’s definitely a more grown up approach that avoids the hype and often optimistic (at best) valuations around equity based schemes. There’s also a PR benefit from this. It’s not just another equity scheme there’s something different which will ensure ongoing media interest. It may also attract other investors into the scheme who are perhaps more cynical about returns via dividends and shares in unlisted companies.
The BeerBucks option is also a very smart move. Critics suggest that these brewery funding schemes attract loyal fans (as opposed to serious investors) and Innis & Gunn’s BeerBond is likely to appeal to brand advocates. There’s nothing wrong with this provided investors lend with an understanding of the risks in mind.
The clever aspect is offering beer at 9.00% creating great perceived value. It costs far less to service this debt as the production cost of the beer is far lower than the retail price. Innis & Gunn could, depending on the proportion between cash and beer get access to the £3 million at a lower cost. That’s good for investors because it means less spent servicing the debt and more invested in growing the business.
The Innis & Gunn BeerBond is certainly different and a more serious choice for the brewery. It incurs costs but that’s no bad thing as it means the business will have to work harder to deliver its growth. It might also encourage other businesses looking at crowdfunding to consider alternative methods to equity based finance.