Thursday, 8 February 2018

Just how safe are Crowdcube Bond Holders?

Bonds sold on the Crowdcube platform were supposed to be a safer way to earn income than investing in equity. But recent results from 4 of the platform's bond campaigns beg the question - REALLY?

These bonds or mini bonds, are usually for 4 years and offer an annual return of between 7% and 11%. They have been offered by what the platform has described as more established and therefore lower risk companies. 

Well that may be so but results from both River Cottage and The Eden Project show they are way off the course the set with the bond sale documents. Two more recent examples, Daisy Green Foods and Grind and Co are even worse.

Daisy Green Foods had projected profits of £350k but brought in losses of £480,000. A difference of £830k.

Grind and Co had projected profits of £353k and reported losses of £1.4m. They have new growth plans so we will have to wait and see.

Both of these two had missed targets in previous years resulting in a cumulative gap far too wide to be put down to bad luck.

It looks like both will need to raise new cash to continue in 2018. To repay their bond in 2019, they will need a considerable change in fortune and to raise more cash yet again. Grind and Co had raised another £2.4m at the back end of 2017.

What is more alarming generally, is the wilful misrepresentation of projections by all 4 of these companies. To be so far out in terms of their plans suggests either crass management or some dodgy dealing. Take your pick - neither inspire much faith in their abilities to run a successful company.

1 comment:

  1. Financing Start-ups with anything other than equity, or similar early growth companies, is just complete and utter madness from an investors point of view, and probably cheap, but a burden for the company. So lets just consider the rating; are they AAA,,,,nope, anything below BBB is junk, but these are not even junk,,,,these are ZZZ. Anyone that invests in this worthless paper to get 10% per year for 3 years is completey MAD. and with CC, coverage ratios are probably calculated against forecast forward revenues, which as we know,,,,are not very reliable. It is just completely non senensical.

    Now there are alot of these mini bonds being punted about and I can tell you that these pay 20% commission to the broker (not sure what CC is paid), by my calculations a minibond paying 20% comm and 10% per annum, redemption at par after 3 years, costs the company 19% per year in interest to build back the principal to par and pay the investor his coupon - again unsustainable. I mean all this looks great on paper (10% per annum) from a regulated counterparty like CC, but its complete madness, it doesn't work.

    To lend to a mini bond I would want 100% per year, but they would never make their first payment, so this doesn't work either.

    Investors have got more chance gambling on the horses, or making money from a new car or boat.

    It is criminal, all that money just washing away