The Mr and Mrs Crowdcube campaign is massive success - £4m raised on day one - most of it in private mode. So what about these rewards?
This campaign is offering all serious investors a 4% discount on spending as a minimum. But if you choose to invest £25k you get a load more. You get your £1000 off the next holiday (the 4%) but in addition you get a permanent discount of £400 pa forever. So lets assume you are a healthy 30 yo and you live to be 85 and go on hols each year (well at least one), then you might expect to get £400 X 55 years as a discount - or £22000. Plus the £1000 that makes £23000 of the £25k you invested. Lost opportunity costs and lack of ROI aside, that is some deal. And of course its not cash - its a discount against expenditure with Smith. But it's still a great deal.
It begs the Q, how is the company going to make a real ROI when it is handing back so much cash - are margins that great and if they are, it would suggest room for undercutting by competitors. And of course there is always the consideration that if the company were to fold, this would disappear.
And then on top of all of this - you get 30% of your investment back via EIS. So in effect a £25k investment now will give you a one off £1000 rebate against your next Smith outing, £7500 off your income tax bill, and £400 pa forever against future Smith outings. The usual vague warning about rewards valued over £1000 and EIS relief is issued. Beware.
So if the total number of £25k investments reaches say 100, it will cost Smith £100k initially and then £40k a year to service. Over 3 years that's £220k. At 8% you could borrow ~£1m for that, retain equity and lose the £40k pa liability. Isnt that a little crazy as a business proposition?
It is little wonder that their 1.5m million members have backed them - well some of them have. 1200 investors on board for £4m suggesting nearly all have taken up the £2500 or better. Or maybe the 1.5m is inclusive of a chunk of not so active members?