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?
While the cost to purchase Goldsmith membership yearly is £400, the cost incurred to Mrandmrssmith won't be that. It appears to me you can't claim it back as credit on future trips, it only provides additional benefits.
ReplyDelete"GoldSmith membership gives you:
A dedicated travel concierge When you book a trip through Smith, we can arrange the added extras for you, from restaurants and theatre tickets to guest lists and personal shoppers
Room upgrades Whenever possible in all participating Smith hotels
Priority Pass Free standard membership for one year, which gives you discounted access to more than 600 airport lounges around the world (RRP £69)
Money back on every stay We’ll deposit three per cent of all bookings into your loyalty account for use on future trips
Priority booking on Smith Exclusives Our best offers will be available to you 48 hours before BlackSmiths and 24 hours before SilverSmiths
Half-price hotels Get 50 per cent off every month at selected new additions to our collection
Eligibility for the invitation-only Avis President's Club Up to 35 per cent off standard car hire, a two-category upgrade and VIP service including fast-track check in
Smith Extras A free gift when you check in at any hotel booked through Smith, such as bottles of champagne, spa treatments and picnic lunches
No credit card charges or booking fees and cancellation policies that mirror those of the hotel
Smith24 Round-the-clock access to our expert in-house travel team
GoldSmith membership card that we’ll send you in the post"
Maybe they shouldnt state its worth £400 if its not? That is miss selling?
DeleteI don't think anyone in their right mind would pay the £400 for membership, in fact I could barely find it on their website (it's under gift cards). It's more like a voodoo value and the real cost to them only a tiny fraction.
ReplyDeleteRob, I'm not sure if they've updated the rewards since you posted but it looks like for the £25k investment level they're offering membership to their Goldsmith loyalty program (£400 p.a. value in their shop) - not £400 credit per year. The Goldsmith program's key offering is VIP treatment plus 3% of spend credited back as a loyalty bonus. I suspect that program, on average, costs them something but probably not £400 per Goldsmith member. That, of course, may well change so I'd still agree with your premise which is it could be a very good deal for a regular punter of theirs (and a bad deal for them!)
ReplyDeleteIsnt claiming it is worth £400 when its not miss selling?
DeleteYou've calculated the potential costs based on maximum take-up and annual use - Which is a reasonable calculation to make and something the company should understand and be able to manage. However, within marketing there are pretty robust models showing the actual take-up of offers, based on age of consumer, affluence, value of offer, etc. Unless an offer is off the scale generous (and everyone always cites Hoover's free flights offer in the early 90s) then no matter your other variables, it's a minority of consumers that will ever maximise the value of the offer. In short then, the company can be very confident of overall take-up being way lower than the potential maximum take up.
ReplyDeleteGood point. But this isnt an offer - it's membership of a club forever. Its an attempt to tie you into the brand rather then sell more (hoovers). In any case its a great deal for investors who wish to use the club and what the Smiths offer. Im struggling to find another reason for investing in this debt laden company with such a high valuation.
DeleteRegarding the 'value of the membership - this raises interesting Qs. One assumes that people paying £400 pa to be a member, are expecting to get at least £400 of value out of it. You could argue that for the company the additional commitment of these members to the brand, is worth some kind of premium - so the costs to the company of offering the club extras may in fact be higher than £400. We dont know but I dont think we can assume it's not costing £400.
ReplyDeleteAddiotnally - looking at what the club offers - 3% discount on all transactions and no credit card card or booking fees. So for example you spend £20k on two holidays pa - that is a saving (or costs to them) of £600 plus the cc fees etc. Ok so this is tied back into spending more with the company but it will impact the bottom line.
ReplyDeleteI think one important point when I look at these kind of rewards is that the company might well be gone in 2-3 years and your reward is worth nothing then
ReplyDeleteWhat I don't get is how they are eligible for EIS. They have been around way more than seven years...
ReplyDeleteMaybe this is part of an existing round that dates back or maybe the product is new? Either way EIS is self regulated at this stage and there are many companies who have had 'advanced assurance' that may, if they ever sold for squillions, get an inspection from HMRC and all investors would have to return their relief with interest.
ReplyDeleteA round that's been going about ten years? I doubt that. Also how would a new product affect shares? It's the same company (isn't it?).
DeleteSurely HMRC issuing an EIS3 counts as more than "advance assurance", especially given the time they take to process.
The EIS3 is merely the paperwork obtained from the platform - it is still basd on self assessment as far as I know. Launchign a new product into a new market can make a business older than 7 years (trading) EIS eligible. The simple reason for the time taken to issue EIS3s is the lack of staff at FCA - there is a large backlog. this has been exaggerated by the number of new applications form ECF platforms.
DeleteWhy would it take a long time at HMRC (not FCA!) if they are not checking anything themselves? Are you saying they don't even have enough staff to send out piles of blank forms to Crowdcube?
DeleteYes its HMRC not FCA - apologies. No idea why it takes them so long. Red tape?
DeleteYes - that's my point. The red tape must be to ensure that the company is eligible...?
DeleteI dont believe so - its a just box ticking exercise that takes time. Im told by reliable sources that the self assessment status remains until such time as the company closes or is sold/IPOs etc at which stage HMRC may choose to take a closer look. That's when some of these marginal cases may get a surprise. Of course the ECF platfroms never talk about this - its unhelpful for their cash flow, which is bad enough already.
DeleteThankѕ for finally talkkng about >"Mr and Mrs Smth offering massive rewards to achieve funding on Crowdcube - is that good business?" <Loved it!
ReplyDeleteRead the fine print - the £400 per year is for the life of the investment.
ReplyDeletePlanned exit (end of the life of this investment) is in 3-5 years...
The cost of the reward represents nothing more than a small hit to its margins (like all marketing expenditure) -- well worth it if it buys customer loyalty and increases sales. It'll also represent a very small proportion of it's overall bookings. My bigger concerns would be a) it has a really limited range of hotels on offer and is going to launch in the US before you can even use their offering to book a hotel in Lyon (arguably the food capital of France); and b) you'd be hard pressed to find M&MS meet all of your varied holiday requirements, especially if you ski/have family of children etc. It's offering is still mainly geared at the posh dirty weekend!
ReplyDelete