The good news is that the investment market today is the most varied and open it has ever been. But with greater choice comes confusion and, in some cases, increased risk.
The alternative investment market can be an overwhelming and a tricky environment to navigate. There are simple solutions. One that has gathered interest and demonstrated success in recent years is that of the retail bond, which allows your customers and supporters to directly back your growth.
Retail bonds differ from typical bonds, because they are placed on the retail market and are made available to the general public for purchase. They are a quick, simple and can unlock significant amounts of finance.
In 2011, I was seeking £3m to grow my foreign currency exchange business, Caxton FX. We had reached a point at which we were on the cusp of a growth period but needed the investment to make it happen.
I chose to issue a retail bond, in which investors had the option of lending the company between £2,000 and £50,0000 for four years, in return for a 7.25% annual interest rate. It was a success: we raised the target of £3m and used it to transform the business.
Over the last three years, that funding has been instrumental to Caxton FX increasing our annual turnover by 85% to circa £750 million a year, increasing annual profits by 54%, expanding our customer base to over 200,000 and extending its team of employees by 56%.
There are also intangible benefits. By getting already loyal supporters and customers to invest in your business, you are strengthening relationships in a way that will hopefully benefit your businesses growth in more ways than one.
This September, with customer satisfaction at an all time high and plans for further international expansion, we issued a second bond, raising £5m in just two weeks. 75% of the original bond investors chose to roll over into Caxton FX Bond:2 – a humbling demonstration of their support in the future of the business and their satisfaction with the original returns on the first bond.
I had forayed into what was, in 2011, a relatively untried and obscure source of external funding, successfully road-tested by only a handful of small businesses like Hotel Chocolat and King of Shaves. It was mooted as a risky route as it was less regulated than the alternatives; however, as the model becomes tried and tested, businesses are increasingly waking up to the advantages.
Getting such a large amount of investment in a short space of time is an extraordinary example of the momentum behind alternative finance. Small businesses and start-ups, who put their customers at the heart of what they do and offer a service or product their customers admire, can leverage this opportunity to develop their company whilst rewarding their customers’ show of faith.
The rise of alternative finance options, including crowdfunding, peer-to-peer lending and retail bonds, has irrevocably changed the funding landscape. Unlike bank loans, the providers already know and trust the retailer and, unlike venture capital, the business’ vision can live on without having to satisfy the demands of a single investor or a syndicate with an agenda.
For small and personal businesses, customer bonds offer a unique proposition that more startups should consider.
Find out more about Caxton FX, the foreign exchange and international payments provider, here.