I like investing to be fun. Growing your hard-earned savings shouldn’t come down to just a load of boring old numbers. It’s as much about learning new industries and how the economic world ticks as it is seeking an adequate return on investment.
Last Friday, I talked about starting your own business. I know that may not be for everyone, so today I want to show you an opportunity to invest in someone else’s very successful start-up business, something in the wine industry.
It’s a three-year bond, offering a 7% interest per annum (or 10% if investors are willing to take payment in kind. I’ll explain in a second). I know that 7% isn’t going to spur a mad dash for a chequebook. But nonetheless, that is a pretty good potential return compared to similar investments in the bond market. And anyway, this investment is designed to be a little more interesting than a bog-standard bond.
Not a normal fine wine investment
There are all manner of fine wine funds out there. And I’m wary of these things. Wine investment funds tend to be a victory of marketing over financial opportunity. In those cases, the investment is reliant on the value of a basket of fine wines – effectively, investors are gambling on what the professionals have stashed away in a cellar for them.
But that’s not what I’m talking about today. In this case, it’s a bond paying a fixed amount of interest. The proceeds of the bond (between £3m and £5m) are to be invested in the actual production of wines, not a load of wine sitting in a bonded warehouse somewhere.
Naked Wines was formed five years ago by Rowan Gormley, one of the chaps that co-founded Virgin Money and later Virgin wines.
I first heard of the company while chatting to some friends who are in the wine business in my corner of the Languedoc. Basically, Gormley launched an innovative way of sourcing wine – and a couple of local producers went along with the idea.
The idea is that instead of buying wine after it’s bottled, Naked Wines invests in the wine-grapes before production.
This means vignerons – winemakers – can concentrate on production, and not have to worry about marketing. In fact, in the Languedoc, it’s often the case that the vignerons simply can’t afford to produce premium wines – instead, the grape production is sold into the rather ghastly ‘co-operative’ system to produce sub-standard plonk. Naked Wines reckons that by investing at the production stage, it can obtain discounts of between 40 and 60%.
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The model has worked well, and the business has grown turnover from under £5m in 2009 to £35m last year.
Source: Naked Wines UK
The business model currently allows Naked Wines to invest in next year’s production. But obviously, that limits the business to the young and budget end of the market.
The directors see an opportunity in investing in higher-end wines too. And that’s why they’re set to raise between £3m and £5m through this new bond.
Investors can invest anywhere between £500 and £10,000. The gross interest will be 7% per annum, or 10% if you elect to take wine credits to purchase wine. The term is three years, though investors can hold on to the bonds after that period, continuing to receive the same benefits.
Yes, this could be considered a relatively risky use of funds. After all, this is a new venture, and Naked Wines’ high-growth model could come unstuck. This method of fund raising is pretty much unregulated. That means you are putting your faith in the company and its promises to look after your investment.
Also bear in mind, the bond is not covered by the Financial Services Compensation Scheme, and the bonds aren’t transferable – so you are tied in for three years.
Given the risks, I won’t be ploughing too much cash into these bonds. Don’t invest more than you can afford to lose! And if you opt for the 10% dividend payable in wine credits, don’t invest more than you can drink!
But, on the bright side, Naked Wines has taken some steps to mitigate risk.
A special purpose company has been established to hold the proceeds of the bonds and invest in production. That means the cash and investments are ring-fenced. The proceeds of the bonds will be invested in many winemakers across the globe, thereby diversifying risk. The bond and its interest is guaranteed by Naked Wines, which means that even if things go wrong in the new fine wines business, your cash should be covered by the already successful Naked Wines.
You can download a prospectus of the bond here. The offer remains open until the end of the month.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
Information in The Right Side is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Right Side is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
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