Playing by New Rules: Finance & Private Jets
Bonds are typically unheard of for new companies so what makes SuperFly Jets, currently a new private jet price comparison and booking website, think that there is a bond market for startups?
SuperFlyJets.com is a new online price-comparison platform the compares prices from different private jets for any itinerary and also sells empty seats on jets that are returning to base after dropping passengers off. Travelers can click and book a flight instantly at preferential rates. It decided early on not to approach banks even though bank loans are generally cheaper than bonds. Crowdfunding was not considered a good image to fit a business with such a high net-worth client demographic and it had previously considered equity financing but could not agree terms.
“We had offers from investors but we felt that they were asking for too much equity,” says Lauren, operations director at SuperFly Jets. “My colleague ended one meeting by accusing our potential investor of watching ‘too much Dragon’s Den’! You could have cut the atmosphere with a knife.”
Although there is no upper limit with the SuperFly Bonds you will need to invest at least £1,000 to qualify. “SuperFly Jets’ commitment to strengthen the relationship with our passengers goes hand-in-hand with our strategy to diversify and maximize our finance options,” says Lauren. “We are also singing up to the UK government’s Seed Enterprise Investment Scheme (SEIS) which offers great tax efficient benefits to individuals while also encouraging investing in small and early stage startups. SEIS investors can receive up to 50% tax relief in the tax year the investment is made, regardless of their marginal rate. This is a new era of capital and using all the tools at our disposal to attract the investment required can make the difference between building a successful brand or a company that sinks into oblivion."
The increasingly accepted method of mini bonds has been utilized by well-known companies, ranging from success stories such as chocolatier Hotel Chocolat and online boutique hotel booking firm Mr & Mrs Smith to the prestigious super-retailer John Lewis.
When Mr & Mrs smith raised £2.5m in investment in 2012 by inviting members to buy bonds in the company with a 9.5% rate of interest in hotel stay credits or 7.5 per cent in cash the analysts advised investors to stay well away.
"It has been the best thing we've ever done," says James Lohan who co-founded Mr & Mrs Smith with his wife, Tamara. “We raised a couple of million pounds, and we’d definitely do it again if we ever needed to. It’s a brilliant scheme if you can get customers to invest and help you grow the company, and it gives you a fantastic return. It’s more affordable money than we can get out there on the open market, and definitely better than what you can get out of banks. What was lovely was that around 40% of people who took up the retail bond took it in holiday money, so they became really loyal fans of the business.”
The obvious difference between Mr & Mrs smith and a young company such as SuperFly jets is that the latter is not an established business with a track record and yet offers a higher rate of return. “We’re a much younger business and the rate of return reflects the risk. SuperFly has evolved from a simple off-the-radar service that has evolved and was reborn as SuperFly Jets. The world doesn't necessarily need another private jet business but our strengths, technology and uniqueness will be proudly shown off on the SuperFly Bond prospectus. It’s a bit of a cliché but yes we are different and yes we’re going to be the best,” says Sam, a partner at SuperFly Jets.
SuperFly is tapping into its growing rich client base, members of the upper stratosphere of the private wealth universe, to provide growth capital as well as encouraging loyalty with a ‘we’re all in it together’ attitude. “It’s like incestuous crowdfunding but through your own crowd,” says Sam. SuperFly’s expansion plans include leasing Cessna Citation Jets, relocating to an airport, opening overseas offices and also developing a sister brand.
Leveraging the power of customers to fund businesses are becoming a popular way raise funds, particularly at a time when banks are not willingly lending. This enthusiasm is being matched by keen investors who are seeking alternatives to conventional low return products.
The big advantage of retail bonds is their flexibility. Subject to certain regulations companies can define the terms of their retail bonds such as the repayment date, the interest rate, and even whether the interest is paid in cash or by way of other currencies such as SuperFly’s loyalty money.
The SuperFly Bond will most likely appeal those who use SuperFly’s services because any bondholders who opt for their interest in loyalty money will be able to use this money towards private air travel, boosting investor return by 2 per cent to 13.5% annually.
But Sam confesses, “The SuperFly Bond issue isn't all about raising capital. It’s also a sassy marketing strategy designed to target existing and future customers by interacting and cultivating loyalty and there’s column inches to be had or you wouldn't be reading this and finding out about us. Some of the sums invested by individuals will be small but the mutual long-term benefits can be significant. We’re thrilled about being able to make that direct connection with our passengers whilst enabling them to engage with SuperFly and our future plans so they can play a part in our growth and profit from our success."
Savers looking for inflation-beating returns should be aware that these types of bonds are considered high risk. They are unsecured and there is no government protection if the company goes bust as they are not covered by any compensation scheme. Investors cannot cash in their bonds before the term expires either so it won't be ideal for those seeking liquidity.
“We know from the cold reception that bond issues of some established brands received from the city that we are in for some criticism. After all, we’re cutting out a lot of the middlemen whose bread and butter are the fees they earn when companies raise capital. However just as some of the earlier bond pioneers proved to be good investments we know that SuperFly will follow suit,” says John. “Perhaps we’re not going to see a bond market for startups anytime soon but I believe there’s a need in the market for profitable, dynamic startups to be able raise collateral-free financing."
The plot thickens. Crowdfunding has now entered the mini-bond market with two UK restaurant chains issuing bonds in the past week for first time ever through a crowdfunding platform. Chilango, a Mexican restaurant chain is looking to raise up to £3 million. River Cottage, a restaurant chain founded by Hugh Fearnley-Whittingstall, the celebrity chef, also just crowdfunded a £1 million bond through Crowdcube which has 75,000 registered users.
Are we witnessing the dawn of a new era of capital financing for startups and SMEs? According to Capita Registrars the mini-bond industry is expected to be worth £8 billion by 2017 which is remarkable given that the figure was only £90 million in 2012. In an economy where cash is still hard to get hold of, time will tell if the SuperFly Bond was a shrewd move.
For information on the SuperFly Bond visit www.superflyjets.com/bond