Move over banks – retail bonds are a must for raising capital

Move over banks – retail bonds are a must for raising capital

Author: Rupert Lee-Browne

In this guest article Rupert Lee-Browne, founder and CEO of Caxton FX, explains the ins and outs of retail bonds and how these can be used to raise working capital for your business.

Caxton FX started life as a one-man enterprise, armed solely with a phone, £25,000 and the desire to achieve. Ten years on, the company has grown at an impressive rate, employing more than 60 people, with an annual turnover of over £550m.

Over the years, development has been steady and, while every growing business needs working capital, the business thankfully did not need extra funding. However, at the beginning of 2011, we recognised that, if Caxton FX was going to expand further, additional liquidity would be needed.

There were several options on the table, including borrowing money from a bank, selling equity to external investors, possibly through an IPO. Or simply do nothing.
These were all sensible options in their own right but the board felt that they would be detrimental to the business. We, therefore, began to look at alternatives.
I had thought that Caxton FX could possibly raise money through some sort of bond issue and, while this was an innovative suggestion, we were unsure about how this could be achieved. So, we sought advice from several city experts and financiers who all advised against this route, leaving us a little deflated.

Luck was on our side, however, since I bumped into an old business contact who told me that he had gone through exactly the same experience. His solution: to raise capital through launching a ‘retail bond’.

The idea behind issuing a retail bond is simple. Ask a wide range of investors if they would lend a small sum to the company for a set period with a fixed interest rate. They get regular interest payments and, on top of that, at the end of the period, they get their original sum back.

What made the bond really attractive to Caxton FX was that we were able to set the terms of the investment agreement and it was up to the market to accept or reject those terms.

There is no sacrifice of control, which is a risk when you sell equity or secure a bank loan, and, in the long term, a successful bond scheme would also be a clear demonstration of our ability to borrow money and repay our investors – all good for our brand reputation.

We were confident about turning to the people we trust most and those who already trust us with their money – our customers. However, we also knew that we would need to turn to the wider public to ensure a successful launch.

Introducing the bond was a relatively smooth process when it came to talking to solicitors and accountants, as well as making sure we had the right systems in place.
The tactical challenge came in deciding exactly what to offer investors. We decided on a minimum of £2,000 and maximum of £50,000 investment, offering a 7.25% coupon (interest rate) paid every six months.

Since retail bonds are a regulated product, we had to issue a bond offer document and every fact needed to be verified. The document is deemed to be a financial promotion, and so investors needed to be assured that they were not being misled on any of the facts or implications of their investment.

Our initial marketing was to our clientbase of over 200,000. We then followed this with a sophisticated PR and advertising campaign in the national press, such as the Financial Times and The Daily Telegraph.

We kept the bond offer open for six weeks, which we felt that, after extensive modelling, would give sufficient opportunity to raise the upper target of £4m. As it happened, we were very close with our predictions since, by the time the offer closed, we had a shade under £4m of online applications.

Raising money through a retail bond has allowed Caxton FX to put into place new structures in order to expand our operations. But, more importantly, these developments have meant we have boosted growth. Just what it’s all about.

With the UK economy crying out for growth, SMEs will undoubtedly be the primary driver. Given the distinct lack of bank lending, it is vital for alternative financing solutions to emerge, giving good value to investors and much-needed working funds to SMEs.

All in all, retail bonds are a great way to raise working capital with minimal costs and I thoroughly recommend this scheme to fast-growing SMEs with a good brand, as well as to companies with a large and loyal client base.

Rupert Lee-Browne, Founder and CEO, Caxton FX, Tel: 0207 201 0515


By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Smith & Williamson LLP

Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

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