Financing growth: make customers your investors

Many successful businesses start in difficult times. Naked Wines was started one week after the collapse of Lehman Brothers in 2008.

Today, the wine-selling website has more than 200,000 pre-paying customers across the UK, USA and Australia and is delivering profits in excess of £1m.

It is a classic disruptive business. It has challenged the norms of an industry and used the internet both to change the shape of the supply chain and to be its prime marketing channel.

It has also used different techniques to fund its growth, which includes the issue of a retail bond that raised £5m from its own customers at the end of last year.

Eamon Fitzgerald, managing director of Naked Wines UK

Eamon Fitzgerald, managing director of Naked Wines UK

The Naked business model

The idea is that Naked Wines’ customers fund winemakers to make wines exclusively for them. In return they get wholesale prices.

Customers – or “angels” – pay a minimum of £20 per month. This goes toward their future orders and can be spent on wine at any time.

The money – or “investment” – is also used to provide upfront investment into new wine production. This means that Naked Wines can secure great rates from the producers and then pass the savings onto its angel customers.

The company can still make healthy margins on each bottle of wine sold. The markups that were once made throughout the supply chain are now made purely by the makers and by Naked Wines.

It’s better business for everyone, says Eamon Fitzgerald, managing director of Naked Wines.

Currently Naked Wines has 200,000 customers – or “angels” – across the UK, USA and Australia. Although the UK has the largest number (140,000) and this continues to grow, it is in the USA where angel numbers are increasing “at a phenomenal rate.” American customers “have really taken to the model,” says Fitzgerald.

How it is funded 

The company’s initial funding came from a family-owned German wine business that wanted to invest in an internet wine company. WIV invested £3m to get Naked Wines off the ground.

As the number of angels increased, so the cashflow of the business improved. Right now, there are 140,000 UK angels generating approximately £3m per month. The 60,000 angels in the US and Australia invest $40 per month. That can fund a lot of winemaking.

But not enough. There were more opportunities than the cashflow allowed. Naked Wines’ ambitions in the US and Australia meant that further investment was required. In August 2013, $10m was raised from the company’s backers.

Another issue that had to be addressed. Due to its business model, Naked Wines was making – and selling – a larger proportion of young wines i.e. those that took less than a year to get to the customer. But fine wines need time – months, maybe years – lying in barrels or bottles to develop. Maturing wine is an expensive business.

In order to invest in fine wines, the company needed longer-term funding to match their longer working capital cycle. The winemakers had to be funded for a longer period.

In addition, the company was keen to add to its portfolio of winemakers, including those with impeccable fine wine pedigrees. Signing up such top craftsmen would enable Naked Wines to go up a notch in terms of quality.

The Fine Wine Bond

In order to fund this, Naked Wines turned to its customers. “They are our biggest advocates, so we decided to let them make it happen and to benefit from that. Your own customers are your most forgiving investors. They are your nearest and dearest. So if you can make them a compelling offer and give them an amazing return, you can unite a bunch of people behind your business.”

The Naked Wine Fine Wine Bond was offered directly to the public in lots of £500 to £10,000, offering a gross annual return of seven per cent in cash interest (paid yearly) or ten per cent in wine credits (paid quarterly) – over a fixed three-year term. Bondholders also get preferential access to the wines funded by the bond.

The company hoped to to raise at least £1m, expected £3m and set an upper limit of £5m. It was over-subscribed. In four weeks, its customers had offered £6.2m. Two thirds of subscribers opted for the wine credit.

The funds have been put straight to use. One Australian winemaker, Sam Plunkett, has produced a “stunning” Cabernet Sauvignon as a result of being able to keep it longer in the barrel. Deals with some top winemakers have been secured in Australia, the US and Italy.

“We may well use the bond mechanism again. It has been hugely successful.”

Fitzgerald cautions that such self-issued retail bonds are not for every company. Partly, this is down to the product. Investing in wine and winemakers has a strong emotional pull – it’s not just about the rational investment case.

“You must have a cause-based community as your starting point,” concludes Fitzgerald. “If you don’t have that, then you shouldn’t even consider this route.”


Self-issued retail bonds are being used by medium-sized businesses as a form of long-term growth capital. They are still relatively rare in the UK: other recent examples include Ecotricity and King of Shaves.

 To learn more about other sources of finance:

The Business Finance Advice Scheme is run by the three participating accountancy bodies, search their directories to find an expert finance adviser in your local area: