Chilango turns to Crowdcube in an attempt to raise £1m to finance three new restaurants

  • @SAMuston

It is rare that a financial instrument makes your stomach rumble – collateralised debt obligations tasted all wrong, after all – but that seems to be most people's response when they hear about Chilango's Burrito Bond. In an attempt to raise £1m to finance the opening of three new restaurants, the London-based Mexican chain turned to Crowdcube to source the money from its customers.

That's unusual enough in itself, but as well as that, they are also offering some edible sweeteners. Any investment greater than £500 gets you a free burrito (nice enough, you might think) but if you have your eye on the main prize, invest £10,000 and see what happens should the chain prosper. Not only will you get an 8 per cent return on the four-year bond, you will also get a free burrito each week that you remain an investor in the company (equating to roughly £1,352 worth of burritos). Seven days after the bond launched it had already raised £570,000 for the company, which is mainly based around the City of London.

Is this a new paradigm for funding restaurants and cafes then? Ask the customers to stump up for a new place near their house? Certainly, Eric Partaker, a former Skype employee who founded the company with Dan Houghton, thinks so. "We have absolutely sprinted past our target. Restaurants and retailers are in a good place to make use of this sort of funding mechanism because we have frequent, direct contact with our guests so we can connect easily," he says.

In some senses, it is rather a good idea: you raise finance for your business and strengthen your customer base at the same time. Win, win. You also have the comfort of knowing that your investors are unlikely to pull the plug, which perhaps explains why BrewDog, the beard-wearing makers of craft beer, have twice turned to their drinkers for money to finance growth, with their scheme called Equity for Punks.

That said, sometimes that "direct connect" can back-fire. Witness, for instance, the Minnesota couple who, in late May, offered those investing more than $1,000 in their new "brew pub" free beer for life. It seems a bit short-sighted, that one. What happens if the person comes in every day, for example? And also it seems likely to lead to people getting absolutely skirting boarded, which may rather miff off the other punters who are having to pay for their pints of Old Knuckle Cracker, or whatever the pub's brew will be, if and when it opens its doors.

Still, the free-booze pub comes a distant second in the mad stakes when compared to John Burton-Race's 2012 foray into crowdsourcing. In his attempt to set up the world's first interactive restaurant, he asked 8,000 investors to stump up £60 each for the privilege of helping him decide everything from the joint's name, to its location and even what staff to employ and what dishes to serve.

Unsurprisingly, it flopped (though, it must be said, Burton Race has since opened a new restaurant in the capital called The New Angel, which has been fairly well-received).

Perhaps there was something missing – perhaps Mr Burton-Race should have left the light fittings to designers and just offered all the investors a burrito.