The mini-bond market is set to boom,
according to figures from Capita Registrars, which suggest it could grow
to £1 billion this year and to a staggering £8 billion over the next
five years, as investors increasingly look to put their money into them.
Mini bonds are becoming especially
popular with growth companies, as well as more established brands, as a
way of securing growth finance without having to go to the banks. They
give customers the opportunity to give something back by investing in
their favourite brands, while securing their future growth and success.
Hotel Chocolat, one example of a company
that has used mini bonds to great effect, raised money to expand its
farm in the Caribbean and its range in its shops, and when the Jockey
Club needed funds, it launched a bond, raising almost £25m – far
exceeding its initial target of £15m.
Mini-bonds tend to attract passionate
customers who want to share in a company’s success. This was evident
recently when London-based Mexican restaurant chain, Chilango, decided
to expand its restaurants but needed the money to do so. The company
launched a mini-bond, called the Burrito Bond, through Crowdcube, which
went on to become the first crowdfunded mini-bond – combining mini bonds
with crowdfunding – to raise £1m.
Hugh Fearnley-Whittingstall’s River
Cottage has also just raised £1m on the Crowdcube site via its River
Cottage Bond. Mini-bold holders also get money off at River Cottage’s
three Canteens in Axminster, Bristol and Plymouth and free River Cottage
membership, while Chilango’s investors get free burrito vouchers or a
free Burrito every week for the life of the bond for anyone investing
£10,000+.
Crowdfunded mini-bonds allow ordinary
investors to buy into a business for as little as £500. But as with any
investment, it is not a guaranteed return. Mini-bonds are unsecured,
non-convertible, non-transferable and do carry risk. But with Chilango,
for example, investors earn 8% interest a year over a four-year
period. With most banks paying interest of less than 2%, you can see
why some people have chosen to invest in mini-bonds.
For businesses as diverse as household
names like John Lewis to boutique hotel chain, Mr & Mrs Smith,
mini-bonds are an even more attractive option. Banks can be an
expensive way of raising capital and often come with strings attached.
They enable a company to take control and give something back to
customers in terms of interest payments.
When Crowdcube and Chilango launched the
Burrito Bond, we looked closely at the market and how mini-bonds and
retail bonds were done. We realised that it was a fairly convoluted and
disjointed process, which involves corporate finance, lawyers and
accountancy firms. It seemed prohibitive and expensive, with firms
charging large fees but not necessarily adding a lot of value.
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