Friday, 1 August 2014

CAN CROWDFUNDING AND MINI BONDS WORK IN HARMONY

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.

CAN CROWDFUNDING AND MINI BONDS WORK IN HARMONY

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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