The use of mini bonds has been pioneered by the likes of Hotel Chocolat, King of Shaves and John Lewis. Businesses sell mini-bonds to investors who then receive interest of a certain cent per annum until the bond expires, at which point the original investment is repaid in full.
The bonds are unsecured non-convertible and non-transferable – which means they cannot be traded on a bond market. Capita Registrars estimates the UK mini-bond market will be worth £8bn by 2017, from just £90m in 2012.
The advantage it offers is allowing businesses to engage more deeply with their customer base and give them something substantial in return, without having to give away equity.
Whilst businesses who have used this type of funding in the past have had to engage a range of advisers and created the means for distributing the bond themselves, Crowdcube has the architecture in place to carry out the whole process.
The costs are replaced by a percentage success-based fee and the process is already regulated by the FCA along the same lines as equity crowdfunding.
Crowdcube co-founder and CMO Luke Lang told Real Business that the new bonds are mainly aimed at more established businesses than equity crowdfunding.
He said: “Typically they’re raising larger sums of money, so the minimum mini-bond that we would do would be for £1m. The companies will be growth businesses trading for a number of years, they will be profitable and able to service the debt.”
The mini-bonds will be delivered through Crowdcube’s platform in much the same way that it delivers equity crowdfunding pitches.
Lang added: “We felt that we could adopt many of the philosophies and principles behind how we’ve managed to disrupt angel investing in the UK in terms of making it more accessible, user-friendly and affordable, and apply those same principles to the mini bond market.”
The first business to take advantage of the offer will be Chilango, a London-based chain of Mexican restaurants which is backed by the CEO and CFO of Carluccio’s, the CEO of Krispy Kreme UK and the former MD of Jamie Oliver International.
Its “Burrito Bond” will offer investors 8 per cent interest per annum over its 4-year term as well as free burritos and bigger bonuses for those who get in quick or invest more than £10,000. The firm hopes to raise between £1m and £3m.
Chilango co-founder Eric Partaker said: “Our Burrito Bond is the perfect way for us to engage with our loyal following as well as Crowdcube’s investor base and accelerate our expansion plans with additional growth capital.
“As big fans of Mexican food we love everything that is vibrant, fresh and fun and Crowdcube is all of these.”
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