The Crowdcube Mini-Bond has been created to take the pain and cost out of raising finance for established businesses. It brings retail bonds to the online investor universe by tapping into the rapidly evolving crowdfunding audience, at the same time as enabling issuers to access finance from a crowd of registered investors, as well as their own customer base and the general public.
The first company to use this new service is the London-based, Mexican restaurant chain Chilango. Founded by two ex-Skype executives in 2007, Chilango’s Burrito Bond TM aims to raise up to £1 million to fund expansion and offers investors 8% interest per annum over the four year term of the mini-bond. A variety of benefits are also in store for bondholders, including: two free burrito vouchers to all those that invest, a VIP bondholder party to the first 100 to purchase a Burrito Bond, and those that invest £10,000 or more will be entitled to free food for the duration of the bond.
A mini, or retail bond is an unlisted bond usually issued by companies directly to their customers and the general public. John Lewis, The Jockey Club, Hotel Chocolat, Ecotricity and Good Energy are some of the well-known UK brands that have successfully issued mini-bonds. Capita Registrars estimate that the value of the mini-bond industry will rise to £8 billion by 2017 (from just under £90 million in 2012). Crowdcube’s Bond team have advised on many of these mini-bonds and are responsible for over half of the total funds generated by mini-bonds in the UK.
Until now launching a mini-bond has been a time-consuming and expensive process where each bond was created bespoke for every issuer. Issuers had to contract financial advisers, lawyers, tax advisers, FCA authorised compliance advisers, receiving agents, registrars and marketing partners to help to distribute the bond and could easily rack up upfront advisory fees well in excess of £100,000, making this fundraising route prohibitive for most SMEs.
Crowdcube’s mini-bond simplifies the process, reducing these high upfront cash costs with a percentage success-based fee and it is already authorised by the FCA. This unique new approach takes a lot of the pain, cost and time out of the process, helping more SMEs to bring their fundraising to market much faster.
Crowdcube’s 73,000 registered members provide a ready-made investor audience in addition to the issuers’ own customer bases and the general public. Investors in bonds receive a regular fixed rate of cash interest. Bondholders may also receive additional benefits (dependent on the issuer) such as discount vouchers, access to loyalty and other privilege schemes.
Luke Lang, co-founder of Crowdcube says: “Just as we revolutionised equity investment, we are now turning the mini-bond market on its head by taking away the complexity and costs for businesses who want to raise growth capital and cut out the banks, at the same time as presenting a unique way to engage with their customers, encouraging loyalty from existing customers and attracting new people to their brand. For customers and investors, the opportunity to invest in companies they already know, and want to support, as well as receive a regular financial return on their investment, is appealing.”
Chilango’s co-founder, Eric Partaker is enthusiastic about the offer: “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. Its mini-bond platform is a breath of fresh air amongst the complexity and expense of existing solutions.”