Funding platform Crowdcube targets bigger deals with Mini-Bond launch
Crowdfunding site aims to disrupt retail bonds market with ‘cheaper and simpler’ product for established firms seeking growth finance from customers
Equity crowdfunding platform Crowdcube.com has today launched a Mini-Bond product for more established businesses to raise money from customers and the crowd.
The alternative finance company is targeting a market traditionally served by corporate finance houses and claims it will dramatically reduce the cost and complexity of selling retail bonds, which are unsecured loans, to customers.
In recent years a growing number of established entrepreneurial and larger corporate brands have turned to their customers, securing investment for a set period while paying interest annually on the sum before looking to return the value of the bond when it matures.
Retail brands have also offered incentives, such as vouchers or free products, to reward loyal customers for their support.
Last year Naked Wines issued a ‘Wine Bond’ and raised £3m, paying customers 7% gross interest. Shaving products brand King of Shaves issued ‘Shaving Bonds’ and paid 6% gross interest. Ecotricity issued a £10m ‘Eco Bond’.
Hotel Chocolat, Brewdog, Caxton FX, Leon Restaurant, Good Energy and even John Lewis with a £50m fundraising have also successfully used bonds to raise growth finance.
Research from Capita Registrars predicts the mini-bond industry will be worth £8bn by 2017, rising from just under £90m in 2012.
Crowdcube has launched with Mexican restaurant chain Chilango seeking to raise £1m through the issue of four-year ‘Burrito Bonds’, which pay interest of 8% per annum.
Founded seven years ago by two ex-Skype executives Eric Partaker and Dan Houghton, who were named as Young Guns by Growing Business in 2010, the company is promising free food for those who invest £10,000 or more.
Speaking to Startups.co.uk, Crowdcube.com’s co-founder Luke Lang said the mini-bonds represent a great way for “passionate customers to engage with a company and share in its success” adding that Chilango’s founders view it as a better way to finance growth than returning to the their equity backers.
Aiming to disrupt the mini-bond industry, Lang described the process as “convoluted and disjointed” with businesses typically engaging a number of corporate finance, legal and accountancy experts.
“It was always quite difficult, prohibitive and very expensive with firms charging large fees for what we perceived was not adding great value. As we disrupted equity crowdfunding we thought we'd disrupt mini-bond market,” he told Startups.
“A lot of our skillsets are bringing complex solutions online and making them straightforward.” Lang said upfront fees would typically be “north of £100,000” plus a success fee.
In contrast, Lang said Crowdcube’s are likely to be closer to £30,000 to cover the “creation of the invitation to invest documentation, stress testing the financials to make sure the repayments can be sustained, and promoting the deal”, plus a success fee.
He added that companies using mini-bonds differ from most of those that turn to crowdfunding as they already have a number of years trading, profitability and an established customer base behind them.
Crowdcube has facilitated around £11m worth of deals so far this year, helping to fund close to 50 businesses and Lang said he expects the figure to rise to beyond 100 with £20m to £30m raised via the platform.
Lang added that the business has a pipeline of two or three more mini-bond deals to follow and hopes to promote a steady stream of large deals this year. “We're a pretty ambitious bunch – so our plan is to do several a month within a year or so. We also want to do bigger raises of £10m and north of £20-30m.”