Investors’ Appetite For Mini-Bonds Knows No Bounds

by Jun 29, 2015Intermediary Tips, Investment Tips, Small Business Tips & Advice

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We’ll all be seeing far more mini-bonds in the coming months and in an ever greater range of areas.

Mini-bond funding successes: Hambledon and Innis & Gunn

When we at CODE Investing started to think about venturing into mini-bonds, I knew we needed a strong, stand-out business for our first deal. Hambledon Vineyard delivered in every sense. Our first ever mini-bond for the award-winning English sparkling wine producer was obviously attractive and the issue was a phenomenal success, quickly raising £3.5 million.

Investors were no doubt drawn to the secured bond not only because it offered them an eight per cent return in cash per annum. It also offered investors the chance to convert their investment into equity at maturity. But in addition to this, investors receive bottles of fizz each year to toast their – and Hambledon’s – success.

I believe this is just the tip of the iceberg in terms of what these bonds can achieve for Britain’s businesses and investors. In my opinion, the attraction for people looking to invest is obvious when one considers the risible rates currently afforded by conventional savings.

Many say they enjoy feeling genuinely engaged with the companies involved. The companies themselves are persuaded to fundraise in this way by the lower fees involved, the impressive range of investors available through platforms like ours, and the rigour we apply to the investment process.

There are plenty of other businesses keen to take up the mini-bond opportunity. Next up is the LMSL Group. The family-owned firm has recognised how London’s centre of gravity has been shifting eastwards for some time. As a result, it now owns more than 400 rental properties in the East of the city, generating over £2.7 million in rent annually.

Next month we’re issuing its Mini-Bond, a five-year, fixed-term bond with a value of up to £10 million. Interest is accrued at ten per cent gross per annum, payable in cash monthly, giving investors a regular income stream. Plus, the bond is secured against LMSL’s current development of Grade II-listed Barking Magistrates’ Court into 37 stylish homes for tenants.

Then, there’s the “BeerBond” issue by Scottish brewers Innis & Gunn. For a minimum investment of £500, investors will receive cash interest at 7.25 per cent annually for at least a four-year fixed term. CODE Investing is now helping it to get the £3 million total needed to build a new brewery, bottling line and barrel store under one roof in South-East Scotland.

I’m pleased to say we’ll have yet more secured bonds to announce later in the summer, too. Many of the companies involved have big ambitions both for business growth, and the sums they intend to raise.

Mini-bonds are proving themselves applicable to so many varied and interesting companies. Sports venues, brewers, restaurateurs – even that British stalwart John Lewis – have recognised the merit of borrowing directly from investors. It’s got the big institutions genuinely rattled – and rightly so.

Some are warning of the risk involved in investing this way and that naive investors will inevitably lose out. Investment is a risky business by definition, but that’s why we describe our bonds fairly, thoroughly and clearly; as the regulator recommends, so the public understands the nature of the investment and that their money is tied in until maturity. Other established City firms are more savvy and I know some are looking at ways of getting in on the peer-to-peer act. Good luck to them, I say.

In my mind one thing’s for sure, we’ll all be seeing far more mini-bonds in the coming months and years, and in an ever greater range of areas and industries. The joy is the public can have a material role in the growth of these great British businesses. As Hambledon’s owner Ian Kellett said: “Crowdfunding our mini-bond has been really important to us so that we might share our journey with as many people as we can.”  I’ll happily raise a glass to that.

Ayan Mitra is Chief Executive Officer at CODE Investing, the London-based alternative finance investment platform.

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Risk Warning

Investing in early stage businesses involves risks, including illiquidity, lack of dividends, loss of your investment and dilution and it should be done only as part of a diversified portfolio. CODE Investing Limited is targeted exclusively at investors who are sufficiently sophisticated, or who are judged by CODE Investing Limited otherwise to be appropriate, to understand these risks and make their own investment decisions. You will only be able to invest with CODE Investing Limited once you are registered as sufficiently sophisticated or otherwise appropriate for these types of investment. Investors via CODE investing are not protected from loss by the Financial Services Compensation Scheme against the Company’s default or for any losses they may suffer. Please read the full risk warning for more information. This page has been approved as a financial promotion by CODE Investing Limited, which is authorised and regulated by the Financial Conduct Authority. Investments can only be made on the basis of information provided in the pitches by the companies concerned. CODE Investing Limited takes no responsibility for this information or for any recommendation or opinions provided by the companies.

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