Considering that a three-percent return on common bonds is seen as high, there is no reason to doubt why individual investors are flooding to seven-percent return rates provided by mini-bonds. A rapidly growing number of well-established companies in the UK that are raising growth capital are looking to the public for sources of finance, and skipping the banks. Within a matter of a few weeks, companies have been able to borrow millions, at a rate much less than that offered by banks. However, due to the nature of the mini-bonds, many questions are starting to arise with this new ‘hot’ form of ‘easy’ financing. Is the high risk worth the high return? Is the individual investor protected enough?
Mini-bonds: worth the risk?
“The Stoneage didn’t end because we ran out of stones” Al Gore
The Oxford English Dictionary defines crowdfunding as “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet”. The crowdfunding industry is evolving and rapidly dispersing across many areas of finance, and institutional investors starting to enter the market. (That actually resulted in the adoption of the term “institutional crowdfunding”).
“Nothing is as powerful as an idea whose time has come” Victor Hugo
When analysing the crowdfunding market it is typically broken down into four main categories such as donation, reward, debt and equity. Securities crowdfunding, which is the generic clause for debt and equity crowdfunding, is sometimes also called crowdfund investing or crowdfinance. As argued in a previous post, crowdfunding is not a new asset class; it is rather a new conduit for financial flows which dis-intermediates the supply chain of capital allocation, and provides efficiency and transparency in the investment process, enabling investor and issuer to interact in better and more productive ways. In addition it reduces the search cost for the investor and allows for a high degree of risk diversification.