Debt and equity are two sides of the same financing coin. Equity ownership can drive capital gains over time but sometimes you want to invest while shouldering a bit less risk. Invesdor, based in Helsinki, is launching a new financing vehicle and they have labeled it the CrowdBond.
.@lassemac dropping some new knowledge on the upcoming #crowdbond debt product at #Invesdorbreakfast pic.twitter.com/Vva1LLjk2c
— Invesdor (@Invesdor) August 28, 2015
Crowdbond is a debt product that is designed to appeal to more established companies who do not want to give up any ownership in their firm. Investors may loan money to a company at a fixed interest rate, say 6% per year. This new financing product is quite similar to UK’s Mini-Bonds being utilized by CrowdCube. While final details have not been revealed regarding the CrowdBond product, in the UK frequently Mini-Bonds are packaged with perks as well. Say product discounts or access to investor only deals. The CrowdBond is unsecured but expects to pay back in full at the end of the term. Alternatively an issuer may decide to make the bond convertible into equity at the end of the period. Invesdor views their CrowdBond as a competitive alternative to traditional bank finance. Invedor. The platform stated;
“Crowdbonds are unsecured while bank loans usually require security with personal assets. Bank loans also require covenants and reporting from the borrowing company, which are not required in the case of Crowdbonds.”
Invesdor also states their CrowdBonds will be traded on the aftermarket. It is not clear yet as to whether the exchange will be hosted on their platform or the transactions will occur elsewhere (or both).
If you step back a second this is a natural progression for internet finance. Crowdfunding drives efficiency for both issuer and investor, be it debt or equity.