Anthony Puls, the Founding Director & Chairman of ASSOB – one of the trailblazers of the investment crowdfunding space, has launched a new web site touting SME Bonds. The financial vehicle is said to be already available in Australia and New Zealand and targets startups and early stage companies looking to raise capital via crowdfunding. Puls intends on marketing these hybrid instruments in the US and Canada where he says they will soon be available.
The SME bond is a concept originally developed by the founder of ASSOB, Anthony Puls. SME bonds are aimed at startups and early-stage ventures that are looking to raise further funds through a crowdfunding platform. The concept is described as such: “Entrepreneurs behind these ventures often require some initial seed funding to cover consultant’s fees; investment offer documentation; promotional videos; crowdfunding platform listing fees, etc.. This is where the SME bond fits in.”
“There is also huge potential for implementation into the eurozone, which is scheduled to occur later this year. Many countries in the eurozone are crying out for any economic stimulus or job creating initiative they can get their hands on,” states Puls.
The SME bond is a debt / equity hybrid that is supposed to be a cost-effective method to raise capital of up to $150,000. The bond is a debt interest that may include an interest rate but instead of paying cash – it delivers equity to the investor once it is “converted”.
What is the typical profile of an SME bond investor? Puls states, “these are generally the first followers, early adopters and supporters around a good idea or new venture who would love to own a slice of the action…all that’s been missing is the opportunity and the right structure.”
“SME bonds are private treaty between an entrepreneur with an early-stage business who finds an early supporter who wants to back that entrepreneur. Or for an investor that finds an entrepreneur with a great idea or business opportunity. It’s a one-on-one transaction. SME bonds provide a convenient way for an entrepreneur to consummate a deal (in the coffee shop or restaurant – on any mobile device) with an early supporter or colleague wanting to get financially involved in an emerging business opportunity. It is not a public offer to issue a large volume of SME bonds, usually only one single SME Bond is needed. So being private treaty, one-on-one, I believe a single investor in this case could be either accredited or non-accredited. It is my understanding that only when an issuer of securities is seeking multiple investors is when such offers must only be made to accredited investors. Besides an SME bond starts off as a loan/debt and is only converted when the issuing company undertakes a share (stock) issue.”
Kim Wales, CEO and founder of Wales Capital and a longstanding advocate of crowdfunding and the need to provide access to capital for SMEs, stated;
“SMEs have witnessed traditional sources of funding dry up since the 2007 – 2013 financial crisis and are seeking financing through alternative methods such as peer-to-peer loans, securities based crowdfunding, Enterprise Investment Schemes and mini-bonds. Roughly 7% of SMEs seek financing from private equity and the remaining 1% from other parts of the markets. As the market matures new instruments such as SME Bonds have the potential to reshape the financial landscape; offering growth opportunities with less risk to investors. The frameworks being established are creating retail enabled investments as low as £1000, giving average income worker the opportunity to take a stake in companies that are enhancing the future. The market is ripe for market makers, issuers and investors seeking to create long – term market value and jobs. With banks coming under increasing pressure to comply with Basel III, lending has become restricted to a select few. The capital market needs initiatives such as SME Bonds to provide leverage to the stifled economy,” said Wales.