Investors on Crowdcube will now be able to assess the bond investment opportunities that are listed on the site.
The crowdfunding platform has revealed that it will be presenting investors with output from Moody’s Analytics’ private company risk model. Square Pie and Vanarma are the first to display the new Probability of Default (POD) figure that represents a probability that the business issuing the mini-bond will default on any existing credit obligations.
So far in 2015 mini-bond investors through Crowdcube have already received around £300,000 in returns from interest payments, which are typically paid every six months.
So what does this actually mean for investors?
This move from Crowdcube shows they are trying to become more transparent to their thousands of investors as the new initiative will allow each individual to understand the financial position of companies looking to raise investment through a bond on the platform.
Moody’s Analytics helps capital markets and credit risk management professionals worldwide. Whilst POD is not a risk rating, it is an approximate measure of the credit-worthiness of the issuer before the mini-bond issue offered via Crowdcube. As such, it should be one of the factors considered by investors when assessing whether the interest rate on offer by the issuer is sufficient for the risk involved – the higher the risk, the higher the return investors should require.
Crowdcube entered the world of debt in June last year when it released its mini-bond product. At the time of the launch Luke Lang, Co-Founder of Crowdcube said:
“Just as we revolutionised equity investment, we are now turning the mini-bond market on its head by taking away the complexity and costs for businesses who want to raise growth capital and cut out the banks, at the same time as presenting a unique way to engage with their customers, encouraging loyalty from existing customers and attracting new people to their brand. For customers and investors, the opportunity to invest in companies they already know, and want to support, as well as receive a regular financial return on their investment is appealing.”
Since launching the scheme in June last year Crowdcube has seen more than 2,000 investors investing around £10 million including world-renowned tourist attraction Eden Project, award-winning River Cottage and pioneering private property developer Pocket Living, which is backed by the Greater London Authority.