The long-time presenter of Channel 4’s Grand Designs TV show had raised money from investors between 2013 and 2017 to fund his company, HAB.
Investors in TV property presenter Kevin McCloud’s eco-friendly housing company stand to lose nearly all of their money.
The long-time presenter of Channel 4’s Grand Designs TV show had raised money from investors between 2013 and 2017 to fund his company, HAB (Happiness Architecture Beauty).
In 2013 he raised £1.9 million through equity crowdfunding, with promises of a future dividend of 5% from the end of 2016.
Separately in 2017, McCloud’s firm issued a mini-bond offering a gross return of 8% a year over a five year period, raising around £2.4 million.
Investors in both the equity crowdfunding scheme and the mini-bond are now expected to take large losses due to the company running into significant trouble. Losses for investors are expected to be between 74% and 97% of the principal amount invested.
The episode is the latest in a trend for companies to raise money through issuing mini-bonds and retail bonds and the willingness of small savers to buy into such risky ventures due to the seemingly generous returns offered.
With interest rates so low, savers have been attracted to the seemingly generous yields offered by mini-bonds and retail bonds, often without properly understanding the risks. The celebrity and property guru status of McCloud would have also drawn savers in to invest.
McCloud’s company HAB issued a mini-bond, which typically raise smaller amounts of money than a retail bond and come with even more risk. Whereas retail bonds can be resold on the open-market, mini-bonds must be held to maturity. HAB’s bonds, however, differed slightly, with investors having the option to withdraw after two years and see their gross annual return fall to 6%.
At the same time, mini-bonds are subject to less financial regulation. For example, there is no obligation for issuers of mini-bonds to produce financial statements.
The FCA has previously warned of the “high risk” nature of mini-bonds and has started to tighten rules around Innovative Finance Isas (Ifisas), the tax wrapper through which many mini-bonds are held by savers and investors.
Equity crowdfunding, on the other hand, is even riskier. Unlike the peer-to-peer lending platforms, which offer monthly interest and capital repayments to those prepared to lend their money to individuals or small businesses, equity crowdfunding requires investors to buy shares in the company, rather than lending money to the business in exchange for an income payment.
Investors won't get a return on their money until the company attracts interest from suitors or reaches sufficient scale to consider an initial public offering.