An SME (startup) Bond is a hybrid debt/equity instrument that provides a simple and cost-effective way for a startup or early-stage company to source the initial seed funding needed to cover off the initial expenses involved in an equity crowdfunding campaign (or for any other legitimate business purpose).
Since the SME Bond acts as a debt instrument prior to conversion, it can include an interest rate. However instead of paying out cash the SME will pay the investor in shares once the bond is converted.
These ‘SME startup bonds’ are usually negotiated by private treaty, one-on-one between the entrepreneur and an early adopter or supporter with often no more than a single bond certificate being issued.
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