Friday, July 1, 2016

Kickfurther Is Changing

Over the last year or so I've written a lot about Kickfurther, a relatively new investment platform through which investors help businesses by providing money for inventory purchases.  The Kickfurther concept has always been that investors were not lending money to the businesses but rather were purchasing the inventory, and then giving it to the businesses to sell on consignment.  The advantage to the business of this arrangment over a loan is that if things do not go as planned--if production is delayed or if sales are slow--money is not owed to the investors until sales actually happen, and interest costs do not increase.  The contracts call for a set amount of interest and an estimated payback time.  The advantage to investors over a platform like Lending Club is that we have a security interest in the inventory and that if it does not sell, we can reposses it.

How Kickfurther Used to Work

As investors we are not privy to the exact contracts between the businesses and Kickfurther.  However, from the investor perspective, once a business was vetted by Kickfurther, an offer was put on the website showing that XYZ business was raising $XXXX to purchase whatever they were buying.  It gave the interest rate and the payback schedule, with the schedule assuming linear payback.  Users would review these offers and purchase pieces of the ones they wanted (if they were quick enough--more demand than supply has been an issue on the site for some time).  Investors could invest as little as $20 or as much as 10% of the offer (and could buy more later if it didn't sell out).  When the business began payback, all investors shared equally in a pro-rata fashion.  

Problems with Kickfurther

My understanding of the consignment sale contract concept was that we as investors had relatively little concern about the overall viability of the business.  We weren't worried about whether they could pay the electric bill because we were supposed to be the first ones paid when a sale was made, and if the merchandise didn't sell, we (Kickfurther on our behalf) could reclaim it.  Since the merchandise did not belong to the business, I did not see it as an asset other creditors could seize.  

Unfortunately, I found out that Kickfurther did not actively monitor sales of the consigned goods and counted on self-reporting by the businesses.  Deals went bad--payments were not made--and I began to seriously wonder if investors really had any security.  One business posted on the Kickfurther message board for his offer (board is open to investors on that offer only) that he had sold over 20% of his inventory, but had paid us nothing because he needed the money to pay his salary.  Clearly there were problems.  

That same business owner complained that he had been promised that the investors would help market his product, and that had not happened.  I went and reviewed the agreement I clicked through when starting to invest (you know, the long one full of big words in small type that you have to agree to in order to do anything online, the one that I'm sure few people actually read) and sure enough, it said that investors would help market the products.  

Kickfurther appears to have started in late 2014 or early 2015.  By the summer of 2015 new offers were posting almost daily.  By the end of 2015 the first cases of obvious non-payment had occurred.  Kickfurther paid the investors off for some of these and I have not heard whether they were successful in recovering any of the inventory.  Since the beginning of 2015 there have been several offers where sales have been slow and the investors have not been paid.  There have been several others where it appears that either there were sales, but that the money was not paid to Kickfurther or that fraud was committed and the goods never manufactured.  Kickfurther brought aboard a legal team to standardize the way they dealt with non-paying offers and to shore up their contracts.

What Has Changed

Most of the recent changes seem directed toward firming up the consignment concept and the idea of the investors being participants in the business.  The consigned goods are now offered as a "package", such that each investor is buying a certain number of the consigned things.  In other words, if the offer is for red widgets, blue widget and green widgets, each "package" contains a red widget, a blue widget and a green widget.  If the widgets are expensive, then the package price is high--I've seen some over $1,000.  If the widgets are inexpensive, so are the packages.

For someone like me who prefers to invest a little money in a lot of projects, this concept has made me reconsider my investment strategy.  The question is how many offers will have inexpensive packages, and how many will have expensive ones.  When Kickfurther first changed, it seemed that all of the packages were over $100.  Right now there are three live offers; one is over $200 per package, the other two are  under $30.  There are three preview offers as I write.  One is over $200, one is over $100 and one is under $100.

The Kickfurther Store has long been a part of the site and investors are given a 5% commission on any sales.  Kickfurther has further sweetened that pot by saying that the inventory we sell in our Kickfurther store is first considered to be part of the inventory we bought, such that the profit from it pays us back.  If I invested in that pack of widgets and 50% of the cost of the widget was to go to repay backers, then if I sell a widget in my store, I not only get the 5% commission, I also get the 50% of the cost credited toward repayment on that deal.  Also, recently users had to verify some personal information and we had to acknowlege that we were expected to help market the products in which we invest.  Right now my Kickfurther store has some organic skin care products, some healthy snacks and some tools, but it looks like only the skin care sticks are available for purchase at  this moment.

Kickfurther is trying to strengthen the consignment concept with vendors as well.  They are expected to report sales monthly and to pay back as sales are made.  Some use Shopify which automatically reports sales.  It should be interesting to see how it all shakes out in the end.


Kickfurther is still working out the kinks and going through growing pains.  I think strengthening the consignment concept is a good idea, though I wish they would break these large orders into multiple packages to get the cost per package closer to $20.  In other words, to use my widget example, rather than offering packages of red, green, blue and yellow widgets for $100, I wish they would offer, as part of the same consignment offer, red widgets for $25, green widgets for $25 etc.  I think requiring accurate reporting of sales will help investors by providing more early paybacks and by letting us know that product didn't sell well, in case the vendor wants to do another offer.  

If you think that investing with Kickfurther is a good idea, use my link and  you get $5.00 toward your first offer.  If you have a business that needs money, use this link and I get a commission.  If you want organic skincare sticks, shop my Kickfurther store.

Disease Called Debt

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