Why I'm Winding Down My Kickfurther Investment

Of course the primary reason I'm pulling my money out of Kickfurther is because I'm not making money, and in fact, am losing it.  If that wasn't true, if I was making money, some of the things I'll discuss in this post would still concern me, but not as much. However, I think that a large part of the reason I've lost money on Kickfurther has been the incompetence of Kickfurther rather than the risk I knew I was assuming when I invested.

What is Kickfurther?

Kickfurther is a platform that was developed to allow ordinary investors (as opposed to accredited investors a/k/a rich people) to help businesses that needed cash to purchase tangible inventory.  The business model was that a business that wanted money to purchase inventory could offer that inventory on Kickfurther and investors could purchase part of that inventory, which was then returned to the company so that the company could sell it on a consignment basis.  As the inventory sold, investors would be repaid with a pre-determined profit.

Kickfuther specifically denies that these contracts were loans, but businesses would refer to them as loans.  While repayment was supposed to be based on sales, often it was not; rather businesses repaid in a linear fashion, unless the inventory was not selling, in which case they would pay less, or not at all.  

Kickfurther recently changed its business model to, at least for the present time, only "purchasing inventory" for companies that have a purchase order for that inventory.  They require assignment of the purchase order and file a UCC financing statement covering that inventory.  

Problems with Kickfurther

Inadequate Vetting of Companies

Kickfuther claimed it vetted companies using a proprietary formula.  While Kickfurther did not disclose that formula, it was obviously inadequate as several companies that were outright frauds were allowed to raise funds.  Also, after they began only financing purchase orders they were defrauded again by thieves using the names of legitimate companies.  The thieves got the money, not the companies and the investors were left holding the bag. 

Inadequate Contracts

The bottom line is that Kickfurther has had no way to determine if merchandise was selling, and, if it sold, no way to assure that companies used that money to repay investors.  They did not even file a UCC financing statement until recently (a UCC -1 is a standard form used to record a security interest in financed property). The founder said that he envisioned the company as part of the "trust economy" which to me means he isn't ready to play with the big boys.

Inadquate Rates

Any form of lending (and I know Kickfurther denies these are loans, but the companies receiving the money refer to them as loans and especially now that they are only financing purchase orders, the arrangements even more resemble loans) has to take into account an expected default rate and the amount of money lost on a typical default.

I invested in 17 offers that did not pay back as promised and from which I do not expect to receive any more money.  The total I invested was $834.50 and I have only been paid $286.65,   I have 85 offers that have finished and paid out.  My $5281 investment returned $5769.08.  Clearly if I had been smart enough to avoid the bad offers I would have made money, but my experience is pretty typical.  It takes a lot of good offers to make up for the bad.  I would have needed about twice the returns I earned to break even.

Another problem is that recently there have been two types of offers.  One type is for several months and the pack price is substantial.  The interest rate on them seems reasonable--over 10% for less than a year.  However, an investor must be willing to risk over $1,000 to participate in these offers and the company has no record with Kickfurther.

The other type of offer allows investments under $100 but the offers are short and the offered profit limited.  While it is true that investing money for two months and earning 4% is like investing it for a year and earning 24%, it is also true that each offer brings with it the chance of default--the possibility of losing all our money.  While earnings of 24% may make it worth taking the chance, earnings of 4% do not.

Incompetent Company

Kickfurther is the quintessential middle man.  Their only job is facilitating transactions between those with money (investors) and those who need it (businesses).  Despite that, there have been numerous complaints from merchants about their inability to link  with Kickfurther's bank account.  People are reduced to sending checks through the mail, which causes a delay in having those funds distributed to investors.

They were recently scammed into giving investor's money to three companies whose deals turned out to be fraudulent--it wasn't the company raising the money, it was criminals.

Questionable Solvency

Kickfurther makes money by charging merchants a 3% fee on money they obtain from Kickfurther.  They also charge investors 1.5% to withdraw money (that's 1.5% of both principal and interest).  Kickfurther is running on venture capital but that will run out sooner or later and right know, having been in existence for over two years, Kickfurther isn't making enough to pay the people running it.  How long will the venture capital last?  

My Conclusions about Kickfurther:

I still think the idea is good, but the execution clearly is not.  I am withdrawing money weekly but I expect to lose money when it is all said and done. I do not recommend that anyone invest with them but if you have to try it for yourself you can use my link and I may win a prize.  

*Part of Financially Savvy Saturdays on brokeGIRLrich.*