Kickfurther: My Review

Those of you who follow this blog know that I invest via Kickfurther, which is a platform that crowdfunds inventory for businesses.  My first investment was in April, 2015, so I thought it was time for a review of Kickfurther.

The Concept:

The concept of Kickfurther is simple.  In order to sell merchandise, businesses have to buy it--whether by purchasing a finished product from manufacturers or by purchasing raw materials to fashion into a finished product.  Many businesses, particularly newer, smaller businesses have difficulty obtaining credit from banks or other traditional forms of financing and so are unable to grow as quickly as the market might otherwise allow.  Rather than examining the creditworthiness of the business as a whole, Kickfurther concerns itself with inventory and whether the business has shown it can sell it.  Rather than lending businesses money with which to purchase inventory, Kickfurther purchases the inventory for them, and then gives it back to the business to sell on consignment.  As the inventory is sold, investors received an agreed-upon return.  Theoretically, since the inventory is the property of the Kickfurther backers, if the business itself fails, or if the inventory fails to sell, Kickfurther, on behalf of the backers, can repossess the inventory and recoup at least some of the investors' money.

The History:

The earliest offer I could find was from Marlie Madison, a Dallas boutique which raised $2977 in November, 2014, and which paid it back, with a 10% return (that's total return, not per annum) less than two months later.  All total, from what I can tell, Kickfurther, as of this writing (1/19) has  122 offers which have been funded and are in the process of payback.  59 which have been paid back entirely and 1 that has been cancelled for non-payment.  Of the 122 open offers, 56 have not reached the point that a payback is due; 64 have.  Of those 64, 43 are paying back on time, at least so far.  After I wrote those numbers, the Reddit that is run by Kickfurther had a post linking to this page which gives up-to-date numbers for Kickfurther. 

 These appear to me to be  problems:

• Thump: Only 38% paid; no payment since July
• Chesstache:  Only 21% paid; no payment since October
• Marlie Madison (third offer); Only 50% paid, no payment since September
• Snow Lizard:  Last payment in December; should be done, only paid 3%
• American Dog:  Should be done; only 41% paid, but still paying
• Comic Book Displays.  No payment in over a month; should be at 75%, now at 4%
• My Little Vixen:  No payment; should be at 83%.
• Kayson Golf:  No payment; should be at 83%
• Yumms:  At 50% rather than 75%, but paying regularly
• Mulberry Silk:  Behind, but paying
• Baboon Bamboo:  At 11% rather than 40%
• Boingo Baby:  Missed 1st payment
• Sweet Rebel:  Behind but paying; at 27% rather than 50%
• Gemphones:  Behind but paying; at 15% rather than 40%. 
• Wellington:  Late with 1st payment
• Nori Lights:  Has not made first two payments
• Sweet Tea:  2.5 months late with 1st payment
• Bellies to Babies:  Behind but paying; 25% rather than 50%. 
• Garayald:  Behind but paying.  13% rather than 40%

Now, some of these may finish strong.  I know that Kickfuther has started repossession proceedings against Thump, Chesstache, Marlie Madison, Snow Lizard, Comic Book Displays, My Little Vixen, and Kayson, besides the earlier proceeding against Max Axe Guitar.  In at least some of these cases, Kickfurther has offered to pay back the principal to the investors; stating that investors shouldn't have to pay for them learning how to take possession of the inventory.  Obviously that state of affairs can't continue; investors will have to bear their own losses eventually.

Theory vs. Reality

The way Kickfurther is supposed to work is that vendors repay as they sell.  If they sell the financed inventory in the first month, they are supposed to pay back all the money the first month.  If sales are less than expected, payments are reduced, which is good for vendors because if the ship gets stuck in customs or the factory is behind schedule, they don't have to make a payment, or pay more interest.  The advantage for investors is supposed to be that can repossess the property to get at least some of the investor's money back, no matter how badly the business does.  Investors aren't creditors of the business but rather, owners of property being sold on consignment.  That's the theory.

What is reality?  Reality is that at least  four offers are at least two months behind and have paid nothing; which would lead you to believe than they have sold NONE of the inventory.  Perhaps they haven't; however most of them have claimed they have sold some.  My guess is that some goods were sold, and the money used to pay pressing bills.  This is a problem not only because it reduces the investors' yield but also because it reduces investors to unsecured creditors of businesses that are in trouble, which needless to say, is not a good position.  Right now there is only one offer that is paying ahead of schedule; the rest are either behind (not many other than those mentioned) or paying right on schedule.  I find it hard to believe that all those business owners were that good at predicting sales.  I find it far more likely that they are holding money, paying what is necessary to keep investors happy.  From the vendor's viewpoint, it makes little sense to pay back early as it does not reduce their interest.  

The Good:

When these deals work, the return is excellent.  An average rate right now is about 10% in 6 months; usually paid in 3-4 installments.  Annualized this is over 20% per year.  Investors also get the pleasure of helping young businesses grow.  Investors can invest as little as $20 for less than a year.  

The Bad:  

At this point I have earned $78.50 in returns, plus $15.00 in bonuses.  The annualized returns on all my offers that have finished have been well over 20%.  However, if I had to bear my own losses, if Kickfurther had not agreed to take them over as part of their learning process, I think I would be $81.00 in the hole due to deals that I think will yield little if any recovery for Kickfurther.  Of the others in my account, I have one that is two months late with the first payment and two that are substantially behind schedule.  I think I'm pretty average.  

  Of 182 funded offers, 3 appear to be total losses and others partial losses.  At an average return of 10% per offer, it would take 30 good deals to wipe out the three bad, and get you back to even, or a 10/1 ratio, just to break even.  19 of the 126 offers that have reached the payback stage so far appear to have trouble.  The odds aren't looking good, but the question to which no one knows the answer is how much will they end up paying back.  Unfortunately for those who pay, in any financing scheme, those who pay not only have to pay enough to cover themselves, but also to cover those who don't pay.  Are the good offers paying enough to make up for the bad?  The jury is still out.  

Despite the fact that the overall numbers don't look great, individual offers have done quite well, and right now there are more investors than offers. Today an offer over $170,000 filled in less than a minute.  It was the second offer for the company and they were financing inventory which had been pre-sold.  In other words, unless something totally unexpected happens, there is already a buyer.  The offer was for an 8.5% return over 4.5 months, one of the best recently offered rates--and I wasn't fast enough to get in on it.  In my opinion, a big problem is that there is no effort by Kickfurther to rate these offers and with so many people chasing them, the offered rates are going down.  However, each merchant sets their own offered rate and there seems to be no rhyme or reason to them.  The offers all seem to fill quickly and I think people are going to get burned.  When Prosper started, it used a model of investors bidding on the loans--the ones who bid the lowest interest got the loan.  Unfortunately, the people bidding were not bankers and did not have a good handle on expected losses.  They ended up, on average, losing money.  Since Prosper has been setting the rates, investors who are well diversified have not lost money.  Unless there is some standardization of rates on Kickfurther based on the ability of the company to repay the funds, merchants will continue to lower rates, and, as long as the rates at least appear to be better than investors can get elsewhere, investors will continue to chase those rates, until they start getting burned on defaults.  Once that happens, unless the rates on the winners make up for the defaults the platform will, in my opinion, fail.  

The Bottom Line:

Kickfurther is a place for money you can afford to lose.  There are no reliable estimates of earnings or defaults.  Kickfurther has talked about putting in an inventory tracking system, but that hasn't been done yet and so I question how accurately paybacks reflect sales.  While reclaiming and selling unsold inventory has been touted as a feature of Kickfurther, we have no idea how successful such takeovers will be.  Kickfurther is also for people who can be on the computer at 4:00 p.m. Central time, and I don't mean 4:01.  Offers go live then and are generally grabbed immediately; if they aren't, they are either paying less than average or there is something about the product or company that is suspect.

On the other hand, Kickfurther is a new and developing platform.  They are making changes and improvements all the time.  Some of them last and others (like early access to offers, and $5.00 per person referral bonuses) don't.  They are working on inventory tracking systems and they are processing their first cancellation/repossessions now.   They are aware of investors' concerns and say they are trying to address them. Management participates regularly in a Reddit and responds to investors' questions and comments. 

I'm going to continue to reinvest the money I have in Kickfurther (when I can get on the site at 4:00 p.m.) but until I see evidence that the overall return is going to be higher than what I've seen so far, I am not investing any more money.  I think the Kickfurther concept is good but right now there are too many investors chasing too few offers and with Kickfurther depending on the honor system to track sales, I think the possibility of getting burned outweighs the probability of making money.  I'll stick with what I have for a while, but it is money I can afford to lose.

Do you invest with Kickfurther?  If so are your concerns the same as mine?  What has your experience been so far?

New Financial Products: Loyal3

I don't know about you, but Amazon.com is one of my favorite places to spend money. It sure would be nice if I could get a piece of their action.  Oh, wait, I can get a piece of their action, I can buy stock in the company.

Conventional wisdom since I've been investing has been that ordinary investors should put their money into mutual funds and buy the market rather than purchasing individual stocks.  That advice is based on three factors:

• Many small investors lack the time, desire and/or know-how to adequately investigate the value of a company and therefore could purchase shares at the wrong price point or hold them when they should sell;
• Investments should be diversified, and small investors are unable to invest in enough different stocks to be diversified and
• The sales commissions charged by traditional brokers took far too large a piece of a small investor's investment.

A new website, Loyal 3, seeks to address the last two items.  Loyal 3 sells stock in 64 different companies to individual investors You can purchase fractional share and therefore can invest as little as $10 in each company.  More importantly, Loyal 3 does not charge to buy or sell stocks. If you want to invest $100 in Coca-Cola, you can do that, and you will pay no sales commission.  

Is there a catch?

Yes, sort of.  Loyal 3 does what they call "batch trading".  If you call your full-service broker and tell him to sell your stock in xyz, he'll do so almost immediately. If you tell him to buy PDQ, it is yours.  Loyal 3 waits, and places one order per day for the stock.  If you are trying to market time, Loyal 3 is not for you.  Also, they only offer 64 stocks, so if you want something else, you have to go elsewhere. 

Have I tried it?

Unlike most of the other products on which I have reported, I have not tried Loyal 3.  I am planning to open accounts for my kids and my nephew and to give them stock for Christmas next year.  I'll pick something like Disney or McDonald's and couple the gift of stock with some merchandise.  The low initial investment ($10) and lack of sales commissions make that possible.  

Conclusion:

I think conventional wisdom is probably right to discourage ordinary investors from putting too much money into individual stocks.  However, I find individual stocks far more interesting than mutual funds.  While I would stick with mutual funds for the majority of my investing, I think Loyal3 offers small investors the chance to invest a little fun money with companies they find interesting.

*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Shoeaholic No More*

New Product: Kickfurther.com

Have you ever contributed to a Kickstarter campaign?  For those not familiar with Kickstarter, it is a crowd-funding source for new business ideas or products.  Entrepreneurs pitch their products at Kickstarter and through social media, hoping to garner enough funding to begin production or carry out a plan.  For example, a  family friend who played in a band was diagnosed with a brain tumor and, in the days before his surgery. recorded some of his music.  Unfortunately, he did not survive the surgery.  His band wanted to record an album that included his music and to produce cds with that music so his family and the band promoted a Kickstarter campaign to fund the production costs.  Those of us who invested received a copy of the cd and other band swag, depending on the amount of our investment.  Since the cd and swag were our only expected return on investment, I'd say this was as much a gift as an investment, but if you peruse the Kickstarter site, you'll see that investors can end up with gifts worth as much as their investment, if not more.  Nevertheless, I'd consider money used at Kickstarter to be fun money, not really an investment.

If I'm talking about Kickstarter, why is the post titled "Kickfurther.com"?  Because Kickfurther is another site, and it takes these new businesses a little further than Kickstarter does.

Isn't that a cute swimsuit?  I wish I could wear it.  The manufacturer, AMARA, is relatively new and needs capital to produce a line while also spending money on advertising and marketing.  They want to borrow $6839.00 for six months, and will return $1.10 per dollar invested.  Sounds like a great payoff, but I realize that with that kind of reward goes risk.  I invested, but only $50.00.  If I lose, I won't lose much.  While my percentage of return is high, the actual dollar value, due to my low investment, isn't very substantial.  Unless enough people invest to fund the entire loan, the transaction is cancelled.  Kickfurther gets a security interest in the inventory so they can liquidate it if the manufacturer fails to sell it.  Once half the inventory is sold, the lenders get their money.  Of course if they can't sell the inventory and don't get enough for it to pay back the loan, I lose money.  Another downside is that there is a 1.5% withdrawal fee when I get ready to take my money home--but they do let me continue to reinvest without paying the fee.  

So, is Kickfurther a toy, or is a serious investing opportunity?  Right now, for me, it is a toy.  If there were a hundred choices, investing a little in each would be an attractive investmeny to me, but right now, they have only three companies looking for money, thirty-one with outstanding loans and six have been completely repaid their loans. While there are protections in place for investors, the reality is that it won't take many bad loans to wipe out my profit, or even my investment. The platform is trying to grow and I plan to keep it on my radar as a place to invest fun money, but until it is larger or has more of a track record, I do not consider it part of my serious investments.  

What are some other business to whom I've lent money through Kickfurther?  North Coast Organics makes natural deodorants.   The money I lent them was charged to my credit card in April and they are supposed to pay back $1.08 per dollar lent by the end of August.  

 

Below is a Humanoid Wake Boot.  Assuming they sell 43 of the 100 pairs I helped buy, I'll get $1.08 in August for every $1.00 I lent them in April.

My husband hates to wear a tie, but some folks love them  Skinny Ties makes these, and they have slightly (or not so slightly) suggestive names.  If they sell 60% of what I helped them buy, then I get $1.20 for every $1.00 invested.  They got my money in May and plan to pay it back by November.

If Clarisea sells 38% of their supply of this cleanser, I get $1.08 per dollar invested.  They got my money in June and plan to pay it back in September.

Aren't these pretty?  You can buy them at Marlie Madison which is a Texas boutique which is on its third Kickfurther campaign.  They borrowed to open a new store and plan to re-pay $1.11 for every dollar borrowed, and to do so over several payments.  The charge hit my credit card in April and I just received my first payment of a little more than $0.16/$1.00.  

Besides lending money to the businesses, Kickfurther gives you to opportunity to make money by selling products financed through the platform, whether you invested in them or not.  Here is my store.  Feel free to buy from it so I can get a 5% commission.  Those tweezers look nice. 

Does this look like an investing opportunity to  you?  If you click my affiliate links (including the word Kickfurther throughout this post) and invest, you get a $5.00 credit and I get entered into a contest to earn bigger prizes.