Crowdfunding: the good, the bad and the ugly

Crowdfunding. What to say about crowdfunding? We tried it, but it’s not our thing. Today an overview of our current crowdfunding portfolio status and assessment on performance, yield and more. Crowdfunding: the good, the bad and the ugly!

Crowdfunding: the good, the bad and the ugly

When we started our journey to FIRE in 2014, we decided to try various different investments to see what suited our taste and preferences. We started with real estate, because that was “easy to understand”. Plus we found what we believed to be a good deal, which almost 5 years later turned out to be a very good deal indeed!

Next we started with a dividend (growth) portfolio. Made some errors along the way, but we still like this investment type (due to the cash-flow). We also added index funds, crowdfunding and sustainable loans at various stages along the way.

Crowdfunding: the good, the bad and the ugly!
Crowdfunding: the good, the bad and the ugly!

However, because we didn’t fully trust crowdfunding, we started small. We were new to the investment method. It also didn’t exist for very long in the Netherlands when we started, so we had little track records available. We also have been having a great economy for the last little while. All-in-all, many reasons to be careful.

Crowdfunding portfolio

We started back in 2015 with the first projects. In total we ended up with 34 projects via GVE (no affiliate link), which we bought over a period of 14 months. On the details why we use that platform, see here. We selected a variety of projects, but tried to have project with lower (perceived) risk, collateral and/or some sort of financial security, where possible. Still, we had several project with a high(er) risk profile. We invested about €10.600 in total (average about €312 per project).

Now, about 3,5 years later, where do we stand? What happened and why?

Completed Projects

Out of the 34 project, 5 have been completed or where paid back early (including all interest that was due). These project accounted for €1.300 in investments and €187 in interest. The average interest percentage for these projects was 7.8% (before fees). But due to the annuity payments, the effective yearly interest is lower.

We ended with 14.3% return on investment over a period of about 3 years, or about 4.5% per year effectively. However, since some projects were paid out earlier, actual yield was higher. Overall, not too bad, but certainly not great either if you consider the stockmarket performance for the same period.

Ongoing Projects

We have a total of 23 ongoing projects at time of writing. These account for an initial investment of €8.000 and should be completely paid off by late 2022 (longest project is 84 months or 7 years).
Most project will already be completed by late 2020, assuming no issues or defaults occur.

In the last few years we have received €4.000 principle back and €1.360 in interest. We are still to receive the remaining €4.000 in principle and an additional €437 in interest. The distorted distribution if obviously because of the higher interest payments at the beginnen of the loan.

The ongoing projects have an average interest of (again) 7.8% before fees. For these projects we paid a total of €115 in platform fees to GVE. By the way, all these financial data come straight out of the dashboard we exported from GVE.

Crowdfunding - Overview, Yields and Defaults
Crowdfunding – Overview, Yields and Defaults

Projects in Default

Ok, now the ugly. For those of you who can count, you know we have 6 project that are in default (17% default rate!). These projects represent a total of €1.300 in initial investments. So far, these projects have paid €497 in principle and about €165 in interest. Based on the original calculations we are theoretically still to receive a totaal of €803 in principle and €81 in interest.

In short, we are actually looking at a potential loss here of €884. These projects are turned over to debt collectors, so we might still see some money. But honestly, I’ve written off these projects and do not expect any money to be returned. Sad really.

What type of projects defaulted? Not necessarily those you expect! We had one used car company/garage (already over 20 years in business). The owner got in a car accident and could no longer work. Ended up bankrupt. No risk assessment available for such events obviously! It was originally classified as a lower riks project, but life happend.

Other projects include a bar (which I used to visit when I studied!), a job agency, a company with alarm systems (got screwed by his supplier), a bicycle company and a taxi app company. Most were startups… I see a trend here!

Summary

Ok, so where are we today? We invested €10.600 and paid €148 in fees. We already received a total of €7.491 in principle payments and interest, after fees. In short, to break even, we still need €3.109. Anything over that is profit. Looking at the ongoing projects, that might just work. But the total return on investment will not be great due to the defaults.

In theory we should still receive €5.341 in principle and interest. This will obviously never happen due to the defaults. Incorporating the defaults and without further issues, we could walk away with a maximum of about €1.300. However, it’s more likely we end up a couple hundred euro’s at the end of the day! The dashboard of GVE states that our net yearly return on investment (after fees and current defaults) is now around 5.1%. Curious to see how much lower that will be once all is done.

Can you still make money with crowdfunding? Yes, but you have to be very careful and keep investing the proceeds back into new projects to keep your return up (which we didn’t). Is it risk free? Absolutely not! Is it a socially nice way to help others starts a company, sure. Is it a good investment? No, at least not in our books. We have far better yielding investments with lower downside potential/risks!

Lessons Learned

Still interested in investment in crowdfunding, keep these things mind if you want to limit your risks(tips from myself and friends who actively invest in crowdfunding. Some have over 500 projects!):

  • Never invest in startups, hospitality, retail, fashion or animals;
  • Don’t invest in big (million euro and up) projects;
  • Never investing in online businesses (apps/platforms);
  • No projects with hockeystick projections;
  • Be careful with foreign projects (i.e. lender is abroad); and,
  • Do your homework and look at the books/balance sheets before you invest.

Do you have crowdfunding projects? If so, how are you doing?

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16 Comments

  1. Great article, I love the honest review. I’ve got some project with Funding Circle, at this moment in time they still have good returns. Problem is that I don’t see my money for another few years, call me impatient but that is a downside if you want to invest in something that requires upfront capital (f.e. real estate)

    1. Point well made. We actually get our money paid monthly, so we do see the capital coming back on a regular basis. But I hear you on the requirement of upfront capital.

      Glad you are still making some money!

  2. I think crowdfunding was and is still a bit hyped and is essentialy very risky for a relative low reward. Even way riskier than junk-bonds. Even banks won’t burn their fingers on these projects.

    1. You got a point there Ralf, albeit one of my friend whom has more than 500 projects is doing remarkably well. But she worked in Crowdfunding and is able to properly judge the application. more so than me. She sticks to that list on the bottom of the post and only has seen about 12 defaults or so in those 500+ projects. So there is hope!
      P.s. some of the reasons people crowdfund, is because they don’t like the banks despite that they would have supported some of these projects 😉

  3. Too bad about your results! But it just confirms the reason why I never have and never wanted to invest in crowdfunding. Too much downside and not enough upside potential.

    I would still consider crowdfunding for real estate projects, but still haven’t pulled the trigger yet.. And probably won’t in the short-term. It just feels too much as a hype in alternative financing. I don’t want to risk my hard earned cash on that…

    But time will tell! All the best.

    1. Crowdfunded real estate investment are relatively safe. The underlying value won’t change too much and rents are usually more stable too. We have a couple on the ongoing projects and they are doing well. If I would do any more crowdfunding, it would be those type of projects. That beings said, they would need to have first mortgage rights incorporated within the crowdfunding project!

  4. Great blog. I always like a good bad and ugly overview (and not only the wow i’m doing great part)!
    The only crowdfunding we’ve done is with Kiva where ROI is not in €. Although 4 out f 5 paid in full
    Mental note to myself: Need to reinvest by the way.

    1. Kiva is a whole different ballgame indeed, that is much more social support than an investment. Nice to see that most are paid in full! Good luck with reinvesting that money to do more good.

  5. I have experience with Samen In Geld en Knab Crowdfunding. With both I have 1 project and I will never ever invest in these kinds of projects again.
    I don’t like the illiquidity of this type of investment, plus the stated interest minus costs is the max return you can get. There’s an unlimited downside (look at your defaults) with a maximised upside. Not ideal.

  6. @Kaas at the Haarlem FIRE meetup I spoke with Renate who seems to have some experience with this whole crowdfunding stuff. It’s not my cup-of-tea; a bit too risky for me personally. Too bad about those defaults, I just have read that too much…lets hope for the best.

    1. Will see what happens, not much we can do about it now anyways. We already stopped with new projects back in late 2016. But it’s interesting to see how this developed over the years.

  7. Hello TeamCF. This is a valuable and honest article, thank you very much. Have you experienced crowdestate.nl? If you have experience, what do you think about them?

    Kind regards.

    1. No experience unfortunately, we only started playing with GVE and didn’t expand to other platforms. We realized pretty quickly that this was not our preferred investment method, so we never had the urge to expand to other platforms. Have a great day HCG!

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