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.
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.
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?
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.
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.
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!
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!
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?