Crowdfunding – is it really suitable for retail investors?

Crowdfundingescense

19 May Crowdfunding – is it really suitable for retail investors?

Along with the folks from BIGScribe, we have recently released an informative ebook that explains Crowdfunding in Singapore.

You too can download it here.

You can download a copy here

Reading it has given me a fundamental understanding of Crowdfunding, as well as the risks involved.

We know that trying to pick stocks can be very frustrating. Skip that frustration, get 21 ideas to finding profitable stocks in an instant. 

Which led to the question: ‘Is Crowdfunding really suitable for retail investors?’

Jon and Alvin have also wrote about EpiCentre’s epic crowdfunding success.

More questions came to mind after Epicentre’s success. Was the investment really as lucrative as it seems and how safe is it really? Are the risks involved worth it?

How do people select Crowdfunding Projects?

Analysing and selecting Crowdfunding projects can be very similar to analysing and picking listed companies from the stock market. Hence, value investors should find the process rather familiar.

The main difference is that the Crowdfunding projects in Singapore are mostly debt-based, which means they function like bonds instead of stocks.

With debt-based Crowdfunding, you as the investor are lending money to the borrowing company who promises a certain percentage of interest along with the full capital pay out upon maturity.

So, on top of looking at the background and financial health of the borrowing company, Crowdfunding investors would also have to evaluate the company’s ability to fulfill the terms of its loan.

As value investors, we already know how tough it is for investors to select the right company in the stock market.

I can only imagine how much tougher selecting a Crowdfunding project would be.

frustrated-with-financial-terms

How to Test Drive Crowdfunding

Nevertheless, with all the buzz around Crowdfunding, I was curious about this new investment tool.

Our friends from New Union had recently launched a trivia contest that allows new and curious investors like myself to give Crowdfunding a test drive. This concept is similar to what CoAssets had done previously.

lendthem-fendthem

Lend Them or Fend Them” is like a mini game where you are given background information to 3 different companies which are looking for funding. The background information provided include financials, company description and a risk overview.

You can analyse the companies and choose whether you would ‘Lend them money’ or ‘Fend them away’.

“Lend Them or Fend Them” is a great introduction to Crowdfunding for the new and uninitiated investor. It places an emphasis on the analysis of borrowing companies.

However, the process in this mini game may be overly simplified for those who have attempted Crowdfunding, or those who are already investing in Crowdfunding projects. In “Lend Them or Fend Them”, you will not need to decide how much you will be investing. Important information such as the interest rate or the potential default rate are not provided as well.

lendthem-fendthem2

The 3 crowdfunding projects featured in “Lend Them or Fend Them” are from 3 vastly different industries. Base on the current economic conditions, the financials and the risk overview provided in the trivia, I had selected to ‘lend’ money to projects #2 and #3 while avoiding project #1.

After making your selection, you are required to create an account which entitles you to take part in the contest to win $10,000 New Union Credits which can be invested in real Crowdfunding projects and potentially reap you real cash returns.

Have a go at this trivia and potentially have a chance to win some real cash. This ends on the 26th May.

Considerations When Selecting A Crowdfunding Project

Being a newbie to all this, I consulted Alvin on his thoughts. He brought up 2 important points:

  • Debt vs Equity

Comparing the Debt and Equity will give you an idea if the borrowing company is able to pay you back if they folded.

  • Default Probability

Although not provided in the trivia, when we are selecting a Crowdfunding project, it is important to note the default probability. Investors can and should research more about the company and look out for its borrowing history.

 

If you are new to Crowdfunding and would like to experience it, give Lend Them or Fend Them a try. Answers to the trivia will be released on the 26th May on New Union’s Facebook Page.



---------

Grant Yourself The Ability To Make 10 - 15 % Returns Annually. Lifetime Access. Learn at your convenience. Bag stock market profits with ease: Access Now!


New to investing and could use some free and useful guides? Check out: "How to start investing in Singapore"

Tags:
No Comments

Post A Comment

Another popup!? 

We Are Sorry! But WAIT...

Since you are already reading, why not read on? You are probably reading an article on this site because you are interested in investing and personal finance.

 

If that's true, this value packed ebook, "Investing Your First $20,000" would definitely help you.

 

Simply enter your email below and we will send you the ebook plus insightful finance articles just like the one you were reading before this popup - right to your inbox. No more popups!

 

Try it. You can unsubscribe any time.

Good Job!

Thank You For Your Time

Do check your email for the ebook!