Local Crowdfunding investment in SME

[CityFarmer]

On another note the fallacy on the banking mathematical model is that default does not mean zero payout.

I reckon, the model is fine, but the input might not. The model assume probability input, but the actual inputs are just simple ratios. The result is garbage-in-garbage out, IMO  

I'm actually wondering if this crowdfunding thing falls under the Chits Fund Act ie tontine or can we revive the tontine structure?

You may find the answer from the link, a MAS doc on crowdfunding. The consultation paper is out early last year, I am not sure the MAS has published the result. Enjoy the read.

http://www.mas.gov.sg/~/media/MAS/News%2...unding.pdf

[marandaz]

FINANCIALS: Spore's nascent P2P lending sector may see 1st loan default soon amid weak economic conditions, with at least 1 platform reporting a recent rise in "payment issues". Capital Match highlights it may see its 1st default out of total ~50 loans; loan was extended to a construction co, and interest payment has been overdue for few mths. The largely unregulated P2P loan mktplace has generated ~sgd15m in loans over a fairly short time; loans run from ~sgd10-200k in size, and for 3-12 mths typically. For perspective, size of business lending in Spore stands at sgd357bn.

Not entirely unrelated to the thread title of P2B model...

[CCUV]

I do think the so call crowd funding is likely to be regulated soon. I never trust my money with an unregulated investment. It is subject to abuse and I see red flags all over from borrower and platform as key risk

[CY09]

Moolahsense is launching two more crowd funding campaigns. One of it is to "Spize" a famous muslim restaurant which serves a variety of cuisine. Its interest is 6% p.a.

IMO, crowdfunding while unregulated brings to it a whole new dimension of finance. There are well known brands who have used crowd funding instead of banks such as Spize & Seoul Yummy. This are SMEs on the rise and would have no difficulty in securing bank loans. To biz owners, the advantage of crowdfunding is that the loans obtained are of a lower interest and restrictions.

For investors like us, it is down to being able to discern the junk from the gold. This is applicable in unregulated financial markets as well as regulated ones - one good example is the SGX, where there are so many companies whose net cash or CNAV are below market cap; however for the past few years, many of their skeletons have fallen out of the closet and made investors poorer. As of now, there are still enough companies listed on the SGX, where a few simple takeovers will earn you $300 million; so much for investing in a regulated environment! I see enough red flags to even make satirical comments.

The key for investors is to have a discerning eye in any environment. We cannot be rigid like SOPs and make binary decisions; discretion and good judgement is imperial.

[CCUV]

CY09 you might have your case of crowd funding as a source of alternate investment but I have no doubt, regulations will eventually come. There is very little reasons to be investing in those sme given the loan size is small and if the sme can't even earn enough to have 100k-200k in capital to cover capex, that also speak record for themselves. Higher yield to me is a red flag for default not a strong merit for the quality of that investment. Investors recourse are also limited as like any other unregulated investment. Most sme will like to tell you they want to save money on interest on loan but to a matter of reality a lot of sme is under credit crunch,poor cash flow and unsustainable business practice. There is also an alarming increase of sme not paying their dues on time.

[vesfreq]

Aiyo crowd funding is the modified version of 'ton-tin chit fund model' of which long ago been started by China and cases of the founder run away with the money.

For MoolahSense, you bit for the interest rate, the lower u bit the better chance u get it, if its a popular company wanted to borrow money, like the recent a Mobile scooter company closed at 13% p.a.

But usually not popular company the allocation is 'first-come-first served' basis like the coming a manufacturer of elastomer seals. Target to loan 200k, offering 19% p.a. on 12 mths equal installment.

You may apply to be their member, go into their website and you will notice some companies (e.g. a mobile related co) every month loans 150k - 200k from this scheme and becos of the lucrative commission (3k -5k) per application they will just approve it and pass the risk to the greedy investors.
Take upfront money return interest to investors, like using many credit cards scenario.

To me, its a 'Ponzi' scheme, capitalize on human weakness that is 'greedy' wow 19% p.a where on earth u can find this return.

The borrowers will keep on coming to this place to take easy money, one day if you don't approve my loan , I no money pay you and I will default...run road or declare bankrupt.

As for China case, the founder using 'Gemini Chit Fund' method, create all the fictitious hollow companies all money go to actually one person, then run-road.

Well, its only my personal opinion.

You have a point. 

I received this cold call recently. And, there is this bond offering 12% coupon. It sounded very attractive. And, it is issued by an agricultural company. 

Like any other investments we come across, its always important to question how the issuer is going to fund the repayment. Are there material risks in how they can eventually pay? 

At 19%, why not use personal credit? Think banks charge low rates for personal credit. 

Piecing all these pieces of the puzzles together, the average retail investor is always faces overwhelming odds against him. There is too much information asymmetry and that it is also difficult to depend on SGX to act as policeman, when they really have no track record in acting as a policeman in the financial markets. 

A very good reminder is that there is no free lunch. Investment takes up a lot of faith in the unknown and being able to act rationally to all available and (even) almost unavailable information. Failing to exercise common sense is a common mistake in many. One good example is the one which I mentioned above. If someone promises you 19%, then its important to pop the question "how are you guys going to pay up?"

[CityFarmer]

Piecing all these pieces of the puzzles together, the average retail investor is always faces overwhelming odds against him. There is too much information asymmetry and that it is also difficult to depend on SGX to act as policeman, when they really have no track record in acting as a policeman in the financial markets. 

I reckon, in this case, it is MAS to act as policeman, rather than SGX, since all are unlisted.

[Raks]

Aiyo crowd funding is the modified version of 'ton-tin chit fund model' of which long ago been started by China and cases of the founder run away with the money.

For MoolahSense, you bit for the interest rate, the lower u bit the better chance u get it, if its a popular company wanted to borrow money, like the recent a Mobile scooter company closed at 13% p.a.

But usually not popular company the allocation is 'first-come-first served' basis like the coming a manufacturer of elastomer seals. Target to loan 200k, offering 19% p.a. on 12 mths equal installment.

You may apply to be their member, go into their website and you will notice some companies (e.g. a mobile related co) every month loans 150k - 200k from this scheme and becos of the lucrative commission (3k -5k) per application they will just approve it and pass the risk to the greedy investors.
Take upfront money return interest to investors, like using many credit cards scenario.

To me, its a 'Ponzi' scheme, capitalize on human weakness that is 'greedy' wow 19% p.a where on earth u can find this return.

The borrowers will keep on coming to this place to take easy money, one day if you don't approve my loan , I no money pay you and I will default...run road or declare bankrupt.

As for China case, the founder using 'Gemini Chit Fund' method, create all the fictitious hollow companies all money go to actually one person, then run-road.

Well, its only my personal opinion.

You have a point. 

I received this cold call recently. And, there is this bond offering 12% coupon. It sounded very attractive. And, it is issued by an agricultural company. 

Like any other investments we come across, its always important to question how the issuer is going to fund the repayment. Are there material risks in how they can eventually pay? 

At 19%, why not use personal credit? Think banks charge low rates for personal credit. 

Piecing all these pieces of the puzzles together, the average retail investor is always faces overwhelming odds against him. There is too much information asymmetry and that it is also difficult to depend on SGX to act as policeman, when they really have no track record in acting as a policeman in the financial markets. 

A very good reminder is that there is no free lunch. Investment takes up a lot of faith in the unknown and being able to act rationally to all available and (even) almost unavailable information. Failing to exercise common sense is a common mistake in many. One good example is the one which I mentioned above. If someone promises you 19%, then its important to pop the question "how are you guys going to pay up?"

I can't comment on the 12% coupon offer as I don't know the financial structure. All financial vehicles are subject to abuse. 

Personal credit is not relevant if it's a start up (maybe a real small, young company). Personal credit is based on how much the owner can earn. Even if the owner earns 10k a month, the personal loan the owner could get is only 40-100k, at , yes, a lower interest rate. Without sufficient money to fulfill the requirement, the money spent is a waste - for example, do a 10,000 SGD advertising "campaign" with media corp.

I think crowd funding provides a new avenue for fund raising. Do remember that for every increase in return, there's an even higher increase in risk. 

What I don't understand is the full subscription within minutes. Do the subscribers read all the documents or even know what business are doing going in? Or because it's 100, 1000? How much effort, due diligence is done? 
In startups selling cloths, students are taught to sell their cloths at lower price so that if the size doesn't fit, the buyer would be too lazy to request for an exchange. For example, a $10 skirts - buyer might complain online if the size/quality is not right; but if the skirt is $50, you will start getting requests to exchange that skirt. In crowd funding, if it turns out to be a ponzi, how many people would complain for their $100? To me the most dangerous part is this lack of due diligence - end up as crowd scamming - bottom of the pyramid kind of target for ponzi scammer.

In fund raising for start-up, series A (selling a concept, sometimes with no clear biz model or prototype) of funding gives the seed investor/angel investor insane amount of sweetener; but it's also most risky. In series B of fund raising, the company achieved some critical mile stones - but the a part of the money rise in B series would be used to paid the series A investors, for example, a 10% return p.a.; non dilutive preference share. And the series C, D.... all could be used to pay of the previous rounds. With each series, the risk is lowered and each equity sells at a higher price. 
And finally, IPO - the exit for Series A, B, C... Proceed from IPO funding would be used to pay off all the previous obligation/redeem preference share etc. 
Does this sound like a ponzi scheme? 


Uber has 15 rounds of funding and I still think it sounds like a ponzi to me  . But if Uber really goes IPO, all these 15 rounds of early investors would get at least a few times. The earliest 2 investors would probably gets 100x or more? What percentage does this seed funding of 200k gets from a total valuation of 50B upwards? Uber gets about 10+B from funding. So even the late-comers in pre-ipo will probably get 1-2 x. 

https://www.crunchbase.com/organization/...ing-rounds

And, not related, below is the strategy that I use now; although not the most extreme on either end of the barbell. Maybe buddies can think about it if you really get into those high risk, unregulated arena.

http://www.investopedia.com/terms/b/barbell.asp

[specuvestor]

At 19%, why not use personal credit? Think banks charge low rates for personal credit. 

Personal credit means u are personally liable till bankrupt. I didnt read the details but i suspect these crowd funding are under Pte Ltd

Thats why Trump can say he was never bankrupt...

[CY09]

Update: Epic centre will be raising 1 year notes of amt approx s$1-2 mil via Moolahsense. The effective interest ranges from 7.46% to 13.5% depending on the type of note. With Epic centre producing about 500k in cash flow annually before interest and income tax, the deal seems a bit "fun". Which listed company is next in line? Lionel Lee's Ezra? Embattled Rickmers Maritime? EDB Ezion?

And how long will it take to fill up? Stay tuned

Addendum: EpicCentre launched 1 mil worth of notes on 10 a.m and as of now, the company has raised 40% of it. To me, this huge success may be a precursor for more small listed companies to try crowd funding. It is worth noting the interest is almost triple than what Epic centre pays for unsecured bank loans.

Perhaps one day retail investors may be able to provide banking services to such listed companies through this platform.

"After all, my firm belief is that in the future, people won’t need a bank, they'll need banking."
- Piyush Gupta

<vested in the 13.5% equal monthly installment note>