Author Topic: Kickfurther - Investing in small business inventory  (Read 8478 times)

TypicalVillain

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Kickfurther - Investing in small business inventory
« on: February 10, 2015, 10:58:08 PM »
Hi, long-time lurker, first-time poster here. I'm wondering if anyone has heard of Kickfurther . They let you invest in small companies by purchasing inventory for them. These companies have sold products before (e.g., from Kickstarter funding) but don't have enough capital to purchase more inventory to sell. (Typically they get really onerous loans from manufacturers, but Kickfurther has better rates.) In return for contributing, investors get a cut of the sales. The returns are 5-10% over a 4-6 month period, which can be 20-30%/year if you reinvest. They have already completed at least one of these rounds, so it's definitely legit.

Main Risk: What if they don't sell the inventory? Possible mitigation is that you actually own the inventory so Kickfurther can help you liquidate it and at least recover some of the capital.

What do you think? I like this as an alternative to LendingClub which just lends to individuals. At least with this you're investing in real businesses (and they don't lend to companies unless they've had at least one successful product run).

Edit: just got back my initial investment plus 10% interest after 1 month! Cool! See my reply below....
« Last Edit: November 27, 2017, 03:41:09 PM by TypicalVillain »

TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #1 on: February 11, 2015, 12:33:12 AM »
The $5 offer actually makes me think it seems a bit shady.
Yeah they just started it a few days ago, I'm hoping the referral incentive will go up. The site doesn't seem to have a huge problem attracting $$ though. I was on the edge but I was convinced by the CEO's pitch video:
https://www.youtube.com/watch?v=AXKmnsk4vXs

Yankuba

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Re: Kickfurther - Investing in small business inventory
« Reply #2 on: February 11, 2015, 09:59:00 AM »
It is very interesting albeit brand, brand, brand new. Keep us posted!

Eventure

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Re: Kickfurther - Investing in small business inventory
« Reply #3 on: February 12, 2015, 12:02:42 PM »
The pitch is great, very convincing.  What are the tax liabilities for investing in inventory like this?  Could I qualify for long terms capital gains rates somehow?

arebelspy

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Re: Kickfurther - Investing in small business inventory
« Reply #4 on: February 12, 2015, 02:54:40 PM »
Interesting idea.

At first glance, I don't think it's worth it on a risk-adjusted basis until the model is proven, but I do like to see people innovating.
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TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #5 on: February 12, 2015, 03:01:10 PM »
The pitch is great, very convincing.  What are the tax liabilities for investing in inventory like this?  Could I qualify for long terms capital gains rates somehow?
I think it's taxed at ordinary income rates. Since you own the inventory it's basically the same as selling something on eBay. The CEO did an AMA on reddit answering some of my questions:
http://www.reddit.com/r/business/comments/2uw30r/i_started_a_company_in_august_2014_i_had_a_500k/
http://www.reddit.com/r/startups/comments/2ux2rj/8_min_my_demo_day_pitch_in_front_of_700_people/

arebelspy

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Re: Kickfurther - Investing in small business inventory
« Reply #6 on: February 12, 2015, 03:25:00 PM »
The more I think about this, the more I dislike it.

Seriously, most of the ones on the website are offering 5-7% (albeit for a shorter time period than a year).  That's nominal, and it doesn't account for any risk.  Ugh. 

And you have no upside, your return is capped at that rate.

The people who will get sucked into this are the ones who fall for P2P investing as well.

If you want to invest in a business, become a part owner via buying stock.  Don't buy inventory for a random business and hope it works out because you're chasing yield.
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TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #7 on: February 12, 2015, 03:29:30 PM »
If you want to invest in a business, become a part owner via buying stock.  Don't buy inventory for a random business and hope it works out because you're chasing yield.
Since these aren't publicly traded companies, the only way to get involved is if you are in venture capital and have a LOT of $$. Of course there's a ton of risk, and I'd prefer if more information was available about the companys' cash flows. But it's at least an interesting idea.

arebelspy

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Re: Kickfurther - Investing in small business inventory
« Reply #8 on: February 12, 2015, 03:32:18 PM »
If you want to invest in a business, become a part owner via buying stock.  Don't buy inventory for a random business and hope it works out because you're chasing yield.
Since these aren't publicly traded companies, the only way to get involved is if you are in venture capital and have a LOT of $$. Of course there's a ton of risk, and I'd prefer if more information was available about the companys' cash flows. But it's at least an interesting idea.

Yeah, and I probably wouldn't want to invest in any of them.  But you can always contact the owner and see about directly investing.

I also wouldn't buy inventory for McDonalds at a 5% rate, and they're a solid, stable company.  I'd rather have ownership.  Now you're changing it to a small company that could fail at any time and I'm going to lend them at 10% (annualized)?  No thanks.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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skyrefuge

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Re: Kickfurther - Investing in small business inventory
« Reply #9 on: February 12, 2015, 04:41:40 PM »
Seriously, most of the ones on the website are offering 5-7% (albeit for a shorter time period than a year).  That's nominal, and it doesn't account for any risk.  Ugh.

It also doesn't account for the 1.5% Kickfurther takes out of the return. Though the deodorant one offered 10% in two months, so even 8.5% would be pretty sweet over that period. Not sure why a business would pay $202 for a 2-month, $1503 loan ((10% interest + 3.5% fee) * $1503 = $202), but it's probably because that was just an artificially-created seed-example to make the platform look like it's already doing business.

Anyway, I'm pretty sure the business model is "leverage the goodwill of Kickstarter 'fans' to get them to accept lower returns/higher risk than standard P2P-lending". On their What Makes Us Better comparison, the only features it has that exceed the features of P2P-lending ("Online Loans") are "Customer Engagement" and "Marketing Benefit".

I predict that people will find that getting a direct-deposit in their bank account is not nearly as exciting as getting a hand-signed version of the product or a pizza party with the deodorant maker or whatever, and without that emotional payoff to make up for the below-market returns, it's unlikely to see the same kind of success as Kickstarter.

joat

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Re: Kickfurther - Investing in small business inventory
« Reply #10 on: February 12, 2015, 06:01:16 PM »
I predict that people will find that getting a direct-deposit in their bank account...

Would people actually get paid by direct deposit? Out of curiosity I created an account to find out a bit more. I may be missing something, but I didn't see any way to link a bank account so I'm not sure how they would get paid. There is a withdraw button under the amount of available funds, but it's disabled since my balance is $0 so I can't determine how people would get money out. Even weirder, the only way I saw to invest is to pay by credit card. I wonder who eats those processing fees? Not only that, it could lead to some dangerous decisions for those who manage credit poorly. Imagine someone putting an "investment" on their credit card because of emotional attachment to a brand they want to support and then carrying the balance. I know they're a startup and I'm guessing it's much easier to process payments through a credit card as opposed to a bank account, but I think that if they want investors to take them seriously they need to get rid of credit cards completely and let users link a bank account.

I feel like the business model is really similar what skyrefuge said. I'd phrase it as: I like [some really obscure brand], so how can I support them? By loaning them money so they can buy more inventory and by purchasing their products. Especially since if you invest they actually try to sell you some of the company's products that you're investing in. The customer engagement benefit sounds more like a benefit to the businesses than the investor. Sure the investor may feel good supporting a business they like, but the business gets to borrow money from their existing customers to sell them and others more of their products. I feel like they're targeting consumers instead of investors: I think most investors don't care about having a level of engagement with their investment - they simply want to maximize the return on their investment while minimizing risk and work.

My other concern is that if it does take off, there are too few small businesses to make the platform viable for a large number of investors. The loan amounts I've seen on Kickfurther so far are pretty similar the personal loans on Lending Club. However, there are many more individuals looking to borrow money than there are small businesses that are looking to borrow money and meet their criteria. I've heard that Lending Club has had problems with too many investors in the past, so I really don't think Kickfurther would be able to keep up with a large investor demand unless the businesses on there started borrowing vastly larger sums of money.

TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #11 on: February 12, 2015, 07:20:12 PM »
Setting aside the question of whether it's good for businesses (seems to be OK but not spectacular) and whether it's a good business model: does this make sense for individual investors? Again I like it more than LendingClub because:
 1) ability to choose a company instead of some anonymous person who wants a loan to cover their credit card debt
 2) the offers are 20-30% per year vs, say 8% for C-grade loans on LendingClub.
I'd argue that the risk isn't too high because of the screening process (companies must be on their Nth production run) and the fact that you own the inventory - so if the business goes under you can liquidate (as opposed to a defaulted loan where you get nothing back).

hodedofome

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Re: Kickfurther - Investing in small business inventory
« Reply #12 on: February 12, 2015, 09:17:56 PM »
Yeah and we all know how much money you can get for inventory in the event of a default :)

I think Buffett sold some machines in Berkshire Hathaway's liquidation for $500, and they were purchased for $5k 100 YEARS prior.

Scandium

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Re: Kickfurther - Investing in small business inventory
« Reply #13 on: February 13, 2015, 06:15:00 AM »
On the face of it this does not sound like a great idea for the investors. But since they accept credit cards could it be used to manufacture spending? With some risk of course. Doing that with loyal3 was great, until they shut it down. But shares of Coke were probably a bit less risky..

GGNoob

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Re: Kickfurther - Investing in small business inventory
« Reply #14 on: February 13, 2015, 06:58:23 AM »
On the face of it this does not sound like a great idea for the investors. But since they accept credit cards could it be used to manufacture spending? With some risk of course. Doing that with loyal3 was great, until they shut it down. But shares of Coke were probably a bit less risky..

This is what I was thinking too...good way to get some cash back on the credit cards! So I'd at least get a 2.2% return with my cash back.

Eventure

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Re: Kickfurther - Investing in small business inventory
« Reply #15 on: February 13, 2015, 09:26:27 AM »
I think you're right about the tax question.

These returns seem to be above market to me if you annualize the rates and assume more offers will be coming up.  Are people saying these are below market rates because of the high risk profile?

arebelspy

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Re: Kickfurther - Investing in small business inventory
« Reply #16 on: February 13, 2015, 01:18:27 PM »
On the face of it this does not sound like a great idea for the investors. But since they accept credit cards could it be used to manufacture spending? With some risk of course. Doing that with loyal3 was great, until they shut it down. But shares of Coke were probably a bit less risky..

This is what I was thinking too...good way to get some cash back on the credit cards! So I'd at least get a 2.2% return with my cash back.

Uh huh.  And then when you lose nearly 100% of your investment, at least you only lost 97.8%?  ;)

I mean, I'll let you give me money to invest in something risky and use a CC to do so, if you're really jonesing to do so.
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Scandium

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Re: Kickfurther - Investing in small business inventory
« Reply #17 on: February 13, 2015, 01:27:30 PM »
On the face of it this does not sound like a great idea for the investors. But since they accept credit cards could it be used to manufacture spending? With some risk of course. Doing that with loyal3 was great, until they shut it down. But shares of Coke were probably a bit less risky..

This is what I was thinking too...good way to get some cash back on the credit cards! So I'd at least get a 2.2% return with my cash back.

Uh huh.  And then when you lose nearly 100% of your investment, at least you only lost 97.8%?  ;)

I mean, I'll let you give me money to invest in something risky and use a CC to do so, if you're really jonesing to do so.

I wouldn't do it for points, but for signup bonuses. If I'm a few hundred short for example. But yes, it does sound risky so would be low on my list of options.

tj

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Re: Kickfurther - Investing in small business inventory
« Reply #18 on: February 13, 2015, 02:51:08 PM »
On the face of it this does not sound like a great idea for the investors. But since they accept credit cards could it be used to manufacture spending? With some risk of course. Doing that with loyal3 was great, until they shut it down. But shares of Coke were probably a bit less risky..

As it turns out, I had a short term capital gain of $50 out of Loyal3. I also spent $10k total for 3 signup bonuses. :D However, I'm not touching kickfurther.

You can always buy a visa or mastercard gift card at the grocery store and liquidate it through evolvemoney.

TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #19 on: February 26, 2015, 04:03:25 PM »
Just an update on Kickfurther here. My initial "test" investment (in North Coast Organics, which was offering 10% return for a 2 month loan) was just paid back early (in 1 month). I invested $100 and got back $110. Pretty flippin sweet! I've invested in a few others that seem worthy. I don't like all of them, some seem a little too speculative, but many offers are for companies with unique, interesting products with an existing customer base. I'll continue increasing my investment size because I still think it's a great concept.

arebelspy

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Re: Kickfurther - Investing in small business inventory
« Reply #20 on: February 27, 2015, 08:09:59 AM »
How much time did it take you to earn that $10?
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TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #21 on: February 27, 2015, 02:36:41 PM »
From the time my CC was charged until the time the loan was returned, 23 days. The loan was for 60 days so they paid early (that's probably the exception). So it was a nice surprise.

dbtalon

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Re: Kickfurther - Investing in small business inventory
« Reply #22 on: February 27, 2015, 04:08:58 PM »
@Cathy, clearly you understand the $10 made was because of only a $100 investment. I don't think I need to tell you the math of what the return would be on a $1000 investment, and I doubt it takes as much time as you imply. Your argument is the equivalent of saying the stock market is worthless if you only buy $100 worth of stock... well, duh?

dbtalon

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Re: Kickfurther - Investing in small business inventory
« Reply #23 on: February 27, 2015, 05:02:47 PM »
I'm not sure what you're trying to argue, all I was pointing out is that you should be looking at percentages, not dollar values. Clearly $10 is nothing, but 10% in 1 month is ridiculous. Granted, this appears to be the exception not the norm on the site, and I have my other misgivings about it anyway (mostly I think there is a lot of risk).

TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #24 on: February 28, 2015, 01:09:59 AM »
OP's post above is a bit like saying: "I bought ten lottery tickets for $10 each and redeemed them in one month. Eight of them were losers. One of them won $10. The last one won $100. A net profit of $10 on a $100 investment in one month! Holy shit!"
This analogy doesn't make sense to me, sorry. I made 10% profit off of a single investment, it's pretty straightforward. It wasn't based on pure random chance like a lottery ticket, it was because I helped purchase inventory for a business that then sold that inventory at a profit. Anyway I think most of these businesses have a very high likelihood of selling their goods due to solid recent track records. Is it a guarantee? Of course not! That's why 1) I try to be discerning about which companies I choose and diversify among them and 2) I don't dump all my savings in here (I draw from the same pool of my savings which is devoted to investing in individual stocks (most of it is in index funds)).

Anyway, I think the way to think about this site is that it's a place for businesses to get captital from their fans (rather than from banks, though perhaps the rates they pay are pretty comparable) and also a way for people to support businesses they like while getting interest instead of just pre-purchasing a product like on Kickstarter.

Also the current maximum investment (per business) is $1000 though I imagine that will increase as they get more people involved.

xenon5

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Re: Kickfurther - Investing in small business inventory
« Reply #25 on: March 01, 2015, 01:15:50 PM »
Another observation:  None of these campaigns list how much inventory they're buying with the money, even though you as a backer are buying the inventory!  Will my $1000 buy 1000 hoodies?  300? 2?  Who knows.  There's no way to valuate the inventory in case they fail to pay you back and you need to sell it yourself.
« Last Edit: March 01, 2015, 01:41:02 PM by xenon5 »

TypicalVillain

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Re: Kickfurther - Investing in small business inventory
« Reply #26 on: March 01, 2015, 05:24:41 PM »
Another observation:  None of these campaigns list how much inventory they're buying with the money, even though you as a backer are buying the inventory!  Will my $1000 buy 1000 hoodies?  300? 2?  Who knows.  There's no way to valuate the inventory in case they fail to pay you back and you need to sell it yourself.
Good point, I'll ask them about that. It would be nice to know the margin as well. Although they do list the fraction of the inventory that needs to be sold in order to get paid back (it's usually around 50%). One of the perks of partnering with them is that you get paid before they make a profit.

Actually we can guesstimate the margin based on that number - if they break even at 50% of the inventory sold, then the cost of manufacture is 50% of the retail cost ($150 from their website), so $75. So they raise $10,000, minus 3.5% for Kickfurther is $9650, that buys about 130 hoodies.
« Last Edit: March 01, 2015, 05:33:20 PM by TypicalVillain »