Along with the folks from BIGScribe, we have recently released an informative ebook that explains Crowdfunding in Singapore.
You can download a copy here
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Reading it has given me a fundamental understanding of Crowdfunding, as well as the risks involved.
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.
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.
“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.
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.