At Crowd2Fund, we want investors to get the most out of the platform, enabling them to get the best returns for their risk appetite. In October we started our first video series of Investor Top Tips. Below you can find all the episodes, covering: the importance of diversification; using our secondary market, The Exchange; performing your own due diligence; and maximising your rate of return.
As Harry Markowitz (a Nobel Prize winning economist who introduced Modern Portfolio Theory) famously stated: ‘diversification is the only free lunch in finance’. His research indicated that by building a diversified portfolio, investors can reduce their risk without impacting their potential returns.
Diversification is worth thinking about because even after our comprehensive due diligence process, a few loans unfortunately can become distressed, so investors may not get all the capital back from an opportunity they have invested in. Therefore, in order to avoid being over exposed, investors should take calculated risks and invest in a wide variety of opportunities from different companies and sectors.
Additionally, investors should consider weighting their diversified portfolio towards their interests, values, and risk appetite. Investors should put more money in opportunities that appeal to them and less in opportunities that don't.
For example, with the annual IFISA allowance of £20,000, investors can build a diversified portfolio by spreading the capital across 100 opportunities, averaging £200 investments in each. If they find an opportunity that resonates with them, investors can invest a higher amount, say £300; on the other hand, if they are feeling cautious, then it's recommended to invest less.
Harnessing the capabilities of the Exchange will lead to increased opportunities, as follows:
As the seller, the platform provides a flexible way for investors to sell their investments. The seller defines the price of the trade which indicates the offered APR. The more competitive the price, the quicker the investor can free-up their capital, or, by selling at a premium, they can generate instant increased returns. If market demand is high, sell at a lower price, or at a higher price, should market demand be low. If an investor owns a distressed investment, they may want to sell at a loss to prevent further losses.
As the buyer, investors have a choice of hundreds of investments allowing them to quickly build a diversified portfolio and take advantage of any missed opportunities. Using our historical data and filter functionality, investors can review the investment's performance, make educated investment decisions, and potentially buy-in at a preferential rate. Investors can often find remarkable deals on distressed loans so if they take a calculated risk and purchase these, they will earn a greater return should the opportunity fully recover.
Please note that purchasing a loan on the Exchange just transfers the ownership of the loan and the sale price is not necessarily reflective of the risk level.
Every campaign page includes the following information:
Description & Images: These provide a feel for the company, what they do and what their intentions are with the funds they raise. We also include a link to their website.
Product Type: There are five products on offer: Loan (low risk), Revenue Loan (medium risk), Bond (medium risk), Venture Debt (high risk), Equity (high risk), and Donation (no risk).
Interest Rate: A higher APR reflects an increased risk, but with it comes a larger return.
Term: The longer the term of the opportunity, the longer the exposure to the loan and therefore the higher the risk.
Security: Opportunities that are Director Guaranteed or Secured will reduce the chance of being 'written off'.
Financials: Profit & Loss figures and Balance Sheet from the recent accounts indicate the company's growth, profitability, and leverage.
Credit Score: The independent Credit Score for the business is an indicator of the business's credit worthiness.
Key People: Put a face to the directors and check their background with the link to their LinkedIn profiles.
Finally, if after reviewing the above an investor would like to know more, they can ask the directors a question directly through the campaign page.
The majority of opportunities available on the Crowd2Fund platform give monthly repayments into the investor's wallet as a combination of principle and interest. By reinvesting repayments, the investor will be earning interest on their repaid interest – this is known as Compound Interest – and increasing their potential returns. However, investors should bear in mind that any funds paid into their wallet are no longer invested and are therefore not receiving interest.
We make reinvesting repayments easy by offering the 'Smart-Schedule' feature that automates reinvestments rather than letting it sit in the investor's wallet earning no interest.
All investors get notified by text and email when the status of an investment changes. On the 'My Investments' page, an investor can check on the status by hovering over the marker:
Good (no marker): The loan is repaying on time & correctly.
Restructured: This loan has been restructured to help the business.
In administration: We are committed to recovering the full amount with the help of our legal team and the administrators.
In arrears: The business is behind on repayments.
Arrangement: We have agreed a recovery plan with the business.
In default: This company has been taken to court.
Written off: The legal team attempted full recovery but was unable to retrieve the remaining amount of the loan.
Recovered: The loan has been recovered.
By clicking on the opportunity, the investor will find further information on the campaign page, including a ‘recovery timeline’ for in arrears and in default:
In arrears: The business is behind on repayments and we are working with them to bring the loan up to date.
Default letter: A default letter has been sent, the director has 20 days to respond.
Statutory demand: We have filed a 21-day statutory demand to legally enforce the recovery of the funds.
Bankruptcy petition: A petition is being filed to bankrupt the directors via the Personal Guarantee if they do not repay the loan and assets will be seized.
Court order: The court has issued an order to pay or the directors will become bankrupt.
If an investor would like further information, they can ask a question through the campaign page that will be picked up by our Recovery Team.