my first post here (please be gentle ) with a question/poll:
what would make you invest your money into a brand new company that promises to give you 7% pa on your EUR and 4% on your CHF?
Is it a physical collateral covering your money (e.g.: real estate)? Personal guarantees from the founders?
I’ve been doing direct loans with family& friends until now so was wondering what this group thinks about the options to scale this up.
thanks for any input.
I would use the same methodology than a bank uses to decide if it wants to lend money to a company :
- Require to see the income statement of the company to see its track record : the longer the period available, the better (i would like at least the income statement of past 5 years).
- Then calculate the average income before tax and interest of the company (EBIT)
- Looking at the current balance sheet, I would look at the other debt the company has, and what is the yearly interest it has to pay
- I would make sure that the average EBIT covers at least THREE times the sum of (interest the company has promised to you + interest the company already has to pay)
- if this test is positive, then I would invest (if I was a bond investor).
Obviously, you are talking a brand new company, without any track record, I would run away like the plague. The number of new companies failing in the following three years after creation is really too high to be interested in lending them money at 7%.
Look at this : with these proportions, you’d rather ensure a return of capital rather than a return on capital.
Well, for starters, you’d have to do quite a bit of work to convince me you’re not running a Ponzi scheme.
At least physical collateral. I’d still check with three lawyers, if I’d be able to cheaply get back my money if something goes wrong. For 4% before inflation, it’s anyway probably not worth the hustle for a long-term investor.
thanks for your feedback guys.
@Julianek indeed a good track record is fundamental - or a higher yield. thanks for the Motley Fool’s article
@Alex no ponzi, no ICO, just plain old simple investing in real estate (abroad CH) and factoring (buying invoices to CH SME companies) - but I get your point: transparency is key
@1000000CHF how much would you look for: 6% in CHF?
Noone in their right state of mind gives VC funding for so little return. The kind of numbers people expect to make investing in a startup are like 10x over the course of a few years. In equity of course, loaning money to a startup would be a joke - it’s too easy to fail and start anew with little consequences to the founders. If you offer real estate as collateral, then we’re talking RE investing instead of VC
Nevertheless there are apparently enough, eh, unsophisticated folks around who’d be happy to take your 7% and risk a total loss, you just need make it sexy and market the hell out of it. There were these guys not long ago -
lebijou.io/bond, raising money to buy not even real estate, but apparently just some friggin’ furniture and ipads in rentals at 7.25%! (They posted their balance sheet once, of course, it’s all by now gone off the internet, somehow I’m not surprised.)
It’s obviously mortgaged out to the gills, so you’d asking the investors to take up the rest of the risk that the much more informed banks don’t and property prices as we know don’t always go up