Update: On the same day I posted this article, two more businesses I backed successfully closed their offers by paying off the rest of the money ahead of the schedule.…
What Two Bad Apples In My Kickfurther Portfolio Taught Me
As you know, I am doing micro investment by backing various businesses on Kickfurther, an online investment platform.
So far I have had two bad apples in my portfolio. Their stories are different, but they both taught me valuable lessons. They are also good examples of what can go wrong with the Kickfurther businesses.
Here are the claims that failed to succeed:
- Max Axe Guitar that was buying guitars to fill up their stock;
- Comic Book Displays that needed to re-stock with comic book frames preparing for an upcoming comic-con season and to fulfill incoming daily orders.
While the stories are different, la fin was the same: The backers got… no, I will write about it in the end of the post 😉
Max Axe Guitar
This offer was from a guitar store that needed money to re-stock guitars for both physical store and online Ebay one.
It was a pure nightmare! The owner George Jacobs did not want to pay back and got caught many times on distorting facts and simply lying to the backers and Kickfurther team.
It all started innocently with the first payment missed.
At first, the owner said he could not make the payment because of some problem in the system. Then, his computer got broken. Then, he messed up with his Kickfurther account.
After that, he said the sales were good but a bit slower than expected. Eventually, George asked us to wait till fall when the sales would start moving much faster.
After the fall arrived and three payments missed the due date, the backers expressed a strong concern about a lack of clear explanations. Instead of calmly discussing the situation and proposing new payment dates, the owner started replying in an increasingly rude tone.
At some point, he changed the tactic and said he was very sick – but very soon, he turned back to his rude manners and made some threats about not paying at all. Later, he aggressively proposed to pay back with a different inventory consisting of two very expensive collectible guitars, which would be much harder to sell comparing to regular guitars he bought with our money. Here are his exact words:”I’m sending you 12K worth of guitars. Take or leave it.”
You see how it was evolving, right? I saw troubling signs after his first chain of excuses about the system and computer – but not all the backers felt the same.
Some of them believed George and were willing to give them more time to catch up. However, once he started threatening with no paying, it united the backers in their desire to cancel the order and invoke a default, which might end up with suing the business.
Meanwhile, the Kickfurther team was doing some steps on their side. They sent a representative to the George’s store to find out what’s going on because George did not reply to either their emails or phone calls. In the store, a sale representative showed the guitars purchases with the backers’ money and mentioned that a couple of them were sold. However, the backers got only a small fraction of the sales (yes, we got our first payment – 2 months later than it was supposed to be).
The Kickfurther’s SEO Sean De Clercq took the case under his personal control.
While dealing with the case, Kickfurther kept an active thread on Reddit and was sending us the backers update emails.
Meanwhile, the backers tried to get answers from the owner through the comment section of the offer. After a period of silence, George showed up saying that he made a deal with Kickfurther and the payments would be coming in soon. That seemed to a surprising but good news.
However, some of the backers already learned the lesson and did to not believe him. They contacted Sean on Reddit and asked about this new deal. Believe it or not, but Sean said George did not approach him and did not make any deal. That sounded pretty shocking!
So it was a pure lie coming directly from the owner of the business. After that, it was very clear that this offer was a lost case and there would be no other way to resolve it but proceed with the cancellation.
Now, look at their pitch:
- “WE HAVE AN EXCELLENT REPUTATION – With 100% Feedback, we have a proven track record of honesty, integrity, fast shipping, and accurate item descriptions. “
- “WE ENCOURAGE YOU TO ASK QUESTIONS – We love questions. An educated buyer is a happy customer so please fire away!”
This is an excellent example of how you should not trust what a business is telling about themselves. All these praises and bold statements turned out to be highly misleading.
So, how could I avoid backing this troubled purchase order?
Well, in this case, it would be very simple. A simple due diligence like looking at the website and searching for the owner’s feedback on the internet would tell a lot.
For example, the website looks like a mess: maxaxeguitars.com/about_us
Also, in the Reddit thread, one of the backers shared his findings of the founder: “using old eBay profile in the Credibility Metrics instead of the current one and his arguing with a reviewer I found later via Google search, are red flags of a bad business owner”.
That was a good lesson to learn.
Comic Book Displays
This offer was from a company that sells comic book frames, and they needed money to get more stock for the upcoming comic-con festival and to fulfill daily orders.
This business was nothing like Max Axe; they failed to fulfill the obligations simply because of a chain of misluck.
Read their pitch. It is also a very optimistic and positive pitch, which turned out to be quite inflated comparing to the reality.
First of all, they got unlucky by receiving a bad order from the manufacturer. Some measurements were not met, and the guys had to manually sand hundreds of frames to make the glass fit properly in the frames. They were in a rush because they wanted to an upcoming comic-con festival.
The frame adjustments were done right in time, and the guys went to the festival. Which unfortunately did not go well. It was a complete bust with the sales being only 50% of projected.
After the festival, the company concentrated on boosting regular sales.
But unfortunately (yes, again!), their distributor made a mistake in the preview catalog and listed the frames with a wrong price. The wrong price was almost twice as big as the correct one, and it probably scared many customers away. The distributor did acknowledge the mistake, but re-printing the catalogs would take about one month. As you can image, this significantly affected the payback schedule.
One month later, the backers voted for the cancellation of the contract.
Along the way, Comic Book Displays did make two payments, but they were very late. And again, making two payments is very different from paying it all back.
Businesses do fail, and sometimes the failure is caused by a chain of misfortunes.
What can we do about it? Nothing.
To protect the overall investment, we should diversify it. Investing smaller amounts into many projects is a good way to get a positive balance in the end.
Apart from that, I am now wary of backing businesses that do not have a history of stable success.
How The Stories Ended
The Kickfurther team does not follow each individual backing order in order to see whether it performs well or not. Instead, they rely on the backers to notify them about troubling contracts.
The backers can submit a complaint to Kickfurther after a business payment is a past due. Kickfurther then will try to contact the business to get an update.
Then, if the business is still under-performing (keeps missing payments), a cancellation vote becomes available. if more than 50% of the backers express non-confidence, the order gets cancelled.
After the order is cancelled, the business gets some kind of a grace period of 30 days to handle the situation. You can read about the details in a blog post by Kickfurther:
What happened in the case of my bad apples?
Since these orders were a part of their first cancellations, Kickfurther was very kind to decide that the backers should not pay for their learning 🙂
They sent us an email, in which we were offered a choice of what to do next:
- Let it ride – Keep the claim and proceed through the full cancellation process with Kickfurther
- Kickfurther refund that would pay back all invested money
So, the backers who did not want to deal with the hassles of the cancellation got back all their money without the interest. I was one of them, so I had no loss on my side 🙂
Now in the retrospective, I think maybe I should have gone through at least one of the cancellations to see how it works. On the other hand, if I want to see how it happens, I just need to be less careful in my investments! Not very hard to do hehehe 😉
What I Learned
- Doing a due diligence is very important – it is sometimes enough to simply take a look at the companies’ online assets
- Failures do happen, so diversify your investment portfolio! Especially when it comes to backing small businesses
- Kickfurther loves their backers 🙂 This is the most pleasant lesson I got so far 🙂
Current State of My Kickfurther Account
And here is a glimpse of how my Kickfurther account is doing now.
Currently, I have 23 claims in my backing portfolio. None of them is in troubled state (hurray!)
As you know, I started investing in June 2015 which was 9 months ago.
I invested total $1,084 which brought $135.59 in profit. The profit includes only the money that came from fully paid offers and does include the payouts from the offers that are not finished yet.
This makes 16.7% annualized (using a simple math without truly considering the compound interest). I think it is not bad 🙂
And here is a snapshot of all my history with Kickfurther. They finally implemented a new dashboard with a stats shown as a graph.
I am not sure why here the profit amount is $154.01 and not $135.59 as shown on my top bar. But the graph is still in a beta mode, so the discrepancy may be related to it.
As you can see from the graph, the projected account value will reach closely to $1400 by the time my account turns one. This will give close to 24% annually 🙂
If you want to play this game yourself, you can use my affiliate link to sign up and get a $5 credit. I won’t get any money, but instead, I will get a key that allows me to back an offer early while it is still showing as upcoming 😉
The featured photo by Emilian Robert Vicol