Analysis

Merging Kickstarter’s crowdfunding with the concept of p2p lending

Kickstarter is now a household brand, the startup which gave us crowdfunding.  But what about companies which have already launched their products and need capital to grow? Kickfurther, founded in 2014, is probably the first peer-to-peer crowdfunded inventory marketplace. The aptly named Fintech startup Kickfurther, based in Boulder, Colorado is looking to solve the pain point of consumer companies whose cash flow needs outstrip their sales. The business model also helps consumers of a brand earn a whopping 30% annual interest while supporting a brand they love. The company was cofounded by Sean Clercq and Andrew Westwick and won the inaugural PitchIT competition at LendIt USA 2015. Kickfurther has raised $ 1Million so far in seed funding (Including $575,000 in October 2015). Boomtown Accelerator is a major investor in the firm. The company has been able to get on board John Donovan as an advisor; he was a member of the founding team of Lending Club and served as its COO as well.

How it works

Every company holds inventories of ready-for-sale finished goods, which sucks up precious cash of the company. After the financial crisis of 2008, traditional bankers have restricted lending to SMEs, especially on their sitting inventory. Sean faced the same issue with his merchandising company and Kickfurther was born to solve this pain point for growing businesses. These businesses post their ‘offers’ on the platform stating the returns, timeframe and amount of funds required. They get finance terms at comparatively cheaper rates as compared with the discounting, merchant cash advance or factoring model. When an ‘offer’ is fully picked up by a crowd of investors on pool basis, Kickfurther “buys” inventory from the business unit on consignment basis on behalf of investors as an “agent” and asks the business owner to sell the consigned inventory on its behalf and return the funds within the stipulated timeframe or on sale of inventory, whichever is earlier. Businesses sell the goods and the investors receive the paybacks from the Company on a monthly basis, proportionate to the inventory sold.

Regulation

The investor and the borrower have technically executed a consignment contract. The investor is not lending money and essentially is buying a portion of the inventory. As such, it is statutorily not required for Kickfurther to get registered with Securities and Exchange Commission (SEC), helping reduce the regulatory burden for the startup. This also increases the investment universe, with the site being open to all kinds of investors.

Due diligence

The small business owner has to get itself registered with Kickfurther by filling its online application form and the Company accords its approval after scrutiny and after that the approved unit is qualified to be listed on the Company’s platform. The platform accepts offers against inventory classified under Consumer Products including Active Lifestyles, Apparels, Cosmetics and Health Food, etc. Perishable inventory is not allowed to be listed for obvious reasons.

Business model

Kickfurther charges a fee of 3.5% of the amount funded to the business. Kickfurther charges an additional 1.5% from the investor’s returns when they actually withdraw the funds. Minimum investment allowed per investor is 100 USD. Minimum investment allowed per deal is $20. There is a restriction that the investor can not contribute more than 10% to the ‘offer amount’ in total and 5% on the first day, as the Company aims to source contributions from maximum numbers of investors.

Timely Payments & Defaults

In the case when the inventory is not sold within the given timeframe then the investors collectively decide whether to ask the business unit to lower the value of consignment so as to sell it to some other party or hire some liquidation company to sell the inventory. Under the Uniform Commercial Code (UCC) subsection ‘1’ governing commerce in the United States in matters of selling, borrowing, lending, and other matters of trade; inventory involved is the property of Kickfurther and as such the Company is empowered to take repossession of that inventory. However, these consignments are not covered if the business unit goes bankrupt during the stipulated timeframe. Till now, there have been eight defaults – five consignments were renegotiated and sold, and three inventories were handed over to the liquidators of which the principal amount was recovered. The Company is contemplating to collaborate with sites like Alibaba, Paypal, and Shopify to have real-time information about the sale of consignment. Those businesses which payback within the stipulated timeframe or earlier, stand to gain in future as they can make their next offer at reduced rates because they generate goodwill among the investing community.

Growth & Returns

Kickfurther had a good opening with the offer of 10% by Marlie Madison, a Dallas boutique which raised $2977 in November 2014, and repaid in less than two months.  Kickfurther’s crowd funding platform became fully operational in January 2015.  It has been growing rapidly since then. Its funding has exceeded $6.0 Million to 200+companies in 240 offers so far. Its volumes have grown at an average of 100% per quarter during the last four quarters. The businesses have also been able to increase their earnings because of deployment of the raised funds for their further growth. Non-accredited investors are able to earn higher returns against inventories of a brand of their own choice. Investors through Kickfurther platform have earned amazing returns of 30.04% on an average annualized basis; although most of the deals are of six months duration with an average of 10% return over that timeframe. In future also, projected returns are expected to remain around 30% p.a.

Partnership with NSR Invest

Kickfurther announced a strategic partnership with NSR Invest, a peer-to-peer investment management platform, at LendIt USA 2016. This collaboration will enable the investors using Kickfurther platform to analyze ‘offers’ using the best analytical tools of NSR Invest. 5000+ strong user base of NSR Invest will also have access to Kickfurther platform.

Size

Kickfurther entered into a partnership in 1st week of March 2016 with SODO Apparel Inc. (SODO), an international apparel company to finance their inventory totaling USD 257,920 through their crowdfunding platform by March 19, 2016. SODO ‘offer’ was @10% for a timeframe of 7-1/2 months. This was the largest successful Kickfurther campaign. Earlier also they had made an ‘offer’ for USD 45,273 which was picked up within 10 minutes of its launch. SODO repaid Kickfurther 75 days earlier than maturity period, thus cementing its reputation.

The Future

Kickfurther has redefined the inventory financing industry with its unique model of merging Kickstarter’s crowd funding with the concept of p2p lending. Kickfurther’s concept has the ability to incorporate intuitional lending as well, which will be a win-win for the business and the lender. It also has a compelling revenue model when successful businesses (like SODO) re-raise money as it can keep charging its 3.5% fees for even the new raise from already successful companies. With an 85% fund rate, the company seems to be doing better than its inspiration, Kickstarter!

Authors: George Popescu and Heena Dhir

George Popescu

 

 

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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  • Don’t get too excited about those 30% returns, or the consignment concept. I’ve been investing with Kickfurther for over a year. Using the XIRR calculator at http://www.lendingmemo.com/xirr-calculator/ my annualized returns are between 8% (assuming no further returns on offers I think have gone south) and 18% (assuming those offers all pay out totally). So far there have been no offers where Kickfurther re-possessed the inventory and reported that they were able to sell it. Further, while payments are supposed to be based on sales, for the most part it seems companies are either paying in a linear fashion or are behind in payments; early payments only come if the company wants to do another offer.

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