This post is also available in: Deutsch (German)
First of all I want to offer my appologies to my english reading visitors. Normally I try to translate my posts from German into English within two days after the German post has been released. Lately, I really had a lot of things to attend, so my time was very limited. I hope the situation will get better in the next weeks and you get my posts translated shortly after the German ones are published. Here we go:
At the beginning of this year Envestio got my attention when a Latvian digital marketing agency introduced it to me. Their goal was for me to publish a post about the marketplace. I highlighted my concerns over the platform as I found the loan supply confusing (Real Estate in Spain, Cryptomining etc). Further I could not imagine that there really were projects paying 18% of interest to investors (including buyback). The cryptoloan paid far more then 20% if I remember correctly. In the end I had not enough trust to try the platform and review it at that time, even though all my questions were answered and they tried to be as transparent as possible. So I declined, but still watched Envestio, until in July I was confident enough to give it a try with some pocket money. Now I am able to give you an overview of my so far experiences.
Registration/Deposit/Withdrawal – Cashback included
If you are registering thorugh this link, you’ll get 0.5 percentcashback on your investments during the first 9 months. Cashback will be credited around the fifth every month, directly on your investment account.
Sign up is straight forward, confirm your email and you are in. Copy of your ID plus utility bill (or bank statement) is needed only before withdrawing. I suggest you do the verification in advance, so a withdrawal can be made any time. Somewhat special to me is that if you request a withdrawal you can fill out a blank form with your bank data, the data can be overwritten and is saved after each request. The first thing that came to mind was: What happens if I get hacked and all my money will be sent to another person. Envestio implemented a security mechanism for that, they double check withdrawals before processing. Only withdrawals will be processed if the beneficiare is the same person as the registered investor.
Minimal deposit amount is set to EUR 100, but you can invest from 1 Euro into each project. A little strange handling, huh? 😉 But that did not stop me 😉
Buyback guarantee/secondary market
Envestio does not (yet) provide a secondary market in the traditional sense, but they will rebuy your loan parts at a 5 percent discount rate. This means you’ll get EUR 9.50 back immediately for a EUR 10 loan part. This option is available until the maturity date is reached. If you do not sell your tranche and the loan defaults, you will get automatically 80 percent of your capital back. For the remaining 20% your got two options: 1) immediately take 10% and get 90 percent total. Or 2) you wait for the recovery process to happen and could get in the best case the rest back. I think this is just hypothetical, but it is your decision. Worst case you do not get anything out of recovery and have got back 80 percent. I asked if a loan can be prolonged if the maturity is reached and interest is paid monthly. Envestio would ask the investors if they would like that to happen, but generally they would like to send the loan into default and begin recovery proceedings. My impression is that the marketplace would not wait very long to get active with the recovery. They wrote that on their blog. But this is only my gut feeling. If this happens like that in reality is another, not yet tested, case.
So far, no loan was in default according to Envestio.
Envestio offers a 100 percent buyback guarantee on certain projects, if you invest a defined amount, like 10k for example. In such a case, please keep in mind that this guarantee comes from Envestio, so if Envestio defaults, to guarantee is not worth that much.
Each loan is secured as laid out in the project description. There are commercial pledges and owner personal guarantees. An owner guarantee is not much worth to me as mostly the owners money is already inside the company. Furthermore as the loans are mostly to small enterprises with low capitalization.
One can ask if these companies are really that desperate as they pay 20 percent (I just take this number for the ease of the example, although the loan would cost more like 25 percent when platform fees are included) interest. I think we have to differentiate here a bit, as most loans are maturing within 3 to 9 months. If a company pays 20 percent annual for 6 months, this makes 10 percent effectively. If a company needs that liquidity to purchase material or for working capital purposes, I guess 10 percent are feasible. If they can operate with a good margin, my guess is this is an alright situation. To be clear: I still think the loans are high risk, but I can understand the need for bridge finance in a business.
Envestio is online since 2017…
… as marketplace, but already operation since 2014 as a private fund, according to their website. I asked the management why they came public and deal with retail investors, and why did they not stick to sophisticated/whealthy people. Background of my question: to get 100k in funding, one sophisticated investor is sufficent, but to get the same amount from retail investors, you would need like several hundreds. What is the easier path? I guessed the first one, but Envestio thinks otherwise. They see a huge potential in crowdlending, plus it is scalable. Furthermore crowdlending is only one part of their services the will offer. Last but not least, the Envestio people think that offering nice interest rates to the crowd for bridge financing business is a win win situation for everyone and it supports the economy. I agree on that one. Oh, if a big hitter is reading this: The platform has always some special projects available for people wanting to invest 100k plus. Just register and get in contact with them.
My closing thoughts
To date all my interest payments came punctual, no delays (which makes me sceptical). As no loan has reached maturity yet, I cannot talk about defaults or recovery proceedings.
You may have read between the lines, I am torn between that this is a great investment but very very risky. On one hand I like the idea to provide liquidity to companies for growing their business, on the other hand I think this is as risky as it gets. Such high interest rates do not come without high risks. One should remind himself of that before investing. I often consult the magical investment triangle (liquidity, return, risk) to assess investments. We here have good liquidity (monthly interest plus partial buybackback option), stellar returns so this means risks must be high (appologies if I repeat myself, but my mind is swirling around the risk part). What can I say more, just remind yourself of the risks involved and do not invest more then you are able to lose.