I've always been interested in Angel Investing and helping to fund startup companies that have potential to become the next big thing. Up until recently, participation in the venture capital field has been limited to accredited investors with at least $1 million in assets and/or $200,000 per year in income. Now, thanks to the miracle of the internet, there is hope for smaller investors who want to get involved in the game of early-stage funding. A relatively new website called MicroVentures is revolutionizing the way startups raise funds by leveling the playing field of startup investing. To date the site has raised over $40 million for various startup ventures.
MicroVentures opens the door for accredited and non-accredited investors to invest in startups. Investors can get in on opportunities for as little as $1,000 per deal. Most of the available startup opportunities ask for a $5000 minimum investment, but it is possible to request a smaller amount. Most of the startups offered are in up and coming technology companies that are doing something unique in their field. All companies have been thoroughly investigated and analyzed by MicroVentures team members, but due diligence is still recommended on the part of individual investors.
I recently made an investment in an investing fund that works a little like a mutual fund. The fund, run by MicroVentures, invests in many or all available companies funded by MV. It was a great way to diversify the investment and spread risk across multiple startups. The funding round for the fund closed at the end of last month, but they may offer additional rounds in the future.
One downside of the site is that it can sometimes take a while for a round to receive funding. So, if you make an investment at the beginning of the funding period, your money could be held up for an undetermined amount of time, until the funding round is completed. Fortunately, site staff send out warning emails to let investors know when funding rounds are getting close to funding so that investors can get in at the right moment without the opportunity costs of having to hold cash in limbo on the sidelines. Another thing to keep in mind is that this kind of investment is very speculative. Your investment buys a small piece of an actual company, but the investment is highly illiquid. To get money out, you will have to wait for a liquidity event such as a stock offering, or a buyout of the company. You should expect this to be a longer term investment of at least 3 to 5 years.
In closing, if you like kickstarter, you will love MicroVentures. MicroVentures is like kickstarter for grownups who want more than a new toy in return for their investment. Go there and check it out today! https://microventures.com/
Monday, October 6, 2014
Wednesday, October 1, 2014
LendingClub-My experiment in using other people's money.
“Again, it will be like a man going on a journey, who called his servants and entrusted his wealth to them. To one he gave five bags of gold, to another two bags, and to another one bag, each according to his ability. Then he went on his journey. The man who had received five bags of gold went at once and put his money to work and gained five bags more. So also, the one with two bags of gold gained two more. But the man who had received one bag went off, dug a hole in the ground and hid his master’s money. Matthew 25:14-30New International Version (NIV)
In the parable above, the master commends the servants who gave him a return on his money. The servant who hoarded the master's cash was called worthless and condemned to outer darkness because of his unfaithfulness with what was entrusted to him.
Using other people's money to make money is older than Biblical history. In fact it is probably as old as all written history because before the invention of money there was no pressing reason to record anything in writing. Most things could just be passed down by word of mouth and stories. The invention of money brought with it the necessity for the creation of contracts to record transfers of wealth and ownership. Some of the oldest surviving examples of written words were part of legal documents.
In present times, there are still many ways to invest using other people's money to make money for yourself. One way I have been experimenting with lately is called interest rate arbitrage, using a peer to peer lending site called Lending Club. Lending Club allows investors or speculators to purchase part or whole interest in unsecured loans contracted by Lending Club.
Anyone who meets Lending Club's requirements can purchase notes on the site. Some states do not allow residents to purchase notes in the primary market, but interested parties can make purchases on the secondary market offered by foliofn.
I have made most of my note purchases through the secondary market because I am looking for loans with shorter terms than the standard 36 or 60 month varieties offered in the primary market. I choose shorter loan repayment periods for the obvious reason that I will get the money back faster. Shorter loans also tend to be safer because they have completed a greater number of payments to date. Lending Club's own internal statistics show that a loan is more likely to default between the first and tenth payment, so loans which have amortized more than 10 months will tend to be safer. Additionally, for the method I describe in the next paragraph, I have to look for shorter term loans so that monthly payments will match more closely to necessary monthly withdrawals. Also, I just like getting the money back out as soon as possible.
Currently, I am experimenting with interest rate arbitrage using zero percent balance transfer offers from some of my currently established credit cards. I now have accepted two offers. One offer is for 18 months and the other is for 24 months, both offer zero percent for the entire term. One thing to be aware of if you try this is the fee for using the service which is 4 to 5 percent of the entire amount you request. Be sure to factor that in up front. Also, don't do what I did and take out your entire credit limit on each card because it can affect your credit rating and possibly prevent you from getting more zero percent offers until you pay down your high balances. I am planning to pay off the entire loan amount by the end of the term, before any interest comes due. Alternatively, it would be possible to transfer balances to other zero percent cards before the zero percent offer expires, but only if you are willing to pay another balance transfer fee. I am planning to pay off the balances monthly payments based on amortization schedules that I calculated on bankrate.com. At the end of the loan periods I should have a positive return on investment that was made using none of my own money.
Using other people's money to make money is older than Biblical history. In fact it is probably as old as all written history because before the invention of money there was no pressing reason to record anything in writing. Most things could just be passed down by word of mouth and stories. The invention of money brought with it the necessity for the creation of contracts to record transfers of wealth and ownership. Some of the oldest surviving examples of written words were part of legal documents.
In present times, there are still many ways to invest using other people's money to make money for yourself. One way I have been experimenting with lately is called interest rate arbitrage, using a peer to peer lending site called Lending Club. Lending Club allows investors or speculators to purchase part or whole interest in unsecured loans contracted by Lending Club.
Anyone who meets Lending Club's requirements can purchase notes on the site. Some states do not allow residents to purchase notes in the primary market, but interested parties can make purchases on the secondary market offered by foliofn.
I have made most of my note purchases through the secondary market because I am looking for loans with shorter terms than the standard 36 or 60 month varieties offered in the primary market. I choose shorter loan repayment periods for the obvious reason that I will get the money back faster. Shorter loans also tend to be safer because they have completed a greater number of payments to date. Lending Club's own internal statistics show that a loan is more likely to default between the first and tenth payment, so loans which have amortized more than 10 months will tend to be safer. Additionally, for the method I describe in the next paragraph, I have to look for shorter term loans so that monthly payments will match more closely to necessary monthly withdrawals. Also, I just like getting the money back out as soon as possible.
Currently, I am experimenting with interest rate arbitrage using zero percent balance transfer offers from some of my currently established credit cards. I now have accepted two offers. One offer is for 18 months and the other is for 24 months, both offer zero percent for the entire term. One thing to be aware of if you try this is the fee for using the service which is 4 to 5 percent of the entire amount you request. Be sure to factor that in up front. Also, don't do what I did and take out your entire credit limit on each card because it can affect your credit rating and possibly prevent you from getting more zero percent offers until you pay down your high balances. I am planning to pay off the entire loan amount by the end of the term, before any interest comes due. Alternatively, it would be possible to transfer balances to other zero percent cards before the zero percent offer expires, but only if you are willing to pay another balance transfer fee. I am planning to pay off the balances monthly payments based on amortization schedules that I calculated on bankrate.com. At the end of the loan periods I should have a positive return on investment that was made using none of my own money.
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