Of course, you would not entrust your investment to just any fund seeker who approaches you, would you? But crowdfunding investors, particularly those who are in their first year or two in this industry, has this perennial challenge: how on earth would you know if a company is worth lending to or not?
To help crowdfunding investors who have been following us closely, we conducted a Lend or Fend Contest recently. On 30th May we announced the winner on Facebook. Someone posted a question about “the reasons to fend the other 2 companies away”.
This article seeks to answer why we think it’s wise to Fend off Company B.
Feel free to refer to the information available in this contest page in the discussion below - https://ph.seedin.tech/lendorfend.
Here are the essential facts about the company:
Fact #1. The company is 2 years old.
Conversely, they’re not yet eligible for bank loans. The banks have their own reasons for that. In a way you have to thank them because that gives a niche for crowdfunding platforms to operate in and for you to invest in.
Do companies less than 2 years old pose a high risk? Well, generally so. This is precisely the reason why you need to go deeper and look at the expertise of the owners.
Fact #2. The company was incorporated to provide general and wholesale of frozen food for a family business that already had 50 strategically located retail outlets in Singapore.
At the very least, what this fact will tell you is that this company has cashflow. The other thing this will tell you is that, while the company is new, its operation isn’t. You don’t grow a business operation to 50 outlets overnight. It requires lots of business acumen and experience, which leads us to the significance of the next fact.
Fact #3. The founder of the company has more than 20 years of experience in F&B business.
As the facts in the contest page would tell you, the 30-years’ experience isn’t all about operating and growing the family business. Around 28 years of that has been in one of the largest food integrated company in Singapore, which really says a lot about the insights that the owner needs to expand his business.
Fact #4. Revenues and margins are stable. But account receivables are high.
The historical financials provided by the client shows a very promising revenue stream and margins (see figures highlighted in red). Note that the revenues in 2015 was at par with than in 2014. Gross profit margins were also stable at 11.4% in both 2014 and 2015, which was in fact higher than that in 2013.
Fact #5 Upon incorporation, the company experienced tremendous growth with a strong account receivables.
Referring to the same table above, you could discern the stress in cash flow requirement from the sharp increase in 2014 revenues compared to that in 2013 (note the figure highlighted with blue). In the distribution business, there is always a lag between sales and cash receipts.
Fact #6. The current net worth of the company is more than sufficient to cover funding quantum.
Again, you can see that from the same table above (note the figure highlighted in green). It’s Share Capital & Reserves was $802,673. This figure was more than double its value in 2014 and certainly a much brighter figure than that in 2013.
Fact #7. This is the second time the company is approaching you for funding. The first funding has been fully and promptly paid.
You can see a decreasing trend in its Debt Ratio figures. That’s a very encouraging sign.
So, are you convinced? Would you lend money to this company? Why? Or Why Not?