A fund seeker with a good record approached your crowdfunding platform. Everything about the fund seeker looks good, except for one annoying detail: they’re on Month #3 of an on-going deal with a 6-month tenure.
When a fund seeker asks for a crowdfunding deal on top of an on-going one, that’s called stacking. Is stacking legal? Is it good? Or is it dangerous?
Obviously, stacking is legal. A person with outstanding balances in two or more credit cards is technically stacking. Big businesses implementing several projects do this too. So, why couldn’t people and businesses in the middle of the scale do the same?
So, if it’s legal, is it good? This is where the question gets a bit complicated. You see, it’s not necessarily bad. On the other hand, it’s not necessarily good.
From the point of view of fund seekers, stacking may be good. It would allow them to borrow money for emerging funding needs that are not currently covered by existing deals. For as long as their cash flow would allow repayments, why not indeed?
But it may or may not be good on the side of the crowdfunding investors, even if the fund seeker shows ability to repay two or more funding deals. The main consideration here is the management of risk, which is every investor’s handle in every deal.
Let’s assume that we measured risk in a scale of 1-10. When Deal 1 came with a Risk of 3, you thought that such level of risk was acceptable. So, you’ve invested on the deal. Note at this point that you had full control over this decision to invest in the deal.
Halfway through Deal 1, the fund seeker asks for Deal 2. Granting Deal 2 pushes through, wouldn’t it exert additional pressure on the existing
So, at this point, would you still expect Deal 1 to go through with a Risk of 3? Not likely, wouldn’t it? All of a sudden you have a deal with Risk level of 4 or 5. You’re already in. You’ve ceded control. Worst of all, you could no longer back out!
What if you’re an investor for Deal 2? If the picture for investors of Deal 1 looks diminished, what reason does that give you to be confident about Deal 2? You still have the opportunity to keep your money. That’s the good thing.
Manage your risks well. Stay away from stackers.