Crowdfunding platform borrows a page from private equity
New fund offers 11% yield, no fees, two-year lock-up to accredited investors, but it's risky.
The latest twist in the fast-evolving crowdfunding market borrows some aspects of private equity.
Wunder Capital on Monday plans to launch its second investment fund since June, employing many of the structures used by private equity funds, but with a few tweaks that still qualify it as a crowdfunding platform.
For financial advisers, the appeal of the Wunder Bridge Fund might be the promise of an 11% yield on an investment that has no fees, a $1,000 minimum, and just a two-year investment lock-up period.
The one caveat is that, even as the Securities and Exchange Commission ruled last month to make it easier for these kinds of crowdfunding platforms to invite retail-class investors, this particular strategy is restricted to accredited investors.
RISKIER
Bryan Birsic, Wunder Capital’s chief executive, fully acknowledges that the attractive yield is in sync with the kind of risk that he’s packaging in a fund of short-term loans to installers of solar panels.
“This is quite a bit riskier than our first fund [Wunder Income Fund],” he said. “There’s no good source of default rates for this kind of fund, and in full default we would expect to recover about 15-to-20 cents on the dollar.”
Mr. Birsic is hoping to leverage the relative success of his first fund, which has attracted $1.7 million from investors. About $1 million of that has been put to work making loans to businesses that want to finance the installation of energy-generating solar panels. Those loans average in the $500,000 range, and the fund is targeting an annualized yield of 6% to investors who commit to a 10-year lock-up.
The Wunder Capital business model is structured like a financing company linked to an automobile dealership.
“We have 55 solar installer partners in 50 states,” Mr. Birsic said.
As with many crowdfunding platforms, Wunder Capital relies on a lot of small investments from individuals to help finance his objective, which in this case is commercial loans for the installation of solar panels.
The investments can be offered without fees because the model charges borrowers a 1% servicing fee in addition to a 2% loan origination fee. The Bridge Fund dials up the model a few notches, including doubling the servicing fee on the underlying loans to 2%.
SHORT-TERM BRIDGE LOANS
The second fund is also making what amounts to short-term bridge loans, averaging $250,000, of between two and four months to solar panel installation companies.
It’s estimated that there are already hundreds of crowdfunding platforms dotting the financial services landscape, and last month’s ruling by the SEC, which will take effect early next year, is expected to fuel an aggressive push into the retail investor space.
“We will be launching several [investment options] on the day that the rules allow us to go live,” said Ron Miller, chief executive of StartEngine, a five-month-old crowdfunding platform that has already attracted 30,000 investors under a different provision of the JOBS Act that involves more reporting and disclosure requirements than will be required under Title III.
The new rules allowing crowdfunding platforms to offer private equity access to non-accredited investors are not quite luring investors into Wild West of alternative investing.
For starters, any deal offered under the rule will be limited to a $1 million capital raise within a 12-month period. And even though it caters to retail-class investors, the individual investments will be capped at between 5% and 10% of gross annual income.
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