Envestio review: high risk, high return by crowdlending to businesses


As I've mentioned in my monthly updates, my P2P consumer loan portfolio takes a large share of my net worth. A too large share. To balance that, I am naturally looking at possibilities to increase my value stocks using ValueSignals, but more than that I'm diversifying in business loans through crowdfunding.


There are certainly a lot of players in this space (a great alternatives are Grupeer and Crowdestor), but for certain reasons I do like Envestio a lot.

Envestio background


Envestio started already in 2014 as a private investment fund and later turned into crowdfunding. Currently the website states a little above 8000 active investors, but good reviews mean more are joining the platform every day.

Envestio is small. And the crowdfunding operations are fairly new. Only 20 000 000 have been funded through Envestio so far - this is peanuts. Mintos has funded over 2 000 000 000.

Count the zeros.

So new and small, why do I like it? It's the high interest coupled with a buyback guarantee.

Buyback guaranteed, say what?

What is not completely common with business crowdlending, Envestio provides buyback guarantees on their secured loans. In practice it means that in case a project defaults you can opt to get 90% of the principal back instantly, or choose to get only 80% and wait for the remaining 20% to be collected through legal processes.

Envestio does provide non-buyback-guaranteed loans as well, but lately I have not seen those. Seems like investors are really preferring the guaranteed loans - a feature not all business crowdlending platforms provide.

Additionally, if a project is on track, you can sell it back to Envestio with a 5% fee, at any time. So, if liquidity is of interest to you, Envestio has thought of that, too.

How does Envestio work in practice?

Steps to get started with Envestio:
  1. Sign up on Envestio.com
  2. Verify your account with a photo of your passport
  3. Wire funds to your account
  4. ... and wait for an interesting project to become available
Envestio adds multiple projects every month, but due to its success, most projects get funded in an instant. To be able to invest through Envestio you need to have balance on your account ready. Once a new project appears, it's too late to start wiring money to your account.

To help you decide: by signing up now, I will give you 0,5% extra interest on your invested capital for the first 270 days (and an extra 5€ if you invest 100€ or more).

The team of Envestio

You don't need a big team. You just need the right team. At the time of writing (April 2019) Envestio's team consists of four people. That's not a lot, and knowing it I'm not surprised that their portfolio isn't larger. You can find the same people on LinkedIn. Also Jørgen did a fantastic in-depth review on Envestio last year where he met the team personally. It does look like the right team is in place, when four people have achieved so much.

What are the risks?

Risks? What risks? Oh you mean the fact that you can lose everything? Yeah Envestio has them.

The image Envestio wants you to form of them is that investing through them is safe. Here's a quote from their About Us -page:
Becoming a successful investor with Envestio is easy, secure, and quick.
I'm sure what they don't mean is that your capital is secure, just that the process of becoming an investor is. They do also have a page about risks, which is quite comprehensive.

When investing in anything, you should think "How can I lose all my capital in this?" Since if you only lose 10%, that's fine. You'll recover. It'll sting a lot, but you'll recover. If you're not prepared to lose 10% ever, don't invest. It's likely not for you.

So if Envestio says they guarantee your principal to 90%, what concerns have you left? What do you imagine happens if Envestio itself gets into financial trouble? Maybe goes bankrupt? How could that happen? How about a financial market downturn that leads a multiple of Envestio's projects to default at the same time, leading the company into a liquidity crisis? I don't know. But when I see 18% returns, I know for a fact there's a lot of risk. Otherwise, they'd be financing the projects with only their own money.

It's good that Envestio hasn't provided a 100% buyback guarantee. It gives the company a little breathing space in case some projects default at the same time. It also creates credibility, gives me confidence that they are operating with a plan. If they told they provided 100% buyback guarantee, I wouldn't believe them with these interest rates.

When most projects get fully funded within a day now, you don't have a lot of time for due diligence. Since the projects follow a similar pattern, I suggest you decide beforehand what kind of projects you want to invest and what not. That way, you can perhaps make your decision quickly enough when a new project appears.

Cons

A few things I don't like about Envestio.

Firstly, the fact that a lot of the investment opportunities fill up in hours tends to make you hasty. If you don't have time for due diligence, you're likely operating with just fear of missing out. Also, you need to leave money idle on your account so that it's ready for upcoming projects. When a new project comes, you have to decide whether it's the kind you want or whether to wait longer.

Some projects are pretty dubious. Crypto currency mining units? Even these projects get funded in a few moments, which I think is a pretty clear sign of herd behavior and thus, danger.

High interests suggest there's high risk, but it's very difficult to evaluate how high. With a buyback guarantee and so far to my knowledge no failed projects, it sounds too good to be true. It usually then is.

I dislike the fact that reporting is so limited. I like to visualize my investments and with Envestio it's all manual. Also, having a detailed access to transactions would make it easier to evaluate how things are going. Now, we just trust Envestio.

I'm not sure if I would rather have auto investments on Envestio

Pros

I haven't lost money yet. Instead, I've got a pretty high interest on the projects I've invested in. If all my investments were like Envestio I'd be filthy rich by now.

Envestio has access to a market that is very difficult to invest in otherwise. So far, they seem to have done a good job at selecting the right kind of projects, too. The exclusivity of this investable market means big money doesn't find it, which leads to higher interests.

The platform is easy to use and everything feels logical. It's not a hands-off platform, which I do like. How could anyone put auto-invested money into e.g. crypto currency mining rigs anyway?

Full disclosure

For me, Envestio provides a great high risk, high return opportunity to diversify in business loans. I have over 10 000 € invested in them.

If you're interested, check out my monthly updates where I update also Envestio's returns.

I'm planning to continue re-investing the returns I get on Envestio now, until I have a more balanced portfolio. After that, I believe I will happily keep Envestio as one of my top platforms. I'm planning to only fund secured loans to businesses I understand.

I'm giving Envestio four stars ⭐⭐⭐⭐. It's a great platform to diversify your crowdlending portfolio on, but I'm holding on to a star for improved data exports and a solution to the few and far between investment opportunities. I also want to see what happens when a project fails. A gracefully failed project would only increase my appreciation to Envestio.

If you would like to invest on Envestio as well, I have a sign up bonus for you: by signing up nowI will give you 0,5% extra interest on your invested capital for the first 270 days (and an extra 5€ if you invest 100€ or more).
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