YieldTalk news and links - 15 May 2022

✨ New Review: Percent – Invest in Private Credit

Percent is an online alternative investment platform offering investors the opportunity to invest in a range of “private credit” investments from more than 25 different originators.

The investments available on Percent are primarily short-term private debt offerings across a range of sectors and debt types, including receivables financing, consumer loans, venture loans, and litigation finance.

Notably, offerings on Percent often include exposure to international private debt investments (such as small business loans in Latin America).

Details and returns vary by offering, but target returns are typically 10-15% annualized, with an overall weighted average of 14.43% as of this writing (May 2022). Percent helpfully reports the weighted average APY for each of the originators they work with.

Most investments are short-term (usually around 9 months, but in some cases as short as 1 month or as long as several years), with monthly payments providing ongoing cash flow.

Percent has funded nearly 300 offerings to date, raising $559M in financing with 274 repaid and 6 defaults (representing a 1.82% default rate). At the time of this writing there is one open investment opportunities, but there are usually several offerings open at any given time (prospective investors should note the deals usually fill up quickly).

Investments on Percent are open to accredited investors. Our rating: Excellent. You can sign up for a free account at Percent here. 👈

Notable Offerings

• Bitcoin Discovery Fund. As an investor in the Bitcoin Discovery Fund, you’ll become a fractional owner of bitcoin mines that use “flare gas” from natural gas wells to power computers mining new Bitcoin. As these bitcoin mines regularly discover new bitcoin, the bitcoin are then distributed periodically to all investors in the Bitcoin Discovery Fund. Minimum investment is $5,000. Open only to accredited investors. Find out more at EnergyFunders  👈
• DeFi Securitized Mortgage Fund. The Fund seeks to generate income by investing in a pool of short-duration mortgages that have been securitized using Decentralized Finance capital and leverage without direct correlation to cryptocurrency. Minimum investment is $50,000. Open only to accredited investors. Find out more at New Silver  👈
• PFNF Series 81. Through the purchase of notes issued by this Pre-Funding Note Fund, LLC (PFNF), Investors can now invest in a line of credit used to pre-fund first-position mortgages originated by FTF Lending, LLC. The line of credit that PFNF issues is used by FTF Lending to originate loans prior to syndicating them on the online platform or selling to institutional whole loan buyers. Investors now have the opportunity to gain exposure to a pool of loans that are held on the line for a short duration prior to being sold. Minimum investment is $1,000. Open only to accredited investors. Find out more at Fund That Flip  👈
• 2010 Decade Collection. This collection is an excellent source of portfolio diversity with wines from Bordeaux, Burgundy, and Ribera del Duero, Spain. The decade from 2010 to 2020 produced some of the most excellent vintages of the past 30+ years in wine-growing regions across the world. Europe fared exceptionally well, with vintages like 2010, 2015, and 2016 heralded as stellar vintages across the continent. Minimum investment is $50. Open to all investors. Find out more at Vint  👈
• Soil Connect. SaaS platform providing dirt solutions and logistics for the construction industry  Minimum investment is $1,000. Open to all investors. Find out more at SeedInvest  👈
• Enhanced Crypto Fund. Invest in a Fund that provides investors with easy and cost effective access to index-like exposure to five-to-ten of the largest cryptos by market capitalization. Minimum investment is $15,000. Open only to accredited investors. Find out more at YieldStreet  👈
• Renovare Development. We are a majority woman-owned, social impact real estate development company. We focus on transformational mixed-use projects in urban areas and rural main streets that meet community needs. And we prioritize projects that are located in Opportunity Zones. Minimum investment is $500. Open to all investors. Find out more at Small Change  👈

Worth Reading this Week

A roundup of insights and interesting links from around the investment crowdfunding ecosystem.

The headline number is that US household debt is approaching a record $16T, in large part because low interest rates have helped home buyers borrow ever bigger mortgages (especially as housing inventories have remained stubbornly low). But the folks at Visual Capitalist do a lovely job (as usual) of also digging deeper to tease out the nuance in the numbers – in this case underscoring just how much student loan and auto loan debt is driving non-housing debt:

To put this in numbers, the average price of a new car has climbed from $35,600 in 2019, to over $47,000 today. Over a similar timeframe, the average price of a used car has grown from $19,800, to over $28,000.

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The Hedge Fund Journal published an in-depth look at the asset classes covered by Hedonova (read our review), which include investments in a number of the alternative asset platforms covered on YieldTalk. The piece also says that Hedonova plans to raise their minimum investment from $1,000 to $10,000 later this year. (As a reminder, YieldTalk readers get a $50 bonus when they sign up with Hedonova):

Hedonova’s portfolio construction seeks out lowly correlated strategies including art, equipment finance, collectibles, wine, and niche real estate with a range of different return drivers and patterns. Broad brush target allocation weights range from 2% for student financing to 20% for start-ups and will fluctuate with some active trading. For instance, the strategy started out with 3% in cryptocurrencies, which at one point reached 23%, and has been regularly top sliced to keep it below 20%. Hedonova was also tactically short of cryptocurrencies in late 2021.

Startups/Venture

The “anecdata” from startups and VCs alike continues offering more signs that the funding froth in traditional VC circles is settling way down:

About a month and a half ago, I started noticing my friends in the tech startup world getting grumpier. Founders were suddenly saying that they were having trouble raising money, and VCs were grumbling that they couldn’t find good deals. That got my attention, because for over a year the story had been the exact opposite. If you don’t know a lot of people in startup-world, it’s hard to imagine just how flush with cash the whole sector has been since late 2020.

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Jason Lemkin at SaaStr highlights a disconnect between what’s happening for startups raising Seed rounds vs. what’s happening further in the funding cycle:

Most important for founders to understand is the venture “crunch” right now is everywhere except seed. If nothing else, if you’ve recently raised a seed round, assume it’s much harder than people thought last year to get that Series A. And if you are a little later stage than that, be aware it’s just plain harder. Especially, harder to get a valuation that’s a lot higher than the public comps.

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More perspective on the current “VC pullback”, this time from Matt Turck, who offers a trenchant analysis of the current interplay among public markets, traditional venture stages (seed, growth, etc.) and crypto. (Props for his excellent memes – worth a look, especially for “Succession” fans):

As tends to be the case, the correction started happening in public markets (sometime in H2 2021), then propagated down to the private venture growth market (Q1 2022), then to the Series A/B stage (currently). Venture tends to work as an assembly line, with each investor depending on the next stage (either a next round of financing or a public company IPO exit) for their short term success. As the next stage becomes trickier, the natural inclination is to slow down activity to avoid having more investments slam into a wall. It takes a few months for that cycle to happen, and for a bear market to trickle down from post-IPO to seed.

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Crowdfund Capital Advisors has published results of their survey of investment crowdfunding activity through early 2022, and there’s some useful data points about current (and likely future) dealflow across investment crowdfunding platforms:

Even though the Q1 deal value was lower than the first three quarters in 2021, the number was still greater than Q4 and exceeded pre-2021 quarterly totals dating back to 2016. CCA analysts say that investment crowdfunding deal activity will likely see a delayed reaction to the public market slowdown but will remain strong given the need for capital across the USA —a trend to watch closely in the next quarter.

Real Estate

Rents continue climbing as demand outpaces supply for apartments, with both Zillow and Apartment List reporting increases of more than 15% year-on-year, which is great news for multi-family investors:

Clearly rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 4.5% YoY in March, from 4.3% YoY in February - and will likely increase further in the coming months.

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A lot of multi-family development and investment happens at the high end (like all of those luxury condos and apartments popping up in major metros), so it’s good to see coverage reinforcing that there are opportunities to earn healthy returns by investing in underserved communities, like this interview with the co-founder of Eagle Property Capital in Florida:

We are trying to have an impact on our residents lives. We are seeing also their income grow. We add value for them, for example, through programs that report payments to major credit bureaus that help boost their credit scores—that will also have an impact on their incomes

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As expected, rising mortgage rates are starting to dampen demand, with implications not only for direct home buyers and sellers, but also for investors in single-family rentals and multi-family apartments, who benefit from continued pricing power for rents as tenants who might otherwise move into their own home stay put:

We are seeing a significant change in inventory, but there is no surge in new listings. This means the increase in inventory is due to a decrease in demand, likely because of higher mortgage rates.

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This overview of new analysis out of Florida Atlantic University provides a super-interesting look at some of the dynamics playing out in the housing market right now in various major metros, and comparing them to 2007 (spoiler alert: this time it’s mostly different – unless you’re in Phoenix or Las Vegas):

What’s notable about the ongoing housing boom is the whiplash. Just two years ago, the housing market was reasonably priced relative to incomes (see chart above). In March 2020, only nine housing markets were overpriced by over 10%, according to Florida Atlantic University’s calculation. Back then, Spokane, Wash. (overpriced by 26%) was the most overpriced housing market. As of March 2022, Spokane is now overpriced by 55%—which doesn’t even put it in the top five—while 90 out of the nation’s 100 largest markets are overpriced by 10% or more.

Crypto/web3

In a recent newsletter, I called out an excellent explainer piece about web3 and crypto published by the NYT. A group of crytpo skeptics led by Mollie White has published an equally excellent annotated version of that NYT explainer piece, tempering what they see as undue boosterism in the original. Well worth a read to round out your own perspective on the topic:

Though its author, Kevin Roose, wrote that it aimed to be a “sober, dispassionate explanation of what crypto actually is”, it was a thinly-veiled advertisement for cryptocurrency that appeared to have received little in the way of fact-checking or critical editorial scrutiny. It uncritically repeated many questionable or entirely fallacious arguments from cryptocurrency advocates, and it appears that no experts on the topic were consulted, or even anyone with a less-than-rosy view on crypto.

Odds and Ends

• Wefunder Hit by $1.4 Million Fine, StartEngine Assessed $350,000 Penalty as FINRA Claims Funding Portals Failed to Comply with Rules
• Republic Planning $700 Million Crypto Fund: Report
• Litigation Finance Industry Outlook: Q1 2022