“Business Talk am Kudamm” from Germany interviewed Danube Angels managing director Paul G. Putz and asked him exciting questions about crowd-investing.
Businesstalk am Kuhdamm: Crowd-investing is becoming increasingly popular. How do you explain this trend?
Paul G. Putz: In times of low or non-existent interest rates, many people are looking for alternatives to savings books, building society contracts etc., where the invested capital is worth less and less due to inflation and fees. Unfortunately, far too little financial education is taught in our schools, so that the majority of the population has little or no idea about the financial market and does not know about the various forms of investment such as shares, funds etc. or how to invest in a risk-balancing way. In crowd-investing, almost every online platform advertises low minimum investment amounts, so that some even allow investments as low as EUR 10. These low sums coupled with high, but not nearly risk-adjusted, promised returns, which are linked to a number of payout conditions if you read the contracts carefully, make crowd-investing look lucrative and make it more and more popular.
At Danube Angels, we offer equity investments in interesting growth companies from the DACH and CEE regions from a minimum investment amount of EUR 1,000. This minimum amount may seem high for crowd-investing at first glance, but a lower amount is often not possible or not reasonable for legal reasons. You will not find any promises of returns, as these are very difficult to make. If the company’s business is doing well, the investors also profit, but of course this is possible also the other way round. Nevertheless, for the asset class we offer our investors, a return of between 25% and 35% can be achieved if you will build up a diversified risk-balancing portfolio of many investments.
Businesstalk am Kuhdamm: Some online providers specifically target small investors. They advertise with low minimum investment amounts. How attractive do you consider crowd-investing for real estate?
Paul G. Putz: Almost all such projects are offered through subordinated loans. In doing so, investors are lenders and are worse off than financing banks or other lenders. So-called mezzanine structures as part of a financing mix in real estate investments are nothing new and have been used for decades. What is new is the collection from many small investors. Each investor must assess for himself whether the interest rates offered are appropriate as risk compensation. However, we warn against being blinded by certain fixed interest rates. At Danube Angels, we very deliberately do not offer subordinated loans, but only equity investments. For young companies with growth plans, these are the only sensible form of financing.
Businesstalk am Kuhdamm: Can crowd-investing deliver what is often promised: high returns with low risk?
Paul G. Putz: This statement, as it stands here, must explicitly be negated. Anyone who thinks that crowd-investing is associated with low risk is wrong. These are high-risk investments, as usually only one specific project/company is invested in. If everything goes well, the investor will receive the promised returns. However, if the company/project does not go according to plan or is even discontinued, the invested capital can also be lost, and the investor will receive nothing at all. Therefore, it can never be emphasised often enough that one should only invest amounts that one is prepared to lose. In order to reduce the risk of an investment, it is therefore essential, in our opinion, to diversify one’s portfolio and thus spread the risk over many investments. In this way, the loss of one investment can be compensated by the return of another.
Businesstalk am Kuhdamm: What tips can you give to interested investors?
Paul G. Putz: On the one hand, you should check every project/company you invest in regarding the feasibility/plausibility of the plans at hand. An essential point, also in the selection of our Danube Angels projects, is the competence of the entire team and whether one trusts them to implement the plans for the company. When it comes to the investment itself, we always advise to invest only those amounts that you do not currently need or that you are prepared to lose in the event of an emergency. A final tip, which has often been mentioned here, is to diversify the portfolio in order to keep the risk as low as possible. This means, for example, that an investment of EUR 10,000 should better be divided into 10 projects at EUR 1,000 each than an investment of EUR 10,000 in one project.
Businesstalk am Kuhdamm: Crowd-investing is a new market that has been opened through digital opportunities. How important do you consider digitalisation for the future of the financial industry?
Paul G. Putz: Alternative forms of financing are a growth market, as traditional banks are not allowed or do not want to take on their financing role, especially for small and young companies. Digital business models are playing an increasingly important role, not only in crowd-investing but in all business areas in general.
Businesstalk am Kuhdamm: Mr. Putz, thank you very much for the interview!