As Nietzsche wrote in 1888: “Was mich nicht umbringt, macht mich stärker” or… “What doesn’t kill me makes me stronger”… This famous quote seems to be the basis for the outstanding evolution of Crowdestor in this vibrant 2020, where not only has survived a worst-case scenario crisis with the debacle of several high yield platforms first followed by the terrible Covid-19 pandemic but it has also managed to grow and develop an ambitious plan greatly improving functionality, transparency and user experience while pursuing new grounds with new branches and scope of activity.
Today we are lucky to have with us Janis Timma, Crowdestor CEO, to go through some of these changes and milestones and answer our questions. Thanks for coming to TodoCrowdlending.com!
1 – First of all, Janis, for those readers that are still not familiar with your platform… can you please briefly explain what Crowdestor is and what your value proposition is for investors?
Thank you, Jesus, for the fascinating introduction. You are absolutely right- the Nietzsche quote applies to us very well this year. I had to make several critical decisions during this year in order to withstand the consequences of the pandemics.
For those investors who are not familiar with CROWDESTOR – we are a crowdfunding platform registered in Estonia. We offer investors from all over Europe to invest as little as Eur 50 in quite exciting businesses.
CROWDESTOR was founded in 2017. Since then, the funded projects portfolio includes diverse businesses from Mobile Video Game Dystopia with Conor McGregor as an ambassador, Restaurants in Moscow, Berlin, and Riga, a Hollywood movie WarHunt starring Mickey Rourke, Biomass district heating plant, a famous fashion brand, projects from real estate and forestry, and many more.
Besides, this year we have launched the new product called SME Automation, getting into the small and medium business financing field. This product is unique because any small & medium-sized enterprise(SME), currently only in Latvia and Estonia, can apply for funding on the CROWDESTOR platform, go through our proprietary scoring model, and receive an answer completely online.
To sum up, we are the crowdfunding platform where private individuals get access to investing in high-growth or closed to private investing businesses. Previously this type of investment was available only Venture Capital funds or high net worth individuals (HNWI). We revolutionized investing and made it affordable virtually to anyone. And besides, we pay a very competitive interest rate!
2 – Apart from diversification, probably the most unique and differential trait that sets Crowdestor apart from its competitors is the high yield interest rates you offer in the projects published in your marketplace. Nowadays it is common to see projects above 20% annual return or even 30%… But looking beyond the interest rate, what do you think it is the actual annual return that can expect a well-diversified average investor in Crowdestor in the long term, taking into account expected losses in some of the projects, etc.?
The current year is different in many aspects. The businesses that were crowdfunded on our platforms felt the effect of the crisis in different ways. The biggest impact was on the apparent sector tourism- the resort in Cambodia, of course, expects delays. Other borrowers were affected in one way or another by either hold in the supply chain or the lockdowns. The investors experience delays in interest payments. We have an active role in the debt collection process and we are oriented to incur as little loss as possible in the hardest hit segments. We are actively working on debt collection, restructuring offers to borrowers, sale of the borrower’s assets, future development plans like the resort in Cambodia, and many more.
The Actual Return calculation right now would not be very accurate as many payments are still pending. Some projects like WarHunt are offering an equity upside, which would drive the Actual Return very high. Even though there would be losses, the return still would be in double digits Also, it is very conditional on what projects the investors have invested in. The two well-diversified investors can have very different portfolios. One investor might have delayed payments or have no delays at all. The vaccine is now approved. The end of the corona crisis has an endpoint in the near future. We are preparing for the revival of the business activity in 2021 which will put an end to the delayed payments that some of our borrowers are experiencing. Only in 2021, it will be possible to judge what the actual return for the investment portfolio was.
3 – As we mentioned in the beginning, a lot of great improvements have arrived to the platform during the last few months, including the improved dashboard and investor cabinet, secondary market, voting system, statistics, etc. but my favorite probably is the automatic Credit Report for SME loans where you even give the investors an estimate of possible capital loss chance and amount… How confident are you about these estimations and the overall value it provide to us as investors of the platform?, Which % of loan applications are being rejected since the implementation of this automatic Credit Report feature?
Thank you. Indeed, an Automatic Credit Report adds value not only to the investors but for the borrowers too. The great thing is that regardless of the final decision, any borrower applicant gets the automatically generated Credit Report, where the business can see the strengths and weaknesses—these tips they can use to improve their financial situation and eventually boost their future growth.
If the application was approved, the loan is placed on the platform for crowdfunding. Every investor gets to see the Credit Report before making an investment decision where the probability of delay or default is calculated. Additionally, every approved borrower receives a rating based on our proprietary scoring model based on reputable databases and analytics.
The credit report is based on the mathematical model, so it does not include our judgment or emotions. The numbers say it for us. Overall, the probability that the loan decision was correct, and the Probability of Default estimate was accurate is 72%, which is relatively high. No model can have 100% estimation since the launch of the SME Automated Product, around 71% of eligible applicants were rejected, which is also a prudent number.
4 – Another area that has been greatly improved in the last months is human resources, with more than 25 people now working in Crowdestor, including the signing of Artur Geisari (ex-Monify CEO) as Head of SME and the promotion of Anatolijs Putnja as new COO. Being this one a very recent move, what are the qualities and values that we can expect with the arrival of Anatolijs in this key position?
Indeed we are determined to strengthen our team, as it is the first thing you do when you want the company to flourish. Anatolijs has joined CROWDESTOR in August 2020 as a business product owner. Since then, under Anatolijs’ lead, we have redesigned the investor’s cabinet, launched the Secondary Market, Designed the Investment Statistics section, and many more vital changes. He has built exceptional communication between the Business and IT parts of the business that enabled us to deliver the long-awaited updates.
Besides, Anatolijs has been actively communicating with investors, noting their concerns, and thinking about how to resolve them via platform improvements. I have made my decision based on the achievements and visible progress, which our community welcomed. His main task is to standardize all processes so the investors understand how we make decisions, how we evaluate projects, how and when we communicate.. I like the way we are going and looking forward to what we have planned to achieve next.
5 – Now let’s talk about one of the most recent updates in the platform: the detailed statistics showing the amount of funded / repaid / current and delayed projects. I think it is indeed a great effort in terms of transparency and also a very useful tool for investors to make better decisions. Focusing on the stats, do you think that relatively high % of active projects delayed is a reasonable amount in the high yield niche or just a consequence of Covid-19 and will likely go down over time?, also which percentage of those delayed projects do you expect to incur into capital loss in the long term?
As discussed above many businesses that were crowdfunded on the CROWDESTOR platform were affected by the consequences of the Covid-19 crisis. We are actively working on finding solutions for both- investors and borrowers. Only an active and case-by-case approach is suitable in this situation. I am very optimistic about the future, and we expect to find the best possible solution for each project.
In the P2B industry delays are normal and will always be present. However not as dramatic as it is now. The crisis happens every ten years, and we expect that after this downturn we have another decade of the normal and even favorable business conditions.
Even if the projects eventually default, the debt collection will go to court. It will enforce either a personal guarantee provided by the borrower or a sale of the available collateral. We don’t just fund projects, we make sure that we can sell some assets belonging to the borrower in the bad loan case. Projects from such heavily hit industries like restaurants, hotels will incur partial capital loss, but the percentage of such projects is very small when compared to the overall number of projects that are financed through CROWDESTOR platform.
Crowdfunding is considered an alternative investment type that pays a relatively high-interest rate. This interest rate is a price for the extra risk the investor is taking. We urge all investors to evaluate their risk tolerance before contributing their capital to a project. Once the investor understands the risks, it is advisable to overview the investment portfolio regularly.
6 – At the verge of ending 2020 with almost 50 M€ invested and a community of almost 18000 investors do you think you have met the goals of 2020 in spite of the global pandemic?
April 2020 was the most challenging month for the crowdfunding industry. All platforms have experienced difficulties and were forced to do cost-cutting. I have decided to go the other way- to improve the platform as soon as possible. To achieve this, we have launched an equity campaign, which has been very successful as it was funded entirely in a record short time. I want to thank all investors who have supported and believed in us. We are not going to let you down.
To adapt to a new reality and have a clear course of action, we have created the new plan for 2020 in April. This interview coincides with the end of the year, and I am proud to admit that we not only achieved this plan but overperformed. The number of new investors is 20% than was originally intended, the number of funded projects is 82% higher and 8% higher in EUR equivalent. These results confirm that we are on the right track, the adopted emergency plan worked, and we are capable of planning ahead.
Taking a step aside from the numbers, the achievements such as the launch of the new product, the introduction of the Secondary Market, redesign of the investor’s cabinet, sourcing projects are all great achievements during the regular positive year, not alone during the crisis year.
7 – After a vertiginous 2020 and with the launching of Crowdestor Pay, the upcoming crowdfunding regulation in Europe and other critical milestones in the horizon, what are your goals and plans for 2021, both in growth terms, new functionality, investment products, etc.?
We will focus on standardizing processes, so investors understand what and we do, how we communicate. We will be improving the legal framework, IT infrastructures, and quality assurance.
Another goal is to increase transparency even further by continuing active project updates, eliminating information asymmetry, and increasing efficiency.
We are among the first crowdfunding platforms to standardize the information available to investors, which is also a condition by the approved Crowdfunding Regulation. In 2021 we will be carefully monitoring the recommendations and laws that emerge from the new regulation and implementing them and eventually getting a license.
And of course, we are planning to place even more exciting projects for investment on our platform.
8 – Any last ideas or comments you would like to share with the community of TodoCrowdlending.com?
I want to wish all your readers a Merry Christmas and a very Happy New Year. The most important is health, so I wish you and your family to stay safe. The crisis will end soon, businesses will come back to normal or will adapt to the new reality, and we will see many exciting new projects come to life. We will work hard to deliver the promised changes and improve the investor experience in any way.
Thanks very much for your time, Janis!