Looking at the recent scams an Kuetzal and Envestio it is the natural question to ask if other p2p and p2b platforms might als be involved in fraudulent activities. I think that there will be much more scrutiny now from investors, bloggers and hopefully also from the legislative. Given that Crowdestor is one of the most popular p2b investment platforms it is worth to take a close look and to ask: is Crowdestor safe?
Crowdestor itself has already reacted to the concerns that are growing in the p2p investment world and sent an email to all its registered investors. Mr Janis Timma addresses and answers a lot of important questions regarding the stability and legitimacy of Crowdestor. Also, he lays out his next steps to improve the information flow and transparency towards investors.
I paste this email in full at the end of this post.
This email from Crowdestor is an important statement and shows the willingness to (re)gain trust and to foster a goof relationship between investors and Crowdestor. I currently have no doubt that Mr Timma means what he is writing. I spoke on the phone with him as a straight and honest guy who wants to build a good and stable business.
Nonetheless, it is an email from the investment platform itself and if the Envestio case has taught us anything then it is not to believe just in words. Better think and double-check yourself. I also had to learn this the hard way.
Buyback of loans
One strong point of Crowdestor is that it does not offer a buyback of the investment. Every investor likes the idea of a buyback like Envestio promised. But who would now believe that a small investment platform can realistically offer a buyback for a 30 Million Euro portfolio? Right, no one. The glitter is off. It is just unrealistic.
So, the fact that Crowdestor does not offer such a feature makes it more trustworthy for me. Also, a bank-run is not possible then. The buyback fund that Crowdestor is building up is fed by a 1% split of the entire loan portfolio and is growing bit by bit. If a loan fails, only a share of this buyback fund will be used to compensate investors. This share is equivalent to the share that the failed loan had in Crowdestors active loan portfolio. This is a reasonable and sustainable approach.
Are the loan projects real?
There were fake projects at Kuetzal and probably also at Envestio. The investigations that are now starting will show what was real and what not. From teh start, Crowdestor provided the loan agreements between investors and borrowers for download. For comparison, Envestio never did that.
These loan agreements provide sme information about the borrowers and I did contact a few of them. They all responded quickly and confirmed that they are in a business relation with Crowdestor. Many of them are well aware of what is happening with Kuetzal and Envestio and were more than happy to confirm that Crowdestor is a trustworthy business partner.
Concretely, I confirmed the existence of the following loan projects:
- Project Mafia Stars (Beetroot Lab)
- Project War Hund Movie (WarHunt OU)
- Project E. Fon Trompowsky Quartet (SIA Prospectum/SIA Realto)
- Project Forestland (SIA Dizozols)
- Project Rover Education (Rover Education)
- Project Meat Chef (MeatChef)
Is Crowdestor safe?
Nothing is 100% safe. Some of the loan projects at Crowdestor might default, the entire p2p market will certainly change over time and eradicate some platforms, the economy might dwindle and so on. But is Crowdestor a frauf like Envestio or Kuetzal? I really do not think so!
My direct contact with Mr Timma and Mr Udris (both founders of Crowdestor) and the feedback I received from several borrowers gives me a good feeling about Crowdestor. Furthermore, below email from Mr Jannis and the next steps that Crowdestor is planning to take sound reasonable to be and not like some unrealistic promises that serve the only purpose to put investors at ease and to buy time.
Of course, Crowdestor and thepeople behind it will have to be judged by their next actions and not just by their words. But I’m sure these actions will come and every investor can consider for him/herself if Crowdestor is safe.
E-mail from Crowdestor to all investors
Recent fraudulent and dishonourable activities carried out by several crowdfunding platforms has been a big shock for all involved in this industry, has caused huge losses to more than 15 000 investors and has seriously damaged the reputation and trust of crowdfunding in general.
We are receiving hundreds and hundreds of emails with questions:
- Is CROWDESTOR financially stable? Is CROWDESTOR going to face “Bank-run”?
- Is CROWDESTOR running business in a legitimate way? Can you prove that you are not “Ponzi”?
- Are your Borrowers real companies or empty shells with no real operations?
- Can you become more transparent?
- Can I with withdraw funds before Loan term?
We have been trying to answer individually to each question by all means of communication to our furthest extent, but in case if some of you haven’t received an answer yet, we hope this statement will help.
We want to inform our investors with the following.
About financial stability of CROWDESTOR
CROWDESTOR has never offered “Buy-Back with a penalty at any time”, “Crowdestor Care with Buy-Back” or other weird, but well know combinations of words. We haven’t offered this as CROWDESTOR wouldn’t have funds to cover such claims in full amount in a legally correct way even if 10% of investors would ask for early exit. CROWDESTOR earns 3-5% from raised funds, which is a market typical average. The money earned is then spent on the payroll, administrative, marketing costs, IT costs and further development. So it is simply to do the maths. CROWDESTOR, as a platform, in essence, is a mediator between investors and borrowers, a marketplace.
So we are not experiencing increased/uncontrollable out-flow of capital and we are not going to face the so-called “Bank-run”.
Is CROWDESTOR legit?
CROWDESTOR is not offering the Ponzi-type early exit by paying out investors funds which are raised from new investors.
Investors funds are held in a dedicated bank account, separate from CROWDESTOR operative funds. Since first day of operations CROWDESTOR bank account is opened in the LHV Bank, a reputable bank founded in 1999 with half-billion EUR assets on its balance sheet. We have AML procedures in place and are cooperating with a bank on any questions they ask on our operations.
CROWDESTOR transfers money to Borrowers, the Borrowers are real existing companies, funds are used for the Loan purpose. For each deal CROWDESTOR performs due diligence.
Investors see “real funds” in their investors account not virtual funds as it has been the case in other platforms noticed by a large number of investors in last 2 weeks.
We are eagerly waiting and ready to support development of ECSP regulation in EU level (European Crowdfunding Service Providers), which would decrease potential fraudulent and dishonest activities in crowdfunding industry. Our aim is to be amongst the first ones to receive it.
We are also ready to initiate an establishment of Association which would join members who share same goals.
What are we going to do next?
We understand that today, when an enormously huge number of people have been cheated and the whole industry is damaged, these seem just words from us. But we will take great pains and do real actions to regain the reputation and trust in us and industry in general.
Currently we are working on a detailed action/development plan how CROWDESTOR in Year 2020 becomes more transparent, more open to investors, improves process standardization, becomes more automated etc. We will present action plan by end of February, beginning of March 2020. The plan will include topics regarding:
- Transparency. We plan to disclose as much information as possible in following areas:
- Borrowers. More financial information, info on management, contacts, registration documents. All possible information to extent not disclosing confidential information on borrowers.
- Partners. We plan to show you with that partners do we work on due diligence, legal, banks, KYC and all other possible partners.
- Team. To make our team more public – shareholders and management will be show on our website, with detailed CVs, experience and links to LinkedIn.
- Decision making. Creating and presenting an understandable and transparent procedure on how we make our due diligence and finally a decision on what project to put next.
- How we will automate due diligence. We see great potential in maximally automating the decision making of borrowers risk assessment.
- How we will implement united risk assessment/scoring.
- We have our growth plan and on how we see CROWDESTOR in future. Plans consider expansion, process standardization, strengthening the team, following and aligning to regulation.
- Investors meeting
- We are going to organize webinars with our investors to answer their questions. More information will follow.
- We plan to organize twice per year Investors-Borrowers meetings in cities across Europe giving an opportunity for investors to meet Borrowers and CROWDESTOR in real life, socializing, getting more information about them and CROWDESTOR. More information will follow.
Early exit option
As mentioned previously, CROWDESTOR does not provide Early exit option.
However, during last 2 weeks we receive numerous emails with questions if it is possible to exit.
In the light of recent shocking news, we understand and respect this. We have agreed with several investors who would consider to buy-out a part of other investors loan with a discount in projects which we have funded.
This will not be a buy-out made by CROWDESTOR. This will be a buy-out from other investor/investors, so it will not make any burden or profit to CROWDESTOR books.
In couple of days we will establish a procedure how to submit an application for an Early exit and we will follow up with more explanation.
Last but not least
We invite prospective honourable investors to be vigilant and diligent before committing their financial resources to any platform and please pay attention to any small details – is the management presented in webpage, who are the real decision makers, what is the background of owners and management, do they had real, proved business before, do you know who are the beneficial owners of platform, where is the legal and factual address of platform, where does the platform has bank account, did it had interruption in sending out the money, etc, etc.
Founder & CEO of CROWDESTOR