Crowdestor BuyBack guarantee – max cap?

What exactly Crowdestor guarantee with the sum of BuyBack they mention in their web page? What would happen if one of the projects default? Or multiple?

These are the type of questions I will try to give an answer in this post.

Communication with Crowdestor

I wanted to know more about Crowdestor’s BuyBack fund and that is why I reached out to their support (info *at thingy* crowdestor.com). I will let you go through the journey with your own eyes.

For those not interested in reading 14 mails – use this link to go directly to the section – “Wait, what was this article about?”.

First mail on May 10, 2019, 9:30 PM
Crowdestor contact
7 days later second mail on May 17, 2019, 11:19 AM
Crowdestor contact
4 days later third mail on May 21, 2019, 9:08 AM (this time including Gunars Udris)
Crowdestor contact
Same evening got the first response from Gunars – Tue, May 21, 4:34 PM
Crowdestor contact

It is Latvian and here Gunars politely asks which time would suite me better for a call?

I gave him a ring the next day and he was in the meeting, nevertheless he went out and we managed to talk briefly.

I explained the purpose for this mail, namely, to update my readers about the BuyBack fund. Some questions were asked in comments and I felt like I need to clear things out.

He was very eager to talk with me and answer on the phone, but I asked him if it would be possible to get answers via email because it would be easier for me that way. He agreed and promised to handle this.

11 days later no sign, so fourth email on Jun 3, 2019, 9:35 AM (included Gunars in CC)
Crowdestor contact
Response the same day – Jun 3, 2019, 9:35 AM
Crowdestor contact
31 days later, fifth mail on Jul 9, 2019, 10:54 PM
Crowdestor contact
30 Days later sixth mail on Aug 7, 2019, 3:12 PM
Crowdestor contact
Another 30 days later seventh mail on Sep 7, 2019, 12:58 PM (including Gunars in CC)
Crowdestor contact
3 days later answer on Sep 10, 2019, 10:17 PM
Crowdestor contact
Next day a followup question on Sep 11, 2019, 1:22 PM with an example (including Gunars in CC)
Crowdestor contact
6 days later on Sep 17, 2019, 1:12 PM (including Gunars in CC)
Crowdestor contact
13 days later on Oct 1, 2019, 11:37 AM (including Gunars in CC)
Crowdestor contact
6 days later on Oct 7, 2019, 11:19 AM (including Gunars in CC)
Crowdestor contact

Wait, what was this article about?

Right. BuyBack fund.

For now I will use their answer and assume that my example is correct. For those who skipped the communication mail chain I will give you a short version.

Funds from Buyback Guarantee Fund are distributed as follows – in case there is a default project, the current project receives share from the Buyback Fund which is proportional to the outstanding amount of loans in Crowdestor.

If there is 2m EUR in outstanding loans, project is 200k EUR and Buyback Fund is 100k, it means that max cap distributed to the Project is 10% from Buyback Fund.

From Crowdestor’s email

After that I played out an example future scenario. Though must say that I am still waiting for a comment from Crowdestor’s representative.

  • Project: https://crowdestor.com/investment/sweet-dreams-samloem/
  • Total loan: 440 000 EUR
  • After the default through debt collection (24 month time) you manage to get back 50% (estimate*), i.e., 220 000 EUR.
  • Buyback fund by then (estimate): 300 000 EUR
  • Outstanding loans in total by then (estimate): 30 million EUR
  • Buyback fund cap would be: 440 000 / 30 000 000 * 100 = 14.7%
  • Buyback fund share allocated for coverage: 300 000 * 0.147 = 44 000 EUR
  • Totally shareholders would proportionally distribute: 220 000 + 44 000 (minus debt collection costs).

* – estimate is based on Bondora’s statistics for Recovery rate.

To put it in perspective. If you invest 500 EUR in a project and it would default you would end up with maximum of about 50 EUR from the BuyBack fund. The rest is up to the debt recovery process.

Conclusion

Communication. Lets put it in this way – could be improved. Maybe it is just me being too demanding for information when it is not clear for me.

Crowdestor BuyBack fund exists and is growing. I like their approach about the maximum cap of the BuyBack fund. This is a fair policy towards all investors in case things go South.

My main concern was multiple defaults in a row. Maximum cap solves this nicely. In absolute worst case you should end up with at least some percentage of your initial investment – buyback fund covers that. Though must admit in normal circumstances it would be below 10%.

From the email of Crowdestor representative:

Of course today this is insignificant amount to be covered from Buyback if such project would default, however, in our opinion, most important is the aspect that there is a clear mechanism how Buyback fund grows and that there is a real funding in place meant to cover potential loses, not just a combination of words “buyback guarantee” with out explaining what are the financial capabilities to execute such guarantees.

I wish it was much better communicated in their web page. One could be under the impression that all of the BuyBack fund goes to cover a defaulted project.

Thank you for sticking with my long post this time. I wish it could be shorter. As usual, would love to hear your thoughts after reading this.

8 comments

  1. Hi Janis,

    I thought it was just me! I am having the same experience with them. However only trying to get some answers from them for about a month.

    I finally got an offer for a call from Gunars this week, but it didn’t happen yet.

    Curios to see how it will eventually go, but is definitely not the best experience and I don’t have high hopes.

    I know they are a really small team, but they should find some solutions to improve things in this area.

    Best,
    Marius

    1. Hi Marius,

      I completely agree with you, if there is a bottleneck handling requests, this should be addressed somehow.

      From what I can see is that their priority is getting their investor count and invested volume up as much as possible by providing as many projects as possible.

      I do not like comparing too much but usually I get response from other platforms within few days, week at tops.

      Could you share the topic on what was the question/questions about? Asking because my initial question was quite detailed.

      Kindly,
      Janis

      1. Hi Janis,

        I asked them a bunch of questions, not just a single one, in preparation for a review I want to do.

        I am interested to learn more about the stake they have in each project. They claim that, and this seems to me something you would like to advertise more.

        Also asked about reward interest. They say this “If you made an investment before the campaign deadline, you will be rewarded with extra interest for those days.” Who pays for that interest? Is the borrower? What happens if a project doesn’t get fully funded?

        Btw, really good insights on the buyback guarantee. Great work to get that info! I wasn’t aware it was working like that. I think this is important to know and should have been stated on their website.

        In any case, for now I am keeping a small amount of my P2P portfolio invested in Crowdestor, until I will feel more comfortable to invest more.

        Best,
        Marius

        1. Marius, good questions about the extra interest. I think I read it somewhere but did not investigate if further.

          Regards BuyBack, my own first impression was that all the fund would go to cover up a defaulted project.

          Default has not yet happened but it would definitely benefit for investors to know up front that there is a max cap for the BuyBack. Return from which as they say themselves would be “insignificant”.

          May I ask where did you hear about their stake in the project?

          Kindly,
          Janis

          1. Hi Janis,

            Yeah, that was exactly my first impression as well – that all the fund would go for a defaulted project. While I can understand why they chose for it to work like that and is probably the better way, I don’t appreciate the fact it wasn’t stated clearly from the start and we had to learn it like this.

            Anyway, as for their stake in the project. I found that information here: https://crowdestor.com/crowdestor/. It says this: “In every project that we offer on the platform, we take part in it as co-financiers and/or co-developers. This ensures accountability from our development partners on behalf of our investors.” I was intrigued, and I am interested to learn more what that means.

            Cheers,
            Marius

        2. Marius, thank you for this extra information.

          Sentence about personal participation in project resembles “skin in the game”. Would be really nice to know what exactly they mean by that. Good finding!

          Kindly,
          Janis

  2. Thank you for share this information, we also think that is important for investors to know how this works. I can’t find you in Twitter so we are sharing the link to the post directly there.

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