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
7 days later second mail on May 17, 2019, 11:19 AM
4 days later third mail on May 21, 2019, 9:08 AM (this time including Gunars Udris)
Same evening got the first response from Gunars – Tue, May 21, 4:34 PM
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)
Response the same day – Jun 3, 2019, 9:35 AM
31 days later, fifth mail on Jul 9, 2019, 10:54 PM
30 Days later sixth mail on Aug 7, 2019, 3:12 PM
Another 30 days later seventh mail on Sep 7, 2019, 12:58 PM (including Gunars in CC)
3 days later answer on Sep 10, 2019, 10:17 PM
Next day a followup question on Sep 11, 2019, 1:22 PM with an example (including Gunars in CC)
6 days later on Sep 17, 2019, 1:12 PM (including Gunars in CC)
13 days later on Oct 1, 2019, 11:37 AM (including Gunars in CC)
6 days later on Oct 7, 2019, 11:19 AM (including Gunars in CC)
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.
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.