Q&A and visiting potential investment objects with the Crowdestor Founders Janis Timma and Gunars Udris – review 2019

Q&A and visiting potential investment objects with the Crowdestor Founders Janis Timma and Gunars Udris – review 2019

Listen to the podcast or read below

As you can see under the My Crowdlending Portfolio page I really like the Crowdestor platform, so I was very excited to meet Janis and Gunars in person at their office in Riga to interview them and investigate how they do business. I actually ended up not just doing the interview, that you can read further down in the article, but also using a day looking at a lot of potential real estate objects with them together with their contractors and advisors. I also went with them to a preliminary meeting regarding an upcoming project they have been dreaming about funding on the Crowdestor platform since they started. They have just been waiting to get they amount of investors on the platform to be able to fund it, as this will be the biggest project they have ever funded on the Crowdestor platform. After all the time I spend with them, I have absolutely no reservations about having them as one of the biggest part of my portfolio. They are very professional and have a lot of experience. When they go into new sectors, they always make sure to consult with experts in that area. At some point when we looked at a real estate object, there were about 10 people present. 

Informal P2P dinner and drinks

On a side note, I really like to see how some of the top crowdlending platforms in Riga are networking and having small get togethers. This actually started after the investment conference this year in the start of April in Stuttgart. That was basically the first time the platforms met and there was a platform dinner where they all got together. Since then they have started talking and having social events. I see this as a very positive development. I hope this in time will turn into a cooperation between platforms to protect investors and the crowdlending industry in general against new kamikaze platforms. I actually talked with Janis and Gunars from Crowdestor about suchs a network between top platforms and they are planning to start up something like this in the near future. Later in the day, after we had the interview, Gunars picked me up at this historical building where I lived in Riga, that you can see on the picture below. Originally it was built as horse stables of German baroness Amalia von Reinhold. 

The interesting thing was that Gunars actually used to work at a real estate company many years back, in that exact building where I lived. His company actually did the initial renovation of this historic building. He picked me up on his wife’s black Harley Davidson and took me to a cool bar where we met up with people from GrupeerMintos, and BulkEstate. There was also two German bloggers present. It was a really fun night and I am really happy to see this cooperation and communication between the established crowdlending platforms. 

The interview

So, let’s get on with the interview and later I will share some more information on how Crowdestor work on a day to day basis from the meetings I had with them together with their partners and from visiting potential real estate objects. 

Georg: 
How do you see the peer-2-peer market developing in the future? How big is the potential? What about regulations? 

Janis: 
The German investors are the biggest in the peer-2-peer industry, but only 0.8 percent of Germans have this kind of investments. Which means that there is a huge potential. The Germans are the biggest at the moment with only 0.8 percent of the population investing. So I believe that the next couple of years or 3, 5, 10 years, the number of investors will most likely not just double or triple, but become 10 times bigger. But of course, the important aspect is as well what will happen in the market. How many scams we will see and so on. 

Georg: 
Probably the regulations will have some influence as well, but like you say the biggest risk to the development of the market and all platforms and the market is the risk of scams hurting the peer-2-peer market as a whole. That could not only scare investors from coming to the platforms but you could lose investors already on the platform, even though you had no connection to, or part in the scam. 

Janis: 
The same situation they also had in the banking sector, when there was a lot more banks and fewer regulations. When the regulations then got stronger and stronger, the number of banks reduced. So the regulations is a kind of filter. 

Georg: 
When I look at your website, I see some pictures of both you, Gunars, two executive assistants and a software developer. How big is the team you work with on a daily basis, when you pick projects for the platform? Do you work with some experts in the different areas? Do you have something outsourced? 

Janis: 
We have experts, of course, but they are all outsourced because it is not cost-efficient for us to keep on staff in the different business areas all the time. To be honest we cannot offer them full time. And we don’t need them full time. So we have experts from real estate, a financial analyst, we also have a lawyer that is very experienced in international business. We are also outsourcing IT. 

Gunars: 
Now we can already feel that in IT we are taking on a full-time job. Because there is a lot of work to be done. 

Janis: 
Yeah, because before we had one personal assistant, now we hired another one, so we understand that we need more people. So we will most likely soon have a lawyer sitting here in the office on a day to day basis. We are small and compact, but we understand that we will get bigger. But we don’t want people just to sit here doing nothing. We are very motivated and those who work here work a lot, and try to be very efficient. That is why sometimes when I look at other platforms and see that they are smaller than us and have 10 to 12 people sitting in the office, I don’t understand how they do that. 

Gunars: 
We are growing step by step. Not only with the software, but also with the staff. I think that is the best decision. Not to spend too much money in the beginning, but only grow when it is really necessary. 

Georg: 
Your projects are also spread out over many different areas. So if you don’t have expertise in those different areas, do you hire people with expertise in those specific areas on a project to project basis? 

Gunars: 
Yes, exactly! 

Georg:
Do you have some specific companies that you work with over and over again? I mean, do you work for example with one or two big companies, that has a lot of experts employed? 

Janis:
No. If we talk about the real estate industry for example, we cooperate with the biggest real estate agencies in Latvia, Latio and Ober Haus

Gunars:
I would say there are actually three main players. Latio, and Ober Haus are two of them. Latio is from the 90’s, so it is an old company, and they care a lot about their reputation. So the valuations they do are very good. 

Janis:
When they do evaluations, they really do a good job of looking at the market situation. For example, when we do two different valuations for a real estate object, they will be very close to each other. 

Georg: 
So you always get a second opinion on the valuations of the real estate objects? 

Janis:
Let us be honest, not always. For example, if we have an older valuation that is maybe one year old from one company and we then make a new evaluation and see that they fit together, then it is ok. If you do it with top companies, then you don’t always need to double-check it. 

Gunars:
Another thing you can look at is when you for example, take a Latvian company, you can see all the banks accept the valuations. That is also a signal. Because there are some evaluation companies where maybe only one or two banks accept their valuation. 

Georg:
We talked before about your new website for the platform. Can you tell me a little bit more about that? 

Gunars:
I can say that we are growing as a company and as a platform and we have reached a level where our old software does not give us all the possibilities and options that we should offer to our investors. That is why we made a decision at the beginning of this year to rebuild and create a much stronger platform. We are already testing it and it will go online at the end of the summer. It will include auto invest, a secondary market, and the verification is going to happen via Veriff, which is an Estonian company that specializes in online ID verification. Mintos and EstateGuru are using Veriff as well. This is also a good signal. Let us see how it will go with our cooperation with the banks because we would like to make our deposits and withdrawals even faster. Investors are also asking for more reporting. The new software will be flexible and we will be able to generate different types of reports. There will be statistics on investments and they will be able to use filters. We are sure investors will like it. What you will see on our platform is basically built by our investors. A lot of those suggestions they supply, end up as functionality on the platform. 

Georg:
Talking about the investors, I have a question from the community. Can you tell me something about the Crowdestor Buyback Fund? How big is it right now and how will it develop over time? Also, how will it be used if it comes to that? Are you going to use it all at ones if a project defaults or just some of it? 

Janis:
First a small introduction. We have understood that that buyback is something that interests and attracts investors. However, we have noticed that in the market it is not clear how the buyback works. So we did not want to go the standard way and just say that we have buyback. It needs to be something that we can make sure will work. We wanted to do it in an alternative way and to make something that will always work. Something that is clear for investors in how it will work. So we made a fund for the buyback instead. So the fund grows from the invested money on our platform. Currently, 1% goes to the buyback fund, but we would like to increase it to 2% and when the money goes in the fund we make it public, so investors know what the balance is. In the case of a default, the potential losses would be compensated proportionally to investors, from the fund. Currently, we have not published the distribution rules because we are still deciding how the funds precisely would be distributed because we do not want to release all the funds to the first defaulted project. So we are trying to decide if it should be 25 or 33% of the balance, but this will come very soon. This is in short how it works, how the balance grows over time and how it will be distributed. Of course, we understand that today the fund of just 70000 euros is not much, however, what we want to say is that there is a clear mechanism, there is a clear understanding for everyone how it will get bigger. I think is better to have something more concrete other than just the word buyback. 

Georg:
I really like that approach because many times it is quite unclear where the money to cover the buyback would actually come from and if the money will actually be there when they are needed. 

Gunars:
Some other bloggers are also commenting that buyback today seems to have become just a marketing trick. And that is all. Sometimes I have the feeling that some platforms are just writing the word buyback. Ok, check, we have buyback. But no one understands how it will work. 

Georg:
You have some investments in different countries. E.g. the Luxury Yacht Rental in Malaysia, Cambodia, and Thailand. Are you planning on putting any ratings on the different countries or projects that may involve more risk and maybe some more statistics on if the companies are late in paying back? 

Janis:
With the new software for the platform, we will try to supply more statistical information. We have had some late loan payments, which we hope has not made a big mess, but we always invoice those companies two weeks before, so we have time to pay the investors in time. But about the projects in other countries, we do it step by step and analyze each case. E.g. with this investment with the restaurant in Moscow, we really had to think it over because of the political situation and because of the currency, because they are using rubles and not euros. They, of course, give us euros back but in the case that the ruble would the devalued, potentially for them it would be harder to pay. We are also planning to include some emails with the current status of a project. With short and simple explanations and pictures of the progress. In the next few months, we will give some updates like that. That is already something we are preparing for. About the ratings, I am a bit skeptical about that. Because for the real estate objects, it would be fairly easy to make a rating. But if we would start to rates some companies ourselves, what does that really mean? We could rate and give star ratings for the different projects. We could go to a business valuator and get a 50-page business valuation, but it would cost so much money. If we would work like Mintos do, who work with 40 companies who do the same kind of business over and over, so they have some kind of formula, then it would be a lot easier. But how can we compare shoes, with an energy plant and a restaurant? 

Gunars:
It depends a lot from investor to investor how much information they want. So we are also trying to find the proper channels to release these updates on. Some investors doesn’t want a lot of emails. Some even say that they don’t want the emails about interest payments. They don’t even want the emails about that they are making money. 

Janis:
The new software should also enable investors to choose what kind of information and how much information they want to receive. 

Georg:
Where can investors see how Crowdestor is doing as a business? How can they see if you are profitable? 

Gunars:
The information will be there, but we are still a new company. 

Janis: 
Last year was our first year, which was not even the full year, so we only have a little more than a year in operation, so there are no annual reports yet. But we will publish them of course when they become available. 

Gunars:
Another thing. In the beginning, we did not publish the number of investors we had because there were not that many. Right now we have more than 5000 investors and the number is growing all the time. If we had published that we had 100 investors, that may have stopped some investors from using the platform. 

Georg:
So those statistics, like the number of investors on the platform, the total amount invested and so on, is also something that will be visible with the new platform in place? 

Gunars:
Yes, most likely on the front page. Some numbers will still not look that good like the balance of the buyback fund. 

Janis: 
Yeah, like a buyback fund of 100000 euros against 7 million euros invested funds does not look that good, but again, 100000 euros is better than nothing. 

Gunars:
But it is not like we are hiding something. 

Georg:
Some investors will see on your projects that they are covered by a buyback fund and look no further in terms of how big the buyback fund is. If they look at how big the balance is at the moment, it may scare them off. On the other hand, I like the openness and transparency of where the money is coming from. You have a clear system and strategy in place for your buyback

Janis:
In case that someone will be afraid because he sees that the buyback fund is not that high, it will only be until that moment when some of those who say they have buyback will not be able to cover the buyback

Gunars:
The bigger projects and the more projects we will have will also make the buyback fund grow. 

Georg:
One investor is saying that he recently received his first payment, and it was slightly higher than the forecast. He is asking if his last payment from the project will now be less? 

Gunars:
Is he not happy about the extra money? It was a bonus payment for those first days, as it starts calculating from the day you invest the funds. But at some point, there was an error in the calculation, so if something was missing, they will have received the payments now. 

Georg:
One investor is asking, are you planning on having longer loans at some point? 

Janis:
It is funny that you are asking that because, in the beginning, investors wanted shorter loans. To test the platform. Now I am sure that we would be able to finance longer terms, but most likely a longer-term means a lower rate. So again, would investors like to invest in something with a four-year term with 12 percent? Some will, of course, but most would probably not. 

Georg:
Where can investors find financial reports about Crowdestor

Janis:
We are registered in Estonia, so everybody can check that Crowdestor is registered in Estonia. Owned by us, managed by us, and we will submit annual reports. There are no annual reports yet, like I said before. We were registered in 2017. 2017 is empty and 2018 is not yet published. When 2018 will be published, the income from the commission will be very low, because in 2018 we were only two, with some outsourced resources. The income was little because we were giving discounts because we wanted higher returns, so they did not pay us the 4 percent fee, instead we put a higher return for investors. We want to grow our platform at this stage. 

Georg:
Do you have any new interesting projects in the pipeline that stands out? You sometimes introduce some more exotic projects and I actually really like that. 

Janis: 
There is a very, very interesting concept that we are currently working on. We are going to launch into the movie industry. There is a company here in Riga that are professionals in that field. They are producers and they have cooperation with the Chinese market and the US market. They are not just producing small local films, but big productions for the US. The thing is that it cost 5 times less to produce the movie here in Latvia. It is a lot easier to close down our roads and so on. The movie will be filmed here in Riga. The headquarter for this production company is here in Riga as well. 

Georg:
So the actors include known Hollywood actors from the US? 

Janis:
The movie we have in the pipeline at the moment, we are trying to agree with

Gunars:
But don’t say the name of the actor, Janis! Don’t say who the actor is! 

Janis:
Ok, if you turn off the microphone I can tell you. 

Georg:
Ok, I will turn it off for a little while. 

Here I got information on some very well known Hollywood actors, so all of a sudden this project became quite interesting. Even more than before. This type of project I have never seen on a crowdlending platform before. This will be Crowdestors biggest project to date! After this I could turn on the microphone again and continue the interview. 

Janis:
In this case, it will be not only a loan, but the investors will be real investors in the movie. So it is like a business. The more successful the movie will be, the more they will make. 

Georg:
So the investors can lose money as well? 

Janis:
Of course. Like with any investment. But we will give statistics. This movie is a quite low budget horror movie. The production company says this is a safer genre. The movies are cheap to make and people like them. 

Georg: 
That’s a very interesting area. That’s also something you can’t really find anywhere else, and I like something like that because, first of all, it’s interesting for investors to invest in something like that. And that’s why I usually like your projects because some of them are quite different. But who would be your expert in that area? Because there could be some great losses as well if it’s a flop. So do you have some kind of movie-expert or movie producer expert? 

Janis:
We have a cooperation with a company who owns those filmmaking pavilions. We have these pavilions from Russian times where they make movies in Latvia. Like in Hollywood, we also have something like that in Riga. The owner is a big enthusiast in the movie industry, so he is our consultant. Besides that, we have our lawyer from the legal side. We will publish that all legal documents are in place, we will publish something about the script, who will be producing, who the actors will be and the track record of the production company in previous productions. Based on that the investors can decide if this is something for them to invest in. 

Gunars:
When we talked to the production company they said something interesting. They can film in Europe, the producer and main actors come from the US and then they sell it in Asia. 

Janis:
There is this movie called “The Courageous Heart of Irina Sendler”. It was a co-production between American and Polish companies and was filmed in Riga and broadcasted on CBS. It was quite popular. 

Georg:
What kind of returns could you expect from a project like this? 

Janis:
You could potentially double the money. This is statistics about one movie, there the organizers were very small. Do you know Scary Movie? 

Georg:
Of course. The horror comedy. 

Janis:
On of the main producers they have a cooperation with. The budget for that movie was 27 million and the return was 180 million. So the return was more than six times the production budget. But that is, of course, one very successful movie. 

Janis:
The budget for the movie is about 1.5 million euros. 

Gunars:
That is why they make those horror movies because the production budget is very low. This one will be filmed in a Latvian forest. 

Georg:
How did you get the idea to do a movie? 

Janis:
The guy who owns these movie pavilions is a big real estate developer in Latvia. One day when we were discussing real estate he started to talk about movies. He mentioned some companies. Then we got in contact with the production company and now we are talking. The advantage is that Riga is really small and it is easy to get direct contact with pretty much anyone here. Everybody knows everybody. 

Janis:
We are also looking into the forest industry. I believe that the movie project will be something we will work on in the next few months, and the forest projects will be at a lower rate. But investors really like forest projects. 

Georg:
I like that you also onboard this kind of safer projects, so there is something for any type of investor. 

Janis:
Exactly. We like to mix different sectors. Then investors can spread their money and different types of projects with different risk levels. 

Gunars:
We have investors who only want to invest in real estate. But others are looking for something with a story. 

Georg:
I see it as diversification as well. Not only at the different risk and earnings levels, but also on the sector. Real estate, shoes, restaurants, forest industry, movies, boat rental, and power plants. I like the sector diversification as well. 

Gunars:
That is also one of the reasons why we lowered the minimum investment from 100 to 50 euros. We had some German investors who said they were really interested, but they wanted to try it out with fewer funds. Or they would like to invest e.g. 200 euros but split it over 4 sectors. 

Georg:
I really liked that change in strategy as well, as you can now diversify with fewer funds if you are still just testing out the platform with not that much money. 

Visit at a former Crowdestor project INCH2. A high end shoe brand

Crowdestor also took me to see INCH2, a high end shoe brand located in Riga. They used financing from Crowdestor investors to expand with their mens collection. This was another exotic project from CrowdestorWe talked a bit to Maksis, Marketing Strategist at INCH2. I saw their products in the showroom, asked about their business, the factories they use, heard about the Crowdestor project and what they used the funds for. If you want to know more about INCH2 and their products, you can also visit their webshop to see their products, and buy their shoes at www.inch2.com. Don’t show this webshop to your wife or girlfriend though. She will buy at least two pairs! I loved those colorful sandals! 

I actually thought that INCH2 was such an interesting company that I went back a few days later to do a video interview with Maksis. You can find the interview, see him present the shoes and talk about the company and the Crowdestor project on my YouTube channel

Looking at potential real estate objects with Crowdestor

Ones a week Crowdestor takes a look at all the real estate object they think could make a good project on the Crowdestor platform. They get a lot of propositions, but very few of them actually make it to the platform. The good deals are not easy to find. First they reject around 80% of the projects they look at, just on paper. They don’t even go to visit these properties. 

One week they invited me along to take a look at a number of potential real estate object investments. They were all located in central locations in Riga. Some needed a lot of renovations, others looked fairly good. We met with contractors and others from their team of experts. At some point there were about 10 people present. We also met up with a designer as Crowdestor plans to turn some of the buildings into top rated Airbnb’s. 

During my time in Riga I also visited several already fully funded real estate objects funded in Crowdestor projects. I made videos of them and gave more information about them. You can see them all on my YouTube channel. It was really interesting to see how Crowdestor work on a daily basis with real estate projects. I usually really like the objects they choose and I invest in many of them myself. 

Two visits at "The Catch". The best japanese restaurant in Riga

At one of my days with Crowdestor they invited me to have lunch at “The Catch” in Riga. The reason for this was, besides that the food is amazing, that a former Crowdestor project funded the expansion of “The Catch” with a new restaurant with the same concept in Berlin. The group of restaurant business operators “A2 Group” that owns “The Catch” has 20 years of expertise in restaurant business and catering. “The Catch” is an Izakaya-style restaurant, focused on terrific raw food and robata-cooked seafood, meat and veggies. The first “The Catch” restaurant was opened in the beginning of 2018 in Riga. The second restaurant is currently being finalised in Bleibtreustraße 41, Berlin, Germany.  Three other locations for potential restaurants are being analysed. The Catch is a Latvian trademark and is on its way to become a European trade mark registration. “A2 Group” owns and operates numerous of “Kabuki” brand restaurants in Moscow and the “Aqua Luna” restaurant in Riga. Crowdestor also funded one of these restaurants in Moscow. The food was so good, that I had to go back for a final bite before I left for Lithuania for more platform visits and interviews. It is a real solid concept with japanese cooks preparing the food. It seems like there is always people in the restaurant, even outside of “the dinner rush”. I really recommend that you visit one of these restaurants if you get the chance. The second time I went I actually ran into Vladislavs from Grupeer, who was having lunch with his wife and daughter. This place seems to be a prefered choice in the P2P industry. 

Some final thoughts

After spending so much time with Crowdestor and meeting with the people behind to see how they work, I really have no more reservations investing in the platform. I already went over my 10000 euro limit per platform with CrowdestorSome people may be worried about the high returns and how they manage that, without taking too much risk. I asked Janis about this on one of our days out. He told me that their main focus is to grow the Crowdestor platform. So sometimes they give up part of their own commision to give higher interest rates to the investors. Janis owns a power plant that supply power to a part of Riga and Gunars has invested in some cash flowing properties. So they have other income sources to cover their expenses. Now they are focused on growing the Crowdestor platform and get more investors to the platform even if it means giving up some commissions at this point in return for growth. I also asked this question to Gunars and he answered that sometimes borrowers only want to pay 12 percent, but they try to push them higher and they many time succeed, because other bigger investors many times want part ownership of the company. 

Share the knowledge, your opinion and get answers to your questions

Have you already invested with Crowdestor? What do you think of the platform? Are you thinking about signing up? Have you invested in other platforms? Please leave a comment or any question you have below. If you know someone who would like to get started investing or is already investing, feel free to share using the social media sharing buttons below. 

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