An investigation initiated by the new management of TrustBuddy AB has indicated serious misconduct within the company. The Board of Directors has informed Nasdaq OMX and the Swedish FSA about the situation, and the FSA has demanded that TrustBuddy is to stop offering its services with immediate effect. As a consequence, the company’s planned rights issue is suspended. The Board of Directors will prepare a control balance sheet and are currently evaluating all available options in order to find a viable solution for all parties.
The new management team has been in place since early September, 2015. In connection with the repositioning of the business, an investigation of the business activities undertaken by the former management was initiated. The investigation is ongoing, but has so far pointed at several breaches of internal or external regulation:
The Company has used lenders’ capital in violation of their instructions, or, without their permission. As a result, there is currently a 44M SEK (approx 4.7M EUR) discrepancy between the amount owed to lenders and the available balance of the client bank accounts.
The total amount currently lent out on the platform is approximately 300 MSEK, of which, 37 MSEK is not assigned to lenders.
The Company has re-assigned existing loans, a significant portion of which were likely non-performing, to new capital deployed by lenders.
The investigation indicates that these practices were likely in place since the TrustBuddy platform began operation.
Actions taken by the new management and the Board of Directors
The questionable practices mentioned above, limited to the Company’s short-term lending business, have been stopped with immediate effect.
Further, the Board of Directors informed Nasdaq OMX and the Swedish FSA about the findings. Based on the findings, the FSA demanded that TrustBuddy is to stop offering its services with immediate effect. As a consequence, the planned rights issue, scheduled to run from 14 October 2015 to 30 October 2015, is suspended.
Due to the severe breaches of the internal and/or external regulation, the Board of Directors has also decided to file a report to the Swedish Police Authority.
The Dutch subsidiary Geldvoorelkaar, which focuses on lending to small and medium-sized enterprises, has been operating on a stand-alone basis and has not been subject to misconduct. Continue reading →
This is a guest post by Dutch lawyer Coen Barneveld Binkhuysen (see full bio at the end of the article)
Crowdfunding is growing exponentially in the Netherlands. Although the Dutch market has not yet reached the astronomical levels of the United States and the United Kingdom, many people have heard about the phenomenon and are intrigued by this potential alternative investment opportunity. While the Dutch market speaks a lot about crowdfunding, it is less familiar with the term p2p-lending (it is commonly available though). As this article covers investments in loans, convertible subordinated loans and equity, I will use the general term crowdfunding instead of p2p-lending.
In the first 6 months of 2015, almost 50 million Euro was raised via crowdfunding, which is double the amount raised in 2014. There are over 80 crowdfunding platforms active in the Netherlands, which makes it difficult for potential investors to gain an overview of the viable available investment opportunities. This article provides a general overview of the most important platforms active in the Dutch market. Furthermore, I will discuss some relevant topics in relation to crowdfunding, such as: diversification options, costs, default risks, cash flow, types of investment and the added value of a properly managed crowdfunding platform.
Overview investment options
In general, crowdfunding platforms in the Netherlands offer the option to invest in loans, subordinated convertible loans and equity (besides donations and the purchase of products). Each of these different investment options has benefits and drawbacks in terms of cash flow, risk and the potential upside can vary significantly:
Loans provide a direct cash flow to the investor as loans are usually repaid in monthly instalments. Loans only have a limited potential upside, maximized at the offered interest rate. Due to the monthly repayments, the risk decreases every month. Most crowdfunding platforms determine the interest rate based on the envisaged risk. As far as I am aware, there are no platforms active in the Netherlands that provide the option to “bid” on loans in auctions.
Convertible subordinated loans (also called convertibles) are considered to entail more risk than normal loans as convertibles are subordinated to (normal) loans and other claims. Investors generally expect a higher return in exchange for a higher risk. Instead of offering a higher interest rate, companies issuing convertibles via crowdfunding offer the option to convert these loans into certificates of shares. The option to convert may be restricted by certain conditions such as (i) a specific period in which conversion must take place and/or (ii) the condition that a sophisticated investor invests at least amount “X” during the term of the loan. For an investor it is important to identify any conversion conditions that may apply. If the loan is not converted into certificates of shares during its term, the investor will receive the principal plus interest payments at the end of the term of the loan. These investments might not be interesting for investors looking for a steady cash flow, but they can be interesting for those who want to have a shot at a serious return.
Equity is normally being offered in the form of certificates of shares (equal to the convertibles described above). Again, investing in equity does not create a steady cash flow for the investor. The terms and conditions related to the certificates of shares may (and normally will) restrict the option to sell them. Therefore, investors are expected to wait for the moment the entire company is being sold to an investor, which can take a long time. Investing in equity might only be interesting for investors looking for long-term investments. Then again, these investments do have the largest potential upside as the investor will profit from every increase in value once the company is being sold.
Each investor takes, or at least should take, the risk of default into account, especially when investing in high-risk companies such as start-ups. Business cases of start-ups have not yet been properly tested and most do not, or hardly have, any financial buffers. Should the financed company go bankrupt, practice shows that only in rare cases (only part of) the loan can be recovered. Normally, preferred creditors such as banks and the tax authorities will receive the benefit of all assets left in the company and there is nothing left for others. Some platforms try to reduce the risk by requesting a personal guarantee of the entrepreneur, but this is of little use if the person does not have any assets.
The actual difference between investments in loans, convertibles and equity from a risk perspective is small. Investors having certificates of shares have a larger potential upside than the holders of loans. One could say that investors almost bear the same risk, but with different potential upsides. In my opinion the most important reasons to choose for normal loans are the fixed term and monthly repayments. If you are not in a hurry to make a profit and are going for the highest potential return, convertibles and equity might be a more interesting option.
Overview largest platforms in the Netherlands
After selecting the preferred investment instrument, it is important to select one or more of the available crowdfunding platforms. Without aiming to be complete, I list the largest and most active platforms active in the Netherlands below:
Geldvoorelkaar.nl is the national market leader and funded over 825 projects, with a total sum of over 66,000,000 Euro. The platform focusses on p2p-lending and only provides investors the opportunity to invest in loans. Interest rates range from 4% to 9% depending on the risk score determined by Geldvoorelkaar.nl. All loans are being repaid in monthly instalments as of the first month. By investing in projects via this platform, it is fairly easy to generate a decent cash flow. Up to now, 3.5% of my investments on the platform have defaulted. As the principal of one of the defaulted projects was almost fully paid back, my average ROI still accounts for about 6.5% per year. The other defaulted project was probably a case of bankruptcy fraud, which I expect to happen more often in the future. The platform opens several dozen new projects every week, which creates sufficient opportunities to diversify your portfolio and reinvest your money. An investor must pay a fee equal to 0.3% * loan duration (in years) * invested amount (which amount will be refunded if the project defaults).
Oneplanetcrowd claims to be Europe’s leading sustainable crowdfunding platform. Since launching in 2012 it raised over € 6 million in funding for more than 100 projects. Oneplanetcrowd operates in Germany and the Netherlands and is planning to open in other European countries soon. It provides investors the option to invest in loans and convertibles (apart from donations and presale options) and offers some of the most interesting investment opportunities, such as Snappcar and Wakawaka Power. Various projects offer the opportunity to co-invest with sophisticated venture capital firms as these firms invest simultaneously with the crowdfunding campaign. In my opinion, this is a huge advantage for investors as VCs tend to do a thorough due diligence before choosing to invest. The platform only allows companies with a sustainable philosophy to start a campaign on the platform. Their goal is to provide high quality investments with a decent return to investors. Although this is a good niche market, the strategy makes diversification opportunities fairly difficult. Investors do not pay a fee on Oneplanetcrowd.
KapitaalOpMaatand Collin Crowdfund are some of the main competitors of Geldvoorelkaar.nl as these platforms focus solely on loans with loan periods ranging from 6 up to 120 months and interest rates of 5.5% up to 9% depending on the calculated risk. Almost 6.5 million Euro and 13 million Euro have been funded via these platforms, respectively. Investors on KapitaalOpMaat pay a one-time transaction fee of 0.9% and a yearly fee of 0.85% on Collin Crowdfunding. Both platforms provide discounts to investors investing more than certain thresholds.
Bondorais a European platform offering the opportunity to invest in loans on a European level. Although this is by far the most sophisticated (international) platform available to Dutch investors, its presence is fairly unknown to most Dutch investors. Already more than 35 million Euro has been financed via Bondora. Investors are allowed to choose their own investments on the primary market, but most loans are filled in advance by a bot. Therefore, it will be necessary to invest automatically via the provided bot in order to obtain sufficient loans. This enables the investor to invest in literally thousands of loans differing in purpose, country and risk. All loans are repaid in monthly instalments on a virtual account. Bondora also offers the option to purchase/sell investments to other investors on its secondary market (with a premium/discount) against a fee of 1.5%. Investors do not pay any fees on the primary market. Although Bondora claims an average ROI of 18.75%, many investors complain about the large number of defaults. As the minimum investment is only 5 Euro, the threshold is low.
Symbid is one of the established Dutch crowdfunding platforms and focuses on equity (certificates of shares) and loans. Although Symbid seems to suggest that already more than 300 million Euro has been invested via their crowdfunding platform, the actual amount funded by the crowd is closer to 6 million Euro. One of the advantages of Symbid is that it offers the option to sell your equity to other investors on the platform. Continue reading →
Trustbuddy has entered into an agreement to acquire Italian Prestiamoci, a long-term Peer-to-Peer (P2P) lender, for a total of EUR 5.3 million in order to strengthen its offering of business loans to small and medium-sized enterprises and consumer credit in most European countries.
Furthermore TrustBuddy has agreed to acquire Dutch Geldvoorelkaar for a consideration of EUR10.6m. The consideration comprises EUR 3 million cash, EUR 4 million through the issue of new shares at a 20% premium to the pre-announcement share price and a EUR 3.6 million vendor loan of which 50% is redeemed in January 2016 and 50% redeemed in January 2017. Shares issued as part of the consideration will be subject to lock-up restrictions which expire in January 2016 in respect of 50% of the shares and January 2017 for the remainder.
Both acquisitions remain subject to the satisfaction of certain conditions. In particular, the acquisition of Prestiamoci is conditional upon Prestiamoci receiving a payment services, PSD, license. The Company is currently considering various financing options, including a potential equity fundraising, to part finance the acquisitions.
Geldvoorelkaar is the first P2P lending platform with a credit licence issued by the Dutch Financial uthority (AFM). Geldvoorelkaar offers a professional and established alternative source of financing for SMEs.
Geldvoorelkaar opens up European SME market opportunities to TrustBuddy. Management believes there to be substantial demand for alternative lending sources in the Nordic market in particular in P2P lending in the Netherlands.
Geldvoorelkaar has been fully operational since 2012 and has a c60-65% estimated market share.
Year to date, Geldovoorelkaar has funded EUR 20 million of SME loans with an average revenue margin approaching 6% with no active marketing.
Geldvoorelkaar is a strong SME platform with EUR 1.6 million expected revenue for 2014 and growth in the Netherlands expected at an average of 80% in the following two years.*
Geldvoorelkaar is already profitable with an expected earnings before interest and tax for 2014 of EUR 0.7 million
Subject to the satisfaction of certain conditions, TrustBuddy has agreed to acquire Geldvoorelkaar for a consideration of EUR10.6m. The consideration comprises EUR 3 million cash, EUR 4 million through the issue of new shares at a 20% premium to the pre-announcement share price and a EUR 3.6 million vendor loan of which 50% is redeemed in January 2016 and 50% redeemed in January 2017. Shares issued as part of the consideration will be subject to lock-up restrictions which expire in January 2016 in respect of 50% of the shares and January 2017 for the remainder.
Prestiamoci is an Italian private P2P lending company focussing on long term consumer loans.
Prestiamoci has established a licenced P2P platform in the highly regulated Italian market. The acquisition is conditional on Prestiamoci obtaining EEA-wide PSD license approval, enabling European roll-out.
Prestiamoci re-launched its platform in May 2014 and has since funded EUR 175k with and average revenue margin of 4%.
Acquisition adds diversification to TrustBuddy’s existing offering into a product with lower regulatory risk and increased revenue visibility.
Prestiamoci’s seasoned management team joining TrustBuddy management will bring significant experience within credit risk assessment.
TrustBuddy expects to rollout a consumer instalment loan product in new markets in 2015, and envisages 80% of revenue from this new product from the Nordic markets.
InSeptember 2014Prestiamocihad concluded afinancing roundof450K EUR andin October 2013aprevious capital increaseof550K EUR. According to sources, Digital Magics Angel Network ,which invested just a year ago and provided strategic support in refocusing Prestiamoci, achieves a gain of about 300% on the transaction. Continue reading →
Geldvoorelkaar.nl is about crowdfunding. We provide funds through our website for both SME as well as consumer lending. We provide loan-based funds. Borrowers borrow money and pay the investors back on annuity basis. Loans are on average 75.000 EUR. At this moment we mediate in approximately 2,500,.000 EUR each month. We facilitate screening on published projects, contracts and payment schedules between borrowers and lenders. Our start up was December 2010 and up till now we have approximately arranged credit for 500 companies. The total amount funded up till now is 31.5 milion EUR of which approximately 17.5 million EUR was funded in 2013.
What are the three main advantages for lenders?
Direct ROI through annuity / interest
Transparency on published projects, accessible and easy way of funding
Extra incentives on most projects
What are the three main advantages for borrowers?
Easy understandable debt against low costs
Extreme commercial spin off, in addition to the funding
Investors are not shareholders, but do act as such. Funded entrepreneurs keep their own independency
Martijn van Schelven
How did you start Geldvoorelkaar? Is the company funded with venture capital?
Me and my companion Edwin Adams were both one of the first franchisees for ING Bank Netherlands. A successful franchise concept which sadly was ended due to reorganisation within the bank. Our own bankshops were bought back by the bank. This money was invested in the development of Geldvoorelkaar. We are 100% independent.
In January especially Zopa, Ratesetter and Isepankur showed strong growth over the previous month. New addition to the table is the Dutch service Geldvoorelkaar, which launched in Dec. 2010 after 1.5 years of development. The CEO Martijn van Schelven told P2P-Banking.com, that Geldvoorelkaar was checked and approved by the Dutch Central Bank (DNB). I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.
Table: P2P Lending Volumes in January 2014. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.
Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.