This is the second article in a series of interviews that features prominent leaders within peer-to-peer lending, real estate crowdfunding and startup equity crowdfunding.
In this interview, we talk with Gustas Germanavičius, co-founder and former CEO of EvoEstate, about his views on the real estate crowdfunding industry, what you can expect as an investor on EvoEstate, and what the future will bring for the Estonian-based real estate crowdfunding aggregator.
You can learn more about EvoEstate by visiting them at www.evoestate.com.
Who came up with the idea of EvoEstate, and why was it founded?
The one who came up with the idea was my co-founder Audrius – current CEO of EvoEstate. It was founded because even the large platforms on the market are very regional. For an investor aiming to diversify, he had to sign up at multiple platforms which is time-consuming and demanding. Not to mention that most of them didn’t even have a secondary market and accounting from multiple platforms is a real hassle.
Who financed EvoEstate in the beginning? Does EvoEstate have the same owners today?
Initially, we have financed the company ourselves, later on, we have raised 320K EUR in pre-seed funding from Startup Wise Guys who are also backing EstateGuru and Investly and other VC funds and business angels.
What type of investing do you offer at EvoEstate? How does it work?
We offer three main types of investments:
- Buy to let or rent, in other words. Investing in rent is like owning a small part of a property. It is considered the lowest risk and you can expect 3-6% of annual returns as well as some potential capital appreciation with time
- Fixed-interest loans. This is probably the most common RE crowdfunding instrument in Europe.This investment type usually has an underlying asset – real estate collateral, which can protect your investment in case of default. You can expect to earn 8-13% interest annually investing in fixed-interest loans.
- Variable-interest loans. Highest-risk as well as highest-reward investment. It works in a similar way as equity, meaning that you participate in both ups and downs. Investors could expect to earn 14-30% annual returns, but at the same time, they could lose partial or full principal. Therefore one should not invest more than is psychologically ready to lose.
Why should investors use an aggregator like EvoEstate instead of just investing directly with the project originators?
I don’t think that there’s one absolute reason why one should or shouldn’t invest through EvoEstate. In my opinion, it depends on the type of investor. If the investor would like to diversify across 15 countries, almost 20 originators, have relatively high liquidity on the secondary market and auto-invest, which enables setting up multiple strategies, I believe EvoEstate is the palace for him or her.
How have you been affected by the Corona crisis? Have you taken any specific steps to handle the crisis?
Well for us I wouldn’t consider this period as a crisis but as an opportunity. Almost none of our investments are late. Even in the peak of the first lockdown, our projects’ portfolio had a maximum 3% late rate – and on interest payments, not principal. Most of the projects that were repaid actually were repaid with higher interest rates than expected. In addition to that, we have almost doubled in size from both funding volumes and the number of investors since the beginning of the COVID-19 pandemic
What does the average investor at EvoEstate look like?
Because we are a marketplace, rather than a platform, every investor uses the marketplace differently and builds portfolios individually. Considering this aspect, we have people who invest 50 EUR into each project or just fixed-interest loans. While we also have people who invest 5K per variable-interest loans. I think this is exactly the very clear value proposition of EvoEstate. You can use the platform for multiple goals: low risk predictable monthly payments, medium risk or highest risk, highest reward investments.
If I choose to place money at EvoEstate and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
It all depends on you and your risk appetite. You can build a strategy for a 5% annual return, and you can even obtain 14%. Our average return is 11.47% from 47 projects repaid based in 7 countries.
How much can I expect to receive in return throughout the year if there are no losses and the loans are repaid on time?
Same as above. Until now, we did not have any losses for our investors; therefore, we can’t calculate this number.
You make it very clear on your website that both you and your co-founder Audrius Visniauskas have skin in the game by investing your own capital in projects listed on EvoEstate. Why do you think it is important for platforms to have skin in the game?
First of all, it’s not the platform that has Skin In The Game, but the founders. Secondly, I think it just shows that our interest is the same as our clients. Consider the situation where you go to a restaurant, and the chef doesn’t eat his own cooking. Would you eat there?
Do you have skin in the game with all projects listed on EvoEstate? If not, how do you choose in which projects to invest your own capital?
We have Skin In The Game on more than 80% of projects on EvoEstate- that’s more than 250 projects. Based on risk scoring, we choose whether to invest small amounts such as 50-100 EUR or 1000 EUR and above. For projects that you can find in the Skin In The Game category, Audrius and I invest at least 1.000 EUR each. For the rest of the projects (around 80% of all projects), we invest lower amounts and these projects are not labelled as Skin In The Game, but this does not mean that we don’t invest in them.
At the moment, you cooperate with 19 project originators that you rate from A+ to D. How do you choose which platforms to work with, and how does your rating system work?
Our risk scoring is based on factual data, which answers some questions and assigns a weight and rating for each originator. The assessment methodology is divided into three main classes: operating environment, risk appetite and financial profile. Later, two different risk scorings are based on the business model of the platform for buy to let investments and loan originators (applies to both fixed-interest and profit participatory-equity loans). Additionally, we evaluate other factors that could impact the outcome of risk, such as interest of conflicts. You can read more about the methodology in our 2020 Q1 investors update.
Besides using a rating system for project originators, how do you make sure that the loans you make available on EvoEstate are safe for investors to put money into?
We also have a risk scoring rating on the projects. Interested readers can find a thorough explanation of our methodology here.
What happens to investors’ money at EvoEstate if a project originator goes out of business?
It depends on the originator. As we work with mostly licensed platforms, they have a continuity plan and budgets assigned to be used in case of a platform default.
What happens to investor money if EvoEstate goes out of business?
All client funds are separated from EvoEstate’s operational funds. Meaning that should EvoEstate default, in such an unlikely scenario the funds would be accessed. Because we are a marketplace and not even a platform, wherein the case of default someone would have to take care of the mortgages, the process would be rather straightforward. A contractual entity would be appointed, which would facilitate the outstanding transfers. The role of such an entity is already assigned and also separated from operational funds.
Who do you see as your biggest competitors, and what sets EvoEstate apart from them?
Frankly, I don’t see anyone as our competitor today. They are either dealing with different asset classes or aren’t a marketplace like us.
Are there platforms or persons in the real estate crowdfunding industry that inspire you? Why?
Yes, the team members of EvoEstate. The reason why is simple. I haven’t seen a single other company so dedicated to the clients that they would spend time on weekends or late nights resolving the clients’ problems.
What do you think the future of real estate crowdfunding looks like? Which challenges do you see for the industry in the coming years?
I think the future is relatively clear. Now all the business crowdfunding platforms will get licensed and more markets will open up. Right now we don’t have platforms in all the eastern European countries, Finland, Portugal and other countries as well. In a few upcoming years, the number of platforms will grow, and the market will get saturated, and then we should see consolidation with mergers and acquisitions.
When was EvoEstate founded, and what have been the most significant challenges so far?
EvoEstate was founded in February 2019, and if I had to tell you a significant challenge, it would probably be hard, because the more you do something, the smaller past challenges look like.
What is EvoEstate’s strategy for the coming years? Have you planned any new initiatives? Do you have a vision for the future?
Yes, we are going to continue aggregating the market by adding a few new originators. We expect that plenty of them will come in the upcoming 18 months. Regarding the product, we would like to offer it on more platforms (web, apps, etc.), and we are seriously considering launching a mobile app for the marketplace in 2021.
If we look ten years into the future and EvoEstate no longer exists: What went wrong?
If we look ten years into the future and can’t find EvoEstate’s name, it will most likely be because of a merger or an acquisition. Together with Audrius, when we have founded this company, we told ourselves that we are planning to run this company for at least ten years.