With EstateGuru now officially listed as a crowdfunding operator in Finland, country head Matti Vansen discusses the challenges and opportunities of expanding to this new market.
It took over a year of preparation and planning to finally receive the license, but Vansen believes it will all be worth the effort, and that Finland is ready to embrace Continental Europe’s largest property investment marketplace.
Q: You’ve been operating in Finland on a small scale for some time already. Why is the official launch only happening now?
Matti Vansen: We applied for the crowdfunding license some time ago, and have finally received it. The process with the Finnish FSA took quite a while. As you probably know, whenever you’re dealing with governments, things tend to take longer than anticipated. The good thing was that the legislation in Finland still allowed us to do occasional crowdfunding, and we have taken advantage of this leeway. We have been able to do financing and we also already have 420 investors from Finland. The problem was that we could not do any marketing activities. Now we are ready to start marketing.
Q: Why does EstateGuru see Finland as an important market?
MV: EstateGuru has an expansion policy and plans to always go into countries that have a suitable legal and regulatory structure when it comes to crowdfunding. Further to this, our business model also requires a certain legal structure around mortgages and the ability to use external partners like lawyers and property valuators. We also wouldn’t expand to a country that places severe restrictions on crowdfunding. It’s always easier to go to a market where there are existing crowdfunding actors. The flipside of this is of course that we have to position ourselves differently enough that we are attractive to the market.
Q: What do you think will set EstateGuru apart from competitors in Finland? Why would investors choose EstateGuru rather than other crowdinvesting platforms?
MV: The main difference for investors is that we offer a very good risk\reward ratio, meaning that we have senior ranked debt and that we have a high yield. Most of the existing crowdfunding players in the Finnish market offer unsecured debt only with personal guarantees at a return rate of 6-8%. There is also a history of high default rates which has diminished the market’s trust in the industry.
Q: Do you expect rapid growth in Finnish investor numbers once you have more Finnish projects on the platform?
MV: I see our launch here as a huge bonus. We have the target of having 1200 Finnish investors by the end of the year and, even though the launch has taken a long time, I am still confident that we will get there. How is that going to happen? Through publicity, marketing and having great quality Finnish projects on the platform. We have laid the groundwork and we are ready to have a constant flow of Finnish projects. I really hope that this will help lure Finnish investors.
Q: Do you think the fact that EstateGuru is an Estonian company will help or hinder you in Finland?
MV: Of course the perception of Baltic companies in Finland is a difficult topic, to be honest. Finns tend to trust only themselves and there have been several scams emerging from the Baltics which have affected the trust in the sector. But over the last few years the Finnish people have also seen how many good companies are coming from Estonia and I see that as a bonus. It generates more trust. But of course, its always easier to come from Sweden or Norway than the Baltics. We have put a very good Finnish team together with extensive crowdfunding experience and we know how the market operates. I’m confident we can create trust and the fact that we gained the crowdfunding license will go a long way towards that. They do a very thorough investigation into our company, our process and everything, so according to the Finnish FSA, everything meets their standards.
Q: What do you see as the main challenges for EstateGuru in Finland
MV: From a general market perspective, because of the damage done to the industry’s reputation by scams, we are not starting from zero, but probably from minus one. Therefore I would say that gaining the trust of the Finnish people will be our main challenge. Establishing our reputation as a transparent, trustworthy company will take time. Luckily we really are transparent. We have audited annual reports, a freely available loan book and honest, open reporting on all aspects of the business.
Q: Anything else you think will be challenging?
MV: This one is actually quite ironic. Because we have such low risk and high yield, people often tend to think that it is too good to be true. They expect there to be a catch or something hidden. But the truth of the matter is that EstateGuru is completely transparent. Any investor can get any info he or she requests. We don’t hide default rates or our recovery process and our track record speaks for itself. Investors can see historic statistics and yield easily. This is something that is hard for Finnish investors to believe in. They are used to seeing 5-6% as a high return. People also ask why are companies coming to us and not to the banks when they need credit. Of course, we are fast, flexible and transparent for borrowers, but there is also a very real dilemma of banks simply being unwilling to finance a project against for example a land plot. Banks are also majorly averse to stage financing, which is one of our most successful areas of operation.
While banks are open to loaning operating capital or bridge financing, they are rarely supportive when it comes to development financing. We see ourselves not in opposition to the banks, but rather as cooperation partners, meaning that we finance the initial phases of a development project until it becomes viable for a bank to refinance. In fact, most EstateGuru loans are not paid back by the borrower, but by the banks who eventually finance projects once they are advanced enough.
In Finland, banks are also dumping their corporate balance sheets, which means they don’t want to do corporate financing anymore because they see it as a higher risk than the retail\housing loan sector.
When it comes to SMEs, the companies who manage to secure bank loans are often the ones who need it the least.
Q: Thanks for your time Matti, and good luck with the launch.
MV: Thanks, it’s a really exciting time for everyone at EstateGuru.