Security
Investors should recognise that investing in various assets and in companies on the Platform involves a degree of risk, business risk, operational risk and financial risk. Regardless of the best efforts of the Platform itself, the assurances and guarantees provided by the companies, the originators or the borrowers, regardless of the investment, financial and legal structure of the deals, the risks, including the risks of partial or complete capital loss, remain as risks form an integral part of our lives as they form an integral part of businesses.
Investments into business loans (debt) or invoices
Risks related to the underlying assets
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested.
Decamel performs monitoring of performance of the originator which provided the underlying asset for funding, and there are mechanism for exchanging non-performing underlying assets with other underlying assets of the originator. The typical and most common requirement for the originator, would be to discount the value of its asset (i.e. “skin” of the originator) and to provide funding up to a certain LTV (loan-to-value) ratio. Certain arrangement include the originator as a guarantor of the performance of the underlying asset with a buy-back obligation of the asset in case the former is not performing. An investor (user) is encouraged to evaluate potential risk based on the information available on the originator, its financial stance and past performance, as well as study other information available on the website.
Risk of payments being delayed
This risk may lead to postponement of the payment of the interest and proceeds to the user (investor) and to lower absolute or relative return of the investment, negative effect on expected return.
The risk is mitigated by the monitoring capacity of the platform aimed to minimized delays and make sure there are mechanisms obliged by the originator to ensure payment continuity and/or, where provided, the obligation of the originator to buy-back obligation of the asset in case of delays or non-performance.
Risk of default of an originator
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested. This is typically the main risk associated with investments on the platform.
Decamel follows loan originator procedure which details requirements for onboarding, due diligence and monitoring of any originator with which Decamel starts to cooperate. Decamel evaluates not only the financial capability of the originator and its capacity for business continuity in cases of negative events, but also evaluates and establishes the legal structure for cooperation with the originator so that to ensure that there is a reasonable mechanism to collect the funding from the originator in case of breach of the funding arrangement by the originator or the default of the originator.
Decamel performs monitoring of its originators, their operational, legal, financial and regulatory situation based on pre-agreed covenants and securities mechanism in order to collect debt from the originator in case of its default.
A user (investor) is encouraged to evaluate potential risk based on the information available on the originator, its financial stance and past performance, as well as study other information available on the website. Additionally, the user (investor) is encouraged to evaluate and make one’s own separate judgement whether he/she feels confident to have an exposure in an asset tied to a certain geographic region or industry.
Risk of pre-mature repayment of the funding
This risk may lead to lower absolute return of the investment. This risk implies no risk of any loss of capital invested.
Typically, the originators do not have a motivation to make early repayments of funding as the funding is used for growth of their business. However, an asset has its own life-cycle and it is normal that some assets are repaid pre-maturely, especially in cases when a debtor (of the originator) has repaid its invoice earlier, which is an often situation.
Investments into real estate and assets backed by real estate
Portfolio risk
Any projects or loans entered into by a user on the platform should only be executed as part of a diversified portfolio, which would comprise of a mix of liquid and less illiquid assets. Investing smaller sums over multiple projects help the user (investor) spread the risk. The majority of investments should consist of liquid asset classes so that the user would be able to access one’s capital should one require so. The investments made on the platform should be considered as made on the part of the risk capital of the user (investor).
Real estate market risks
The real estate market is typically cyclical whereby the values of the underlying assets may increase or decrease, depending on a widest range of reasons, including economic, political, social as well as governmental. Generally speaking, real estate markets could be seen a function of two factors: general economic conditions and accessibility and cost of debt capital. Historic performance of the real estate market is not a helpful indicator of its performance in the future. A downturn in the real estate market could strongly negatively affect the financial capability of a borrower to repay the funding.
Real estate liquidity risks
Provided funding is an investment with a certain planned maturity. An investment of this type would be illiquid until that maturity, meaning that once the funding is addressed for a particular project based on real estate, an investor will not receive the funding back until the relevant repayment term. There is no guarantee that the funding is repaid precisely at maturity as the repayment of the funding or a loan of this type is dependent on the sale of the underlying asset, refinancing of the underlying asset, or in certain cases, the ability (readiness) of the real estate to bring rental or equivalent yield. The borrower may default on the provided loan and be unable to repay, in which case it would take additional time to collect the collateral and sell it through bailiff procedure in order for the funding to get repaid. If a loan goes into default, Decamel will inform thereof (under the project updates) of the status, future actions and collection progress so that to make sure that you are aware of the default and the actions Decamel takes to collect the loan on behalf of the investors for funding to get repaid.
Individual risks of a particular real estate object
Individual risks of a particular real estate include operational risks, location and market risks, asset risks, technical and legal risks, risk of its operator and project risks. These individual risks are not the only ones to consider, as there are certainly other risk factors that could be taken into consideration, such as individual real estate tax implications, investment project timelines, and its funding structure. Decamel conducts due diligence on the underlying assets, including an independent professional valuation for each asset taken as a collateral. Decamel stands to ensure that thorough analysis of the transaction and post monitoring of the project would manage these risks where possible.
Investments into company equity and company mezzanine loans
By its definition, there can be no assurance that any information or projection by the company has been validated or is reliable, a start-up will achieve its business plan, or an investor will receive a return of any part of its investment or that any investment made could be resold (in case of default of a start-up).
Whereas Decamel stands to perform due-diligence and thorough assessment of the projects it offers for the investors for funding, the materials and data made available by the founders to Decamel may be limited in nature or may not outline all the risks involved in this particular business. As an investor, you are encouraged to investigate the business closer before making your investment decision. Decamel is not responsible for the correctness and wholeness of the information provided by the founders.
The majority of investments in start-ups are lost, as businesses may not scale, reach their objectives or KPIs, may fail to raise additional rounds, among other things, in which case the investors are likely to lose part or all of investment in a given start-up. The investor should not invest in a start-up more than one is prepared to lose. If the business you have invested into fails, neither the founders, nor Decamel, are obliged to repay the investment. The start-up market is competitive and the percentage of ideas and start-up projects which survive and prosper is small and is way below a mere couple percent of executed start-ups.
Please take time to read and understand, as well as acknowledge that there are the following risks and matters, among others, which should be evaluated and accepted prior to making an investment in a start-up.
Changing business and economic conditions.
The success of any start-up is impacted to some degree by general economic and business conditions. The availability or unavailability of economic and business systems which an individual start-up may depend on to achieve its KPIs could have a negative impact on a start-up’s profitability or operations. There is no assurance that external business and economic environment will be as anticipated or as required for the investment to succeed.
Future and past performance.
The past performance of a start-up or its management is not predictive of a start-up’s future results. There can be no assurance that targeted results will be achieved. Loss of principal is possible, and even likely, on any given investment.
Inherent risk in start-up investments.
Start-ups may experience problems in product development, marketing, manufacturing, financing and management. Sometimes these problems will not be solved and start-up may go down. Start-ups may require considerable financing volumes, which the founders may not be able to raise. Therefore, start-up investments (including early-stage ventures) are risky. Loss of an investor’s entire investment is possible and is more likely to occur that the reverse case of start-up success. Additionally, the timing of returns on an investment is uncertain.
Start-up valuation.
It is challenging to determine the value of any start-up. In addition to the complexity determining the level of risks of a startup and the probability of it being a success, there is rarely a comparative business or a case to be used as a reference point for comparison.
Lack of information for monitoring and valuing start-ups.
You may not be able to acquire all the information we would want about a start-up. Likewise, you may not be made aware on a timely basis of adverse material changes and as a result of these limitations, as well as other uncertainties, you may not have accurate data about the current value of a start-up.
Investment in new concepts and technologies and rapidly changing technologies.
The value of an investment in a start-up may be dependent on the factors impacting the corresponding industry and the risk is greater than a portfolio investment spread among a broader range of securities. In particular, these factors include: (i) technologies or products may become obsolete quickly, (ii) scarcity of management and technical personnel, (iii) rapidly changing investor preferences with regard to investments in the technology sector, which may impact the capability of the founders to succeed in the next capital raising round.
No guarantee that founders and management will raise additional capital.
After the investment was made, continued marketing and development of product or services, administrative and other business needs may, and often, will require that the start-up raises additional financing. In particular, start-ups commonly have such requirement for equity capital so that they are typically funded over several stages of investment. Such additional funding may not be available on favourable terms, in needed time, or at all.
Limited rights with minority investments.
Most investments in start-ups would represent minority stakes in privately held companies or the right to convert (convertible loan) of the funding to future shares in the start-up. In this case with minority holdings, investors will be dependent on the founders and the existing management of the start-up.
Lack of control by investors.
Decisions in a start-up would rarely be made by investors, rather the founders would make decisions with respect to business of the start-up.
Lack of liquidity and public markets.
Such investments would generally be private and illiquid holdings. There will be no public market for the investments held by the investor and no guaranteed mechanism of liquidity at any particular time. Liquidity is the ease with which the investment can be sold (or get repaid) after it was made. Also, the shares may be encumbered with pre-emption rights of the other shareholders or founders, which implies that in case of sale of the shares in a start-up, the existing shareholders have preemptive rights to purchase the shares at proposed conditions. The result may be increase in the transaction costs or delay in transaction.
Voting rights and dilution.
Most investments will not provide the investor the ability or the right to vote. Hence, no voting rights or insignificant voting rights. Investments made in start-ups in most cases are subject to dilution in the future upon raising of further funding rounds. Dilution occurs when a company raises further capital and issues more shares, in which case the existing shareholders dilute (the proportionate size of their holding decreases) in percentage proportional to increase in the share capital. This will have effect on voting, dividends and other things.
Drag-along obligations.
There might be shareholders agreements so that in those there are drag-along obligations. Such obligations mean that you might be dragged into a sale agreement shall other shareholders be selling their shares, whereby you might be dragged into selling your shareholding in the business as well because of a contractual obligation in the shareholders agreement. This is not necessarily a bad thing, as it depends on the future conditions, however you are advised to check whether such conditions are part of the arrangement.
Withholding and taxes.
Primarily, structure of an investment in a start-up may not be tax efficient for any particular investor, and no start-up guarantees that any particular tax result is achieved. There are tax issues to consider relating to investments in start-ups, which depend on a particular investor and you should study information about your individual tax consequences.
Diverse investors.
There are or will be other investors, co-founders and employees in a start-up. They may have conflicting interests regarding their investment and with respect to ownership. You should recognise that any company management, when making decisions on the timing of sale of investment structure, are likely to view the investment and tax objectives of its shareholders as a whole and not the individual circumstances of yourself.
Limited operating history of start-ups.
A business venture may be a recently formed legal entity and with limited operational history. A proposal to enter into a transaction should be evaluated by the investor based on the assumption that a business plan, its calculations and key assumptions for doing this particular business may not prove valid in the future. A start-up may not achieve its objective. Past performance of the team of the start-up and of the start-up itself is not a precondition for future outcomes.
Confidential information.
Certain information regarding start-ups will be confidential. Competitors may benefit from such information or the founders may be against to share certain information. Also, disclosure of such information may result in adverse consequences for development of the start-up.
Forward-looking statements.
Forward-looking statements are statements identifies by the facts that these do not relate strictly to facts. Forward-looking statements would include words such as “intends”, “hopes”, “plans”, “expects”, “projects” and other words in relation to argumentation of future financial or operating events. Cases of such statements would include to data regarding: (i) the projected revenues and expenses, (ii) the planned and projected market for good or services of the start-up business; (iii) the sufficiency of the capital raised to meet future needs of the business, among other things. As with any forecasts, these statements are intrinsically predisposed to uncertainty, changes or error as well as changes in business settings. Actual outcome of a start-up may vary materially from those expected or expressed. Any forward-looking statements are valid only on the date when such were made or the time period soonest to it. Start-ups are under no obligation to revise or change their forward-looking statements, whether as a result of more or new information or due to subsequent events or otherwise.
Do not expect dividends soon.
Dividends are payments made by a company to its shareholders as a distribution of the company’s profits. Start-ups have no obligation to pay dividends and such decision are decided at a shareholder’s meeting and it requires the majority of shareholder votes to authorize such a decision. Early stage companies would often reinvest profits into their business to scale and build shareholder value in the long-term. Some of the companies will not be in the position to distribute dividends until they will have reached a certain level of business development, and the companies may have several rounds of funding before they arrive at the business conditions allowing to distribute dividends.
Risks related to the Platform
Information risk
Difference in availability of information, incomplete information. This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested.
Decamel provides all information and documentation to the best of its capabilities and knowledge. The content of documentation is based on best practices in the field. The user (investor) should read the information and data made available on the project offered for investment, make one’s own judgement and refrain from or make the investment based on one’s own conclusions about the project and its risks. Please note that some of the project data available on the platform may have been received from the third parties. While Decamel is taking steps to ensure the reliability of such information and data as well as the reliability of such sources, Decamel does not take accountability for the exactness and wholeness of such information, as in its essence, all information and data is limited by definition.
Conflicts of interest risk
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested.
Decamel aims to minimize the conflict of interest risks, and follow the general principle that interests of the users (investors) for the choice of the projects by the Platform prevail against other interests. In the rare cases where beneficiaries of Decamel and the project originator would coincide or partially coincide, the Platform would immediately disclose such information.
Compliance risk
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested.
Decamel has appointed a compliance officer to monitor the necessary requirements compliance and regulatory viewpoint in order to identify, evaluate and remove compliance risks. The users (investors) are advised to monitor Estonian and EU regulators to see if there is any adverse information regarding Decamel.
Information technology risk
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested or irreversible loss of capital.
Decamel has partnered with professionals in the IT field to fully outsource its IT development and management function to the partners (shown as partners on the website), both software and hardware, as well as adjacent system functions and tools. IT partners of Decamel perform regular back-ups of all essential data to ensure availability to restore data shall any data be lost due to cyber security risks. Additionally, it stands to introduce its IT systems additional security policies to prevent, mitigate and management security risks and issues within its first year of factual operation.
Operational risk
This risk may lead to lower absolute or relative return of the investment, negative effect on expected return, delay of payments on the investment, full or partial loss of capital invested.
Decamel created and follows rules to helps prevent, mitigate, and deal with such operational risks. Decamel stands to perform external audits of its operations starting second year of factual operation. The users (investors) are advised to monitor Estonian and EU regulators to see if there is any adverse information regarding Decamel.
Default risk
Decamel takes steps to ensure that operations may continue in case of default of Decamel. For the services to be able to be provided under such event, objective of Decamel is to provide for the projects to be administered in such a way as to ensure that the fees of the originators are payable to the platform (e.g. arrangement fees, originator’s portfolio management fees) and in relation to the corresponding project contracts so that these fees remain sufficient in order to cover the costs of administering them during a discontinuation process in such a level of fees, which are sufficient for a prudent and unmaterialistic portfolio manager to be able to provide the services for the users (investors) under these project contracts.
General risk
Your money is at risk. The capital is at risk and one may not receive back any or all of the investment. The ability to repay the capital and interest on the projects or projects loans is limited by the ability as is by the willingness of the originator or the borrower to repay the loan or to manage the project is such a way that the value of the underlying asset exceeds the investment made. The value of the underlying asset may to be affected by a material downturn in the property market or the business of the project, or any other business event or a force-majeure event. As such, we do not guarantee that the investment capital is received back or is received back with the interest. While business projects and business loans are generally secured by the assets of the borrower, or in many cases more specifically by a pledge of the underlying assets, this per se does not guarantee repayment of an investment as per investment documentation. The user (investor) is therefore encouraged not to invest, or place one’s capital under risk, for the amount of such investment or capital greater than one is generally prepared to lose (i.e. to put at risk). The investment is not protected. It is essential to recognise that an investment on the platform is not comparable to a deposit (e.g. a deposit at a bank) as it is not covered by any deposit or investment governmental or regulatory insurance mechanism nor by a compensation scheme.