A New Chapter for Scramble Investment Platform

THE BACKGROUND: A UK–EU CONNECTION
Scramble has been facilitating working-capital financing for European CPG brands for more than 2 years now. CPG (“consumer packaged goods”) is a global industry with thousands of new promising CPG brands born yearly in every European country. However, thanks to a number of local advantages, the UK CPG remains an undisputed leader across all other European markets.

Why so? As one of the largest European metropolitan areas, the huge London market is an easy launchpad for a new brand. The UK provides various tax incentives for investing in startups, which creates a better supply of startup capital for UK-based brands. Local retailers and supermarket chains in the UK have proven to be very open to small CPG brands relative to their colleagues in some other, more conservative European markets. So we at Scramble see a tremendous opportunity in working with UK-based CPG brands.

Scramble is already the #1 growth financing provider to UK-based early-stage CPG brands. There are no alternative providers in the UK that would offer financing that would be simultaneously reasonably priced, meaningful in size, and convenient to obtain and use. We really appreciate the trust and positive feedback we get from the UK CPG founders. Going forward, we believe that Scramble has every chance to maintain its leadership position in the UK CPG financing.

However, with the UK leaving the EU post-Brexit, providing funding to a UK-based borrower requires deeper integration into the UK local legal system than would be the case for a borrower in an EU-member state. Simply put, Financing agreements made locally in the UK under UK law (and not internationally under EU/Estonia law) are easier and faster to enforce, which means investors in Claims to such UK-issued financing can expect a higher level of funds protection if a borrower has any difficulties repaying. From the larger CPG brand’s perspective, it is also easier to combine Scramble financing with other types of financing/loans provided domestically in the UK if everything is done under UK law.

In parallel to our internal discussions, we conducted a comprehensive poll to better understand how our current investor customers think about Scramble and possible areas for improvement. The vast majority of investors said they are very satisfied with the platform. The one area where investors want Scramble to always keep improving is the investors' funds protection. And this makes a lot of sense—after all, interface or customer support is important, but the ultimate quality of an investment platform is measured by how much investors make when they invest, and to what extent an investor’s funds are protected.

Taking all of the above into account, we’re introducing an upgraded model and legal structure for European investors investing in UK-based CPG brands. This model enables better integration into the domestic UK Financing-agreement protections and regulations, while at the same time being fully compliant with the EU and Estonian regulation for retail investors.

Please keep in mind that this new model only affects future financings and assignments. All of the existing Scramble agreements/assignments are not affected by this change.

THE NEW MODEL IN A NUTSHELL
A crowdlending platform enables a retail investor to lend directly to borrowers. In the case when the investor is based in one jurisdiction (e.g., the EU) and the borrower is based in another jurisdiction (e.g., the UK), this creates a number of barriers. One such barrier is the time and cost it takes to legally enforce a loan/financing contract in case any repayment problem arises. As a rule, most crowdlending platforms avoid this complication by simply operating in one jurisdiction, for instance enabling loans from a Germany-based investor to a Germany-based borrower.

An alternative model has long been used by large-scale financial institutions that is called assignment of receivables (Claims). In a nutshell, this is an assignment of the right to receive payments under a Financing agreement to investors. First, a large lender makes a financing under a UK-law Financing agreement to a borrower. Second, the large lender assigns receivables (Claims) arising from that agreement to many retail investors (Acquirers). As a result, retail investors acquire Claims to payments under financings that were originally made by the large lender.

So while in a crowdlending model a loan is made by a retail investor directly to a borrower, in the Claims-assignment model the financing is initially made by a large lender, which then sells/assigns Claims to a retail investor. For example, a UK-based lending company makes a financing to a UK-based borrower under UK laws with all local lender protections. Second, that UK-based lending company offers investors in the EU to acquire Claims to the financings it previously issued. This second step is done under the law of the EU.

The results of the crowdlending model and the Claims-assignment model are broadly similar—economically, a small investor’s capital supports a borrower’s working capital and is rewarded with income. However, the latter model better suits cross-border financing (e.g., where the investor and the borrower reside in different legal jurisdictions).

FREQUENTLY ASKED QUESTIONS

☝️ Does this change mean I now have to learn how to use the “changed” Scramble?
Not really. Very little changes from the investor perspective. We keep the same financial terms, same batch, same interface, and the same distribution schedule. The changes affect the underlying legal documentation, not the day-to-day investor experience. Of course, we do hope these changes will over time prove very useful in better protecting investors’ funds!

☝️ What happens now?
The transition is already underway and we expect to finalize it in early January 2024. This means there won’t be a December 2023 batch on the platform (of course, Dec 5th distributions/repayments will happen as usual). Most of our investors reinvest capital monthly and we don’t want the Scramble model transition to affect that convenient habit. So that your funds keep working and generating returns in December, and as a token of our appreciation for your patience and loyalty to Scramble, all investors who keep their funds in their Scramble accounts from December 1st and invest them in the January 2024 batch will get an extra 2% reward in bonuses on top of their regular investment income.

☝️ When will I see the new documents?
Updated Terms of Use and other standard documents will be published during the first half of December 2023. These new documents will come into force with regard to all future financings and Claim assignments on the platform. All existing agreements/assignments are not affected by the changes.

☝️ So all in all, is this a big deal?
This is an important milestone for Scramble and our valued customers! We’re getting larger, and Scramble now enjoys the trust of over 12’000 retail investors across Europe with over €3M in investors’ capital deployed to dozens of UK-based CPG brands. Given the amount of customer interest we get from both retail investors and brands, we must continuously adjust our model to meet stricter customer expectations. We expect further changes in 2024 with regard to investor convenience and opportunities for extra protections, etc.! The transition to our new model is already underway, with an expected completion in early January 2024. As a result, there won't be a December 2023 batch on the platform (though rest assured, Dec 5th distributions/repayments will proceed as usual). We understand that many of our investors reinvest capital monthly, and we're committed to ensuring that the Scramble model transition doesn't disrupt this convenient habit.

Maximize Your Returns: A Special Bonus Offer
To express our gratitude for your patience and loyalty to Scramble during this transition, we're introducing a special bonus for all investors. If you keep your funds or add funds to your Scramble account from December 1st and invest them in the January 2024 batch, you'll receive an extra 2% reward in bonuses on top of your regular investment income from Claims.

From an investment-return perspective, this 2% reward is akin to keeping your capital in a 24% annual return account for a period of one month. It's our way of thanking you for being an essential part of the Scramble community and ensuring your funds continue working and generating returns in December.

We appreciate your ongoing support, and we look forward to embarking on this new chapter together. Stay tuned for more updates, and don't miss out on this exclusive opportunity to maximize your returns with Scramble!