We at Scramble are excited to announce important changes to our investment platform. These modifications are designed to enhance legal safeguards, providing investors with greater protection and peace of mind. In this article, we explore the challenges encountered under our previous system, the innovative changes we've implemented, and the positive impact on investor experience.
Scramble has been facilitating working capital loans to 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, loan contracts 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 such UK-issued loans can expect a higher level of funds protection if a borrower has any difficulties repaying the loan. From the larger CPG brand’s perspective, it is also easier to combine Scramble financing with other types of loans provided domestically in the UK if all loans are 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 loan contract 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 loans. All of the existing Scramble loans are not affected by this change.
A crowdlending platform enables a retail investor to invest directly into loans 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 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 are called “loan claims assignment”. In a nutshell, “loan claim assignment” is a resale of a loan to new lenders. First, a big lender makes a loan to a borrower. Second, the big lender transfers rights to proceeds from that loan to many small lenders. As a result, small lenders become investors in loans that were originally made by the big 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 loan is initially made by a large lender, which then sells “claims rights” to a retail investor. For example, a UK-based lending company makes a loan to a UK-based borrower, under UK laws and all of the local lender’s protections. Second, that UK-based lending company offers investors in the EU to invest in “claim rights” to the loans it previously issued. This second step is done under the law of the EU.
The results of the crowdlending model and loan claims assignment model are broadly similar - a small investor provides funds to a borrower and is rewarded with income. However, the latter model better suits cross-border lending (e.g., loans from an EU investor to a UK borrower) where the investor and the borrower are residing in different legal jurisdictions.
☝️ 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 same monthly repayments. The changes affect the underlying legal documentation, but not the day-to-day investor’s experience.
Of course, we do hope these changes will over time prove very useful in better protecting the investors’ funds!
☝️ What happens now?
The transition is already underway and we expect finalizing it in early January 2024. This means there won’t be a December 2023 batch on the platform (of course, Dec 5th 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 loans income. From the investment return perspective, this 2% reward is similar to keeping capital in a 24% annual return account for a period of one month.
☝️ When will I see the new documents?
☝️ 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 investor’s 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, opportunities for extra protections, etc.!