It’s important to understand that backing does not offer “free lunch”. Some risk is normal and should be accepted with all kinds of backing. For example, the value of a project may decline due to events outside the control of market participants, such as an economic downturn, a financial crisis, or geopolitical events.
Understanding different types of risk and following a few simple tips can already take you a long way towards becoming a successful backer. Backing smartly can be learned. Remember risk tolerance is individual – only you can decide what you’re comfortable with.
Let’s take a look at the risks you face on Lugani.io, and how you can manage them. However, managing risk does not exclude the possibility to lose part or all of the invested funds if some of the risks materialise.
| Risks of Backing / Pledging | Risk Management |
| Risks related to the underlying project rewards. The Creator might fail to make scheduled rewards in a certain month. – If the Creator does not send rewards, it means that the project has not been rented out that month at all or the maintenance fees and management services fees exceeded the income generated from that project for the Creator. | – Diversify your backing to limit your exposure. Backing a large enough number of projects, will limit your exposure to a single project performance. – At the beginning stage of launching a project it is possible that the performance of a certain project needs to get to the attention of short-term renters. There for resulting in a under-performance for a certain period of time. |
| The Creator sends unusual small rewards in a certain month – If the Creator send unusual large rewards, it means that the average rate per night has gone up or the occupancy rates is higher than usual. | – Diversify your backing to limit your exposure. Backing a large enough number of projects, will limit your exposure to a single project performance. – At the beginning stage of a project life cycle it is possible that the performance of a certain project needs to get to the attention of short-term renters. There for resulting in an under-performance for a certain period of time. – Seasonal factors may influence the occupancy rate and prices for bookings. |
| The Creator sends the rewards later than scheduled. | – Due to bank holidays / national holidays / weekends it is possible that rewards will be send a few days later to Backers. – It is possible that third-party short-rental platforms have a delay in providing payments to the Creator that could result in a delay of receiving rewards for the Backers. – Diversify your backing to limit your exposure. Backing a large enough number of projects, will limit your exposure to a single project performance. |
| Risks related to the company of the Creator The Creator may become insolvent, become unable to service the rewards, or stop cooperating with Lugani.io. As a result, the creator could fail to honour its contractual obligations, leading to not sending rewards or defaulting on the buyback obligation. | – All projects on Lugani.io are 100% owned by Lugani – Lugani has no bank loans on any project offered on Lugani.io – Lugani could use its limits on its account to stabilise the financial situation. – Lugani could take out a bank loan on other assets it owns outside of the project offered on Lugani.io – The maintenance expenses could be limited in case of the credit crush by Lugani. – Owners of Lugani could help with liquidity to Lugani to stabilise its financial situation. – As a last resort, projects could be sold for the market price and there for honour the contractual agreement to the extent of the sales price. (Which could be higher or lower than the contractual obligations with the Backers) |
| Risks related to Lugani.io as the reward based crowdfunding platform Lugani.io may become insolvent or the company may become unable to service its Users. This could lead to delayed repayments or loss of invested capital. | – The Users Backing Agreement is directly made with the Creator, there for, should such a event happen, the Backer and the Creator would still have an valid agreement / contact. – The Creator would pro-actively contact the Backers to provide them with all relevant information to have direct contact, while all agreements would stay in place (incl. all rewards) as if this occurrence never happened. – Lugani.io is an asset light company (with no bank loans) and there for is the chance of such an occurrence is not very likely. |
| Risks related to currency The value of your backing and receiving rewards in a foreign currency may appreciate or depreciate against the investor’s home currency as the exchange rate fluctuates. | – The project values are displayed on Lugani.io in USD or its crypto equivalents. – The foreign currency risk, MYR / USD , of the crowdfunding value of the project is taken on by Lugani. – When backing a project in USD, when your home currency isn’t USD, (e.g. EUR/USD, GBP/USD, CAD/USD, AUD/USD or others) there is a risk of capital appreciation or depreciation based on the foreign currency in case of event, at the moment, when the project would be sold or liquidated. – When receiving crypto rewards in USDT or its equivalents, there is a risk of foreign currency appreciation or depreciation, at the moment of currency conversion into other currencies or assets. |
| Risks related to transaction costs – The transaction costs of bank transfers may vary to the price list of individual banks which our out of our control. – The transaction costs on crypto networks may vary due to the amount of transactions, value of the underlying crypto assets and / or other factors which our out of our control. | -Lugani.io will always try to use the most efficient and effective way to transfer funds or rewards to stakeholders. – Lugani.io won’t take a cut of the transactions costs, they will be automatically deducted from the transferred amount to Backers and Creators. See the “Price List” section for more details about our pricing. |
| Conflicts of interest The best interests of the Backers, Creators, Collaborators, and Lugani.io might not be aligned. | – On Lugani.io, Creators are incentivised to only take risks they are comfortable with having in their own books. Creators initially fund the project out of their own budget, and they don’t know for sure if they can crowdfund them to Backers. Additionally, the Creators have “skin in the game”, meaning they own the residual amount of the project, there for the projects are always 100% funded. All projects come with a Buyback Guarantee, so in case if you want to exit a project, the Creator has to buy the Backing Agreement back according to the Buyback Guarantee Policy. – Lugani.io has set up internal procedures to identify and manage conflicts of interest. You can read more about this in our conflict of interest management policy. |
| Regulatory and compliance risk Creators and Lugani.io are subject to laws and regulation in the geographies they operate in. At the same time, the regulatory and legislative environment surrounding alternative funding and crowdfunding is relatively new and susceptible to change. There is a risk that any change may have a negative effect on a company’s ability to carry out its business – for example, a regulatory change could restrict the products and services the company can offer in the future. | – We look at the regulatory environment a Creator operates under as part of the due diligence check. – Lugani.io closely follows regulatory developments, and we will update our strategy accordingly. |
| IT system risk Lugani.io and Creators rely on IT systems to operate. A failure or breach of these systems can affect Lugani.io’ or the Creators ability to serve its customers / users. In this event, backers’ orders might not be executed to the full extent, or backers might not receive information on their backings / pledges in real time. | – As a reward based crowdfunding company, Lugani.io is very strict on itself on requirements with respect to the IT systems. Lugani.io will always try to ensure IT processes are in order to minimise failure risks. We conducts regular audits to control whether Lugani.io complies with the security standards and make improvements if and when needed. – Creators also devote substantial resources to ensure stable performance of IT systems, as they are essential to their operations. |
| Risks related to cooperation with external partners To service their customers, Lugani.io and Creators rely on external partners such as payment processors, banks, crypto providers and web service providers. Any problems with these partners could impact some of the services Lugani.io provides. | Lugani.io and Creators carefully select their partners and have backup service providers in place where feasible. |
| Property valuation risk: Despite thorough valuations by independent, licensed third-party appraisers and property inspections before purchase, there’s no guarantee the market value will always be accurately determined. This could result in the property being bought above or sold below its fair market value, adversely affecting the redemption value. | Due to the fact that Lugani has a buy and hold strategy and due to their extensive due diligence, the monthly collected short-term rental payments should outweigh the initial purchasing cost of a project and limit the risk of initially overpaying of a project. |
| Early redemption risk: Mandatory early redemption: This might happen if the property is sold, the co-ownership agreement ends for any reason, or other circumstances as outlined in the legal documents. | In case of a cash above market value offer on the project, which would be in interest of all stakeholders, Lugani may consider the offer and act accordingly. Where by, all stakeholders would receive their rewards according to the sale price of the project by Lugani. |
| Market risk: The real estate market’s condition at the time of project sales can be unpredictable, potentially leading to delays in repayments and a partial or complete loss of the invested funds. | Lugani would only sell the project in case of a Force Majeure and Act of God in “not economical” times. |
Diversification and Return
Diversification revolves around the understanding that some assets will perform better than others, but investors don’t know in advance which ones. The return on a diversified portfolio will always be lower than the highest-performing investment. Conversely, it will also always be higher than the lowest-performing investment. That means more diversified investors will have on average more stable returns and fewer negative outliers. https://www.mintos.com/en/security/diversification-returns/
Buyack Guarantee
A Buyback Guarantee is the duty of a Creator to repurchase the relevant Backing Agreements, any User can execute the BuyBack Guarantee under Buyback Guarantee Policy. All Lugani.io projects have a Buyback Guarantee. While backing projects with a Buyback Guarantee could reduce the potential loss for the Backer, in case of a Creator default, the Buyback Guarantee is only as good as the company undertaking this obligation. If the Creator fails to honour its obligation, the Backer is directly exposed to the risk of the Creator not honouring the Backing Agreement. However, all the projects are directly owned by Lugani, Lugani doesn’t have any bank loans or mortgages on none of the projects, which dramatically reduces the risk of default. For more information, visit the “Buyback Guarantee Policy” section.