Featured News

June 10th 2016, Daily News Digest

US

  • Ascend raises $11mil in a very interesting convertible debt structure for Round A.
  • Ron Suber @ Prosper: Once people taste Uber and AirBnB they don’t go back. Same with p2p lending.
  • Soros and other funds offering $5bil to buy Lending Club loans with 10% warrants or higher. No deal, yet.
  • P2p lending is 90% of crowdfunding. What about equity crowdfunding ?
  • Will Lending Club’s efforts to attract lender scare borrowers ?
  • Is self-regulation enough for marketplace lending ?
  • Small business lending is competing with online merchants and pre-sales crowdfunding.

UK

  • The latest danger to online lenders: stacking of multiple loans. Blue Elephant saw it coming.
  • Zopa moves to the city. Will it offer ping pong tables and bright colors? Perhaps free beer ?

Singapore

  • Monetary Authority of Singapore (MAS) clarifies securities and debt-based crowdfunding.
  • FundedHere and MoolahSense are commenting on MAS new rules.
United States

Online Lender Ascend Taps VCs, Debt in Tough Market, (Wall Street Journal), Rated: AAA

Ascend Consumer Finance offers personal loans to consumers with subprime credit scores. It competes with publicly traded OneMain Holdings Inc., privately held Avant Inc., and others.

When Steve Carlson, chief executive of emerging online lender Ascend Consumer Finance Inc., considered fundraising this year, he realized the market wasn’t nearly as receptive as a year ago, when his startup received a $1 million equity seed round.

So Mr. Carlson opted to take new money in the form of a convertible note, rather than equity.

“My current investors came to me and said, ‘In today’s market, let’s move this fast, let’s not quibble over any of the valuation,’ ” he said. Convertible notes convert into equity at a later date, when a new funding round typically sets a valuation.

And so San Francisco-Ascend became one of the few online lenders to raise new capital this year.

It raised $11 million in new funding, the company told The Wall Street Journal. About half of that was in the form of debt to be used to underwrite loans; another half was in the form of convertible notes from OCA Ventures, Mucker Capital, Partech Ventures, Tekton Ventures, Cendana Investments, as well as the venture arm of Securian Financial Group.

The company previously received an investment from Financial Solutions Lab, which is managed by the Center for Financial Services Innovation and JPMorgan Chase.

In a twist on the online lending model, Ascend’s borrowers can lower the interest rate on the loans they take out by allowing the company to monitor their financial behavior.

Borrowers can get their rate reduced on a month-to-month basis if they reduce their credit card spending, add to their savings accounts, or cut down their overall debt load. It’s also possible to earn lower rates by securing a loan with the title to the borrower’s personal car or truck.

Ascend says it has originated more than $3 million in loans. So far results show that borrowers who choose the adjustable loan tend to have lower delinquencies, and most of them do win reductions on their interest rates, Mr. Carlson said. The loans range from $2,500 to $12,500 with a 36-month term.

The other half of its $11 million in funding came in the form of debt. Mr. Carlson said that he avoided hedge funds and other high-price lenders that have boosted the lending capacity of many online lenders.

Instead, Ascend is working with Emprise Bank, which contributed a balance sheet credit facility, and Club Hill Capital, which provided a whole loan purchase facility.

Are Clouds Clearing for Marketplace Lending?, (Bank Innovation), Rated: AAA

Marketplace lending space has been through a rough patch lately. Has that affected the volume of investment?

Absolutely, but not drastically, according to Pat Grady, partner at Sequoia Capital. “I wouldn’t call it a drought, but more calling off the herd,” he said at the Future of Fintech Conference yesterday. “But not all lenders are created the same, and we’ll see some of the more established platforms continue to have great business that will get funding,” Grady added.

Speaking on the same panel, Ron Suber, president at Prosper, compared the marketplace lending experience to that of using Uber and AirBnB: “great online experience, at the right price, and you never go back.”

LendingClub Held Talks on Funding Deals With Och-Ziff, Soros, Third Point, (Wall Street Journal), Rated: AAA

Och-Ziff Capital Management Group LLC, Soros Fund Management LLC, and Third Point LLC are among the firms that have in recent weeks discussed with LendingClub proposals to fund as much as $5 billion in loans, though no deals have resulted, the people said.

Among the discussion points with the hedge funds were how much equity—in the form of warrants, or rights to own shares in the future—they would receive in exchange for the commitments to LendingClub, the people said. Some funds sought more than 10%, the people said.

A person familiar with LendingClub’s thinking said it didn’t feel it was under urgent pressure to secure a large deal, especially one that involved a large equity concession, while smaller buyers are still interested in its loans.

Still, some analysts say that a big deal could help the firm much more. Bob Ramsey, at FBR Capital Markets, said that it’s “important” for LendingClub to announce any potential new funding commitments.

Some new funds have started buying LendingClub loans for the first time. For instance, a mutual fund managed by Stone Ridge Asset Management LLC, which recently began seeking more than $1 billion from public investors to buy online loans, has started purchasing from LendingClub, a person familiar with the matter said.

LendingClub is seeking to hire a new senior capital markets executive, who would handle some of the duties of executives dismissed as part of the board’s inquiry into the disclosure failures, people familiar with the discussions said.

It’s time for equity crowdfunding to grow up, (Alt Fi), Rated: AAA

‘Crowdfunding’, the concept of raising a large sum from lots of small individual contributions, has done a great deal of good in the short period of its existence to date. From helping to launch exciting new start-ups to funding critical medical operations, the term is already well-known outside of the traditional investment world.

The use of technology to enable individuals to achieve personal dreams and smaller businesses to raise finance to fund socially beneficial projects or enable them to move to their next level of development can only be seen as a positive step in the democratisation of finance.

What crowdfunding hasn’t yet done is fully unlocked the real complexity of investment activity and taken account of not just the emotional but also the pragmatic necessities around making investments at scale. The vast majority of crowdfunded investment, 90% plus, currently takes place via the lending platforms or Peer to Peer (“P2P”) lenders.

By contrast, and despite a popular impression of scale, equity crowdfunders are small fry.

Hence Equity Crowdfunding now needs to ‘grow up’ and start to deliver to more considered investors the sort of service that they already receive from professionals within the broader financial services industry. Financial planning, investment research and investment management can further help them analyse risk, make a more considered investment decision and, hopefully, increase their chances of making an investment return in the long term.

Will Lending Club’s Bid to Win Back Investors Scare Off Borrowers?, (American Banker), Rated: AAA

Comment: Due to a paywall, we will not report on the content of the article. However, the title says it all.

Self-Regulation of Marketplace Lending Does Not Go Far Enough: FTC, (American Banker), Rated: AAA

Comment: Due to a paywall, we will not report on the content of the article. However, the title says it all.

Best Alternative Financing Options to Grow Your Small Business, (Huffpost Business), Rated: AAA

Comment: in our publication’s context this article is mostly interesting to outline competing capital sources which are alternatives for online small business lenders we usually report on. 

Sources of capital for small businesses:

Peer-to-Peer Lending

  • Lending Club is flexible option that issues $15,000 to $300,000 in a loan amount, 8% to 32% APR, and approval under one week.
  • Funding Circle is recommended for established businesses looking to grow. Loan amounts range from $25,000 to $500,000 with an APR of between 7% to 26%.
  • Prosper is a solid decision for startups seeking $2,000 to $35,000. APR is at 6% to 36% and approval can occur in as little as two day.

Online Merchants

PayPal Working Capital is a low-risk loan that has flexible payment options, no credit check, and a fixed fee determined by the amount of your loan, the repayment percentage, and your sale’s history.

Square Capital provides personalized loans with fees between 10% and 16% of the amount borrowed. To ensure that you don’t fall behind on your payments, Square will take a percentage of your daily card sales to pay off the loan.

Crowdfunding

Popular pre-sales crowdfunding sites include Kickstarter, Indiegogo, and GoFundMeBittylab is one company that successfully used this tactic. In just two weeks, the company raised more than $50,000 in presales. The main perk of product presales is that you don’t have to borrow money elsewhere and the funds go directly back into your business.

Another option is equity crowdfunding where you would exchange shares for the cash that you need.

United Kingdom

Latest threat to online lenders: “stacking” of multiple loans, (Daily Mail), Rated: AAA

Many online lenders have failed to detect the “stacking” of multiple loans by borrowers who slip through their automated underwriting systems, lending company executives and investors told Reuters.

Stacking is “causing problems with the whole industry,” said Brian Biglin, chief risk officer of LoanDepot, a five-year-old mortgage lender that last year started making personal loans online.

Industry leaders LendingClub and Avant said they are aware of stacking and its dangers, but they downplayed the risks and did not provide examples of specific actions taken to prevent the practice. OnDeck and Prosper said they have launched efforts to detect and guard against stacking.
“We have established proprietary algorithms,” said Prosper spokeswoman Sarah Cain.

Edward Hanson, the owner of Ella’s Wood Fire Pizza, said he started stacking loans about five years ago to sustain his business.

“You take out another one to help you pay for the first,” Hanson said.

Hanson, 55, said he already had loans from a variety of online lenders when he received offers from online business lenders OnDeck and Kabbage, which approved his application, he said.

OnDeck knew Hanson had at least one other loan when he applied in August of 2014, and required that the existing debt be paid off as a condition of the new loan, said company spokesman Jim Larkin. When Hanson came back a year later, OnDeck declined his application because Hanson had stacked loans during the course of repayment, Larkin said.

Kabbage declined to comment on Hanson’s loans and did not respond to questions about its stacking policies.

Hanson now pays nearly 40 percent interest on his latest loan, from yet another lender.

“I pretty much feel trapped,” he said.

Bill Kassul, a partner in Ranger Capital Group – which has about $300 million invested in marketplace lending and business lending – said stacking has become a concern in the last two years and poses a “big risk” to investors.

Blue Elephant Capital Management stopped buying loans from Prosper for several months recently over concerns about weak underwriting and profitability. Marketplace lenders need to slow their lending processes and improve sharing of credit information, said Brian Weinstein, chief investment officer at Blue Elephant.

Stacking was “one of the reasons why we think we saw credit deteriorate last summer when we stopped our marketplace lending program,” Weinstein said.

Blue Elephant last month announced plans to resume buying Prosper loans, in part because the company is charging higher interest rates.

In their haste to give applicants quick loan decisions – sometimes within 24 hours – some marketplace lenders do not conduct thorough credit checks, known as “hard inquiries,” according to industry executives.

Such checks create an updated log of credit and loan applications, and they can lower a borrower’s credit score. Soft inquiries don’t require the borrower’s consent and don’t usually show up on credit reports.

“Not all lenders in our industry report to bureaus,” said Leslie Payne, a spokeswoman for LendUp, which makes high-interest installment loans. In a February blog post, Experian, the credit bureau, said a “significant number” of marketplace lenders do not report their loans.

After OnDeck turned down the second application from Hanson, the pizzeria owner, he turned to World Business Lenders, a small business lender founded in 2011. He now pays 39 percent interest.

Hanson would not detail his balance or his payments, but said he put up his house as collateral. The company said Hanson’s latest loan reduced his payments from 44 percent of his business’s revenue to 12 percent by offering a longer term.

“The fifth stack pays the fourth stack, and the sixth stack pays the fifth stack,” Naidus said. “But when the music stops, everybody’s got to find a chair.”

 

Fintech player Zopa picks KBS Albion for creative and strategy brief, (The Drum), Rated: A

Amy Miller, chief marketing officer of Zopa, said: “We’re delighted to be working with Albion on our brand and communications strategy. They have a track record of building great brands in the tech industry and beyond, and we are excited about what we can do collaboratively to build Zopa’s awareness.”

P2P Global Investments Names Citi Banker To Board, (London South East), Rated: A

London-listed P2P Global Investments PLC on Thursday named Mahnaz Safa, managing director for corporate and investment banking in EMEA at Citigroup, as an independent non-executive director, strengthening the board at a time of “heightened” regulatory scrutiny for peer-to-peer lenders and other online marketplace lenders.

Safa, who joined Citi in 2013 after 19 years at Swiss bank UBS, where she headed the EMEA debt capital markets business, has experience of the peer-to-peer lending sector.

She used to be on the British Business Bank’s investment committee, helping to allocate capital to non-traditional lenders to smaller companies. Such lenders included peer-to-peer platforms.

Moreover, Safa has advised new platforms for working capital finance and is an investor in start-ups in the FinTech space, P2P said.

“Big three” now City dweller, (Alt Fi), Rated: A

Zopa has leased 25,252 square feet on the first floor of Cottons Centre from Network Rail at a headline rent of £55 per square foot, with a lease length of 7.5 years, according to PropertyWeek.com. Cottons Centre is just a short walk away from London Bridge – a stone’s throw from the City.

Funding Circle changed its registered address on the 2nd of September, moving from near Blackfriars to 71 Queen Victoria Street, where the small business lender took two former trading floors in the Royal Bank of Canada’s old office. Funding Circle has since turned one of these floors into shared office space for startups. RateSetter acquired 20,000 square feet of office space on the 6th floor of 55 Bishopsgate in December 2015.

RateSetter’s meeting rooms are named after famous London markets and are brightly coloured. Funding Circle HQ features table tennis tables aplenty and a chic canteen. WeWork in Moorgate has a free-beer-on-tap policy. We’ll have to wait to see what Zopa brings to the party.

 

Singapore

P2P Lending in Singapore: MAS FAQ, (Crowdfund Insider), Rated: AAA

This week the Monetary Authority of Singapore (MAS) revealed their approach to “securities crowdfunding announcing that platforms may raise up to S$5 million (USD $3.7million) from both sophisticated and retail investors.  The approach is more in line with the UK than the US providing a less complicated exemption and the ability to raise more funding online.

Regarding debt-based crowdfunding or peer to peer lending, MAS has published an FAQ on proposed / updated rules.  The proposal seeks to remove an exemption that some platforms have been using as a workaround to provide loans without being authorized by MAS.

MAS stated;

“MAS is aware that some lending-based crowdfunding and P2P lending platform operators facilitate the raising of funds by having the borrowers issue a single promissory note of face value $100,000 or more to multiple lenders, with each lender lending less than $100,000. Such consolidated promissory notes issued by a borrower under such business models are considered by MAS to be “debentures” and hence are subject to the Prospectus Requirements. Platform operators should now ensure that the participants on their platforms are aware that each lender has to lend at least $100,000 if the borrower is to fall within the Promissory Note Exclusion. Offers of consolidated promissory notes commenced after the date of these FAQs must comply with the Prospectus Requirements.”

So platforms that want to issue debt via a P2P process will now be required to be licensed by MAS.

MoolahSense, an existing P2P operator in Singapore that was previously using the Promissory Note Exemption, told the Business Times they would begin to advise clients to now use the Small Offer Exemption, or when investors will number less than 50 – use the exemption for private placements.

FundedHere’s CEO Lauds Singapore’s Securities-Based Crowdfunding Approach, (Crowdfund Insider), Rated: A

Michael Tee, CEO of Singapore crowdfunding platform FundedHere, provided feedback on the announcement by MAS.  Tee told Crowdfund Insider:

“FundedHere embraces the changes by MAS to the crowdfunding space in Singapore. It is very significant that MAS has simplified and liberalized investor access to crowdfunding and crowdlending. Apart from sophisticated or accredited investors, the general public can also participate in crowdfunding. This better reflects the true spirit and promise of crowdfunding. It will invigorate Singapore’s startups as well as SMEs, and will lead to greater participation in crowdfunding as a viable option to raise capital.”

Singapore revealed the creation of a regulatory Sandbox for Fintech startups – something the UK has championed. Enacting updated rules that allow SMEs the ability to raise up to $5 million online without a prospectus is a significant step forward for the city-state.

 

Author:

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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