dv01 raised in March 2015 $7.5 million of seed funding from Quantum Strategic Partners Ltd. ( a private investment vehicle managed by Soros Fund Management) Leucadia National Corporation and Pivot Investment Partners.
The proliferation of lending platforms has led to a headache for lenders investing on the multiple platforms. Every company has a different reporting yardstick for their loans. DV01 is an analytics platform that brings transparency to the lending markets.
Spreadsheets are the proeminent tool used for managing loans information; DV01 wants to get rid of spreadsheets. DV01’s biggest competitor in the market is the archaic Excel spreadsheet.
Institutional investors have used DV01 applications to gain real-time insight into more than $33+ billion worth of marketplace loans. It helps in increasing the liquidity by simplifying all aspects of loan and bond investment w.r.t. marketplace lending.
DV01 will now focus on its securitization offering and scaling its solution to expand into the $12 trillion consumer and lending market.
DV01 is based out of New York and was founded in 2014. Its founder, Perry Rahbar, was previously working at Bearn Stearns as Managing Director in Mortgage backed securities trading before it was acquired by JP Morgan, where he worked till 2013, and then founded EDIFY, a book discovery platform.
How did company start ?
The idea of DV01 was born when Perry was helping the founder of Lending Homes to securitize some of their loans. He saw the complexity across different marketplace lenders and the need for a platform which could standardize investments across the board.
In its efforts to build their own niche, it concentrated on only big institutions like Lending Club and Prosper unlike its competitors (Orchard, Joomla and Peer IQ). DV01 helps with reporting and portfolio management.
DV01 has recently launched a securitization reporting business, which will bring more transparency in securitization via trustee reports at loan level data and which also will be available to investors via its web application. Loan data is updated on a regular basis; it is connected with various services and comes with its own reporting and analytics tools.
Before DV01 was launched, ABS purchasers did not have any tool to access and understand the information at loan level, even though most of the big online lenders publish their data to ensure transparency in the system. But by the time investor reaches the securitization stage, all the transparency was gone and ABS investors did not know the loan specifics in the security.
DV01 took the risk of being the middle man and started providing the information and analysis needed by the investors.
Jefferies – Lending Club securitization
The first deal it was involved in was between Lending Club and Jefferies. Its association with Lending Club has been long and fruitful one and this association has helped DV01 find new clientele and generate more business.
On the loan side, it already has associated with 8 originators (Prosper, Lending Club, Upstart, Marlette, Common Bond, Avant, SoFi, and Promise Financial). But till now it has only worked for Lending Club as a securitization agent.
Online lenders usually report the data and update the system on the daily basis for various items, since mortgages are a new product in their portfolio; it takes a lot of time to report and service the data. For example, once the payment is made, it takes them 4 days to get the data. So reconciling all that data and to make sure that the data is correct is time-consuming and mind boggling for the investor. So to understand how originator does the reporting and calculation, the startup understood the entire reporting lifecycle from the originator. The nuance of which is the basis of its platform.
DV01 business model is based on two services it offers.
- Securitization: Acts as an agent and paid out of the waterfall of the loan.
- Portfolio Management: In this, it handles daily updates for the portfolio and also has a web application with analytics and reporting tools.
Along with this, it also offers managed database with portfolio data, which helps in reporting requirements in different facilities they are involved in.
The company mostly caters to big institutions that have over $100 million under management. Anyone who is buying from one investor can easily manage the portfolio whereas DV01 specializes in institutions that buy from multiple originators and add value through its services.
DV01 uses its state of the art technology to standardize the data which it collects from various sources and enables the investors to make real time comparison. By normalizing the data across the lenders, DV01 simplifies comparison and analysis, enabling institutional investors to study individual loan performance and quickly detect issues with the portfolio.
Unsecured personal vs other fixed income
Leading analytics players in contiguous lending industries refrain from what DV01 does in because collecting data from these 8 originators is time-consuming, expensive and resources intensive. Every originator’s data is stored and interpreted differently, thus leading to no standardization. For instance, in the case of consumer unsecured loans there are 5 0r 6 types of ABS, going through all of them is extremely resource intensive.
DV01 has created a smooth and easy to use standard infrastructure for investors. It is now focused on expansion in the market and perhaps also to use the same platform for other marketplace products like auto loan industry, where data is not that transparent or easy to understand.
Why the name ?
The name of the company is based on the jargon for dollar value of 1 basis point. This subtly highlights its credentials as an experienced player in the fixed income market, where a difference of single basis point can mean a loss in millions of dollars. With an experienced founder and an amazing investor roster, DVO1 is pole position to capture the market for standardization and analytics in the p2p lending industry.
Author: George Popescu and Heena Dhir