By Steven Cinelli, CrowdFunding Beat, Sr. contributing Editor
About three weeks before the Lending Club IPO, I had written a piece concerning the valuation placed on the fin tech platform. Similarly, the review might apply to the other alternative finance platform, OnDeck Capital, which also made their public entrance. The basic thesis was whether the market was valuing such new forms of alternative finance as technology companies or within the body of financial services. As shared, if one looks at the metrics used to value finance stalwarts like Wells Fargo or Visa or Capital One, which participate in the same markets, we see multiples of profits, revenues and asset levels at anemic levels compared to the new kids on the block. Is this appropriate, or were early comments prescient, as we have watched an initial run up of both new issues, but have since regressed to just about their initial pubic offering price, nearly 30% off the peak..
Surely, both companies now have additional cash for growth, and we expect that growth is their number one agenda. But the big question in reviewing their models, margin structures and competitive positioning, should they be valued at multiples of metrics 10-20 times the broader financial services community? Certainly growth is key, possibly expedited underwriting and risk management, but both are extending credit, whether in the consumer or SME space. There is only so much spread, and credit risk still exists. Watching growth but also delinquencies and losses will be core to a constant review.
We do expect some additional platforms to tap the public markets in 2015, possibly SoFi and Prosper. Will they be realistic in valuations, to support how they conduct finance, rather than a tech play? Time will tell.
In the end, I am not dismissing the success Lending Club and OnDeck have had in tapping public equity, as I sense with both cash and a public currency, we will witness an active acquisition campaign by both to create value to complement their organic growth strategies.
2015 will prove an interesting year for alternative finance platforms and their quest for continued value creation. We do wish them all the best, as the financial service industry needs a bit of disruption.
Steve Cinelli is Founder, CEO of PRIMARQ Inc., a paradigm shift in the world of housing finance. Our goal is to bring prudence and opportunity into a fundamentally crucial segment of the US and world economies, namely homeownership. @