iDisclose Announces Free Online Tool to Conform Documents to SEC Acceptable Format
NEW YORK, NY–(Marketwired – August 17, 2016) – iDisclose announced today that it is offering a free online service to help issuers and their counsel submit the required crowdfunding documents to the Securities and Exchange Commission.
iDisclose CEO Georgia Quinn explained that “we have noticed a lot of people are having trouble uploading the required documents to the SEC’s online system known as EDGAR. This is due to the finicky nature of the system and somewhat archaic technology it uses. Several issuers’ uploads were getting bounced and the error messages were indecipherable.”
Many times, documents are bounced when people attempt to upload them to the SEC’s Electronic Data Gathering, Analysis, and Retrieval system or “EDGAR” system because the actual file does not meet certain technical specifications or contains certain “tags” that EDGAR rejects. iDisclose’s new SEC Scrubber “cleans,” so to speak, the documents of any tags or unacceptable formatting without altering any of the content, so they are able to be filed.
When asked why iDisclose is offering this service for free, Quinn stated, “We are doing this because we believe in the power of crowdfunding and we want to see this industry succeed. This has been a silly stumbling block for hard-working and well prepared issuers, and we want to remove it.”
A beta-version of the SEC Scrubber is being released to the public today and iDisclose is taking comments and feedback to improve the tool in its next release.
iDisclose is an online application that helps entrepreneurs prepare their own legal crowdfunding documents significantly reducing the amount of money paid to attorneys and law firms. iDisclose puts the job of disclosure back into the hands of the entrepreneur, eliminating the inefficiencies of the traditional method, substantially reducing time to comply with the rules and saving thousands of dollars. Rather than provide un-contextualized information about a business to a lawyer, and then relying on the lawyer to prepare the first draft, the entrepreneur responds to an online dialogue to draw out the relevant disclosure issues and the platform organizes the information into a legal document. Throughout the entire process, the entrepreneur is able to collaborate with his or her own team and attorney as needed, and to send their attorney their document drafts for final review and sign-off.
iDisclose also generates a Red Flag report of key issues that must be addressed, which can also be shared with an attorney for further advice and counsel. In addition, the platform creates a list of Risks Factors that are seamlessly organized within the document for easy review by investors.
- Businesses: The platform allows you to create your own legal documents at a reduced time and cost.
- Investors: iDisclose provides fulsome disclosure in an easy to evaluate format.
- Fundraising Platforms: iDisclose allows platforms to offer a value-added service to their users and standardizes the disclosure format across the entire platform.
- Lawyers: It eliminates much of the drafting drudgery required with the disclosure process, and allows lawyers to focus on the true aspects of being a lawyer (offering real legal counsel, guidance and reviews).
iDisclose was developed by Douglas Ellenoff and Georgia Quinn of Ellenoff, Grossman & Schole, who are both award-winning, NY-based corporate attorneys and globally-recognized figures in the alternative finance space. Having both facilitated hundreds of corporate financings over the course of their careers, the founders harness a deep understanding of the disclosure process, as well as the issues businesses face when raising capital.
iDisclose Partners With Crowdfund Beat Media on Its Title III Crowdfunding and helps to promote what iDisclose is trying to do, which is assist small businesses, who have historically lacked access, receive the capital they deserve. CrowdFund Beat Media International is an online source of news, information, events and resources for crowdfunding.
MPLs are online platforms that enable investors to lend to retail and commercial borrowers. Unlike banks, MPLs do not take deposits or lend themselves; as such they do not take any risk onto their balance sheets. They make money from fees and commissions received from borrowers and lenders.
The rise of Marketplace lending has urged many commentators to highlight the potential disruption that such new business models may bring to traditional banking. Our research presents a different opinion and instead concludes that MPLs do not currently have the competitive advantage needed to threaten this traditional banking model. However, while they may not fully disrupt the model, we do expect them to be a continued presence within the ever evolving banking landscape.
We believe there is significant consumer benefit to be had by supporting the development of an innovative MPL sector. Banks should therefore view MPLs as complementary to the core model, rather than as core competitors, and explore opportunities to enhance their overall customer propositions through collaboration.
As explored in Deloitte’s Banking disrupted and Payments disrupted reports, and Deloitte’s The Future of Financial Services report, produced in collaboration with the World Economic Forum, a combination of new technology and regulation is eroding many of the core competitive advantages that banks have over new market entrants. These structural threats have arrived at a time when interest rates are at historic lows, and seem likely to remain ‘lower for longer’. Combined with an increase in regulatory capital requirements, these changes are making the goal of generating returns above the cost of (more) capital a continuing challenge.
The SEC’s new Title III Equity CrowdFunding rules went into effect May 16th. These new rules expand Equity CrowdFunding to allow investors at all wealth levels to invest in startup companies. In June 2015, the SEC also enabled groundbreaking new rules called Regulation A+ which allow anyone to invest in startups and more established companies that need to raise up to $50 million.
The capital raising landscape is making its biggest shift in decades. We now have an online fund raising continuum that extends from startups raising seed capital of as little as $100k up through established companies raising up to $50 million per year.
U.S. entrepreneurs have never had it so good. Let’s explore the new ecosystem and see what path suits your company best.
Seed Equity CrowdFunding, known as Title III: Startups raising $100k up to $1 mill in seed capital fit the newly expanded main street equity crowdfunding rules nicely. This means that main street investors (both accredited and non-accredited individuals) worldwide can now buy shares in your company. The smaller the capital raise, the less demanding the disclosure rules, with break points at $100k and $500k. We can expect many of the existing equity crowdfunding platforms to now expand to include main street investors.
Vetted financials are required in many cases, and there will be marketing costs to promote your offering to investors. These costs could range from as low as $10k to the $60k range. The marketing cost will vary greatly depending on who is doing the marketing and how well it is executed. It costs money to get the attention of investors. Marketing agencies cannot charge a percentage fee on capital raised. They have to charge for their services in cash. But the good news is that the cost of reaching main street investors is far lower than the cost of drawing in Accredited investors if your company appeals to consumers, which is critically important here.
The initial slate of Title III Funding Portals are SI Portal (Seedinvest), IndieCrowdFunder, StartEngine, NextSeed, UFundingPortal, WeFunder, JumpStart Micro and CrowdBoarders. Many more funding platforms will likely soon be approved by FINRA, and this should be a busy field by the end of 2016. The most attractive Title III platforms will be those that have large scale and use their scale efficiently for Title III startups. IndieCrowdFunder would be my early favorite if they were broad in focus, but they are limiting their scope to Hollywood type companies.
Accredited Equity CrowdFunding:Startups raising $1mill to $4mill and up fit the existing style of equity crowdfunding platforms, raising capital from accredited (wealthy) investors.Think Fundable, CrowdFunder, Angellist, EquityNet as examples of this.
Reg A+: Successful mid stage companies, corporate spinouts (think management buyout) companies considering a reverse merger with a public shell, and select, low risk startups fit Reg A+ platforms. You can raise up to $50 mill per year using Reg A+. You could do your own offering, or you can use one of the funding platforms that exist today (examples include SeedInvest, StartEngine and, of course, ManhattanStreetCapital). Shares can be liquid immediately after the offering. It is also possible to take your company public using Reg A+.
In all forms of online fundraising/CrowdFunding:
- You will need to make a compelling pitch for your business and the use of the capital, the market and why your company will survive competition in the long haul.
- Be prepared for open disclosure. You have to be open and avoid hype in order to have a good chance of getting investor engagement and investment and to meet the SEC and FINRA requirements. Expect thousands of investors to be examining your every claim, your LinkedIn profile, and your career to date.
- It will cost money to do the marketing of your offering. So you must spend money to raise money. As a rule of thumb, think in the range of 2 to 5% of capital raised must be spent to bring investors on board. Excellence in execution here is key. And for Title III and Reg A+, you will have more success if your company appeals to consumer investors – they cost less to reach and will more readily adopt the new models described here than accredited investors will.
Now is the time, and the opportunity has never been greater. We can expect tremendous evolution in the funding landscape as the result of the new expansion of online capital raising options for U.S. and Canadian entrepreneurs.
Rod Turner is the founder and CEO of Manhattan Street Capital, helping successful mid-stage and mature, low risk startups to raise the capital they need to scale faster under the newly-approved criteria of Regulation A+. Turner has played a key role in building six successful companies including Symantec/Norton, Ashton Tate, MicroPort, Knowledge Adventure, and ArtSlant, Inc. He is an accomplished investor who has built a Venture capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris, Ask, and eASIC.
Lending Club and Prosper are going through a rough patch. Renaud Laplanche, the CEO and founder of Lending Club, just resigned amid allegations of financial irregularities, while Prosper recently laid off more than a quarter of its employees.
But those are only the ripples on the pond’s surface. What’s going on underneath is that Wall Street is losing faith in the business model – that is, losing faith in the quality of the loans made on the Lending Club and Prosper platforms.
Not long ago, Wall Street financial institutions couldn’t get enough of Lending Club and Prosper loans. Now the same institutions are cutting back and the effect is severe.
To me, there are two lessons.
This is a Brand New Business Model, and It’s Going to be a Bumpy Ride
Marketplace lending started with the observation that banks pay much less interest to depositors than they charged to borrowers, and that technology should allow someone to decrease that spread, making a profit in the bargain. Lending Club and Prosper grew by substituting proprietary algorithms for traditional bank due diligence. The algorithms seem to work,and institutional investors rushed in.
But marketplace lending has been around for less than 10 years and nobody knows how the algorithms will perform during a down cycle. It’s not a big surprise that Wall Street money managers, aware that the economy might be due for a downturn, are hedging their bets.
The fickleness of Wall Street money managers doesn’t mean the business model of Lending Club and Prosper is broken. To me, there is little doubt that algorithms and big data willreplace traditional bank due diligence – not only in consumer lending, but in other parts of the Crowdfunding ecosystem as well. But the algorithms and business models might well have to be adjusted, and nobody should expect a straight line from A to Z.
The fickleness of Wall Street money managers leads to the second lesson.
Wall Street is Fickle
Soon after launching a Crowdfunding platform, you realize there’s a choice where you look for investment capital. You might have begun with the idea of raising money from the public – that is, from retail investors – but you realize quickly that you can also raise money from institutions.
Raising money from institutions is often much easier because, well, institutions have more money. But there are a couple downsides:
- You started off hoping to become a household brand, but if most of your money comes from institutions you risk becoming merely a deal originator for institutions, with far less clout and long-term brand value.
- You started off idealistically hoping to bring high-quality investments to the public, but if most of your money comes from institutions, you aren’t.
The experience of Lending Club and Prosper reveals another downside: Wall Street is fickle. If you build your Crowdfunding business based on large investments from a handful of institutional investors it’s a lot of fun on the way up, but when the institutions pull the plug it’s a hard fall.
Ideally, a Crowdfunding platform can have it both ways, using institutional money to build the business while building its brand with the retail public, to the point where the business can survive and prosper even if institutional tastes change. I don’t know whether that’s possible, but I hope so.
Markley S. Roderick concentrates his practice on the representation of entrepreneurs and their businesses. He represents companies across a wide range of industries, including technology, real estate, and healthcare.
Monday’s news that Renaud Laplanche was stepping down as Lending Club’s CEO sent shockwaves throughout the industry – particularly coming hard on the heels of industry layoffs and disappointing earnings announcements.
Since Monday morning, the alarmists have been out in full force, nonsensically declaring the end of marketplace finance and FinTech in general. But what some may consider the end, I view as a new beginning.
“What the caterpillar calls the end of the world, the master calls a butterfly.” – Richard Bach
Cynics, I have a newsflash for you. When the automobile industry experienced turbulence, people didn’t rush to trade back their cars for horse-drawn buggies. When the Internet bubble burst in 2000, people did not revert to fax machines. Likewise, we are not going to return to antiquated lending models. Millennials are not going to suddenly start liking banks more than root canals. People are not going to stop looking online for investment ideas. They are not going to resume waiting around for some stock jock to call and pitch them on 100 shares of IBM. The FinTech train has long left the station and there is no turning back.
The earth doesn’t spin in reverse. What we are experiencing now is the natural evolution of an industry. In order to evolve, we must err. Stumbling is how we learn and grow. This is nothing new. Mankind has been advancing in this manner for centuries.
Personally, when I detect fear and pessimism in markets, I smell opportunity. Opportunity for better business models to prevail. Opportunity for innovation to flourish. And opportunity for money to be made. Today is no exception.
Last week I had the honor of speaking at Crowdfund Beat’s 3rd Annual Crowdfunding Conference at the National Press Club in Washington, DC. During the presentation – which focused on the catalyst that would enable crowdfinance to scale – I explained that the present turmoil in FinTech was nothing more than a nascent industry figuring out new ways to scale – as it can no longer depend on fickle hedge fund investors.
Brian Dally, CEO of GROUNDFLOOR, the first online real estate lending platform catering to smaller retail investors, pins the recent industry tumult on the dominance, allure and sugar high of the over-reliance on institutional capital, and believes that the solution lies in an industry-wide cultivation of retail capital. According to Dally, “Inherent to retail capital is certain structural safeguards for investors, platforms and borrowers alike that our industry would do well to acknowledge and model going forward.”
I couldn’t agree more.
In fact, many in the industry are also now starting to realize that the scalability of marketplace lending will ultimately depend upon the retail investor and his appetite for tax-deferred yield. The very same discovery was made decades earlier by a young mutual fund industry which was able to scale into a multi-trillion dollar market simply by aligning with the novel IRA and 401k.
A similar growth opportunity exists for marketplace lending – if it can figure out a compliant and efficient way to engage the retail investor and penetrate the $14 trillion retail retirement market. This will require a modern self-directed retirement product technologically capable of seamlessly integrating with online platforms; regulatory support; new distribution partners and solutions; and a commitment to investor and financial advisor education.
Fortunately, as I’ve been pointing out for quite some time, all of these elements are occurring in confluence.
Last month’s official launch of IRA Services’ ISCP™ technology – the first highly scalable, bank-grade secure, cloud-based retirement investment solution – was an industry game-changer. Some of the most respected and recognized finance platforms have already begun integrating the ISCP™ technology.
The groundbreaking new Worthy app has finally arrived to help the masses more realistically and achievably prepare for retirement. I believe that Worthy will not only transform America’s retirement infrastructure, it will ultimately help redefine investment product distribution. (See: https://daraalbright.com/2015/06/03/the-road-to-crow-centric-retail-alternatives-and-the-future-of-financial-products/).
Finally, as was mentioned in our recently released white paper, a more progressive regulatory environment is materializing that will broaden access to alternative products.
I launched the FinFair Conference last year specifically to highlight these regulatory shifts and showcase these innovations in retail financial products. Given the acceleration of innovation and the implementation of “retail-friendly” regs, I expect our next conference will be even more leading-edge.
Understanding how all of these dynamics will impact marketplace lending was perhaps best expressed in the final paragraph of the white paper which we released last month – prior to all of these industry jarring announcements.
“Old School financial services firms and even modern FinTech platforms will need to find new ways to employ technology and regulations in order to accommodate an increasingly influential retail clientele. New leaders will rise. Some unexpected frontrunners will fall. The businesses that will best be able to oblige the retail customer, adapt to these regulatory changes, and penetrate retail’s $14+ trillion retirement capital will prevail. But of all of the victors in this new democratized investing landscape, by far the greatest winners of all will be the American people.”
If this is indeed the end of marketplace lending, I would surmise that it is the rebirth of true Peer-to-Peer investing.
Also: By Dara,
The Future of P2P and Online Lending
Recognized authority, thought provoker and frequent speaker on topics relating to market structure, private secondary transactions and crowdfinance. Welcome to my new personal blog where you can glean unique insight into the rapid transformation of global capital markets.
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“The best way to predict the future is to create it.” – Abe Lincoln
The Treasury Department has released a white paper regarding its review of the online marketplace lending industry that commenced with the Treasury Department’s Request for Information in the summer of 2015.
The white paper entitled, “Opportunities and Challenges in Online Marketplace Lending,” provides an overview of the evolving market landscape, reviews stakeholder opinions, and provides policy recommendations. The white paper also acknowledges the benefits and risks associated with online marketplace lending, and highlights certain best practices applicable both to established and emerging market participants.
It should be noted that the white paper explicitly stated that “this document is not an endorsement of any particular market segment, type of lender, or business model.”
RFI. The Request for Information sought public input on the growing online marketplace lending industry so as to allow policymakers to:
- study the various business models and products offered by online marketplace lenders;
- assess the potential for online marketplace lending to expand access to credit to historically underserved borrowers; and
- determine how the financial regulatory framework should evolve to support the safe growth of this industry (see Banking and Finance Law Daily, July 17, 2015).
Feedback. Following release of the RFI, the Treasury Department received over 100 comments. Comments from bank trade groups, such as the American Bankers Association and the Consumer Bankers Association, emphasize the need for consumers to receive the same protections regardless of their financial services provider. On the other hand, comments from the U.S. Chamber of Commerce Center for Capital Markets Competitiveness cautioned Treasury to avoid erecting barriers that may slow the development of technology in lending, while urging the breakdown of unnecessary obstacles that are making it difficult for traditional banks to serve small businesses (see Banking and Finance Law Daily, Oct. 1, 2015).
Emerging themes. From the feedback on the RFI, the Treasury Department noted that a number of trends emerged which included:
- the use of data and modeling techniques for underwriting;
- expanded access to credit to certain borrowers who might not otherwise have received capita;
- concerns that new credit models and operations remain untested through a complete credit cycle;
- enhanced safeguards small business borrowers;
- greater transparency in pricing terms for borrowers and standardized loan-level data for investors;
- an active secondary market for loans to enable more accurate mark-to-market of loan portfolios; and
- the need to regulatory clarity around the roles and requirements for the various participants.
Recommendations. The white paper provided a number of recommendations to the federal government and private sector participants that encourage safe growth and access to credit through the continued developments of online marketplace lending. These recommendations were:
- support more robust small business borrower protections and effective oversight;
- ensure sound borrower experience and back-end operations;
- promote a transparent marketplace for borrowers and investors;
- expand access to credit through partnerships that ensure safe and affordable credit;
- support the expansion of safe and affordable credit through access to government-held data; and
- facilitate interagency coordination through the creation of a standing working group for online marketplace lending.
Emerging trends. Finally, the white paper identifies potential trends that will require ongoing monitoring. These include: the evolution of credit scoring; the impact of changing interest rates; potential liquidity risk; increasing mortgage and auto loans originated by online marketplace lenders; potential cybersecurity threats; and compliance with anti-money laundering requirements.
Industry reaction. Rob Nichols, president and CEO of the American Banker Association, issued statement welcoming “the emphasis on partnerships between banks and marketplace lenders.” He added, “What is needed is proactive oversight to ensure that rules are followed and borrowers are treated fairly regardless of the provider. Banks already have a culture of compliance and strong regulatory oversight which should be emulated by all credit providers.” However, Nichols cautioned, “Adding more regulations and restrictions on all lenders—bank and non-bank—will only make it harder and more costly for the smallest of loans to be made. These loans are the ones that drive growth on Main Street and flexibility is critical to meeting small business credit needs.”
Lisa McGreevy, president and CEO of the Online Lenders Alliance stated, “What we need is a new way of looking at how financial products are delivered in the 21st century. OLA is committed to fostering new and innovative ways to ensure that consumers and businesses can access the responsible, fast and convenient online loans.” She added, “The Treasury report provides a framework for the government and online lending companies to work together to help expand online access to credit for consumers and business customers.”
Companies: American Banker Association; Consumer Bankers Association; Online Lenders Alliance; U.S. Chamber of Commerce Center for Capital Markets Competitiveness
Source: Banking and Finance Law Daily, May 10, 2016
In April 2012, President Obama signed the JOBS Act and announced that Americans will now have access to the capital they need from ordinary investors. Yet the media received the declaration quietly — meaning most U.S. citizens remained blissfully unaware of this revolutionary new regulation.
The venture capital industry is probably one of the most vital sources of risk capital for our economy. It has produced the industry giants that command worldwide success: Google, Apple, Microsoft, etc. Without VC, most of those businesses would have never existed. Moreover, VCs have significantly contributed to our country’s technological success. Most people are not aware that the No. 1 export in the U.S. is the sale of intellectual property (think software, hardware, and movies).
In 2015, VCs invested nearly $60 billion in capital. At face value, that number is impressive, but when you realize that about 600,000 new businesses are started each year in the U.S., you see that, distributed evenly, each company would only receive about $100.
Granted, VCs invest in less than 1 percent of the companies formed in the United States — with the bulk of that money going to a few hundred companies that are likely located in Silicon Valley, Los Angeles, and New York. It is not surprising: These communities are rich in educated, experienced, and talented entrepreneurs. However, focusing on these communities fails to represent half of the American demographic, which lives between the coasts and is racially diversified.
For example, less than 3 percent of VC-funded businesses have a woman CEO, and 85 percent of all VC-funded companies do not have any women on their executive teams. What’s more, scarcely 1 percent of VC-funded businesses have black founders. In comparison, nearly 90 percent of VC-supported founders are white, and 83 percent of all founding teams are comprised entirely of Caucasian people. Finally, most entrepreneurs who receive capital graduate from a select pool of universities.
Are you starting to get the idea?
Let’s go back to the JOBS Act. It promises to offer entrepreneurs the ability to receive capital from ordinary people. The VCs have privately dissed this new regulation, believing that ordinary people are not investment savvy and will lose their money if offered the opportunity to invest directly into companies.
True, most everyday consumers are not experienced financial wizards. They like to purchase goods and services. So far, they have not invested in startups because, well, they could not. They did read the success stories of early investors who were insightful enough to invest into Facebook and Uber, but they all knew that they were not members of that club — nor would they be invited to join anytime soon.
But sometimes, technology has the ability to disrupt markets on its own. Think of Uber offering a more convenient, cost-effective, and clean ride. Think of Airbnb offering the ability to monetize someone’s unused bedroom or apartment. These companies enter markets, offer new services, and disrupt the incumbents for the better.
These technologies were fueled by the money from the VCs. And while they laughed all the way to the bank, they still think they’re the only ones who should be allowed to participate in where most of the value is created.
This time it is different. The JOBS Act is allowing ordinary people to challenge the status quo. How awful to think the VC’s position as the exclusive source of capital is being disrupted. Is it ironic that technology will eat its own creator? The JOBS Act has created the new monster: equity crowdfunding.
For those generous people who donated money on Kickstarter or Indiegogo, they understand that the crowd has a voice and a certain wisdom — that je ne sais quoi. Can these crowds of ordinary people be sometimes right on a company idea? The answer is yet to be determined, but the capital revolution started on June 19, 2015, when several new equity crowdfunding platforms were launched and started to pour capital into startups.
Can you blame VCs for feeling a little disrupted? Are they able to see the wrath of disruption that has blinded so many industries that realized too late that someone ate their cheese?
You be the judge, but we are seeing a new opportunity to offer a larger group of entrepreneurs the ability to get the capital they need without bias. The real skill entrepreneurs need is to convince a few thousand people out of 250 million that their startups are worthy of existence. Marketing is the new equalizer. After all, if thousands want to invest, maybe tens of thousands want what this new startup is offering.
VCs still have their critical role to play and will help to build our new economy; however, there is a new kid in town, and his name is the crowd. Let the crowd decide who gets to be the next Zuckerberg and anoint new billionaires. This crowd will now participate in the story and use its gains to hopefully fuel many thousands more and create even more jobs for our economy.
Yes, the middle class can decide how it will enrich itself and offer a more equitable distribution of wealth and protect the values we so much love.
Founder and Editor in Chief (Lending Times), Partner ( LunaCap Ventures), Board of Advisors (Gatecoin, AltOptions) CrowdfundBeat Guest post
LendingRobot is claiming that it is difficult for retail investors or even high net worth individuals to manage so many micro-loans and to simultaneously compete with hedge funds looking to scoop the best loans under microseconds.
Peer-to-peer lending was designed to provide a platform to the investors and borrowers to lend and borrow money without the intrusion of a financial intermediary. Investors need LendingRobot’s algorithms to compete with Hedge Fund algorithms to get the best returns out of these sites. LendingRobot was co-founded by Emmanuel Marot and Gilad Golan in 2012. Emmanuel Marot (CEO) passed his Uniform Investor Advisor Law Exam conducted by FINRA and is the creator of algorithmic trading platform Zenvestment. Gilad Golan, (CTO) is an experienced engineer having worked as Vice-President of the Engineering Wing of Mozy and Senior Director at VMware. He earlier built up Pelican Security Software which was acquired by Microsoft in 2003. Lending Robot has a team of 7 professionals and majority of the employees are in the tech division. LendingRobot is headquartered in Bellevue, Seattle, Washington and raised $700k via seed funding from Club Italia Investimenti (in April 2014) and a $3M series A from Runa Capital (in January 2015) and other investors. The company has $80M dollars in Assets Under Management (AUM).
LendingRobot provides fully automated investment services to investors in P2P lending segment. The Company simplifies the complicated task of investing through its unique “Fully Automated Mode” and uses robots for executing on behalf of its clients in P2P originators websites. Marot and Golan were individual lenders on these sites and they realized the acute problem in managing their personal P2P lending portfolio and reached the conclusion that management of funds and keeping a track record of them was a tactical and cumbersome task – the only solution to which was automation through robots. LendingRobot was registered in April 2014 with SEC as an Investment Advisor and it also entered into partnerships with Lendingclub, Prosper and Funding Circle – the leading Lending Platforms.
According to a 2014 report in Risk Magazine, Hedge Funds and institutional investors account for over 60% of the amount lent on platforms like Prosper and Lending Club. They are using sophisticated robots to snap the best-performing loans, leaving retail investors and small family offices with the dregs. The company wants to even-out the computing power between the two set of investors with its own robot algorithms. Just to understand the magnitude of the difference between the two sets of investors, LendingRobot has to apply 100 servers to the lending platform to get all the loans it wants. The company is able to execute the entire task of selection and purchase within 850 microseconds. But even after deploying 100 servers, the company has a 90% win rate only. The company is also providing a free analytical tool for p2p investors to monitor their investments and their performance in real time. It has launched the LendingRobot dashboard, a mobile app that permits the lender to track their portfolio across LC, Prosper and FundingCircle. The app also has a “HealthMonitor” feature, which helps the p2p lender to see the overall value, current return percentage, average time to loan maturity etc for the entire portfolio.
Key numbers and liquidity
LendingRobot services are totally free for small investors having account value below USD 5000. It charges, for accounts above 5000$, a flat fee of 0.45% of the total value of the managed portfolio account. It has no setup or withdrawal charges. The smallest account LendingRobot is managing is worth $180 and the biggest one millions of dollars. The clients average earning, net of fees, vary in the range of 9 to 9.5%. The robo-advisor claims to be able to deploy the funds of its clients in a diversified portfolio within a span of six business days and also liquidate their entire portfolio or part of their portfolio within a maximum span of ten business days in normal market conditions – normal being the operative word.
Difference with general robo-advisors
Currently, LendingRobot is managing the portfolio accounts of 5000+ clients of a combined worth of USD 80 Million. The Company has been included in “30 Hot Fintech Startups to Watch” listed by Fox Small Business and has clients in 10 countries. The company is not looking to compete with mainstream robo-advisors like Betterment and WealthFront. The company’s objective is to dominate in its niche. The founders believe that “traditional” robo-advisors are a commodity because they have no real value added as their main activity comes from rebalancing ETF’s on the basis of Modern Portfolio Theory whereas LendingRobot has to manage constant acquisitions of loans, sales of underperforming loans and one of the major reasons of retail underperformance- reinvesting the cash received from interest and principal repayments. The company also has to be wary of concentrating its portfolio on any one set of loans and diversification is vital for reducing beta.
The startup’s unique selling point is its combination of big data, machine learning and cloud computing prowess, which allows it to match the returns sophisticated institutional investors are able to extract from a lending platform. The growth of the company is expected to further accelerate with the P2P lending segment growing @100% year on year and lenders opting more and more for robo-advisors on p2p platforms to juice up their returns. Algorithmic and High-Frequency trading have already taken over the other mature financial markets in the United States. With the advent of Robo Advisors in P2P, flaunting their supercomputers and their server proximity to a lending platform’s server, is the peer-to-peer industry going to change to robot-to-peer ?
1996 was great year. Hootie & the Blowfish were packing stadiums. Cellphones were just starting to get a little bit smaller than that monstrosity famously used by Michael Douglas in the 1987 classic film, “Wall Street”. Starbucks opened its first store outside of North America, gracing Asia with custom lattes. The infrastructure to support this new invention called the Internet was developing. Money was pouring into NASDAQ as a new generation of technology stocks were setting IPO records.
It was also the year that I had the opportunity to organize my very first Wall Street conference.
The debut of that conference – 20 years ago almost to the very day – was a seminal moment in my career. For, it was on that day that I first recognized the colossal power of the industry conference.
The revelation came to me as I concurrently watched our presenters’ stocks tick up while our conference attendees swarmed the payphones of the Grand Hyatt rushing to place buy orders with their trading desks. It became clear to me that certain conferences could be leading indicators of stock prices, secular trends and sometimes even economic growth.
Ever since that day, I have been using these forums as a mechanism for evaluating stocks and measuring the overall health of various industries. Conferences and annual conventions provide so many foretelling metrics – if you know what to track. Personally, I look at everything from attendee growth, the venue, the presentations, the mood of the participants, the exhibit booths, and even the menu.
For the past few years I have been using the flagship LendIt conference as the chief barometer to gauge the strength and direction of P2P investing and crowdfinance (see: “Are We in a Peer-2-Peer Bubble?” and “Inspiration and Insights from LendIt 2014“). As the definitive global conference for online lending, LendIt has been a consistently dependable industry bellwether.
LendIt 2016 was very telling indeed. Based on my observations and conversations at last week’s convention, I predict that the industry is headed towards its most significant transformation to date – one that will alter the industry’s entire investor demographic and allow it to scale to unforeseen new heights.
I would describe the mood at the first three flagship LendIt conferences as nothing short of euphoric. While a great deal of enthusiasm remains, it seemed that LendIt 2016 exuded a more down-to-earth aura. I believe that the recent turmoil in traditional equity and bond markets had a sobering effect on everyone – especially considering institutional P2P investors (excuse the oxymoron) had been trimming their P2P investing due to redemptions in other asset classes.
Although P2P has been consistently outperforming conventional fixed-income asset classes, and even though P2P notes are less exposed to interest rate hikes, I got the sense that online lenders are starting to realize that our sheltered industry is more intertwined with the broader capital markets than most care to concede.
By contrast, last year’s LendIt felt a bit like Internet World in the late 1990s. The bulls were out in full force. There was almost a sense of irrational exuberance. The attendance nearly tripled from the prior year. Participants were high on recent industry IPOs. There was a dramatic upgrade in exhibit booths. The pop-up stands from the prior year were replaced with elaborate trade show booths that looked more like mini-apartments.
While this year the booths were just as – if not even more – grandiose and the attendance continued to set new records, there was one very noticeable sign of prudence – the missing lobster.
THE LOBSTER FACTOR
When lobster was served for lunch at LendIt 2015, I started feeling the slightest twinge of a bubble. Instead of acknowledging any frothiness, I reasoned that the NY Marriott simply prides itself on its posh menu, and I argued that we were not experiencing a P2P bubble, but a financial revolution. I’ve been to more conferences than I care to count and, hands down, the NY Marriott Marquis dishes up the best food!
But when I detected no sign of lobster (or even some shrimp or monk fish) at the San Francisco Marriott Marquis last week, I naturally started to wonder, had the industry peaked?
THE SUBER PERCEPTION
One thing I enjoy as much as a four pound lobster is the annual state of the industry address that Prosper President Ron Suber gives each year at LendIt. Ron wrapped up the inaugural LendIt in 2013 by reporting that although the growth was staggering, the industry was only in the top of the 2nd inning. It has become a tradition that every year, days before the next LendIt conference, I reach out to Ron and ask him, “What inning are we in now?”
Given the lobster factor, one would assume that P2P was reaching the 9thinning, right? Not even close. According to Ron, “P2P is only in the 4th inning and it looks like we’ll probably be going into overtime.”
Once again, Ron’s 2016 keynote did not disappoint. What resonated most with me was when Ron underscored the fact that the industry has come to an inflection point. He noted that P2P has evolved from a novelty, to an interesting new niche, to a great idea. But, according to Ron, in order for P2P to become something that people can’t live without, the industry must undertake a number of improvements including: delivering new products and services that make it easier for investors to invest in P2P loans. As stated by Ron, “Until we increase access to our asset class through new vehicles, we will not be something that people can’t live without.”
Increasing access and enhancing distribution was the essential theme throughout every conversation I had at LendIt 2016. And I spoke to a lot of people. A lot. So many that I literally lost my voice by the end of the show. (Note to LendIt 2017 exhibitors: instead of mints, consider handing out throat drops).
THIS YEAR’S CHATTER WAS ALL ABOUT DISTRIBUTION
Everybody I spoke with at LendIt 2016 seemed to be on a hunt for new investors. Not just any investor. They were seeking long term investors. This was a stark contrast from last year’s conference when online lending platforms were much more interested in finding borrowers. Market sentiment was very different a year ago – as was P2P’s investor demographic.
Last year there was too much fast institutional money chasing too few loans. The change in investor sentiment caused these hedge funds to scale back on their P2P investments. This deviation on P2P’s supply/demand scale resulted in an unanticipated investor gap that needed to be filled.
Today, lending platforms are looking for more stable funding sources – currently targeting closed-end funds, family offices and pension funds. Regulatory constraints and a very specific technology challenge keep most lending platforms from servicing the most dependable investor there is – the retail investor.
However, due to legislative developments as well as technological advancements to support tax-deferred micro alternative investing, P2P is about to experience a seismic investor demographic shift – from institutional back to retail. Mark my words – P2P is about to become P2P again.
2016 – BRINGING THE “P” BACK TO P2P
Bringing the “P” back to P2P is not without its obstacles. While most states permit small retail investors to purchase notes through P2P leaders like Lending Club and Prosper, they are legally prohibited from investing in almost all other categories of private debt. Additionally, because most of their investment capital rests in retirement accounts, the vast majority of retail investors are only able to invest in P2P through their 401(k)s and IRAs. Since traditional 401(k)s and IRAs cannot hold P2P notes, retail investors must use what is called a Self-Directed IRA (SDIRA). Until just recently, the low-tech SDIRA industry did not possess the technological wherewithal to seamlessly integrate with hi-tech P2P platforms.
Fortunately, over the past three years, two key dynamics had been occurring in confluence to overcome these challenges. The legislative winds began shifting in favor of the retail investor while a new hi-tech SDIRA solution was being developed to make P2P notes easier and more affordable to hold in retirement accounts. (Read more about these two coinciding factors in the recently released white paper titled, “The Renaissance of the Retail Investor and its Monumental Impact on Marketplace Lending, Equities Crowdfunding, and the U.S. Retirement System”)
In fact, everything changed last week at LendIt when IRA Services Trust Company unveiled its ISCP™ technology, the first highly scalable, bank-grade secure, cloud-based retirement investment solution. ISCP™ gives P2P platforms the ability to truly scale through real-time access to more than 43 million investors and over $14 trillion dollars in 401(k) and IRA accounts.
Crowdfinance SDIRA Expert, James A. Jones, referred to the ISCP™ as “an industry game-changer and the first step toward resolving what is becoming a mounting industry-wide distribution problem.”
I couldn’t agree more. In fact, with the ability to now seamlessly tap into this significant pool of retirement capital, I believe P2P will experience its most remarkable growth spurt yet. This modern SDIRA can do for P2P today what the IRA and 401k had done for mutual funds 30+ years ago – allow an nascent asset class balloon into a multi trillion dollar industry.
Now, if only we can get Hootie to come out with a new album or better yet, play at LendIt 2017.
Click here to read about the new regulations, tools, technologies and investment products that will bring retail investors back to P2P while helping platforms scale!
Recognized authority, thought provoker and frequent speaker on topics relating to market structure, private secondary transactions and crowdfinance. Welcome to my new personal blog where you can glean unique insight into the rapid transformation of global capital markets.
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The CFPB’s actions are likely the first steps in identifying consumer issues with marketplace lenders.
The Consumer Financial Protection Bureau (CFPB or Bureau) is flexing its muscles once again, and this time the target is marketplace lenders. In a surprising move, the CFPB announced on March 7 that it would be accepting complaints on consumer loans from online marketplace lenders. The Bureau also released a consumer bulletinto provide an overview of marketplace lending and things for consumers to consider before taking out a loan.
Consumer Complaint Database
The consumer complaint database will allow for consumers to make complaints against marketplace lenders and categorize the complaints by the products they are dealing with, such as consumer loans, student loans or mortgages. The CFPB complaint database currently accepts complaints on a number of consumer financial products that the Bureau regulates, including mortgages, bank accounts and services, credit cards, student loans, auto and other consumer loans, credit reporting, debt collection, and payday loans.
Marketplace lenders need to be aware that the Bureau will start forwarding complaints to them if filed. The CFPB expects to get a response from the companies within 15 days. Additionally, the Bureau anticipates that companies will close most complaints within 60 days. Consumers are given a tracking number after submitting a complaint and are able to check the status of their complaint.
Marketplace Lending Consumer Bulletin
The Bureau also released a consumer bulletin that offers an overview of marketplace lending. The bulletin provides a list of things for a consumer to consider before taking out a loan from a marketplace lender.
The issues include:
- looking at your income and spending
- deciding how much you can afford and need to borrow
- checking credit reports
- shopping around.
The bulletin also warns consumers to be careful when refinancing certain types of debt that, in some cases, have consumer protections that will not follow when the loan is refinanced.
- The Bureau has typically used the complaints it receives to build a case for regulation in a given space. The fact that the CFPB is taking complaints is likely to be the first step in identifying consumer issues with marketplace lenders. This step appears to be a prelude to the larger participant rule focused on installment lenders, which the Bureau has indicated is forthcoming.
- Marketplace lenders need to consider the ramifications of becoming part of the CFPB consumer complaint database. The CFPB uses complaints as a prelude to enforcement activities, so it is important for marketplace lenders to work to minimize complaints. The Bureau also has specific expectations for companies to respond in a timely fashion to inquiries. This means marketplace lenders need to institute a system for reviewing and responding to these complaints. Additionally, because the consumer complaint database is available to the public, this change represents an additional opportunity for reputation risk that needs to be addressed and monitored by marketplace lenders.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.