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Niche Markets, High Impact: Leading the Charge in Early-Stage Credit Facilities · Leaders in Lending

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You are listening to Leaders in Lending from Upstart, a podcast dedicated to helping
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consumer lenders grow their programs and improve their product offerings. Each week, here
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decision makers in the finance industry offer insights into the future of the lending industry,
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best practices around digital transformation, and more. Let's get into the show.
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Hi. This is Lynd Suterbil of Upstart, and welcome to Leaders in
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Lending. I'll be joined today by Jillian Murrish, who is the CEO and
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co founder of pere Asset Management, a private credit investment firm focused on niche
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jales and specialty finance. Jillian has a deep background on both the buy and
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sell side and the private credit markets. Let's get started. Hi Jillian,
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and welcome to podcast. Hi Alinn, I'm so happy to be here.
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Thank you for having me on great Well. To start off, can you
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tell me a bit about what role pere Asset Management plays in the market.
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Absolutely so. We are a capital provider in the specialty finance space. Specifically,
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what we do is provide senior secured credit facilities to early stage loan originators,
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so we lend against their loan book. They use our capital to go
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out and originate ones. And then second and we act as a buyer in
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the secondary market of these long portfolios. So, you know, if a
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fund is winding down and they need liquidity, or a you know, loan
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originator is winding down and they need to sell their long book off, or
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they just have some need for liquidity, they need to clear off their warehouse
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line, they'll come to us. We'll put in a bid on that portfolio
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and buy it after it's ben well seasoned. So those are really two roles
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we play as a capital provider. Great, well, I know you and
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and kinter New co founded Peer in twenty seventeen. Was this your first time
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being a co founder in a real way? Yes, I had. My
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first company was in college and it was a consumer goods companies selling cell phone
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cases, and I was the sole founder of that firm, but ended up
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bringing on a business partner later. But in my adult career, this is
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my first time co founding a firm. Sure, sure, So what I
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would say, you know, what's been one of the most kind of surprising
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lessons that you've learned since twenty seventeen is being a a co founder of a
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of a new company. Well, first, and foremost, I'm so glad
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I'm not at this alone. I've learned that I loved having a co founder.
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It's especially someone who compliments me so so well. So people who know
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Connor and I know that we're opposite in demeanor. So I'm more dynamic.
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Lou would love to be social. You know, Connor is a bit more
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reserved and quiet, and so that's an outward you know, easy to notice
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difference in our personalities, But when you dig deeper, I get down to
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the things that we like to spend our time doing. You know, what
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are we good at, what are we the best at? It's generally the
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opposite, and so it makes it really fun to run a company with someone
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like that, because I'm doing a lot of what I love and very little
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of what I don't love. So I think that's really the real reason why
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having a co founder who's just you know, likes doing opposite things it's fantastic.
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And then, you know, something I didn't think about when we started
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the firm, but I started to develop a sense for why the partnership has
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worked so well, and it really comes down to, I think the fact
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that we have the same risk tolerance, so when we have very different views
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on various aspects of our business of the market in general. We generally approach
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problems in different ways and identify different risks, but at the end of the
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day, it's a go no go decision on various things with the business and
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with investments we make. And having someone who has a similar level of risk
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tolerance of things, you know, imperfect information or no, we actually need
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perfect information on this, but not on this. I think it's allowed us
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to make decisions in a seamless way and run the company in a relatively frictionless
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way since inception, which I'm so grateful for. He's been an incredible co
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founder. Well good, that's good to hear because I know, I'm sure
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that's a very very closely tied relationship. And just you know, having work
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tear at Upstart from the time when we were smaller and pre public and now
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a public company, you spend a lot of time kind of in the trenches
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with people. So how did you, I think, how did you encounter
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meet and then what really led to the idea of starting peer asset management.
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So we minted a conference in I think twenty thirteen or twenty fourteen. We
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haven't mailed down the exact exact date or which conference it was, but we
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met in person through mutual industry participants, and I remember kind of my first
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conversation and hearing about him from others that he was a pioneer in investing in
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specialties nance. You know, at the time, it was really called marketplace
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lending, and I was running the capital markets practice at an online originator,
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so I was producing loans and selling them off into the capitol market's ecosystem,
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and Connor was on the other side running a suite of funds buying these loans.
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So you know, he had actually bought one of the first whole loans
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at Funding Circle, you know, it was one of the first loan buyers
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lending club. And when I was building out our loan whole loan sale program,
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he was one of my first calls. It was, Hey, he
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was innovative in the space. You know, amendment a conference, maybe he'll
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buy my loans. And it was a real estate originator and his bread and
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butter was consumer and small business. So he came in for a meeting and
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very quickly said, you know, I don't think I'm going to get comfortable
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in this space, but was curious, wanted to hear you out. And
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so within the first meeting we realized we weren't going to transact, but we
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were opposite on opposite sides of this market, and we were opposite participants.
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And quickly we started providing value to each other in terms of kind of under
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the hood, know how, from the other side of the trade, which
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started providing me a lot of value in my work at that time. You
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know, he would share warehouse lenders to the funds or requiring XYZ. When
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you're putting together programs, you know, managed them this way. You know,
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I would say, hey, a lot of firms are using you know,
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sub servicers and farming out, you know, servicing even below what you
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would have imagined, and so ask about you know, these specifics. And
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so it became an interesting working relationship where we get together probably once a quarter
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and just share insights, talk about the space, see if we could be
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helpful to each other. And in twenty sixteen, I have to give Conor
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the credit. We got together for one of our catchups and I walked in
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the door, sat down at the table at Pete's Coffee in Westwood. I
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remember like it was yesterday, and he said, I want to spin out
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from from my firm and form a new asset manager. I think we'd make
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great business partners. Will you do it? And whoa? And you know,
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it was actually perfect timing where I was ready to go back out and
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do something on my own. You know, I had been that young entrepreneur
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and then went and worked in and helped build firms, but it was really
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ready to go out and strike out on my own again. And so the
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timing was perfect. And so we started talking through our thesis that we had
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on the space that we really had been developing over the course of a few
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years. And really we're seeing that the primary market in the space was quite
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saturated and there were big institutions and banks buying the loans from all the platforms,
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yields it compressed, and so we were really getting creative as to where
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where was the alpha, like, where could we generate alpha? How could
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we deliver better returns for investors? And for me that was sitting within the
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ecosystem delivering loans and see where was there less liquidity? Where were the fewer
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investors when I was bringing things out out to market, And for Connor was
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where was I competing against fewer people? And really that was how we identified
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the secondary market, just not having active participants or consistent participant and that was
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really kind of the genesis for Peer. And then also the early stage credit
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facilities just weren't weren't really serving loan originators in a great way. And I
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had experienced that as an operator and talking with the CEOs and CFOs of all
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the other early stage originators. It was a common problem across the board for
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kind of fifty million dollar warehouse lines. It was, you know, I'm
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using a logic puzzle to fund my loans, some with a partner of capital,
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some with my bank line, some of my family office line, and
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you know, I ended up with one large line from a family office that
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funded all my origination flow. And even though it was more expensive, it
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was a great product and it was better for operational ease. So that was
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when I looked at Connor and I said, if we can solve that early
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stage or early stage warehouse facility problems, there's a lot of demand for it,
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and we could make you know, pretty penny doing it because nobody is
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and it's such a value to these early stage firms no, that sounds it
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sounds like you guys definitely have a really kind of complementary skill set. I
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think sometimes you see people go into business or hire people or work with people
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who have they look for people who have very similar sales skill sets and then
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they have those kind of gaps there that they don't know about. It sounds
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like the two of you have complementary skills and experiences on the market that's really
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helped help kind of term my charge what you're doing. So what else you
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know? I know you mentioned you you worked in an online real estate lender.
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What as you kind of built and scaled with that company? What are
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some of the biggest things I mean, obviously that helped you identify the market
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you wanted to go into, But what are some of the biggest kind of
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lessons you learned that you brought to peer to help help shape what you're building?
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There? Say, first and foremost smaller, earlier stage a loan originators
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require a very different credit facility product than large mature originators. And in the
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early days, you know, not kind of twenty thirteen to twenty fifteen or
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twenty twelve to twenty sixteen, the large warehouse providers like the mcqueries of the
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world's areas. You know, we're trying to come in and serve that market
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and you know, being great participants in doing so. And I saw there
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were a lot of challenges you know, using the same structure and the same
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type of terms for a small firm versus a mature firm. And really,
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in my view at that time, I developed, you know, a very
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strong view that early stage originators the priority for their credit facilities should be that
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it preserves flexibility, optionality, and has ease of operational use. When you're
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an early stage originator focusing on growth in those early credit co words, the
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operational friction that a larger, larger, more structured facility can bring can really
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tank or create bigger challenges than a lower cost of capital would make worth.
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Furthermore, you know, again, cost of capital at that size just isn't
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as important because again the growth, the proof of concept, focusing on credit
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quality out was more important. And then lastly, like the multi year lockups
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of the more traditional warehouse facilities, we're not providing the flexibility that the early
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stage originators needed around product, like product would evolve and change within the first
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year or two or three. You know, one thing I was working well,
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one product wasn't, and having that flexibility of product mixer being able to
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kind of change that barring based subtly based on what products are working or not
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would be most critical for success. So I think it was really identifying that
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it was kind of two very different products later stage mature warehouse lines versus early
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stage lines, and the needs change over time, where you know, larger
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mature originators really care about cost of capital for good reason, and it starts
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becoming a profit center for them, whereas early stage that's not really the focus.
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So being in the trenches building that capital markets practice from forty million to
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three quarters of a billion, I really saw that internally and what was working
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at what stage of the business. And surprisingly some of the more structured and
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sophisticated facilities created risk on both sides for being too structured. So like,
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for example, I received a term sheet one time from a kind of quasi
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bank, and I remember they had plattal reportings. It had to be on
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Wednesdays, and we would sell all of our loans off our book on Tuesdays.
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And so the barring base, which shows you would have no loans tied
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to it every Wednesday, and it balance all the cash, and so that
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lender would have almost no insight into what was platteralizing them in between those interim
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reporting periods. And so you know, really my viewshade to A, it's
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just a different product, and then B, the facility does need to be
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built around the early stage originator versus a product as a credit facility being served
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to them. So that was probably the most important learning from from my time
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there. And I think you when you when you and I've talked before,
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you described that as kind of more of a solutions oriented capital provider like that,
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Yeah, the capital provider is kind of meeting the originator at the at
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the place they need to be met, and I could I can see that
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with those sorts of kind of very specific restrictions where maybe the person who is
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drafting that isn't actively involved in more of the business side of what they're drafting,
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and the the timing of that doesn't exactly exactly make sense. So you
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know, I do think you have a really interesting, unique perspective on that
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path to funding for early stage fintech originators, and you kind of talk through
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it at a at a high level that maybe you know, kind of more
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detail of of what are those sources of funding like you know, helping our
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you know listeners understand, uh, you know, whether that's partner or personal
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capital, family office, kind of what that path looks like and what those
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capital providers can offer and maybe some pros and cons as they as they go
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through that path. As a founder, sure happy to talk through this.
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So for early stage originators who just started out, you know, you've been
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building a product and you've originated zero loans, like, no loans have gone
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through your pipes yet. You know, what we see as most typical source
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of funding is usually equity capital. So maybe the firm has raised a few
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million dollars of equity capital. They're using that to build out their tech and
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their infrastructure and you know barber acquisition channels, and then they reserve maybe five
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hundred thousand dollars for that first cohort of loans other founders, which I think
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this is a very smart move. What they what we've seen happen often is
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the founder will actually go out to either friends and family or they'll also seen
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those venture partners personally do this where they'll give a one hundred thousand, two
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hundred thousand dollars unsecured promisory note to the operating company, and the intended purpose
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is to be used to fund loans. And you know, it's a fixed
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coupon. Generally it used to be twelve for then it's probably higher now,
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and and they use that capital to fund the first five hundred thousand or a
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million dollars of loans. I think that's a fantastic model. You're not using
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your equity capital, which is the most extensive capital, to fund your loans.
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But you're also not trying to structure something and get into covenants and you
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know, creating SPVs because at that point it's too small. You have to
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prove the concept that you can actually originate and get loans through your pipes before
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you go through all that headache to actually set up something as structured. So
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from there, I think, you know, once you have five hundred one
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thousand, two million dollars of loan volume, generally the next step is dependent
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on how fast your loan product shows performance. So very short duration products you
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could have a full revolution or revolution of that credit product within three months.
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Longer products that have you know, maybe it's student loans with five year term,
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you have to start showing early performance data, but that is a larger
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challenge and you're going to have to stretch out that time really to see performance
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before you're going out for this next facility. So just bear that in mind
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and keep that in mind for the pace of growth from kind of zero to
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one million. It depends on how quickly you can kind of show any sort
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of performance. So from there it's really approaching firms like ours and potentially family
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offices to get a ten to fifteen million dollar first credit facility. This is
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unique compared to the first promise promisor re NOOTE structure, and that an SPV
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is generally required to be set up which is a subsidiary of the operating company
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and it's a bankruptcy remote spe that houses the loans that the loan originator originate.
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Usually a credit facility provider of ten to fifteen million will want to refinance
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and own whatever loan or put in whatever loans are already on your book into
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that SPD and then you can draw down capital and grow from there. So
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really there's only a few institutional providers that will do warehouse lines that small you
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know, we're one of them. There's probably three or four others that we
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know of that are quite active. And then other options we've seen are you
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know, it's a family office. We know that we're close to the founders
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that identified that will do that first smaller credit facility. Sure, So what
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do you I mean? It sounds like the path can be can be varied
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and depends on size. And I you know, as you were talking about
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the duration of the loans that they're offering here, it almost made a case
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for some of the press releases Upstarts had around our parallel timing curve and how
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we think about testing a model over time and even though the duration's long,
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particularly as you look at products like like mortgages or or very long duration duration
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products. So you know, when you think about kind of then graduating to
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the capital markets, like what is that? Is it just a function of
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size of the lender of the originator? Is there some sophistication like how do
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you think about a firm being ready to really access institutional capital money versus more
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of the you know, a family office VC backing. Sure, So I
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think it's really that next step beyond firms like ours is the more traditional institutional
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capital markets they'd be accessing. And I think it's a function of two things.
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One loan book size, so how much of you originated? And two
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is there any sort of performance indication? Like you said, really long dated
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assets can do you show month over month performance and really get kind of a
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show show a similar loan product that has longer credit history that you can kind
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of show your performance curve agains and start giving a picture to what performance is
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going to look like. So when I say size, generally that means fifteen
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million dollar book. You can start having those conversations and they'll come in when
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the book is maybe twenty million in size, and at that point you're reaching
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for a fifteen million or one hundred or one hundred and fifty million dollars.
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Credit facility is usually that next stutter step, and that's coming from the firms
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like the Cross Rivers that out of lie is the aries, the larger,
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more well known institutional asset managers who are doing those facilities. They're usually a
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multi year term instead of shorter duration. It's usually and three year terms is
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what we see. Often some sort of kind of lock up for a period
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of time to make it worth their time to do those deals, and that
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generally the cost of capital becomes more effective because oftentimes we see those types of
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firms use leverage on the back end for their source of capital so they can
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provide lower costs and still make a return that makes sense for the commensurate risk.
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So it's a function of those two things. And one thing I just
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realized I missed on the previous stage of growth before you access these institutional capital
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markets is some firms actually launch their own internal fund, so they go raise
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a fund that's ten million dollars and go make their loans out of that.
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That is I would say the most complex, riddled with challenges that I would
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recommend, But you know, some folks are really successful doing it, and
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oftentimes the yield you have to pay in that type of vehicle can be lower
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than accessing a credit facility from a firm like ours or our competitors. Yet
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again there's a lot of complexity, compliance risk, legal risk in doing so,
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but we see it a few times a year that that's kind of the
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option that that stage kind of some fifteen million uses sure, and I could
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see that where that would be a pretty resource intensive thing to do internally at
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Again, that's upstart dot com slash AI Certification. Thanks, and now back
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to the show. What are some I think kind of common missteps you may
21:26
see originators make going through this process. Whether it's not hiring the right expertise,
21:33
whether it's not really understanding terms of various deals. But what sort of
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mistakes do you see you get made in this space? So to detail on
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what I was just talking about, I would say making things too complex too
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early and there's a variety of categories and buckets I can talk about for what
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too complex means. But generally, the more complex and complicated you're making your
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funding source and funding structure early on, the more pitfalls you can make so
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simpler the better, trying to use one funding source instead of many, and
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trying to keep the structures light. So that's why that promisory note suggestion for
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the five hundred k a million dollar first part of the loan book is very
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simple in structure. You know, there aren't many covenants you could trip or
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mistakes you can make in how you're managing that capital. It's just kind of
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here's here's the charter of what you can do with the money, and beyond
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that, it's a very light touch. So trying to keep things simple for
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what a simplest for the stage of your business. More specifically, some examples
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of complexity I've seen that cause pitfalls are generally around giving up optionality too early.
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So you know, maybe the ten million dollar lender who signs a three
22:47
year deal with a large institutional lender and they have signed a deal with a
22:52
very specific loan product and there's no flexibility for you know, criteria in that
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facility where is that problem no longer works and they want to do another product
23:02
or pitch that to the firm, There's not as much flexibility there, and
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they can end up slowing growth or just being hamstrung entirely. So we've seen
23:11
that happen other things like equity, you know, giving up structured equity alongside
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your credit facility too early. With control rights, we've seen where, you
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know, very early, if one of these lenders get stars in their eyes,
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we can get one hundred million in depth from one of these large firms,
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and we're going to give up ten percent and a board seat and you
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know consent on XYZ for M and A for this and that, and you
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know, a Series A or even seed stage company doing that, it's just
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leaving so much equity value on the table for their business by giving up that
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optionality and flexibility. So I think again, preserving optionality, preserving flexibility,
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keeping things simple as you're smaller generally are the keys to success. Yeah,
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that's a great point. As I think about I've been at Upstart a little
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over four and a half years, but the company has been around since twenty
24:03
twelve. You know, we've certainly made a lot of changes on our product
24:08
suite. So the first iteration of loans that were made by the company is
24:14
not what the personal loan product looks like today. And now we've added on,
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added on new products, and I think if we had been constrained from
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R and D and really developing, that we wouldn't be the same company we
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are today. Do you think that's a is it A part of it is
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just the excitement of growing too wanting to grow too fast, that there's somebody
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here who wants to give you a lot of money and you want to say
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yes, and you want to access that and you want to experience that rocket
24:40
ship. So you may put blinders on a little bit to what you're giving
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up as part of it. I think it's probably the twofold you know one
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many of the early stage firms may not have capital markets expertise on the founding
24:53
team and may not be able to afford that higher. It's an expensive higher
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if it's not and know how of an existing founder, so you know,
25:03
in that instance there may they may not know how how restrictive that those equity
25:10
rights could be, or they can't you know, they's you know, hey,
25:15
locking in a roafer with this large one firm and only having one capital
25:18
funding source. You know, maybe they don't have the experience or understanding that.
25:22
In COVID, some of these, you know, some firms pulled their
25:25
funding and said, hey, material average change, no more funding. So
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it's just a lot of know how in that seat that can be expensive to
25:32
buy and founders don't have it. I think that could contribute to making that
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decision. I think also fear of not finding other good options for capital,
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Like it's scary to choose a twelve month facility that's fifteen million and have to
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go get your next facility a year later. That is that those are two
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deals you have to get done instead of one, maybe even three deals you'd
25:52
have to get done instead of this one multi year deal. So and then
25:56
again they're you know, they're if it's a venture company, growth is the
26:00
number is one of the number one metrics, and the that can seem to
26:04
be a clear path there, Yet if you've seen it happen a number of
26:08
times, there there can be pitfalls with making that choice. So sure,
26:15
and I think we you know, we certainly saw and during during COVID,
26:19
the funding markets changed very rapidly for in a almost in intra day, very
26:26
fast early and early in twenty twenty. I know you you had mentioned we
26:30
were talking previously that you're seeing more opportunities and where there's kind of distress sales
26:37
happening across some originators. So just tell me more about that and what what
26:41
is happening to some of those uh like distressed sales, what what preceded that,
26:48
and kind of where those originators ended up having to to sell in the
26:52
secondary. Sure. So really there's a whole cohort of finn specialty finance loan
27:00
originators who were founded pre COVID and had to go through that period. And
27:07
the COVID period was good for some and very hard for others. And there's
27:11
this cobort that it really did not serve well. And the reason is twofold
27:15
one. There was so much stimulus that origination volume for certain segments of lenders
27:21
dried up completely. You know, for consumer lenders, it was tough.
27:25
There was tons and tons of stimulus. Borrowers weren't needing to borrow because they
27:29
were receiving a stimulus check. And then second, you know, as stimulus
27:33
who were off certain loan originators had gotten more aggressive with lending criteria to be
27:38
able to actually put loans on the street, and then when stimulus dried up,
27:42
performance suffered. And so there's a cohort of borrowers that kind of sit
27:45
in that narrative and struggled through that kind of twenty twenty to twenty twenty two
27:51
period and have some black marks in their credit quality or origination volume history.
27:56
And what we're seeing is those firms are not able to raise the series A
28:00
v r C. And you know, the adventure community seems to have,
28:03
you know, really turned their back on those types of firms. You know,
28:07
it's if the story wasn't up into the right it's you know, hey,
28:11
we're not interested. So a lot of those firms are burning through their
28:15
runway. Now in the last year, there's been a number who've had to
28:18
shut down, and as they're shutting down, one thing they need to clean
28:22
up is selling their loans off whatever credit facility they have or wherever it's sitting
28:26
on their balance sheet. And so, you know, again for our business,
28:29
we're a secondary market buyer, so we come in, we try to
28:32
get active on those deals and buy those lung portfolios on the flip side,
28:37
it's interesting. So there's this whole cohort of of VC back companies that have
28:41
kind of been abandoned to had black marks through COVID and aren't getting funded and
28:45
or shutting down. But on the opposite side, we're seeing companies that were
28:49
launched twenty twenty two and later who are showing you know, great performance,
28:55
showing great growth, and are getting funded left and right by the venture community.
28:59
So it's the kind of divergent path where we're seeing a lot of the
29:03
new great originators tackling very specific borrower segments and really thoughtful ways we're responsibly and
29:08
doing a great job. They're getting equity funded. Those firms are in need
29:12
of credit facilities to grow and scale. And then on the other hand,
29:17
these originators who started and probably have bad luck with timing are not getting funded,
29:21
and so it's it's hard to see you know, the flame out happening
29:26
more often and more often. And but then on the other side, there's
29:30
all this happy, happy growth and story for the newly formed firms sure,
29:34
and and honestly for firms like yourself, some of those uh distressed situations for
29:41
other that where they were hit by bad timing or opportunities for other players in
29:45
the market. And that's that's true everywhere, so across the market that there's
29:48
there's always opportunity. It just depends which which side of it you're on.
29:52
So I think that the timing pieces is important and obviously not something that those
29:59
found could have known in advance. That maybe just a little bit of being
30:03
a victim of bad news. And you know, similar to the bank failures
30:07
last year, none of us really had that on our on our BINGO card
30:11
for twenty twenty three, So a surprising, surprising event that had a lot
30:17
of downstream impacts. So you know that you mentioned the green shoots that there
30:21
are some originators who are are able to access and start to get into series
30:26
A, Series B, anywhere else. You're seeing really like opportunity for originators
30:30
on that side of the type of work you do. Yes, again,
30:36
to reiterate I briefly mentioned in my last answer. The originators who are finding
30:42
very specific borrowers segments and serving those in a really unique responsible way are finding
30:51
a lot of traction in the venture community, is what we're seeing. So
30:55
the more hyper niche a lender can get in the problem they're solving well,
31:00
we're seeing more success with venture rounds getting done. Okay, that's interesting.
31:04
So trying not to not trying to like boil the ocean with solving the problem
31:08
for every person, every market, every asset class. But focus, do
31:14
you have a preference as you think about loans like secured versus unsecured? Does
31:18
your firm get involved in any secured loans as well, or are you going
31:23
to focus specifically on one or the other. I like talking about this question,
31:29
so I think the definition of security and unsecured has really has changed over
31:34
time since probably twenty fifteen. And my first question is, you know,
31:41
it's obvious that hard equipment like chapters, trailers, or real estate would be
31:45
in the secured market, But would lending against a music royalty stream where the
31:51
capital is paid directly from the streaming firms like Spotify, Apple YouTube into your
31:56
own bank account as the lender, is that secured lending or unsecured. And
32:00
so we're in this unique situation at peer where we're lending to these originators who
32:06
have found the most ingenious quarters of cash flow to lend against that may or
32:12
may not be tied to a physical hard asset but is that cash flow stream
32:16
that they have their hands wrapped around a secured asset, So, you know,
32:21
a peer, we certainly do deal with the most classic unsecured consumer loans
32:25
where there is no clateral there, it's an unsecured personal loan. And then
32:30
we have this gray area of things like the music boral, these cash flow
32:32
streams, and then we have the most crystal clear secured things like equipment or
32:38
real estate or auto and so that's a spectrum to us. And we used
32:44
to look at our our firm and look at deals in that way, and
32:49
we you know, we classify to secured or unsecured in the way we were
32:52
thinking about it presenting it internally, and we actually pulled that off of our
32:55
criteria years ago of how we how we view them. It's just it's a
33:00
gray area and there's differences and good things about you know, one versus the
33:04
other. So we do it all at pure as the answer. Okay,
33:07
well that's a good point because I think that secured could be a physical asset,
33:12
but in your case, it's a stream of you know, talking about
33:15
like music reyalties as an example, like, it's not a physical asset at
33:19
the end of the day, but there is a recurring revenue stream there driving
33:22
it versus just a just a kind of an installment product. What are some
33:29
of the most I think is you're thinking about those like niche opportunities where people
33:34
are creating companies that are originators, that are lending to very specific areas.
33:38
What are some of the most interesting things you've seen are the most most niche
33:44
opportunities there. So a day we did as a past here that I learned
33:47
was to a small business lender who would lend and be clatteralized by a license
33:53
to the small Businesses Data asset. And before diving into this lender, I
34:00
was unaware of the amount of liquid marketplaces there are for various data sets.
34:07
And you know or there's also vast broker networks for certain types of data sets
34:12
that can be liquidated quite quickly as well. And so it's everything from a
34:15
healthcare company who has a trial data that they can sell that can be the
34:21
piggyback jumping point for another healthcare trial. It could be a sneaker company who
34:25
packages and sells the data for the number of times a consumer clicks on shoe
34:31
options before buying, and how many clicks resulted in what sort of cart value
34:37
and those sort of you know, various both data sets can be sold in
34:42
lots of different ways and liquidated quickly. So fascinating firm that's doing, you
34:46
know, small business data lending where I think during COVID everyone heard about the
34:52
large deal where the airlines were selling customer lists or information about their loyalty programs
34:58
and that is helping these uh these airlines day afloat during COVID period, and
35:02
so it was it's that but on a very micro scale and with this liquid
35:07
data. So it's an interesting deal. In the book, we really like
35:09
that lender. Fun the fun things that we've seen that we haven't done.
35:15
You know, there is one lender who was like leasing pets, like actually
35:19
the physical animal and we've been out adult concerns about like buffer they repossessing a
35:24
dog, and it was we were too busy in the time to dig in
35:28
and so perhaps this firm is great and it's a wonderful lender, but at
35:31
the time it was just a quick like, oh, we're too busy with
35:34
other things. That move on. So we see, we see really things
35:38
across the board. I would say another another one that we we liked is
35:44
a lender who lends to students going to software coding camp. It's a very
35:46
specific niche lender. They can really understand that bar and what they do,
35:51
what the placement out of the school is. Yeah. I think the lending
35:54
for pets one has actually come up anecdotally here as we've been talking about other
36:00
other companies and what they do. And there's a company not just the leasing,
36:05
but the loans for the pet stores where it's a you know, really
36:08
an overpriced animal in many cases and to somebody who probably is not should not
36:14
be maybe borrowing to buy a puppy what maybe a puppy mill dog. And
36:19
it's always interesting like what could the consumer consequences of that? And and and
36:22
who regulates a company that does that that sort of business? So certainly interesting.
36:30
Yeah, and I think the you know, how do you think that?
36:32
It kind of raises a really a last question for me then, like,
36:36
as you're thinking about about other companies like that where you're you're gonna set
36:43
up a facility for or or even buying secondaries from how do you think about
36:46
things like privacy, reputational risk, so not just kind of the quantitative parts
36:52
of the deal, but the more kind of subjective risks in evaluating who you
36:58
do partner with or who you work with in the future. That is at
37:01
the forefront of our decision making before even getting into the qualitative aspects of a
37:07
product. So things that may resemble payday lending, you know, are where
37:10
it's the bar doesn't have a great path to success in paying off a loan,
37:15
where it's you know, loaning stacking and that sort of thing. You
37:19
know, that's a big no no for us at peer you know, again,
37:22
challenges with usery rates across states that can raise flags for us. You
37:28
know, we were fortunate that there's such a wide swath of great businesses to
37:31
work with that are serving really useful, really productive purposes that it's quite clear
37:38
and easy to pick those off the top and say those are the ones we
37:42
want to pursue. And anything that has a sort of ick factor, you
37:45
know, we don't need to reach for or spend time on. Consumer lending
37:51
products obviously have a greater compliance environment than commercial loans, and so we have
37:55
to have a greater scrutiny when we're getting involved with consumer lunch and sumer lending.
38:00
We do a lot in the space, and it's really just about understanding
38:04
it, making sure your your counterparts have the correct licensing, have a great
38:07
compliance environment internally, and then you can be funding great products that are helping
38:13
people in fantastic ways. So it's yeah, it's it's it's I think it's
38:19
one of those things where it's like, you know when you see it to
38:22
stay away, and our space is so small, the specialty finance corner of
38:27
the world that we all live in, and it's it helps in both directions.
38:31
It's very easy to work with great companies and great people because you know,
38:36
you can triangulate with contacts that you're close with to get great references,
38:39
and then on the flip side, you know you can also learn about firms
38:43
who may not be doing things so well in a quite quick way with a
38:45
few phone calls. So it's I think it's helpful being in such a niche
38:50
space with a number of close people who've been at this for about a decade
38:54
now. Sure, sure, And I do think the the uh, the
39:00
good players will self regulate absolutely, absolutely, and and and collectively there's a
39:07
there's a lot of industry associations that are dedicated to really like helping us share
39:13
that guidance, provide the guidance, and and some of the larger companies who
39:16
may have more resources and have more experience in the market, can help provide
39:22
that to some newer originators as well. So I think there's a lot of
39:25
partnership happening across the across the fintech industry goes in. It's better for everyone
39:31
when people are, you know, originators are doing things the right way.
39:36
So it's it's really great to see firms like like yours who are providing that
39:40
guidance and and getting out there and being the leaders and examples and compliance.
39:45
Absolutely so well, thank you, definitely, thank you for for joining us
39:49
on the podcast. Certainly interesting to hear about the work that you've done and
39:53
are doing it. Pere and any any last uh kind of hot takes or
39:59
thoughts to leave us with, ooh fun question. Oh very specific to what
40:05
we do. But the other early stage credit facility providers or firms seem to
40:13
or really like to take equity or invest in equity and the firms that they
40:15
work with, I think it makes a lot of sense because they're providing a
40:19
lot of equity value. I really disagree with that because I think it makes
40:24
you a bad predator. So that's my hot take against a lot of what
40:29
the general tie thinks and does. So I think as a creditor and doing
40:31
credit facilities, you should not own the equity in the companies because then you
40:36
can really enforce your rights. Is that senior security lender and you're not conflicted
40:39
by owning the equity in a business, And that seemed to be quite a
40:44
common practice, but we I say no to that. Great, well,
40:47
good. It sounds like being a founder is the right place, so you
40:52
can kind of branch out on your own with those new ideas. But it
40:55
makes a lot of sense, right the conflict of conflicts of interest. If
40:59
you are kind of on both sides of it, it's a little bit harder
41:01
to draw a line in the sand. Exactly. Yeah, that's my hot
41:06
take. That awesome. Well, thank you, thanks again for joining us
41:09
here on leaders Lending. Thank you for having me, Lynn, I really
41:13
appreciate it. Up Start partners with banks and credit unions to grow households and
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