Why Marketplace Platforms Need Skin in the Game: An Interview with Glenn Goldman

I recently spoke with Glenn Goldman, CEO of Credibly. Glenn pioneered merchant cash advance lending at CAN Capital in early 2001, starting out lending to restaurants in three states. Fast forward to when he left CAN Capital in March 2013, and Glenn had built a business on its way to originating over $1 billion a year. CAN Capital became the largest non bank small business lender in the USA.

Glenn likes to build companies, so he set off on his next adventure. He met with many consumer and small business Peer to Peer lending platforms in both the UK and USA – the management  teams, lenders, board members, and data scientists.  And along the way Glenn developed an investment thesis around marketplace lending.

What he found was that much of small business lending platforms are clustered at either end of the credit spectrum – from subprime to prime, offering one or two products. Either way, the cost of acquisition is high and the lifetime value of customer is low, especially if you only have one product.

Glenn believes small business lending needs a product suite to match their needs. The product suite must be complete, from Term loans to Lines of credit, to equipment leases and inventory and receivable finance loans.

Why an Ecosystem is needed

Glenn strongly believes you need an ecosystem of participants to manage the above products in a marketplace environment. He sees the following landscape:

  1. Lead Generation/Customer Generation Business Models
  2. Platforms – whose business models are built on either:
    • P2P/i2P/Whole Loan Sale, and/or
    • On-Balance Sheet funding, and/or
    • Securitization – formal or informal, ie, first loss and reserve fund structures negotiated directly with a Whole Loan Buyer/Lender all the way up to full-on rated securitizations
  3. Whole Loan Buyers/Lenders/Investors
  4. Securitizers

Platforms should have some skin in the game, or in his words, Platforms should be willing to assume the risk they create, and demonstrate that willingness by holding Loans on their own books, whether that be over the life of the loan or for some period of time simply to age out a loan beyond early stage risk.” But he also believes in the non bank marketplace, as technology and data allow whole loans to be bought and sold individually or in pools custom built by investors. Finally, he sees hybrid models developing, where the Platform retains a portion of the risk in the form of first loss protection and/or supporting a guaranteed return.

If you would like to read about Glenn’s views on this space, I suggest reading his blog post 3 is a Magic Number in the Marketplace Lending Ecosystem

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