What’s the fuss about LendingClub?

Well, it hasn’t been a pretty week for largest U.S. marketplace lender, LendingClub.

On Monday, news hit that the founder and CEO of the firm, Renaud Laplanche, is out, as are 3 other professionals at the firm. The news sent the already-hammered stock reeling.

LendingClub stock gets smacked
LendingClub stock gets smacked

And now, as Lending Club is turning to securitization as Plan B to allay waning demand for loans on its platform (as Prosper and other European competitors are doing), the firm’s investment banks, Jeffries and Goldman Sachs have both iced those deals.

What’s so bad?

But what exactly did Renaud Laplanche do that was SO bad? To be honest, Bloomberg’s Matt Levine doesn’t know.

Part of the question at hand is whether this is a company issue or something more particular to the company’s (now ex-) CEO. There seem to be mixed signals: on one hand, there’s been mislabelling of loans for resale to an individual investor (Jeffries) and a previous request by said investor to fix up disclosures made to borrowers on LendingClub’s marketplace. While important, it’s hard to believe that LC’s CEO would need to fall on his sword for this one.

On the other hand, there appears to be a more nefarious shell game going on: Laplanche hadn’t disclosed an ownership stake in an investment fund that was created to purchase LC loans. Worse, LC just invested in that fund. (John Mack, LC’s chairman and financial industry bigwig also happens to own a bigger stake of said fund, but that doesn’t appear to be at issue here other than the fact that Mack seems to attract bad loans).

The first problem seems like something more easily remediable, the latter less so.

Why is everyone making such a fuss about this?

Well, for a variety of reasons. People love to read about the disruptor getting disrupted but more than that, Laplanche (who, by the way, appeared as an early guest on the Tradestreaming Podcast in 2012) has been the face of the marketplace lending industry. He’s keynoted conferences and acted almost as an unelected spokesperson for marketplace lending. In a way, he’s played an integral part in where the industry is today. Nefarious behavior on his behalf could be seen as having knock-on effects to the industry at large.

Also, part of the appeal of marketplace lending (just ask early stage Lending Club investor, Dan Ciporin, who explained it nicely on the Tradestreaming Podcast) is that there’s no balance sheet risk. It’s a marketplace and according to the bull-case for the industry, marketplaces are better than balance-sheet lenders. They’re asset-light, charge brokerage-like fees for acting as match maker and own the customer experience at the end of the day.

If Laplanche had his own fund and was using that to create demand on his platform, well, what does that say about the efficacy of the marketplace model in general? What does it say about a company that prided itself on doing things differently — more transparently — than incumbent banks do it.

Lastly, with institutional sources of capital rapidly drying up, this incident can, indirectly, call into question whether there’s enough retail demand to support the growth of the industry. The answer is no. At least for now. Without retail demand, marketplace lending platforms were merely good harvesters of capital. When the deep pockets went away, they’re left with a business that isn’t scalable and repeatable. Without that, they can’t command tech premiums on their valuations.

Photo credit: marubozo via VisualHunt.com / CC BY

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

1. 5 things Goldman Sachs’ new online consumer bank is not (Tradestreaming): Goldman Sachs is pretty serious about growing its consumer banking. The bank has bought GE consumer banking business, hired some serious industry players to take the helm and now, Goldman has launched internet banking. Opening a GS bank account online with a $1 min could seriously appeal to the 99% who don’t bank with the firm. But the new online offering, well, isn’t much to write home about…

2. Could Apple be your next bank? (The Financial Brand): Is the opportunity to provide a better user interface for banking services a potential for Apple in the future? If so, what are the risks to the legacy banking system?

3. Slowdown in marketplace lending? Maybe, but digitization is on fire (Tradestreaming): The growth of marketplace lending is certainly slowing by most accounts. But contrasting all this talk about a slowdown in online lending, technology providers that service the industry are saying that they aren’t seeing any of it, though. That’s because they’re hard at work helping marketplace lending platforms securitize their offerings.

4. 6 awesome things hit show Billions says about today’s financial industry (Tradestreaming): Part of Billions’ appeal is its genuinely realistic portrayal of the financial industry: from the fleece vests traders wear, to the games played on the trading floor, to the lingo used discussing a trading idea in front of a Bloomberg machine. The show is amassing a strong following in the financial community and the show’s plot does a good idea highlighting nuances only industry insiders could pick up on

5. Christine Duhaime: Iran to take leading tech role as it rejoins the global finance community (Tradestreaming): The international business and finance community has identified an enormous market of opportunity in Iran, and believes the time is rapidly approaching that open trade is becoming a reality. Iran appears serious about building out a fintech hub. Christine Duhaime, who’s helping to connect the international finance community with the emerging country, provides her perspective on what’s going down.

4 essential presentations on marketplace lending

best presentations for marketplace lending

Marketplace lending is rapidly evolving. From its startup roots, the industry is maturing along the lines of other robust lending industries: that is to say, the volumes of originations are ramping and securitizations — the packaging of pools of marketplace loans into securities and selling them off to institutional investors — are underway.

Interested in learning more about the industry? Tradestreaming has compiled an A-list of some of the best presentations and slideshares on marketplace lending. From the beginner to the advanced, these marketplace lending presentations have something to offer everyone.

Marketplace Lending: Evolution of an asset class

Author: Ron Suber (President of Prosper)

Prosper was a pioneer in the US in peer to peer loans. The model has changed as institutional capital has been injected into the industry, but it’s also meant that the industry has grown up a bit. Ron Suber, Prosper’s President, has been a major player in the maturation process that’s seen the industry grow from nothing in 2006 to an expected $122 billion in origination by 2020. Suber’s presentation, delivered at the LendIt Conference, does a great job describing where marketplace lending came from and where Suber and Prosper believe it’s headed.

A trillion dollar market by the people, for the people

By: Charles Moldow (Foundation Capital)

Charles Moldow, of Foundation Capital, is considered one of the most influential investors in the marketplace lending space (you can hear an interview Tradestreaming conducted with Moldow). In fact, he’s credited with coming up with the new name for the industry — marketplace lending — replacing P2P lending, which is how the industry began. In this presentation, Moldow, who was an early investor in Lending Club, lays out the early thesis behind investing in the industry and shows the revenue production possible if marketplace lending is successful in just capturing a small percentage of lending business from the banks. Indeed, he believes that marketplace lending can grow to be a trillion dollar industry.

Transforming the banking system into an online marketplace

By: Renaud Laplanche (Lending Club founder, CEO)

As Lending Club became the first consumer marketplace lender to hit public markets, its CEO and founder, Renaud Laplanche has become kind of a de-facto spokesperson for the industry. This presentation, delivered at the 2014 LendIt conference focuses on how the banking industry hasn’t enjoyed many of the same efficiency gains other industries saw in the era of the internet. Laplanche demonstrates how marketplace lending can replace some of the core functions of the banking sector, and in doing so, provide a solid product to market participants and make a lot of money.

Why marketplace lending is better

By: Samir Desai (Funding Circle)

While the other presentations have focused on consumer lending on marketplace lending platforms, Funding Circle’s founder, Samir Desai’s video, from Lending Europe 2015, describes his firm’s opportunity in SMB lending. Funding Circle is the leader in this type of marketplace lending globally. This video delves into not just what marketplace lending is, but why it can be seen as better than traditional models. Desai describes how his platform matches supply and demand and how a marketplace lender should be fundamentally less risky than a traditional balance sheet lender.



WTF is marketplace lending?


What is marketplace lending?

Marketplace lenders are non-bank financial institutions that match up borrowers with lenders. Marketplace lenders leverage technology to evaluate and process loan requests. That allows them to cut costs and to streamline loan approvals.

What is the difference between marketplace lending and more traditional forms of lending?

Banks take deposits from their clients and lend them out. The difference in the interest rates they pay out and the interest rates they receive on their loans is their profit.

Marketplace lending is different because these lending platforms do not take deposits or lend their own capital. Instead, they serve as brokerage firms to match up lenders and borrowers, taking a fee for operating the lending platform.

Is marketplace lending regulated?  Is it safe to lend via a marketplace platform?

There is government oversight for the industry, but no formal regulation – yet. The industry attracted the attention of the Securities Exchange Commission (SEC) nearly immediately after being founded, and industry pioneers Lending Club and Prosper voluntarily ceased operations in 2008 while they registered their loansas securities with the SEC. Since then, for every loan made on a U.S. marketplace platform, the marketplace must file a prospectus for the loan with the regulatory body.

There is a modicum of risk in all investing. This is especially true with regard to marketplace lending, where most loans are unsecured, meaning they’re not backed by collateral in case a borrower defaults. Furthermore, marketplace loans are not insured, in contrast to bank deposits, which are insured by the Federal Deposit Insurance Company (FDIC).

On the other hand, like all investors, people who lend via marketplaces can decide on their tolerance for risk, and can make use of online automation tools to target the precise amount of risk they can tolerate.

Will marketplace lending replacing traditional lenders?

Marketplace lenders have seen massive growth: the sector has grown from infancy in 2006 to $12 billion in 2014, and is expected to reach $122 billion in loan origination volume by 2020.

On the other hand, the traditional consumer loan market issued $840 billion in loans in 2014, so it would be hard to say that marketplace lenders currently pose a significant threat to the banks. And some banks now buy loans on marketplace lending platforms, meaning some overlap between the sectors is emerging.

Many large financial institutions have made plans to build, buy, or partner to create their own marketplace lending offerings.

Is there a difference between marketplace lending and peer-to-peer lending?

Yes and no. The terms are often used interchangeably today, but there are technical differences between the two. Pure P2P lending is when individuals lend to borrowers, whereas marketplace lending platforms allow institutions to loan out money alongside individuals.

Will marketplace lending pose a threat to traditional credit cards?

Could be. Refinancing credit card debt is typically the number one use for consumer marketplace loans. And according to Nick Clements of Forbes, 78% of marketplace borrowers say they would recommend the industry to a friend, whereas just 9% of traditional credit card customers would do the same.

Of course, it is still too early to tell if marketplace lenders will ultimately pose a serious threat to the credit card industry, but customer-focused lending programs will likely cause the industry to adapt to changing times.

Roboadvisors are automating all types of investments

roboadvisors for all kinds of assets

The excitement around the automation of investment management has been most pronounced for consumers. That’s going to continue, because as technology opens up new opportunities for investors, roboadvisors are popping up there, too.

One area that has seen a flurry of recent activity is the marketplace lending industry. Marketplace lenders are essentially dual-sided marketplaces: firms like LendingClub and Prosper attract people seeking to borrow money and match them to investors of all sorts looking to lend out their capital.

For investors, these platforms are modern-day equivalents to the stock market: each loan on the platform acts as an individual security that can be researched, and portfolios can then be built by managing risk and long term goals.

But unlike the stock market, where roboadvisors primarily buy and hold a mix of ETFs, marketplace roboadvisors must accommodate some interesting nuances. Many investors prefer to continuously monitor their portfolios, reinvesting cash returns into new loans and selling underperforming loans on secondary markets.

Roboadvisors for marketplace lending

Enter the roboadvisors. Technology firms, like LendingRobot, are starting to introduce their own flavor of automation tools and allocation algorithms to marketplace lending investors. An investor can use LendingRobot to monitor the overall “health” of a portfolio, including current returns, forward looking returns, and average times to loan maturity. Roboadvisors can also assist with deploying capital: for example, users can build rules governing an investment strategy using LendingRobot. Using varying-levels of sophistication, roboadvisors can automatically invest and manage marketplace lending portfolios drawing from both primary and secondary markets.

If investors maintain portfolios on multiple platforms, and many do, they need to log in to each platform separately to take care of business. Marketplace lending roboadvisors provide one login environment for investors to manage their funds. LendingRobot recently introduced Dashboard, its new mobile app that gives users the ability to monitor portfolios across multiple platforms like LendingClub, Prosper, and Funding Circle. To be sure, marketplace lenders have honed their own tools to help investors manage loan portfolios, but they don’t typically work with other lending platforms.

Roboadvisors: B2C and B2B

Individuals are choosing roboadvisors to manage their investments because they’re comfortable using automated tools. Lower fees, starting at 20 basis points on assets under management and scaling down, don’t hurt either. Also, many of today’s investors may be happy to avoid professional advisors, who they suspect aren’t always working in their clients’ best interests.

Firms like Betterment and Wealthfront have gotten most of the limelight in this sector, but there are numerous other players muscling in to get their share of wallet. While the roboadvisors’ AUM shouldn’t have any of the large asset managers worried quite yet (it totals tens of billions of dollars at this point), the wider industry is definitely taking notice. Firms like Vanguard and Schwab have launched their own versions of these automated (or at least, semi-automated) platforms for their clients, while other firms, like BlackRock, have decided to buy their way into roboadvice (BlackRock purchased FutureAdvisor in August, 2015).

There’s a lot going on in automation-ville that’s impacting the lives of investment professionals, too. Take FutureAdvisor, for example: BlackRock doesn’t intend to roll out its new roboadvisor directly to clients. Instead, the asset manager intends to have its in-house advisors automate parts of their clients’ portfolios. Betterment and Wealthfront, for their part, offer institutional programs to get advisors up and running using their platforms. There are also private-label roboadvisors for advisors, like Vanare, competing to arm more RIAs with their own automated offerings.

Envestnet getting in on roboadvisory

Having made eight acquisitions in the past five years, Envestnet has embarked on building a tech platform for advisors that incorporates both advisor- and customer-facing services. Fresh off buying account aggregator Yodlee for around $600 million in August of 2015, Envestnet has created a new service that equips advisors with their own roboadvisor. Called Advisor Now, the recently-unveiled offering is another step the publicly-traded financial technology firm has taken to support independent investment advisors with technology services.

“The future of the roboadvisor movement isn’t going to be stand alone robos, it’s going to be a blend of a digital movement,” Jay Hummel, SVP of Advisory Services, said during a recent demo of the new product. “We believe the future is these institutions’ being able to blend this digital movement to be able to serve a 20-year-old millennial on the exact same platform that they can serve the 70-year old retiree that’s looking for the relationship with a full human advisor. That one platform is what we call Advisor Now.”

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

1. Is the marketplace lending industry in trouble? Here’s what we know. (Tradestreaming)

Trouble may be a bit strong but suffice it to saw, the business going forward looks a lot different than the fast-growth era we just emerged from. Here’s what’s going on.

See also:

  • Professional marketplace lending association aims for clarity, transparency (Tradestreaming)
  • Marketplace lender, Prosper ends Citi securitization pact (Nasdaq)
  • Online lenders dial back marketing in response to softer investor demand (WSJ)
  • Institutional investors taking leap into marketplace lending (BusinessWire)

2. Wall Street’s top bitcoin projects (Tradestreaming)
Less than 1% of internet users are currently using bitcoin, but incumbent financial institutions are busy testing blockchain technology.

3. Asset managers, prepare to have your business disrupted (Institutional Investor)
The combination of new tech, shifting demographics, and client needs is bringing a sea change to the asset management industry.

4. LendKey deploys $1 billion in capital to borrowers (Finextra)
LendKey, a tech company that helps incumbent FIs manage private label online lending offerings, announced it has powered more than $1 billion in lender capital to borrowers.

5. Selling Data: The emerging role of finance’s Chief Revenue Officer (Tradestreaming)
Selling financial data is sexy again and because of that, we’re seeing examples of a new role forming: the Chief Revenue Officer. As revenue production enters the C-suite, we take a closer look at 5 things that drive success.

Is the marketplace lending industry in trouble? Here’s what we know.

what's going on with marketplace lending

There’s been a lot of chatter recently about the state of the marketplace lending industry. Unfortunately, it’s been a little noisy, as both positive and negative data points have been released.

Here’s what we now know:

On the negative side

Demand dropping for marketplace loans, marketing efforts curtailed: Growth is slowing and that’s because the appetite for marketplace loans is dropping. Some platforms have seen loan volume drop over 20% from Q3 to Q4 of 2015. The first quarter of 2016 doesn’t look to be any better. The marketplace lenders are responding by dialing back their marketing efforts. If the Fall of 2015 was a bull market for the advertising of marketplace lending products, the market now appears to be pulling back. Lending platforms are throttling the volume of direct marketing postal pieces they’re sending to potential borrowers.

According to the WSJ, Avant, for example, cut the number of loan offers it mailed to customers by nearly two-thirds, from 4.6 million to 1.7 million, between December and February. This will have a big impact on revenue growth — if direct mailing was the gas in the origination tank, the industry will have make do with less going forward.

Today or tomorrow, regulation is coming: In March of this year, the Consumer Financial Protection Bureau (CFPB) began accepting consumer complaints against marketplace lenders. Right now, though loan standards at marketplace lenders are proscribed like any other entity that offers loans, there isn’t any single regulatory body or set of regulation that governs the marketplace lending industry. Most experts expect that to change and there’s a growing feeling that it will be sooner, rather than later. The newly announced Marketplace Lending Association appears to be an attempt by industry participants to create momentum behind self-policing, at least in the interim, to stave off initial regulatory attempts. More regulation could lead to more compliance costs and tighter lender criteria, squeezing revenues and profits for the platforms.

Lower end of credit spectrum deteriorating: It feels like the consumer economy is beginning to roll over. This will test marketplace lenders’ credit models in a way this young industry, which came of age after the 2007-2008 credit crisis, hasn’t yet been tested. Cracks are beginning to form: alarmingly, the lower end of the credit spectrum for marketplace borrowers is deteriorating. Higher quality loans look to be relatively stable but charge-offs on the lower quality spectrum are significantly above historical norms.

ranking the largest marketplace lenders
from the NYT

On the positive side

More institutional investors are entering the space: A recent survey conducted by Richards Kibbe & Orbe and Wharton FinTech polled 300 institutional investors in the U.S. The results of the 2016 Survey of U.S. Marketplace Lending showed that half of all investors have some exposure to the marketplace lending industry. That’s up from 2015 numbers which showed less than 30% of investors were active in the space. More institutional liquidity means more loans get funded.

Debt market slowly forming: There’s another sign that the marketplace lending industry is maturing — securitization of loan portfolios. As loan markets mature, new investors step in after the originators to invest in portfolios of loans. That’s beginning to happen. In the last three months of 2015 alone, there were 9 such deals for a total of $2.7 billion in the U.S. market, more than five times the dollar-value of the same time period in 2014, according to PeerIQ.

Platforms trying to encourage more balance between retail and institutional investors: There are signs that marketplace lenders want to reduce their dependency on institutional capital. Mom and pop investors account for around 20% of the investment capital on LendingClub’s platform. And according to the FT, the retail channel has grown at a respectable 61% over the past three years, while institutional lenders (including managed funds and family offices) have gone up at more than twice that rate. There’s reason to believe that this capital is encouraging marketplace lenders to aggressively expand by relaxing lending standards. Balancing the investor mix would make these firms more resilient in a poor market environment.

Marketplace lending association forming: In response to concern about the introduction of more sweeping regulation of the marketplace lending industry, some of the largest online lenders announced they were forming a marketplace lending industry trade group. The three founding members of the Marketplace Lending Association were LendingClub, Prosper, and Funding Circle. If the industry is going to continue growing at a fast clip, the thinking goes, there will need to be a unified body to help counterbalance plans to regulate by speaking of one voice.

Lending Club’s founder and CEO, Renaud Laplance spoke at an industry-wide conference this week in part, to allay participants’ growing fears that something is afoot. He addressed concerns about regulation by explaining that there is actually a significant amount of legacy policy that covers the marketplace lending industry.

Further, in his estimation, there’s no need to worry — the industry is doing just fine. It’s just a matter of perspective.

“If you look at online travel, the music industry, you look at the video industry, and you look at the adoption phase over the first decade, you see that roughly 44% of customers adopt new products and switch from the incumbent within first decade,” Laplanche spoke at the Lendit 2016 conference. “If we follow this metric through with the first product that was launched in this industry – the first segment was launched about 8 years ago, the personal loan– about 24% were originated through [marketplace] platforms. So we’re right where we should be in terms of adoption curve.”

Professional marketplace lending association aims for clarity, transparency

best presentations for marketplace lending

Fintech professionals and observers say the founding of a professional organization to promote responsible business practices among marketplace lenders is a landmark for the industry, which grew from infancy in 2006 to $12 billion in 2014, and is expected to reach $122 billion in origination volume by 2020.

Nick Clements, founder of price comparison website MagnifyMoney.com and a regular commentator for Forbes, told Tradestreaming that the formation of the Marketplace Lending Association (MLA) on April 6 will give the sector an important voice, as federal and state regulators start to look more closely at the sector.

“There is not a lack of regulation in the U.S.,” Clements explained. “In fact, there is a lot of regulation from varying agencies and states. But what is missing is a clear regulatory framework,” he said.

In an email exchange on April 12 from the Lendit 2016 conference, Clements said most CEOs at the gathering spoke about welcoming regulation, and added that there is an overall feeling in the marketplace lending sector that the industry is inherently consumer-friendly. Most felt their businesses would benefit (with investors, for example) by having regulatory clarity.

“There is ambiguity in a number of places, and that needs to be addressed,” he said. “For example, Madden vs Midland Funding raises questions about the maximum rate that can be charged (and portability of rate) for a typical marketplace structure. Or take the issue of a national lending license for non-depository institutions. This went away with Dodd-Frank and would help marketplace lenders avoid having to get licensed and audited by 50 different state regulators.”

The MLA was founded by credit marketplaces Funding Circle, Lending Club (NYSE: LC) and Prosper. Officials for the Association said the group will also lobby for sound public policy to benefit borrowers and investors. The group’s Marketplace Lending Operating Standards outlines fair lending practices, provides guidelines for appropriate risk management models and especially calls for transparency for all parties involved in marketplace lending, including investors, borrowers and regulators.

The Association is governed by a Board of Directors, which will initially consist of one Director nominated by each founding member. As more marketplace lending companies join the MLA, additional directors will be elected based on a vote of the full membership. The MLA intends to hire an executive director and staff as it continues to expand.

“The launch of this Association reflects our industry’s commitment to the highest standards of transparency and customer protection, while also delivering innovative new ways to provide better value and experiences for consumers, small businesses and investors,” said Funding Circle Co-Founder and U.S. Managing Director Sam Hodges in a prepared statement. “In the fast-growing marketplace lending sector, we want to continue to act as a thought leader and thought partner to the appropriate bodies in Washington to ensure continued innovation and responsible growth in the sector.”

The group says it aims to bolster the growth of the marketplace lending industry, as well as to ensure transparency and efficiency throughout the sector. To accomplish that goal, the group has published a professional code of ethics, the Marketplace Lending Operating Standards, to address issues including transparency, responsible lending practices, governance and controls, and risk management.

WTF is crowdfunding?


This post is part a series of articles that explain, in plain English, new technology tools and platforms that are changing the face of finance. Check out other articles in this series here.

What is crowdfunding?

Crowdfunding combines crowdsourcing and micro finance. It’s literally what its name means: raising money from the crowd. People looking to raise money can post a project to a crowdfunding platform and backers can choose to financially back a crowdfunding project. Crowdfunding provides a way for people, businesses, and causes to raise money efficiently because of the social nature of crowdfunding — people who choose to back a project tend to share it with their friends and families.

Interesting. Are there different flavors of crowdfunding?

Sure. Crowdfunding’s roots are in charitable giving — donors can donate a few dollars to people in need and these small donations, when aggregated together, provided necessary capital to families and small businesses around the world. Crowdfunding didn’t stop with charity, though. The most popular crowdfunding platforms are essentially pre-buying platforms — people like artists and technology developers raise money from fans to help fund the production of their ideas.

There’s also for-profit lending, where individuals and businesses borrow money from the crowd — that’s called peer to peer or marketplace lending.

Lastly, investors are using crowdfunding to invest in small businesses around the world (equity crowdfunding). Instead of plopping down $25k to $100k to invest in an early stage company, some equity crowdfunding platforms take investments as small as $100.

Why would someone want to raise money by crowdfunding?

Crowdfunding doesn’t only provide capital to the people who use it to raise funds — it also works to build an audience of fans and supporters. A new handheld technology device can use crowdfunding to finance development of the hardware, but it also works to attract enthusiasts and supporters of the product before it ever hits the market. In fact, crowdfunding backers typically provide a lot of product feedback to the project owners.

Also, the money raised via crowdfunding typically isn’t dilutive — it’s mostly categorized as a donation, loan, or pre-selling a product. So, unless a project owner conducts equity crowdfunding, with is the same as taking an investment, she retains full ownership over her company without selling off to external investors.

It sounds weird — what motivates people to donate, lend, and invest via crowdfunding?

A big chunk of people who donate or back a crowdfunding project have some connection to the person or team running the campaign. But people crowdfund for a lot of reasons. Technology and artistic projects are some of the most popular crowdfunding categories as they attract fans and enthusiasts to back projects. On the investment side, people back equity crowdfunding campaigns because they expect to make a profit, joining others who are making the same bet. Donors who back charitable crowdfunding campaigns feel good that their small donation, when combined with donations from their peers, can amount to a significant gift to someone who can really use it.

Is crowdfunding legal?

Good question and the answer is somewhat complicated. Crowdfunding regulation is in flux. It’s useful to make a distinction between not-for-profit crowdfunding and for-profit crowdfunding. Not-for-profit crowdfunding has been legalized in most places around the world, though regulation exists to help protect donors from fraud. Regarding for-profit crowdfunding (lending and investing), many geographies are currently working on, or have recently passed, legislation to legalize crowdfunding. For example, in the US, equity crowdfunding (the investing flavor) was legalized in 2012 by President Obama’s JOBS Act, but wasn’t fully implemented until 2016.

How is fraud not overwhelming crowdfunding platforms?

It’s interesting how different platforms address fraud. At the minimum, most platforms monitor the projects on their sites in search of fraud. This could be a cursory sweep of submitted crowdfunding projects or could entail requiring lots of identifying documentation to ensure projects are legit. Interestingly, the crowd itself has proven to be pretty good at sniffing out scams and when they do, the platforms shut down shady projects.




[podcast] Canaan Partners’ Dan Ciporin on investing in marketplace lending

interview with fintech investor, Dan Ciporin

We’ve explored various themes on investing in financial technology on this show.

We’ve interviewed Caribou Honig at QED Investors. We’ve also spoken to to Foundation Capital’s Charles Moldow.

Dan Ciporin on investing in fintech
Dan Ciporin, Canaan Partners

If you were to put together an all-star team of fintech investors, you’d also want to include Dan Ciporin from Canaan Partners. He was the first institutional investor in Lending Club and has a portfolio that includes CircleUp, Orchard, borro, and direct match. You can see the marketplace finance and marketplace lending theme played out in his investments.

Dan joins us on this week’s episode of the Tradestreaming Podcast. We talk about a variety of different things: first and foremost, we talk about his investments, why he made them, and what he’s looking at investing in in the future. We talk about his background — how being the CEO of Shopping.com and selling it to eBay and his previous experience at MasterCard influenced his perspective on consumer credit and its investability.

It’s a great episode and glad you’ve joined us. Now, here’s our interview with Dan Ciporin of Canaan Partners.

Listen to the FULL episode

In this episode, Dan shares:

  • why fintech is just at the beginning stages of opportunity
  • what it will take for finance to catch up with other industries online and digital
  • what it takes to disrupt the way people and institutions conduct financial services
  • why he likes marketplace lending and consumer lending, in particular
  • what he saw in Lending Club when he became the first institutional investor in the marketplace lender in 2007
  • why public markets don’t fully understand Lending Club or marketplace finance
  • where he’s looking to invest new money within financial services
  • how Dan’s experience running the debit group at MasterCard and his CEO experience IPO’ing Shopping.com influences his investment philosophy

More Resources