Helping Big Get Small - Why I invested in Orchard's effort to help institutions participate in online lending
Over the last few years, we've seen a lot of technologies start out in the consumer world and "infect" the enterprise. This creates a large opportunity for companies who see consumer trends and understand enterprises well enough figure out what it will take to get them to participate. This is essentially the bet that Box has made relative to Dropbox. Early on, there were lots of reasons Dropbox didn't work for companies that were more than your four person startup, and that's what Box focused on.
Online lending, specifically peer to peer, is one of those markets. The market has exploded on the consumer side, with companies like Prosper and Lending Club seeing huge successes matching lenders and borrowers. It's been a huge win for consumers, too--on both sides. You can borrow money at much better rates than credit cards or payday lending, and many investors on the platform are seeing high single digit or even double digit returns on their money with low default rates.
It was only a matter of time before larger money managers started looking at these platforms and finding their returns attractive. Funds are even being raised to take advantage of these opportunities--but it isn't exactly easy for an institutional player to go lending out $25 at a time on a peer to peer platform.
Sure, these platforms have some basic tools for you to put more money to work--but they don't have the depth and complexity that sophisticated asset managers need to manage a portfolio, especially when compared to what's available in other asset classes. There's a need for secondary markets, which also would require third party pricing, ratings, etc that would help make this asset class more attractive to institutions.
It's not unlike what happened in ad tech. The more tools that got created to allow sophisticated, targeted buys and various types of repackaging to allow thoughtful media management, the more buyers found a way to make it work for them. That's why it's not surprising that the team at Orchard, which just announced a $2.7 million dollar round, has roots in the ad tech world. In addition to having strong chops in the data and credit risk areas, this team helped built AdMeld into what became an important component in the DoubleClick Ad Exchange. They get marketplaces and now they're making these lending marketplaces work for institutional players.
I'm excited to have made an investment through Brooklyn Bridge Ventures alongside Spark and Canaan in their initial round. This has a lot of components of the kind of deal I look for, even though it's a larger initial round than I'm used to participating in. It has a strong team that has a unique perspective on their space, and the background to execute on it. It's still super early, despite the size of the raise--they hadn't raised anything before this and are working to build out their product offering. Plus, I was early to committing--the first fund to say yes and offer a number. That's important to me as I try to establish myself as someone willing to plant that flag even if you don't have any other supporters yet. I understand how frustrating it can be when the first question a VC asks you is who else is in. I might be wrong, but you can't knock me for lack of conviction. This is a team that I believe in and a market I'm excited to see develop. Good luck to Matt, Jonathan, Phill, David and Angela.
*Small note: This is the sixth of twelve teams that I've backed out of Brooklyn Bridge Ventures that I've backed that had a female co-founder. I'm seeing way more mixed teams and I'm excited about the diversity of perspective that I'm seeing in these founding teams.