[Capital Stack]

On Deck PR:

[Chambo]

and they STILL have yet to ever show a profit.....go figure. They want to go public too?

[Chambo]

20 jobs in Denver, but no moention of the jobs lost in New York and Virginia

[Xruiser]

I don't mean any disrespect, but how do you know whether they are profitable? Do you have access to their books? Are they publicly open about not being profitable?

[MCNetwork]

I don't mean any disrespect, but how do you know whether they are profitable? Do you have access to their books? Are they publicly open about not being profitable?

I've never seen anything in writing about On Deck not being profitable, but it's all on the rumor mill. It could just be competitor bashing. The truth is that On Deck has received a lot of serious venture capital funding recently so the investors must see something good about their business model.

[Chambo]

I don't mean any disrespect, but how do you know whether they are profitable? Do you have access to their books? Are they publicly open about not being profitable?

Because their rep comes into my office on a weekly basis and reminds us all the time

[Capital Stack]

It's common knowledge, they cant be turning a profit. when you do those skinny deals at those factors and turns, deduct overhead and defaults. Your done! now if your not trying to turn a profit , but build a platform to sell your business. there you have it the on deck biz model.

[MCAVeteran]

What is ODC objective with these regional offices?

[Sean Cash]

I was under the impression that they were moving their current VA office to Denver, rather than opening a separate one.

[MCAVeteran]

that would make more sense if operations is moving there. now they can take breaks to aspen and vail!

[Chambo]

I was under the impression that they were moving their current VA office to Denver, rather than opening a separate one.

I guess Ashley and LaTonya in UW are now out of a job....

[Finance1]

OnDeck tried to stiff us on 2 renewals. They have a 90 day policy that I've never heard of. If you don't fund a new deal every 90 days then you are cut off from your renewals.

We fund most of our stuff in house so we don't have a big broker channel but still. This is a lame policy. It either takes a lot of work, costs a lot of money, or both to acquire each individual closed deal. They aren't going to make any new friends with this policy.

[Chambo]

OnDeck tried to stiff us on 2 renewals. They have a 90 day policy that I've never heard of. If you don't fund a new deal every 90 days then you are cut off from your renewals.

We fund most of our stuff in house so we don't have a big broker channel but still. This is a lame policy. It either takes a lot of work, costs a lot of money, or both to acquire each individual closed deal. They aren't going to make any new friends with this policy.

You have ALWAYS got to watch ODC like a hawk. They have been in practice of stealing/forwarding/taking over deals for years. This is nothing new.

They take the deals they decline and pass them off to DCC in CT and MCC as well....

[Sean Cash]

Finance1 are you serious? Fund a new deal every 90 days or you lose all your accounts? That doesn't jive with this photo:

[MCAVeteran]

Read their ISO Agreement carefully and renewal policy and how long a new submission stays your deal before it opens up for any sales channel. I think you get like 5 days from submission before its classified as "open season for anyone" deal. In fairness to ODC, they arent the only ones with language in agreements that have clauses to take your deal inhouse. You cant complain if it happens to you if you didnt take time initially to read agreements and have your attorneys red line/change the language. Or simply, why do business with a funder who has policies like this-

[MCAVeteran]

And as far as 1.16, thats not the true cost of their loans. when you add upsell commissions from broker, and, other ancillary fees they charge to do loans, its always much higher. the "interest" on the loan may be 16% on a shorter term, but the fees quickly bring the overall cost. simply review a loan agreement with the section of "fees" - as a matter of fact, the more i see some of these advertisements for loans at those rates, you quickly discover the majority carry addtl fees like origination fees, etc.

[Chambo]

Read their ISO Agreement carefully and renewal policy and how long a new submission stays your deal before it opens up for any sales channel. I think you get like 5 days from submission before its classified as "open season for anyone" deal. In fairness to ODC, they arent the only ones with language in agreements that have clauses to take your deal inhouse. You cant complain if it happens to you if you didnt take time initially to read agreements and have your attorneys red line/change the language. Or simply, why do business with a funder who has policies like this-

Most companies out there these days have the policy of "first one back with contract gets the deal." In terms of renewals, you usually have a 6 month window after deal pays off to claim...otherwise, if it comes in through another ISO channel, it is free game.

Now, whether or not they happen to "mistakenly pass off" the paper to one of their chosen ISO channels, that is another story entirely.

To answer the other question about profitability? They have never been profitable. It's the old Dot-com mantra "don't worry about profits now, look at how we are revolutionizing the business for the future!" I find this surprising too, considering they don't own 90% of their loans. They package and sell them off to a syndication network. They manage the account (for a nice fee) and of course have caveats for defaults, but once the deal funds, the bulk of the liability is off their books...yet they STILL aren't profitable.

[Finance1]

The thing that bothers me about the renewal policy is that the account is active already. It's not like it paid off or anything. It was a standard 60% paid down renewal. I just think it's a ****ty policy on active accounts. I spent the money and took the time to get the deal done. Renewals on active accounts is the franchise of the iso business. If every deal was a one off transaction ISO's would go broke pretty quick.

I don't have any problem with the first one back with the contract or any paid in full account is fair game. That's fine. Good ISO's close better and stay on top of their book better than bad one. These policies reward hard work, selling ability, and good client relations.

As far as OD's profitability goes. They have a lot of venture capital invested in them. I'm sure there is a healthy debt service going on. No way that money costs less than 12%/yr. Prob the mid to upper teens. I also think they are holding more than 10% of their paper too.

My company is privately funded and doesn't pay anything on our money. We underwrite similar to OD and our margins are similar. Even with that the margins are never as sweet as one would think. There is no way OD's bad debt is less than 3%. Not a chance. Add bad debt + cost of funds + big overhead and it's pretty easy to see why OD isn't profitable. Doesn't mean they're bleeding red or anything but not hard to understand why they aren't showing a profit. It's all relative anyway.

[Capital Stack]

recently saw an article that claimed there bad debit was at 5%

[Finance1]

recently saw an article that claimed there bad debit was at 5%

I wonder what their metric is for that calc. We keep it simple. A 5% bad debt ratio means that 5 cents out of every dollar that goes out the door doesn't come back. Other companies will calc it by 5 cents out of every dollar due back doesn't make it.

Regardless, OnDeck is running on thin margins with the initial funding. They have tiered price but in simpleton terms I see it like this:

1.20/6 = 1.23+/- after their 2.5% origination fee is netted.

10k deal = $9,750 funded and $12k due back ($2,250 gross margin)

6% commission: $600
5% bad debt (my calc): $487

This leaves $1,163 before overhead and cost of funds. Not much left on the bone. Any company would die with these kind of returns.

Renewals are mathematical magic and make up quite a bit on margins though so the calc above only applies to the first funding to a new merchant.

OD "forgives" interest @ renewal but it's a bit of a joke because interest remaining @ renewal is quite small compared to the built in "fees". So they double factor to a degree on their renewals. They would have to anyways or they would bleed out pretty quick.

I know many here know the math but for those who don't, this is a pretty simpleton approach:

Renewal @ 60% on a 10k deal = $4,800 balance less $200+/- forgiven interest renewed back to $10k (less 2.5% origination) w/ $12k repay = $5,150 net to merchant but the cost to the merchant for the new funds is $2,250. So the rate on the renewal is actually 1.44+/- on the new money. It's the dirty little secret of this business. Do that a couple times in a row on the same merchant and the gross margins start to look pretty sweet.

The reason why it's so easy to get away with this is because conventional thinking is the balance owed at the time of renewal is a "principal balance" but it isn't that way at all because the balance that is being paid down includes all the deal costs from the beginning. Merchants rarely catch it because it "looks normal".

A simple way to analyze return in a new $10k deal that renews just once looks like this:

$9,750 funding with $12k repay.

Merchant has paid back $7,200 @ 60% renewal time.

Merchant nets $5,150 at renewal

Merchant pays back $12k on the renewal and calls it a day.

So, the merchant receives a total of $14,900 and pays back $19,200 in under 10 months. This = just under 1.29 return on the money. Each time the merchant renews it ups the roi factor because renewals are much more expensive than the first deal.

Capital exposure works heavily in a funder's favor too because the funds going out the door @ renewal is recycled money. No new exposure is incurred. It's actually lower than the $9,750 originally funded.

Think of exposure like this (in simpleton terms):

$9,750 exposed during the initial funding. $7,200 is paid back @ renewal so exposure is down to $2,550. $5,150 goes out the door so the exposure on the renewed deal is only $7,700. I know it's more complicated because of commissions and things like that but just trying to keep it simple.

In the example above the funder only needed to have $9,750 available to make a gross return of $4,300 over 10 months.This is a 44% ROI on $9,750 in 10 months. Compound this by always keeping all your money out on the street and gross potential ROI keeps going up. This simple math is why I don't think OD is "in trouble" so to speak. They just keep churning away like everybody else. It becomes a science once you've mastered your own risk model and manage costs.

[skideeppow]

i personally love ODC, i have never seen anyone do deals quicker. Besides the hard sell cheesy NY attitude, they really get it done.

[Chambo]

On Deck and Google Ventures

Now if they could only learn how to turn a profit!!!!

I hear they are doing $10-15 million a month in some circles. Seems like just two years ago Sharif was bragging about $4 million a month