[Chambo]

Anyone else here the news about President of AMI getting canned?

[Sean Cash]

You got a link or something Chambo? I just heard from someone yesterday coincidentally that capital access network is going through a rough patch. I don't like to take rumors as fact, but the timing is funny.

[isaacdstern]

yes...Glenn Goldman is no longer with AMI

[Sean Cash]

this is why dailyfunder and the mca industry is awesome. We all know things before it's even news.

[isaacdstern]

They also let go of the director of marketing, the head of inside sales and the vp of HR....clearly they are cleaning house

[Sean Cash]

I guess that's what happens when you try to compete against yellowstone

[isaacdstern]

lol... We see some of the deals New Logic is offering and I just dont get it...1.12 18 month deal....they can keep those

[Scott Williams]

Who makes those decisions at Capital Access Network? Is the company ran by a board of directors from all the different investment groups that give them capital to lend?

[MCAVeteran]

Big Deal, CEOs come and go all the time. IBM, Yahoo, etc have all had changes in their CEO's. Fo to Capital Access Networks website and listed is their new CEO with extensive background from GR Capital, Citibank and the traditional financial sectors. The board of CAN prob decided this awhile back and not overnight. New Logic has its own president by the way as its a seperate division to AMI. The COO, CTO, and General Counsel are all still with AMI/CAN. I don't see how their rates or terms have anything to do with a new CEO stepping in.

[Chambo]

Big Deal, CEOs come and go all the time. IBM, Yahoo, etc have all had changes in their CEO's. Fo to Capital Access Networks website and listed is their new CEO with extensive background from GR Capital, Citibank and the traditional financial sectors. The board of CAN prob decided this awhile back and not overnight. New Logic has its own president by the way as its a seperate division to AMI. The COO, CTO, and General Counsel are all still with AMI/CAN. I don't see how their rates or terms have anything to do with a new CEO stepping in.

Um...how about "portfolio performance"? they weren't grabbing the marketplace as the y expected at New Logic...and they were/are getting stacked on like wildfire. So the CEO is underfire for this (this is what happens in the REAL business world when you are actually ACCOUNTABLE for providing a profit to investors!). the CEO scrambles last minute, so New Logic starts tossing hail mary deals & stacking on others as well to buy marketshare...only it is a day late and dollar short.

[Finance1]

I agree Chambo. Being as large as CAN has its advantages and disadvantages. They are a large and mature company. Growth becomes challenging. Quite challenging actually. Majority of times when you see shake ups like this it usually means growth and/or profitability targets are not being met. Time to get some fresh brains in the tank and hope it changes I suppose.

NL only exists because OnDeck proved they are "real" and started gaining market share. Since CAN was second in they had to basically undercut OD's pricing and extend terms beyond OD's. Now OD has ultra low risk and more approvals @ 12+ months than I've ever seen. OD would have been perfectly happy to stick to their 6 month model but they couldn't because of NL.

I remember back in 2010 when I first started dealing with OD. Yea, they advertised 9-12 months but did they really ever offer it? I remember taking to one of the higher ups and he disclosed that 6 month deals made up over 80% of their portfolio. That has certainly changed but is this a good thing for them? I doubt it.

OD and NL may drive each other to the brink by competing against each with rates and terms. At some point it's not worth it anymore. Gotta wonder how close to that point they are already.

[Sean Cash]

OD and NL may drive each other to the brink by competing against each with rates and terms. At some point it's not worth it anymore. Gotta wonder how close to that point they are already.

With at least 100 funders in the ring, it does seem interesting to watch 2 of them fight each other over on the sideline to the death. New massive rounds of capital have enabled them to continue on despite it not making sense or being profitable.

[Finance1]

With at least 100 funders in the ring, it does seem interesting to watch 2 of them fight each other over on the sideline to the death. New massive rounds of capital have enabled them to continue on despite it not making sense or being profitable.

As the weighted average maturity of their portfolios continues to lengthen it poses ever increasing risk if the economy were to take a quick step back again. It's all fun and games until.... I sure wouldn't want to be taking 15-24 month guesses right now.

[Chambo]

With at least 100 funders in the ring, it does seem interesting to watch 2 of them fight each other over on the sideline to the death. New massive rounds of capital have enabled them to continue on despite it not making sense or being profitable.

LEt's see where Goldman stands after a year when they see the books and returns. In case you forget Sean, Goldman played this game before..twice. Once with Fast Capital, once with Merit Capital. where are thsoe two companies now? Oh yeah, and they originally started with Rapid...we all know how close Rapid came to the brink back in 2008/early 2009. If not for gutting the company, tossing the bad debt and complete overhaul....

[Chambo]

OD and NL may drive each other to the brink by competing against each with rates and terms. At some point it's not worth it anymore. Gotta wonder how close to that point they are already.

Another aspect is that both of these entities are talking about going public. Going public has the advantage of an enormous influx of capital to do all sorts of wonderful things. However, it would also mean investor scrunity. Instead of worrying about one banker or hedge fund to please, they would have 50 to worry about...or worse, a class action of 250 investors.

They wouldn't be able to BS their way out of losses and no profitability then!

[staten]

Of course they will. On-Deck is positioned as a tech company-not a lender. They will market themselves as a disrupter in the multi-billion loan market-have a wildly successful IPO, the investors will have a very successful exit and then the stock will plummet after they fail to show a profit after a two year period. wash/lather/repeat

[Chambo]

Of course they will. On-Deck is positioned as a tech company-not a lender. They will market themselves as a disrupter in the multi-billion loan market-have a wildly successful IPO, the investors will have a very successful exit and then the stock will plummet after they fail to show a profit after a two year period. wash/lather/repeat

Sounds like the pump and dump stock fraud that got a lot of folks thrown in jail back in the 90's. I guess if you are too young to remember, you are doomed to repeat

[MCAVeteran]

What hasn't been mentioned here is that those longer terms are not for just any submission. There is a matrix, data points on past performance on businesses, profiles, geography, that actually payback and are better risk deals. There is actually real underwriting today vs the past where no bank statements or risk was calculated. (i.e. first funds, etc). There are emerging industries that are performing well that are better placed on a loan platform that do carry true PG's (have you read the business loan agreements?) when you want to go out longer in terms. you are comparing an old era of bad underwriting/mca product to a new era of sophisticated uw/loan products with pg's and no guessing when you get paid back. the terms are fixed and the payments are fixed and cash flow and other data points are reviewed before ever stamping a approval on those deals.

[Finance1]

Underwriting has definitely gotten better the last 4 years. WAY better. Deals with the longer terms are reserved for the "qualified". I've been in risk underwriting for a long time and whenever WAC's go down and the WAM's go up there are diminished returns. CAN and OD has a load of data points to work off of so there is plenty of science now behind these deals. But even with that, as you go out in time and lower in rate the foresight gets cloudy. The entire portfolio is subject to more potential risk than data points on previous deals can't exactly pinpoint.

I'm not saying that OD and NL are setting themselves up or anything like that at all. But simple math and underwriting says that returns will be going down. Defaults are accounted for within the model but economic cycles can change things in a hurry. I wouldn't want to have my average maturity out past 12 months. That's for sure. But I'm not in the same universe of capitalization either so I see the world differently.

There is inherent exposure risk as you go out in time too. The magic of this industry is the daily remittance part of it. You can constantly churn the money. A good way of looking at diminishing returns outside of just lower rates is considering what longer maturities do to remittance and reinvestment. A simplistic look would be the difference having a dozen $10k deals due back in 6 months vs 12 months. Average monthly remittance with the 6 month deals is $20k vs $10k on the 12 month deals. You can have much better overall returns by sending out (on average) $20k/mo in new business vs $10k/mo with identical capital bases. If you are collecting $10k/mo for 12 months and you have demand for the $20k then you have to make up the difference with new capital and not existing capital.

I thank OD and NL for having these programs though. They help us all get more stuff done and of course make more commissions. I think they have the math right for current economic conditions as well. The only real wild card is default rates. Everything else can be calculated with precision. Slipping back into a recessionary environment would most likely show some of their cards. Recessions tend to happen quick to small businesses. 15-24 month deals become murky pretty quick when sales start dropping.

PG's on unsecured debt are only worth something when a business owner has plenty of assets outside of the business being funded. BK wipes things out pretty quick and they usually go hand in hand with a failed business loaded with debt.

[MCNetwork]

When you're as big as an On Deck or New Logic, then you run the risk that many mutual fund managers face of having more capital than you can effectively invest. If all your funds are tied up in short-term loans (6-9 months) then you'll be scrambling to keep your money fully utilized in deals. By allocating a portion of funds to longer term deals, you can smooth out some volatility and add consistency and predictability to your portfolio's performance. Of course, the long-term deals have to be limited to those merchants that have high business credit and solid financials. The incremental risk associated in providing a 15 month loan to a business with 10+ years in business is really not much greater compared to a 6-9 month program. Risk can be further managed by ensuring that the monthly debt service on these longer term loans is a reasonable percentage of monthly gross sales. The long-term deals can actually be a good component of a funder's overall portfolio but the most bang for your buck will come from the higher risk, higher factor, short-term deals.

[AMLvet]

CAN is the industry leader ..period. BFS is closely trailing

[Sean Cash]

CAN is the industry leader ..period. BFS is closely trailing

Closely trailing? Is BFS Funding $700 million a year?

[Chambo]

CAN is the industry leader ..period. BFS is closely trailing

Closely trailing what? NO WAY IN HELL BFS is doing $15 million a month, much less the $40-50 million AMI attests to