Sep. 14th, 2015, By Telis Demo (WSJ): PeerIQ, the online lending marketplace data provider that was seeded with money from big Wall Street names including John Mack and Vikram Pandit earlier this year, has raised even more seed money.
The New York-based startup has yet to even do a Series A fundraising, so getting more cash already is a sign that investors are still really, really excited about the world of alternatives to bank lending—even as shares of the first to list, LendingClub Corp. and On Deck Capital Inc. have tumbled since debuting.
This time, the investment is from alternative investment firm Victory Park Capital and Fenway Summer Ventures, the venture capital firm run by former Consumer Financial Protection Bureau deputy director Raj Date. PeerIQ now counts two former regulators among its backers, Mr. Date and Arthur Levitt, former chairman of the Securities and Exchange Commission.
Victory Park, based in Chicago, has been one of the most prolific funders of online lending marketplaces, including AvantCredit, Kabbage and Borro. Following joining the PeerIQ funding, Victory Park has signed on as a “core customer,” PeerIQ CEO Ram Ahluwalia says. He said that PeerIQ has launched its first data platform this year, and will use the new funds to speed up its development and sale to customers.
PeerIQ gathers data to help analyze risks from investing in loans made through online platforms to consumers and businesses, which tend to be at lower rates than traditional loans but are being offered to a wide arrange of customers who haven’t previously had bank relationships.
The data could someday be used to build derivatives for the loans, PeerIQ says, which are increasingly being sliced up and securitized for investors like hedge funds and insurers, as the business moves away from the “peer to peer” concept that kicked off the whole thing. Victory Park’s founders are veterans of Magnetar, a hedge fund that helped create mortgage derivatives prior to the financial crisis.
PeerIQ raised $2.5 million in a “seed extension.” (Prior investors Mr. Mack, former Morgan Stanley CEO, and venture firm Uprising also put in more cash.) This is the second of the “picks and shovels” players in online lending to raise money in September, after Orchard Platform raised $30 million in a Series B round. Orchard’s software connects the many investors in these loans with the many platforms.
Mr. Date, who is managing director at Fenway Summer Ventures, says PeerIQ can bring some transparency to the rapidly growing space. What regulatory regimes apply hasn’t always been clear for online lenders, who straddle state and national lending rule. Some credit algorithms—like using social media to judge a person’s credit risk—have also been at the frontier of past practices. “PeerIQ’s suite of tools” are “important to banks, regulators, and investors alike,” he said.
PeerIQ is still in its early stages, so it hasn’t yet achieved a mega valuation. But the money pouring in has bumped up platforms like SoFi and Prosper Marketplace to multi-billion-dollar private price tags, with hundreds of millions in cash to fund their incursions on established lenders like Wells Fargo & Co.
That private money will come in handy, because public investors haven’t yet seen quite the same promise. Lending Club and On Deck have traded below their December IPO prices. And public scrutiny on online lending will only grow, especially with Treasury poking around and a possible looming court battle over whether investors can collect on loans with rates that exceed borrowers’ home state usury caps. Picks and shovels are especially useful for chipping away at big barriers.
Available at: https://blogs.wsj.com/venturecapital/2015/09/14/more-early-funding-pours-into-online-lending-data-startup/