Lendit Master Deck Final WN Canaan Partners

The Characteristics of Capital
in the
Marketplace Lending World
Dan Ciporin
Copyright Canaan Partners 2016, All rights reserved.
Marketplace Lending: Historical Landscape
2005
2008
2011
Zopa incorporated
in UK as first P2P
marketplace
Lending Club
receives SEC
registration
Arcadia/Eaglewood
the first dedicated
platform funds
2005
2006
2007
2008
2009
2010
2011
2012
TODAY
the cycle
starts to turn?
2013
2014
2015
2008-2012
2012-2016
Retail/HNW
individual capital
focus
Institutional capital floodgates

open: structured credit funds,
securitization market
2016
MPL Funding Is Now Largely Institutional Hedge Fund Based

U.S. Annual Origination Volume by Loan Type ($ Billions)
Institutional-driven Growth
$12
$12,000,000,000
$9,000,000,000
$10
Retail-driven Growth
$8
Whole
Loans
$6
$6,000,000,000
$4
$3,000,000,000
$0
$2
Fractional
Loans
$0
2008
2009
2010
2011
2012
2013
$
Source: Orchard
2014
$
2015
Institutional Bias Is Actually Much Stronger

Institutional Only
Retail + Institutional
<10
500+
originators
originators
When the Cycle Turns,

What Was Once Strength Becomes Weakness
US ABS Issuance
Volume in Past 15 Months ($ Billions)
$30
$23
$15
$8
$0
Source: Asset Backed Alert

As Clearly Evidenced in Recent MPL Securitizations

Weighted Average Spread (bps)
600
500
400
300
200
100
CHAI 2015-PM1; 8/5/2015
CHAI 2015-PM3; 12/18/2015
Source: Bloomberg, PeerIQ Research

A Lesson Legacy Players Have Learned

$ Billions
$200
$100
$150
$75
$100
$50
$50
$25
$0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Debt
$0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Debt
Deposits
Source: SEC filings

Deposits
Including Even the Most Institutional of Players
Reliance on One Capital Source Is Foolhardy,

Especially When It Is an Intermediate Source
RETAIL
Wire Houses
RIAs
Broker/Dealers
Self-directed Investors
Bank Deposits
INSTITUTIONAL
$34T
$37T
Retail
Institutional
$ $
$
$ $
$
$ $ $ $ $
HEDGE
FUNDS
$ $
$ $$
$ $
2015 Marketplace Lending

Source: Cerulli Associates & US Treasury
Banks
Pension Funds
Insurance Companies
Foundations/Endowments
Sovereign Funds/Others
Which DIRECT Capital Sources Fuel Future Growth?

RETAIL
Wire Houses
RIAs
Broker/Dealers
Self-directed Investors
Bank Deposits
INSTITUTIONAL
$34T
$37T
Retail
Institutional
$ $
$ $
$
$ $
$
$ $
$
$ DIRECT $
INVESTMENT
$ $
$
$
$
$ $
$ $
$ $
$
$
2015 Marketplace Lending

Source: Cerulli Associates & US Treasury
Banks
Pension Funds
Insurance Companies
Foundations/Endowments
Sovereign Funds/Others
Institutional Capital is Efficient
Time to Scale Retail >

Time to Scale Institutional
Year 1 2009 Year 22010 Year 32011 Year2012

4
Year2013
5
Year
6
2014
Retail
Institutional
Source: Canaan Partners analysis
Year
7
2015

However Institutional Capital Is Fickle
Great Recession
30%
Bull Market
23%
15%
8%
0%
-8%
-15%
-23%
-30%
1/1/11
1/1/12
1/1/13
FDIC Deposit Growth
1/1/14
1/1/15
1/1/16
HF Net Flows % of AUM
Source: FDIC & SS&C GlobeOp Capital

1/1/17
Retail Capital is Sticky and Enormous
$8T
$5M+ 1M 0.8%
$1M - $5M
$500K - $1M
$100K - $500K
5M
7M
23M
5%
$12T
6%
85M
120M US Households
34%
70%
$4T
18%
10%
$34T in Investable Assets
Source: Phoenix Global Wealth Monitor (2015)

$20T:
Presumed
Accredited
Investors
14%
$5T
19%
$6T
<$100K
24%
$15T:
Presumed
Non-Accredited
Investors
However Retail Has Higher Costs
Institutional
Retail Direct
1 year payback
4 month payback
Source: Canaan Partners analysis

Capital Diversification Is the Answer in Different Flavors of Volatility

and Cost
Higher
Cost
SelfDirected
Investors
Retail
Investors
Asset allocation
investors
Financial
Advisory
Channels
Institutions
Opportunistic
Investors
Hedge
Funds
Lower
Lower
Volatility
Higher
New Diversified Capital World Winners
Technology and
Product
Credit
History
Secondary
Market
Regulatory
Embracers
Brand
Secondary Market Key to Every Mature Market

Liquid Secondary Market
Equities
Bonds
$
FX
Secondary
Market
ABS
Commodities
Derivatives
Technology and
Product
Credit
History
Secondary
Market
Regulatory
Embracers
Brand
Technology and Product
RETAIL
INSTITUTIONAL
Regulatory Requirements
UI / UX
Data Analytics
RIA & Custodian Integration
Order Execution Infrastructure
Principal Protection
Reporting / Portfolio
Management Tools
Integration With RIA Workflow
RIA
Independent RIA Daily Workflow
OR
CUSTODIAN
PORTFOLIO
MANAGEMENT
SYSTEM
TURNKEY ASSET
MANAGEMENT
PLATFORM
ENABLING
SERVICE
PROVIDERS
Marketplace
Lender
Marketplace Lenders Must Build it on Their Own Or Integrate with RIA Technology
Source: Lend Academy
Technology and
Product
Credit
History
Secondary
Market
Regulatory
Embracers
Brand
Technology and
Product
Credit
History
Secondary
Market
Regulatory
Embracers
Brand
Embrace The Regulator
Technology and
Product
Credit
History
Secondary
Market
Regulatory
Embracers
Brand
Brands Represent Trust
Co-opetition, Competition and Acquisition?

GAFA
MPL
BANKING
FINTECH
The Evolution of the Capital Base Is Clear

Total MPL Capital Base
Introduction
Emergence
Maturity
Scale
Individuals
Small institutions
Individuals
Small institutions
Hedge funds
Individuals
Small institutions
Hedge funds
Banks
Closed end funds
Individuals
Small institutions
Hedge funds
Banks
Closed end funds
Mutual funds
ETFs
Insurance companies
Pension funds
Winners
Will bridge between both

institutional and retail
capital
Will leverage brand,

history, technology,
regulatory comfort and
secondary liquidity
Marketplace Lending: A New Asset Class For All Capital Needs
Will create a new asset class across

all capital sectors
Thank You
Strictly Confidential

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The Characteristics of Capital

Marketplace Lending: Historical Landscape

Institutional capital floodgates

Copyright Canaan Partners 2016, All rights reserved.

MPL Funding Is Now Largely Institutional Hedge Fund Based

Institutional Bias Is Actually Much Stronger

When the Cycle Turns,

Source: Asset Backed Alert

As Clearly Evidenced in Recent MPL Securitizations

CHAI 2015-PM3; 12/18/2015

Source: Bloomberg, PeerIQ Research

A Lesson Legacy Players Have Learned

Source: SEC filings

Including Even the Most Institutional of Players

Copyright Canaan Partners 2016, All rights reserved.

Reliance on One Capital Source Is Foolhardy,

2015 Marketplace Lending

Which DIRECT Capital Sources Fuel Future Growth?

2015 Marketplace Lending

Institutional Capital is Efficient

Time to Scale Retail >

Year 1 2009 Year 22010 Year 32011 Year2012

FDIC Deposit Growth

HF Net Flows % of AUM

Source: FDIC & SS&C GlobeOp Capital

Retail Capital is Sticky and Enormous

$34T in Investable Assets

Source: Phoenix Global Wealth Monitor (2015)

However Retail Has Higher Costs

Source: Canaan Partners analysis

Capital Diversification Is the Answer in Different Flavors of Volatility

Copyright Canaan Partners 2016, All rights reserved.

New Diversified Capital World Winners

Secondary Market Key to Every Mature Market

Copyright Canaan Partners 2016, All rights reserved.

New Diversified Capital World Winners

Technology and Product

RIA & Custodian Integration

Order Execution Infrastructure

Copyright Canaan Partners 2016, All rights reserved.

Integration With RIA Workflow

Independent RIA Daily Workflow

New Diversified Capital World Winners

New Diversified Capital World Winners

Embrace The Regulator

Copyright Canaan Partners 2016, All rights reserved.

New Diversified Capital World Winners

Brands Represent Trust

Copyright Canaan Partners 2016, All rights reserved.

Co-opetition, Competition and Acquisition?

The Evolution of the Capital Base Is Clear

Copyright Canaan Partners 2016, All rights reserved.

Will bridge between both

Will leverage brand,

Copyright Canaan Partners 2016, All rights reserved.

Marketplace Lending: A New Asset Class For All Capital Needs

Will create a new asset class across

Copyright Canaan Partners 2016, All rights reserved.

Copyright Canaan Partners 2016, All rights reserved.

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