I’ve always said that you can gauge the success of an industry by the growth and enthusiasm of its annual convention. It’s also a great barometer of market peaks and bubbles – especially when you have the chance to really get into the psyche of industry participants.
With venture capital pouring into online lending businesses at valuations reminiscent of dot com days, and the industry’s annual conference looking more and more like Internet World ’99, it’s hard not to wonder whether peer to peer lending has reached bubble territory.
Entering LendIt 2015, the annual P2P and online lending convention, was like stepping into a time warp. I had flashbacks of Internet World’s elaborate exhibit booths, the Internet CEOs who literally sweat hundred dollar bills, and the thousands of attendees high on information technology standing on lines to check their AOL email accounts.
Since this year I played the role of an observer as opposed to that of an organizer, I was able to capture the industry’s progress from a different – less biased – perspective. With many online lending companies hitting the big league and raking in the cash, my objective was to monitor complacency – a telltale sign of an imminent market top.
I had the opportunity to spend some time with AdaPia d’Errico, the Chief Marketing Officer of Patch of Land, a leading Peer-to-Real-Estate Lending Marketlace which recently completed a $23.6 million funding round that included investments from Prosper President Ron Suber and SF Capital.
I first met AdaPia in San Francisco at LendIt 2014. At that time, Patch of Land had completed just 5 loans valued at $1.6 million. In less than a year the company went on to facilitate over 90 loans and provide more than $20 million worth of funding.
A few of us had swarmed over to congratulate AdaPia on the company’s impressive financing and growth when one of our colleagues joked, “Take some of the money and have some fun. Throw a party.”
The comment transported me, once again, back in time. It was now early 2000, and I had just been hired to organize an institutional road show for a dot com that recently filed to go public. The company ended up raising nearly $30 million in its IPO in the weeks before the dot com bubble burst. To celebrate the closing, an ostentatious party was held in mid-March – the peak of the bubble. The entire underwriting and marketing teams were flown first class to the west coast. When we landed we were greeted with cherry red convertibles and put up in 5 star hotels.
On the flight over to the spectacle – I mean, the closing dinner – I sat next to the dot com’s chairman. Between lobster tails and ice cream sundaes he complained how employee attitudes had shifted since the money hit their bank account. Suddenly everyone became very complacent. Motivation dwindled. Employees would stroll in late and leave early.
Because of this experience, I was especially curious to hear AdaPia’s response when asked, “now that you have the funding, are you able to relax a bit more?”
AdaPia replied, “Quite the opposite! There is no time to rest. Now that we proved the model, we have a responsibility to our shareholders to execute for the next round. We’re working harder than ever. ”
AdaPia’s response underscored the difference between yesterday’s dot com and today’s FinTech business. Today’s CEOs are driven to monetize. And unlike the 1990s, they are not encouraged to squander money on advertising. They party less and slum it traveling in coach.
AdaPia and her FinTech “peers” are not building technology companies, they are establishing a new financial system.
I’ve said it before and I’ll say it again, we’re not witnessing a bubble, we’re experiencing a revolution.
This article originally appeared in Crowdfund Insider on April 20, 2015
In case you missed it, check out: Bubble, What Bubble.
The young CEO’s who run these companies now do not remember the crash and how it wiped us out (they were 10-15 years old). But the consciousness has changed and now they all work like maniacs, so I think that even though they did not witness the crash, it does not matter, because everyone now is more focused on succeeding than just having a good time.
I forgot to mention that your FinFairConf.com event on July 29th in NYC will be the event of the year.
Hi Dara. Beg to differ on your comparison of the .com and fintech. The similarities are glaring. Key attribute is lack of sustainable biz models. While many that donned the .com moniker believing value was created, few knew what their basic business was. Certainly Amazon understood logistics, and Priceline travel, and eBay auctions, but think of Pets.com or Webvan.com, the latter underscoring the lack of plan-o-gramming, margins, and efficiency. Many of the platforms may understand social media, and web design. But which models are scalable and with margin structures that support internal growth. How many deals can these platforms handle at the size of the deals and the revs generated from such? While the alt platforms are necessary in the world of challenges faced by the commercial banking industry, there is a desperate need to understand the finance business, its margin structures, the risk management and mitigation, and what happens when something goes sideways. This is a nascent industry, and while AdaPia may this the spend may suggest discipline and future success, but really look at the underlying models. Much like Webvan raised $1 billion ++ in venture money, those that financed the grocery business during the same time wouldn’t touch it. Finance is a very thin margined business, with leverage throughout making it seem viable. Does applied technology suggest a better framework and a unique value proposition, as was earlier evident with the IPOs of LC and ONDK. Well as I wrote earlier on, should these companies be valued as tech companies or finance companies? Should they carry multiples of 25x the multiples of WFB or Capital One? They are competing for the same biz, offering the same product in different wrapping with a different delivery mechanism. But it is consumer or SME finance nonetheless.
Great feedback Steve. I agree in many respects. Check out: http://daraalbright.com/2014/12/03/profiting-from-the-crowdfinance-revolution-2/ “Just like not every “dotcom” went on to Amazon stature, not every P2P or equity crowdfunding business will create vast amounts of wealth. Some will become iconic brands and rocket to great heights. Others, particularly those merely trying to capitalize on a P2P or Crowdfinance craze, will wither and die like the faux dotcoms that preceded them.” I think the key difference between yesterday’s dot com and today’s FinTech biz is that dot coms were encouraged to blow countless dollars on advertising while not having a proven revenue model. Today’s venture investor requires performance. With originations increasing at unprecedented speeds, Prosper and LC has proved that the demand for p2p debt is strong and that revenue can be generated.