Archive for 2018
SEC Scoffs at 1st Global Capital’s Attempt to Dismiss Securities Complaint
November 17, 2018The SEC is not impressed with 1st Global Capital’s attempt to dismiss the charges it stands accused of. Yesterday, the SEC filed opposition papers, writing “Having defrauded thousands of investors out of almost $300 million, Defendant Carl Ruderman now asks the Court to let him escape the consequences of his actions by dismissing the Amended Complaint against him based on a series of inaccurate and incomplete facts, incorrect legal standards, and infirm legal arguments.”
1st Global and Ruderman (who was the company’s owner and CEO), argued that the SEC does not have subject matter jurisdiction and that the notes between 1st Global and investors were not securities.
“Ruderman misstates the standards for evaluating whether a note is a security, and does not even bother to address the separate test for determining whether an investment qualifies as an investment contract,” the SEC claims. “The investment 1 Global offered and sold to investors was a security.”
Parallel to the SEC case, bankruptcy proceedings are continuing to move forward as well.
There has been no word on criminal charges since 1st Global revealed it was being investigated by the US attorney’s office in July.
The SEC’s opposition to 1st Global’s motion to dismiss can be downloaded here.
ICO Settles With SEC, Must Return Millions to Investors
November 16, 2018
A Boston based startup that raised $15 million in funds via an Initial Coin Offering (ICO) must return the money to token purchasers and pay a $250,000 fine, the SEC announced. AirFox, who must make those payments in accordance with an SEC settlement, introduced a plan in 2017 to provide free data to mobile phone users in return for eyeballing advertising. The SEC was careful to note that they had not accused AirFox of fraud, but rather of failing to register their tokens as securities.
Since the ICO, the value of AIR tokens have dropped by 94%.
Selling a Home, Selling Commercial Financing – What’s the Difference?
November 16, 2018
Alternative funding brokers come from all different backgrounds, but for many them, being a broker is not their first job in sales. Some sold equipment, some sold cars and others sold homes. They were realtors. deBanked found two alternative funding brokers with a background in residential real estate and we asked them to compare the similarities and differences between selling a home and selling money.
Alex Alpert is the owner and CEO of Philadelphia-based Solomon Commercial Lending, which provides clients with a wide variety of funding from SBA loans, equipment leasing, factoring and some MCA. Before starting his company, he had worked as a residential realtor for about five years. When asked about his approach to selling a home versus selling money, he sees them as very different.
“When I consider non-investment home ownership, it is 100% emotional,” Alpert said. “If you think about it, the most expensive and most intimate and emotional purchase that you’re ever going to make is going to be your home. As people, we pour ourselves into our homes. Our homes speak so much about our personalities – what we like, what we don’t. It’s literally like a biography [of someone.]”
Alpert spoke about the intangibles involved in residential real estate, how a lot of it is about the feel of a home, which is highly subjective.
“Instead of you manipulating what they want, it’s just guiding them to reach that ‘ah-ha’ moment,” Alpert said. “I didn’t walk around the house with them and say ‘This is the bedroom and this is the bathroom.’ I would stay back and just say ‘Take a walk around, see how it fits, jump in the bed if you want to, and see how you feel.’ And when they came back down, one of my common first questions would be, ‘Can you picture yourself living here?’ Because that question makes you visualize yourself waking up there. If you can pick up on what the person is showing at that moment, you can guide them better…I think I’m successful because I’m honest, I’m transparent, and I will tell you things you won’t expect. And at the end of the day, that’s how you build referrals and address the needs of an emotional transaction.”
On the other hand, Alpert sees non-primary home deals as more transactional.
“When it comes to business, it’s much less personal,” Alpert said. “People will certainly do their research on who they engage with. Most all of my business comes from referrals. But still, you don’t know me from Adam, and you’re sending me over everything…With [business transactions,] it’s based on need and your ability to serve that need. The emotional part, just from the start, is not that present. It’s a need and solution type of approach.”
Alpert will work with clients with tens of millions of dollars in revenue. But he acknowledged that for some of his smaller “mom and pop shop” clients, transactions can be emotional, like with a small town dance studio client he is helping to secure a 7(a) SBA loan for.
James Celifarco, President of Horizon Financial Group in Brooklyn, which offers mostly small business loans and MCA, currently works as a realtor as well. He doesn’t see much of a difference in the way he approaches residential real estate clients versus small business merchants.
“I think they’re very similar in that if [people] are buying or selling a home, it’s their most coveted possession,” Celifarco said. “It’s what they’ve worked the hardest to obtain. It’s their biggest asset. And it’s the same thing when dealing with a business owner. Business owners are probably more passionate than a homeowner. Either way, if you’re dealing with a business owner or a homeowner, it’s their prized possession.”
While not using the word “emotional,” Celifarco seemed to suggest that non-residential real estate deals are just as emotional.
“[For both homeowners and business owners,] you really have to deal with kid gloves in that they play very close to the vest,” Celifarco said. “You have to have a certain approach where they feel comfortable speaking with you about their home and their finances or their business and their finances. They want to know that their information is protected.”
Celebrity residential real estate agent Ryan Serhant, who spoke at Broker Fair 2018, said that he lives be three rules to successful in real estate: Follow up, Follow through and Follow back. The last refers to following back a client on social media. This part might not always apply, but Celifarco said that the same persistence is required regardless of the sales client.
“It’s all sales,” he said. “You eat what you kill. You close a deal, you make money. You sell a house, you make money. If you don’t, if you’re not reaching out to your clients, you’re not going to make any money. It’s the same in that you get paid for how hard you work.”
Dan DeMeo is Back in Action… at Lendr
November 15, 2018
Daniel DeMeo has been hired as Chief Revenue Officer by the Chicago-based funder, Lendr.
DeMeo has been working as an independent consultant for the last two years, according to LinkedIn. Prior to that he was the CEO of CAN Capital, a company he had dedicated himself to for nearly seven years until an internal account performance issue led to several senior executives taking an immediate leave of absence.
Under DeMeo, CAN enjoyed success as one of the nation’s largest non-bank small business financiers, partially attributed to the company’s major head start in pioneering merchant cash advance products when the company was founded in 1998. DeMeo even landed on the cover of deBanked’s November/December 2015 issue, around the time when the company was widely believed to be planning an IPO.
It never happened.
The systems issue that toppled CAN’s top execs including DeMeo, brought the company to its knees, putting all new funding on hold for six months until it was saved by a capital infusion from Varadero Capital in July 2017. CAN Capital survived while DeMeo has notably since then kept a low public profile.
Now he’s back in action at Lendr, an ambitious funding company that offers MCAs, small business loans, equipment financing, and just recently, factoring.
“Dan is a highly strategic and thoughtful leader with broad perspective of the industry that enables him to understand specific challenges we face as a growing company,” said Tim Roach, CEO of Lendr. “Dan’s experience is a perfect addition to the team as we accelerate our growth plans, raise Lendr’s brand recognition, and further increase our market share.”
“I’m thrilled to be joining such a dynamic and progressive company,” said DeMeo. “Lendr has emerged as one of the leaders in the financial solutions space and we are poised to build strategic partnerships and alliances with those who share the same zeal in helping small- and medium-sized businesses grow.”
Lendr is setting its sights high. “We’ll be north of $100 million in our first year of factoring,” Lendr co-founder and CEO Tim Roach told deBanked in September.
The company has also been showing off its technological and fundraising prowess as of late. This past March, they closed on a $25 million credit facility that’s expandable up to $50 million. That news was followed by the announcement of a new funding option made possible through virtual and physical debit cards.
Lendr has offices in Chicago and New York and employs over 45 people.
IOU Continues to Post Positive Earnings
November 14, 2018
Loan originations for IOU Financial’s third quarter were $36.1 million, an 85% increase over last year’s Q3 originations of $19.6 million. This is also IOU’s fourth consecutive quarter with positive earnings.
“IOU continued to deliver strong loan origination growth and earnings performance during the third quarter of 2018 and we have successfully managed loan defaults as a result of measures implemented last year,” said IOU Financial CEO Phil Marleau.
The measures implemented last year refer, in part, to changes in collection efforts, such as using a more aggressive litigation strategy against businesses that default on their loan obligations, Marleau told deBanked. Provisions for loan losses in Q3 were $1.2 million, a decrease of 51% compared to last year at this time.
Most of IOU’s revenue comes from making loans of up to $300,000 to American small businesses. Marleau said the average IOU loan is for $100,000 with a 12 month term, although they do offer terms up to 18 months. A significant percentage of IOU’s merchants use the business loans to purchase equipment. Other loans are used for business expansion and temporary cash flow. To date, IOU has originated nearly $600 million in loans.
Despite the fact that the lender mostly services the American market, with its headquarters in Montreal and its stock listed on the Toronto Stock Exchange, IOU made a marketing push this quarter to expand its service in Canada.
“We’ve been getting the word out to brokers that we’re looking to serve Canadian merchants,” Marleau said.
Ironically, in many cases, that has meant telling American ISOs who market to Canada that IOU is open for business in its own country.
Marleau, who is Canadian, met cofounder and IOU President Robert Gloer at a fintech conference in San Francisco, and the company’s first loan was made in 2009. Gloer had ties to Atlanta, which is why IOU’s U.S. office is located there. While the company’s headquarters is in Montreal, the Atlanta office is larger and is where the company’s sales operations take place. The company has about 40 employees, but only about ten work at the Montreal headquarters.
Prosper Tightens Credit and Introduces HELOCs
November 14, 2018
Today, Prosper announced its third quarter financial results, showing that originations were $640 million for the quarter, down from $822 million last year. And net loss was $19.8 million, an improvement of $7.2 million from the previous year. The lending platform also announced today that it will launch a new digital Home Equity Line of Credit (HELOC) product in 2019.
“As Prosper continues to focus on meeting investors’ return expectations, we have tightened credit and increased borrower rates this year in a rising interest rate environment,” said David Kimball, CEO of Prosper. “We have also focused our efforts and resources on expanding our business beyond personal loans with the development of a new home equity line of credit product.”
Prosper’s new HELOC product will be offered in conjunction with banks and the company is currently working with bank partners and welcoming new ones, according to a company spokesperson. She could not give the names of any of the bank partners, although she said that Prosper’s role will be to deliver cost estimates for the product in a matter of seconds, as opposed to weeks that it might take a bank to make a decision about eligibility and terms for a HELOC. As for the underwriting process, the bank will dictate the underwriting criteria and Prosper will execute on them.
“We are taking advantage of our expertise in consumer credit and personal loans to build a product that removes the complexity and time-consuming barriers in applying for a HELOC,” Kimball said. “For many of our customers, a HELOC could be a better choice for their financial needs and we’re thrilled to be working with our bank partners to render the traditional process obsolete with a new digital HELOC process that is simple, fast and painless.”
How will Prosper make money from these HELOCs? Prosper will charge the banks a fee for every deal that originates through Prosper’s platform, according to the company spokesperson. Founded in 2005 and based in San Francisco, Prosper makes personal loans from $2,000 to $40,000 to prime customers, with loan terms up to five years. At the Money 20/20 Conference in October, Kimball spoke about his openness and his approach to working with banks.
“You don’t go in the thinking [the bankers] are stupid,” Kimball said. “Assume that you have a really good partner.”
To date, over $13 billion in personal loans have been originated through the Prosper platform for debt consolidation and large purchases such as home improvement projects, medical expenses and special occasions.
Clearbanc Swaps VC Investing for MCA
November 13, 2018
The business model for many startups is that the business won’t even be close to profitable for years until it gets enough clients or users. But this isn’t the case for all startups. Some of them actually generate considerable revenue after just months. For companies like these, that also need capital for marketing or expansion, Clearbanc is interested to work with them.
Founded as a venture capital firm by serial entrepreneurs Andrew D’Souza and Michele Romanow, among others, the company now primarily offers merchant cash advances. Instead of analyzing the company’s founders, they are looking at tangibles like revenue and percentage growth.
“We pay a lot of attention to our underwriting and decision-making process because if we make a mistake, we can lose a lot of money,” D’Souza, who is CEO, told Techcrunch yesterday. “Unlike a VC, we don’t expect the majority of our companies to fail and have the winners make up for the losses.”
Clearbanc offers cash advances to new businesses in the U.S. and Canada, from $5,000 to $10 million. At this point, Clearbanc only funds eCommerce and Consumer SaaS (software as a service) companies. Also, eligible companies must be incorporated, have a monthly average revenue of at least $10,000 and have at least six months of consistent revenue history.
So far, Clearbanc has funded $100 million to 500 companies in 2018. Founded in 2015, the company is based in Toronto, Canada.
SoFi Has Another Loss in Q3
November 12, 2018According to the WSJ, SoFi experienced a $12 million EBITDA loss in the 3rd quarter. That follows a $150 million loss in Q2.
“We optimized for investing over profitability this quarter, and expect this to continue given the opportunity in front of us,” SoFi CEO Anthony Noto wrote in a letter to shareholders obtained by the WSJ.
At Money2020 last month, Noto suggested that the company would eventually need to open physical locations to manage cash transactions.
