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BFS Capital Announces New CEO

November 28, 2018
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RuddockBFS Capital announced today that it has appointed Mark Ruddock as CEO, effective immediately. Co-founder Marc Glazer, who has served as interim CEO since the departure of Michael Marrache earlier this year, will be Chairman.

“I sense there is tremendous potential in this firm,” Ruddock told deBanked. “It has in its DNA an innate understanding of the needs of small business and I think the opportunity for it is to leverage significant increases in data science and technology to help scale and deliver on this potential.”

Most recently, Ruddock served as interim CEO for nearly two years at 4finance, one of the largest European consumer focused online lenders, with more than 3,000 employees and customers across 17 countries. Ruddock said that at 4finance, every day they would issue more than 16,500 loans and make about 22,500 risk decisions. And the entire process was automated.

“There is an opportunity to achieve real scale [in small business lending] through the use of leading edge technology,” Ruddock said, and that is what he intends to do at BFS Capital.  Ruddock is relocating to Florida from Berlin, Germany.

Glazer will remain a key part of the operations at BFS Capital.

“One of the biggest assets this company has is Marc Glazer,” Ruddock said. “The two of us see this very much as a joint endeavor moving forward…and I’m going to hold him to remaining actively involved here.”

Their offices are right beside each other, Ruddock said.

“[Ruddock] has an outstanding track record of transforming financial services and technology companies by accelerating their innovation and business growth,” Glazer said. “His diversity of experience, from founder to growth stage executive, across a wide variety of industries and geographies makes him an exceptional choice for BFS Capital at such a pivotal stage in our evolution.”

Ruddock was the founder and CEO of INEA Corporation, an enterprise software firm focused on the financial services industry that was acquired in 2005. Following INEA, he became CEO of mobile software company Viigo, whose flagship app became one of BlackBerry’s most downloaded apps of all time by the time the company was acquired by RIM (Blackberry) in 2010. He held a number of other positions before becoming interim CEO at 4finance in 2017.

Headquartered in Coral Springs, FL, BFS Capital funds American and Canadian small businesses with merchant cash advances and business loans. Through its affiliate, Boost Capital, the company also provides funding to small businesses in the UK. Since 2002, BFS Capital has funded more than $1.9 billion. The company also has offices in New York, California and the UK.

On Deck Capital IPO, An Insider’s Perspective

August 16, 2014
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It was August 23, 2011, the day the Virginia Earthquake could be felt all the way up in New York City. The four of us were enjoying outdoor seating at a restaurant on the Upper East Side. The ground shook, my drink spilled and Ace looked at each one of us and said, “Okay so I’m putting you down for five deals this month.” OnDeck Capital’s relationship managers were aggressive. If you were a small Independent Sales Organization (ISO), they didn’t expect to get all of your dealflow so they roped you in little by little. It was hard to say no. If five deals was too much, Ace would say three and if three was too much, then he’d put you down for three anyway. Zero was not in the cards. OnDeck owned a specific niche and if you didn’t send your premium credit clients to them, then any ISOs you were competing against would. That was a death knell in those days. Just a few years earlier I would’ve shrugged them off, but public sentiment was changing. Merchants were embracing the fixed daily payment methodology and the merchant cash advance industry would never be the same.

OnDeck Capital is now going public. Will you buy stock?

ondeck capital ipoI’m in a unique position to discuss OnDeck. I started my career in this industry before they even existed. I’ve competed against them as an underwriter at a rival firm, worked with them as a referral partner when I was in sales, and covered them in my capacity as Chief Editor of an industry trade publication.

I left my post as Merchant Cash & Capital’s Director of Underwriting in late 2008. I was 25, about a year or two older than the average employee in the industry. Several of MCC’s rivals got demolished in the financial crisis but OnDeck wasn’t one of them. They also weren’t much of a competitor either. Struggling to define themselves as the anti-merchant cash advance, their product ran counter to the spirit of the industry’s rise. The single biggest allure of a merchant cash advance wasn’t that it was easy to obtain but that there was no fixed repayment term. The funds came with a pre-determined net cost but no specific date on when the delivery of future sales would be due.

Outsiders like the news media aren’t exactly sure what separates merchant cash advance from OnDeck except for maybe the cost of funds. Cash advance just sounds expensive, doesn’t it?

Outsiders identify the company by three characteristics.

1. They’re a non-bank business lender
2. They’re more expensive than a bank
3. They’re a tech company

These bullet points gloss over the fact that OnDeck’s loans require payments to be made every day. Can you imagine a credit card company forcing you to send a payment every day of the month? Or your landlord asking for rent on the 1st of the month, the 2nd, the 3rd, 4th, 5th, and so on every day until your lease is up?

This is not to say that this system is necessarily bad for borrowers, but that it is quite possibly the most unique and important part of what makes OnDeck different. It’s their secret sauce. It is why OnDeck gets lumped in with merchant cash advance companies in many conversations. OnDeck and the legion of copycats they have spawned are part of a broader industry that includes merchant cash advance companies. I call them daily funders. Daily funders provide financing on the condition that payments are made daily. I don’t call them daily lenders because traditional merchant cash advance products are not made by lenders, but by a unique group of investors that purchase future revenue streams.

Transition

Under company founder Mitch Jacobs, OnDeck had established themselves as the de facto loan option.

The merchant’s not biting on merchant cash advance? Send it to OnDeck. The merchant doesn’t accept credit cards? Send it to OnDeck.

They were every merchant cash advance ISO’s frenemy. They’d solicit you for your deals and then throw you under the bus to journalists as evil purveyors of expensive financing. They needed us to source dealflow and we needed them to maximize closing ratios but neither was quite satisfied with the arrangement.

When the company’s first employee took over as CEO in June 2012, the rhetoric changed. While still happy to be portrayed as the anti-merchant cash advance, OnDeck transformed their image from a niche Wall Street lender to a Silicon Valley-esque tech company. Noah Breslow was a curious choice. He has a BS from MIT and an MBA from Harvard Business School. He’s tall, charismatic, and he introduced vocabulary words such as algorithm to an industry that relied entirely on manual human underwriting.

At a recent lending conference, the younger crowd characterized Breslow as the Steve Jobs of business loans. He commands a cult-like following inside and outside the company, and in 2013 was embraced by New York City’s Mayor Bloomberg.

Breslow fast tracked OnDeck. With only $43 million raised in the first 5 years, the company went on to raise more than $300 million in the first 24 months under Breslow’s leadership.

This was their plan all along

In November 2012, OnDeck entertained a buyout offer from UK-based payday lender Wonga in which they reportedly received a $250 million valuation. The deal fell apart in the late stages but at the time I believed the negotiations were all a ploy for OnDeck to get a true market valuation. With a solid offer on the table, they knew both where they stood and where they needed to go. Last week the WSJ reported that preliminary IPO discussions valued them at $1.5 billion, six times higher than where they were two years ago.

With stock options being offered to new employees at least as far back as 2012, the plan to go public should come as no surprise. Later this year, those employees may actually get to do something very few startup workers ever get to do, convert those options into real shares.

So will OnDeck ride off into the sunset of billion dollar bliss? Not so fast say several industry insiders, some of whom are itching to short the stock on the first day they can.

smoke and mirrorsSmoke and mirrors?

As OnDeck took advantage of the swing in public consensus (that fixed terms were better and lower costs increased the attactiveness ), insiders began to ask an important question. Why weren’t merchant cash advance companies collectively countering with lower prices to remain competitive? Greed was fingered by journalists especially in the wake of the financial crisis. But greed is a weak prerogative if you consider that merchant cash advance companies were filing for bankruptcy left and right in 2009.

And oddly or perhaps even ominously, an entire segment of merchant cash advance companies began to raise their prices just as OnDeck was lowering theirs. When I wrote The Fork in the Merchant Cash Advance Road in April 2011, I said:

While the margins earned on high credit accounts shrank, funding providers were dealing with another challenge simultaneously, defaults. Whether the business owner intentionally interfered with their credit card processing or the store went out of business altogether, bad debt in the MCA world was mounting…FAST!

Risk was and still is the number one reason that merchant cash advances cost so much. While it’s true that OnDeck serviced higher credit businesses, insiders speculated that the spreads were too thin. For years, OnDeck’s merchant cash advance competitors have doubted the soundness of their model.

long vs. shortIt’s a debate that continues even to this day and yet OnDeck has secured hundreds of millions in investments from companies like Google Ventures, Goldman Sachs, Peter Thiel, and Fortress Investment Group. Their notes got an investment grade rating from DBRS. And as far as volume is concerned, they have likely eclipsed the industry’s all time reigning giant CAN Capital. If they had reached none of these milestones, OnDeck would have little credibility to convince critics of their sanity.

With a mountain of circumstantial evidence through big name backing in OnDeck’s favor, it seems to be indicative that the skeptics are wrong. But maybe they’re not. Could their model be both seriously flawed and superior at the same time?

It’s all about eyeballs

Going back to the 1990s, Internet companies have been judged, valued, and made famous by the price of eyeballs and the number of site visits. It’s a measure that’s never disappeared and according to USA Today is making a comeback. And while OnDeck Capital has always been based in New York City, true to their Silicon Valley form, their model has been to conquer market share first eyeballsand take on profitability second. In their case, it’s not eyeballs or site visits, it’s loan origination volume.

Five months ago Breslow was quoted in the WSJ as saying OnDeck is “imminently profitable“. With seven years in business, it’s proof that their critics have been right all along, that their model doesn’t make money.

What scares their competitors though, is that this strategy has been intentional. Very few if any players in the industry have had the luxury, guts, or the purse to lose money for seven years as part of a coup to conquer the market. Disbelievers in this long term wildly risky strategy are salivating at the opportunity to inspect the company’s financial statements in the IPO.

In When Will the Bubble Burst?, RapidAdvance CEO Jeremy Brown, whose company became part of the Quicken Loans family last winter, fired shots at OnDeck, “To accomplish high growth rates, which may be driven by a desire or need for an IPO or to raise investment or to sell to private equity, assets are being overpaid for through higher than economically justified commissions (I’ve heard 12-15 points upfront from the more aggressive companies) and stretch the repayment term of the MCA or loan even further (On Deck24, I am talking about you).”

Insiders testify that OnDeck’s strategy has not so much been about lower costs but about growth at all costs. Among the evidence is the sudden removal of an industry-wide practice of verifying the business owner is current on their rent. Repayment terms are getting stretched out, commissions have shot up, and for a while they ran a program that allowed applicants to get funding with the submission of just a single bank statement.

Merchant cash advance companies look at their own default figures and scoff at the notion that OnDeck’s aggressive practices could produce low single digit defaults as they’ve publicly claimed.

Imminent

imminentThrough it all, there remains the fact that OnDeck has never claimed their methodologies to be profitable, at least not yet. Red ink at IPO time might reward their detractors with a certain delicious satisfaction, but what will they say if and when they become profitable?

I’m reminded of The 20 Smartest Things Amazon Founder Jeff Bezos ever said. Below is a few of them.

  • “There are two kinds of companies: Those that work to try to charge more and those that work to charge less. We will be the second.”
  • “Your margin is my opportunity.”
  • “We’ve done price elasticity studies, and the answer is always that we should raise prices. We don’t do that, because we believe — and we have to take this as an article of faith — that by keeping our prices very, very low, we earn trust with customers over time, and that that actually does maximize free cash flow over the long term.”
  • “If you never want to be criticized, for goodness’ sake don’t do anything new.”
  • “Invention requires a long-term willingness to be misunderstood. You do something that you genuinely believe in, that you have conviction about, but for a long period of time, well-meaning people may criticize that effort. When you receive criticism from well-meaning people, it pays to ask, ‘Are they right?’ And if they are, you need to adapt what they’re doing. If they’re not right, if you really have conviction that they’re not right, you need to have that long-term willingness to be misunderstood. It’s a key part of invention.”

I wonder if the executive team at OnDeck would share these philosophies.

They’ve always claimed themselves to be a tech company, much to the bewilderment of their competitors. Will technology come through for them?

The data available on businesses has changed. Bank statements and a credit report might’ve been all there was to go on when the company first started, but in Automated Intelligence Breslow said, “the fact is most businesses operating today, in 2014, are already technology focused to one degree or another. They have computers, they have online banking, they use credit card processors, their customers are reviewing them online, there are public records, etc. All this electronic data helps paint a deeper and more accurate picture of the health of a business.”

OnDeck Capital featured on a PBS Special

With such easy access to important data, it might be possible that through the use of 2,000 data points, OnDeck doesn’t need to do all the manual investigations that their competitors still place high values on. The available data might be able to predict loan repayment success just as well as a human analyst.

And if that’s true, then they can reduce the cost of overhead as they scale. As their predictive algorithms get fed more data, they might be able to eliminate humans altogether. At the May 2014 LendIt conference, Breslow admitted that 30% of their loans were still manually underwritten but said that “if customers want full automation, we are prepared to deliver it.”

By that charge, a sustainable model should not be that far out of reach. Through advanced data analysis and decreasing fixed costs, profitability may indeed be imminent.

Winner

If the story of the merchant cash advance industry has been a race to the top, then OnDeck might be declared the winner in a successful IPO. It would be an ironic achievement for the company that positioned itself as the anti-merchant cash advance. In their wake today are hundreds of daily funders offering fixed payment products.

everybody wins?OnDeck’s critics are in a paradoxical position because a successful IPO is good for them too. They want to believe OnDeck’s model never worked, can’t work, and have it be proven a failure. But if it goes the other way, the legitimacy of the daily funder universe will be solidified in the mainstream. What’s good for the goose is good for the gander.

As AmeriMerchant CEO David Goldin said to Inc, “the OnDeck IPO shows that Wall Street is now taking this industry seriously.”

So does that mean he’d buy stock? Somewhere out there at a restaurant in New York City, an OnDeck relationship manager is probably putting Goldin down for five shares.

Cue the earthquake, the industry will never be the same.


Curious how it will change it exactly? Read my magazine published prediction, The Retail Investor.

Women Discuss Strategies to Grow Their Businesses

March 30, 2022
Article by:

VP Kamala HarrisThe U.S. Small Business Administration (SBA) held its 2022 Women’s Business Summit this week. The summit was a two-day event that consisted of virtual panels, workshops and fireside chats. The event was held in co-sponsorship with the Nasdaq Entrepreneurial Center.

Remarks were made by United States Vice President Kamala Harris, along with other notable panelists. Harris stated, “Women small business owners power the economy of our nation.”

“Women small business owners face many unique challenges, many lack access to paid leave, affordable child care and the capital to grow,” Harris made clear.

Harris noted, “Through SBA we have opened women business centers in every state of our country, 141 in total.” These centers connect women business owners with the tools and resources to succeed. Kamala later declared that the fight to pass legislation for women for affordable child care and paid leave will continue.

During the Innovation and Investment panel, Marianne Markowitz, CEO of First Women’s Bank, discussed how there is a gender gap in the lending market.

“We launched last year as the only women-founded, women-owned bank in the country that’s focused on closing the gender lending gap at a national level,” said Markowitz.

SBA LoansWomen only receive 2% of all the investments in America. Markowitz discussed that women are being introduced to the wrong loans and capital. Many women are relying on personal credit and sometimes lean on equity at the wrong stage of their business. Markowitz provides women with the proper education to make the right choice, fully understand and be prepared for when they apply for loans.

Mekaelia Davis, Director of Inclusive Economies, Surdna Foundation, explained how the consolidation of the banking industry has removed a great amount of financial institutions. This has had a negative impact on relationships with financial partners, leading to more predatory actions online taking the place of financial institutions.

“New York City Small Business Founder Collective estimated there is nearly annually $45 billion of unmet capital, most demand coming from Bronx, Eastern Brooklyn, Queens,” according to Davis.

Susan Au Allen, CEO and National President of the U.S. Pan Asian American Chamber of Commerce explained that even if women are educated they are not aware of all of the services that the SBA offers.

“For the Asian American community and the women community it is a structural problem, a systemic structural obstacle that we have faced,” Allen asserted.

The Associate Administrator of SBA’s Office of Investment and Innovation, Bailey DeVries, described what they have done for small business, “We have provided over $100 billion worth of small business through the SBIC program and currently manage over $34 billion worth of assets through those partnerships.”

The summit provided women with an opportunity to become further educated on how to succeed in their small businesses.

The Pain in America’s Food Supply Chain

January 29, 2021
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closed cafeIt was last November, Mark Mavilia says, when he and three friends in Washington, D.C. rendezvoused for dinner at Ghibellina’s, an Italian gastropub in Logan Circle “specializing in Neapolitan-inspired pizzas and craft cocktails,” says the online restaurant guide “Popville.”

Hold the pizza! Mavilia, who is art director at the Association of American Medical Colleges, couldn’t wait to tuck into the pasta-bolognese, his favorite dish. “In my opinion,” he says, “it’s the best in the city.”

Or rather was the best. When the foursome assembled outside the restaurant, they were disappointed to find Ghibellina’s had closed. “They had shut down for good,” Mavilia says, adding: “It was not boarded up. Just a note on the door thanking patrons for their support. I will surely miss the bolognese.”

The Ghibellina brand was later consolidated into a sister restaurant called Via in Ivy City.

Mavilia’s experience in Washington is typical of a nationwide phenomenon. Tens of thousands of restaurants and bars and eateries of every kind have closed their doors as the Covid-19 pandemic has ravaged the country and Americans have sharply limited their social interactions. As U.S. fatalities surpassed 410,000 in January, the economic damage to the restaurant and bar businesses has been staggering.

washington dc“Washingtonian” magazine keeps a running tab of restaurants that have closed their doors in and around the nation’s capital owing to the pandemic. In December, its tally listed 75 casualties in The District alone, including such icons as the Post Pub and Montmartre, Momofuku and Tosca, plus many more in the Maryland and Northern Virginia suburbs.

The area around the White House dominated by the influential K Street law firms and lobbyists, and the World Bank and International Monetary Fund has been nearly barren. With few people trickling into the central city, says Madeleine Watkins, owner of 202strong, a fitness club featuring personal trainers, her business is getting battered. Receipts are off by 80% over last year and she sees the effects all around her.

“There are definitely a lot of restaurants closed, but I’m hoping and praying that lot of it is temporary,” she says. “We need people to come downtown for Washington to be a vibrant and bustling city with coffee shops, restaurants, and sandwich shops.”

One hopeful sign: Tosca, a white-tablecloth restaurant near Metro Center which boasts an enthusiastic, upscale audience and earns 4.8 stars from customer reviews, promises to re-open in the spring. “This was my go-to Italian restaurant near my office,” declares Deborah Meshulam, a partner at multinational law firm DLA Piper and a former lead trial counsel at the Securities & Exchange Commission. “I loved their grilled Branzino and pretty much anything else they made.”

The Minneapolis Star-Tribune recently counted 94 restaurants that had closed down permanently in the Twin Cities. “Saying goodbye to a beloved watering hole, a neighborhood café or a four-star restaurant is never easy,” reporter Sharyn Jackson wrote in late December. “But in 2020, the pain kept coming as the pandemic brutalized the Twin Cities hospitality industry.”

“WE EVEN SAT WITH THE OWNER’S CHILDREN ONE NIGHT”

Among the notable casualties, were Bachelor Farmer, Muddy Waters, and Fig+Farro.

Angharad Bhardwaj, communications manager at medical technology company GenesisCare and a lifeling Minnesotan, told deBanked of her sorrow at learning that Fig+Farro had closed. “My husband and I were there for their opening, and I am so sad to see it close,” she says. “This was one of our favorite restaurants, just steps away from our condo in Uptown. We spent our first Valentine’s Day there. It was fresh vegan food. We even sat with the owner’s children one night. The little boy was helping his parents with the restaurant, taking orders.”

In Denver, online entertainment publication “Do303” recently highlighted closures of 15 area restaurants it called “the great ones that kept our hearts and bellies full for years.” Notable among the cohort was El Chapultepec, 12@Madison, and Biju’s Little Curry Shop. Michelle Parker, a Denverite who has a short commute to suburban Westminster where she is the City Clerk, says: “The feeling around town is that this has been a big loss to neighborhoods and to the food scene, which was just coming into its own as the pandemic hit.”

closed for businessNationwide, more than 110,000 restaurants, bars and food-service establishments have closed their doors, reports the National Restaurant Association, the premier Washington-based trade group representing the food-service industry. The membership includes not only restaurants, pubs and cafes but non-commercial restaurant services, cafeterias, institutions like college cafeterias, and even food services at military installations.

The food-service industry is the nation’s second largest private employer and accounts for $2.1 trillion in economic activity, reports Vanessa Sink, director of media relations at the trade group. On average, when a restaurant closes, fewer than 50 people find themselves unemployed, but it adds up. As many as eight million food-service workers – waiters and bartenders, hosts and hostesses, cashiers, general managers and dishwashers, parking valets and cooks and chefs — were out of a job at the height of the pandemic in early 2020.

Curtis Dubay, senior economist at the U.S. Chamber of Commerce in Washington, D.C., notes that a whole array of food-service jobs are interwoven into the fabric of the U.S. economy. “Anything that involves large gatherings – transportation, travel and tourism, athletic events, the theater, the hospitality industry,” he says. “In places like The Hyatt in Orlando, food-service workers are involved in setting up a ballroom for conventions and small meetings. It’s a big part of the economy.”

2.1 MILLION FOOD SERVICE JOBS VAPORIZED

Since the spring, many of the lost jobs came back as restaurants were able to add take-out and delivery services. Many states and localities allowed restaurants to re-open with outdoor-seating, limited occupancy, customer-spacing, and Plexiglas booths. Through the end of November, 2020, 75% of the lost jobs were recovered but 2.1 million food-service jobs had still vaporized.

As more and more people prepare their own meals at home, the switch from dining-in to curbside and takeout services has met with limited success. For take-out people are more likely to order fast-food from Chick-fil-A or Pizza Hut and Domino’s rather than something fancy. “Who wants to spend $60 for a meal you have to eat out of a cardboard container,” one Minneapolis woman complained to deBanked.

fast-food

Restaurant closures, meanwhile, are having devastating consequences across a broad swath of society. “When a restaurant closes or has to cut back, it not only impacts the economy of the local community, it also affects the culture of the community,” says Sarah Crozier, communications director at Main Street Alliance, a 30,000-member, small-business advocacy group headquartered in Washington, D.C. “Local, independent places are where we create our memories as cities and towns. From losing the cries of “Keep Austin Weird” to stripping away the innovative recipes coming out of Raleigh, N.C., it deeply scars the culture and feeling of a place when we have only chain restaurants to fall back on.”

Adds Sink: “Restaurants are the cornerstone of communities. You often find that neighborhoods and local economies have built up around a restaurant. Restaurants provide jobs, they pay rent and contribute to the tax base. Other businesses will grow up around them. People will go to a restaurant – and then they’ll go next-door to shop.”

“PEOPLE DON’T WANT TO GO DOWNTOWN TO MAIN STREET ANYMORE”

Food-service establishments are also long-term tenants. The “vast majority” of the closures, Sink asserts, have involved restaurants that had been in business for more than 16 years. Roughly one in six had been in operation for 30 years or more.

Backlit downtown restaurants with inviting awnings, valet parking and limousines idling out front are giving way to boarded-up buildings, many battened down with battleship-gray steel shutters. “I’ve been talking to mayors about empty storefronts and the effects of business failures,” says Karen Mills, former administrator at the U.S. Small Business Administration and a senior fellow at Harvard Business School, says. “It’s significant. It devastates the whole community and brings down the whole environment. People don’t want to go downtown to Main Street anymore.”

Many cities and towns have invested heavily to revitalize their inner cities and urban areas around restaurants and bars to add sparkle to the nightlife and draw visitors and tourists. The economic development strategies often commingle trendy restaurants and nightclubs, shops and boutiques with spruced up warehouses or old buildings converted into artists’ studios, lofts and apartments.

baltimore inner harborSome cities feature sports arenas and stadiums as a major draw, and the food offerings go beyond hotdogs, peanuts and Cracker Jack. St. Louis’s “Ballpark Village” promises, according to its website, a “buzzing, sports-themed district close to Busch Stadium with restaurants, bars and nightlife venues”; Baltimore’s Inner Harbor, which is walking distance to Oriole Park at Camden Yards, features a science center, aquarium and historic warships moored at the dock, as well as a complex of bars, eateries and music venues in a repurposed electric-power station known as “Power Plant Live!”

Beyond Main Street, restaurant closures are part of the collateral damage in suburbia as pandemic-wary people work and shop from home. “As I go around from town-to-town on Long Island and shoot out to the malls, I can see business closings everywhere,” says Ray Keating, chief economist at the Small Business & Entrepreneurship Council, a Washington-based trade group claiming 100,000 members. “When one business shutters, it affects other businesses. There’s a ripple effect.”

Adds Sink of the restaurant association: “Restaurants are often located with the anchor store inside malls. You never find any kind of mall without some sort of food court.”

When a restaurant closes its doors, it has a knock-on effect as well, sending shockwaves coursing up and down the supply chain. Prior to the pandemic, Sink reports, the industry generated $2.5 trillion in economic activity and supported 21 million jobs. Cutbacks in food service hurts “everything from butchers and farmers and distillers to the Cisco and Aramark food companies that depend on restaurants.

“It will reach farther back into the economy,” she adds, causing economic pain to such disparate businesses as cleaning companies, local plumbers, handymen, and maintenance workers. Even “technology companies that provide systems (for restaurants) to run a credit card or make reservations or keep track of service orders” are affected.

MAINE RESTAURANTS FORCED TO DO OUTDOOR DINING IN WINTER

Andrew Volk, owner of the Portland Hunt & Alpine Club, a restaurant and bar with the reputation for offering possibly the tastiest cocktails in Maine, says that keeping his business going hasn’t been easy. The establishment was forced into lockdown in March and “stayed dark until Memorial Day,” he says, when it got the green light from the state to sell food and cocktails to go. On July 4, the restaurant went to outdoor seating, which it maintained until New Year’s Eve, adding heaters and umbrellas in the autumn to fend off Maine’s frigid temperatures.

Volk reckons that his restaurant’s sales were off by roughly 55 percent in 2020 over the previous year. Fully 95% of revenues go to pay expenses, including rent and utilities and employees’ wages. And the rest of the money scarcely lands in the cash register before it’s passed on to his vendors.

But as he has cut back operations, all of his vendors are feeling the pinch as well. There are no longer twice-weekly deliveries from the local package store from which, by state law, Volk is required to purchase hard liquor. His beer purchases –- craft beer prepared by Rising Tide Brewery and Oxbow Brewery, both of Portland, as well as Miller, Budweiser and Narraganset, the popular Rhode Island-made brew – are no longer so robust. Volk has also reduced his procurement of French and South African wines from importers.

tractor farmPurchases of farm-to-table produce from Stonecipher Farms, Dandelion Springs, and Snell Farms, which came to a halt last March, remain diminished. The daily deliveries from Baldor Specialty Foods, a New York-based food supplier of, among myriad foodstuffs, out-of-season vegetables and citrus fruit, are less frequent.

Volk is still offering fresh cooked fish for take-out, including cod, trout, halibut, hake and shrimp (but not cold-water Maine lobster). Even so, he’s ordering less seafood from Browne Trading Market. He has also cut back on specialty soft cheeses he buys from several local dairy farms, including Larkin’s Gorge and Fuzzy Udder.

Other vendors affected include Portland Paper Products, which supplies him with paper goods such as toilet paper and paper towels, cleaning supplies and chemicals for the dishwasher. One bright spot for the paper products supplier: it is meeting Volk’s increased demand for take-out boxes, paper napkins and plastic utensils.

Meanwhile, Volk is not looking as much to Pratt Abbott Cleaners for freshly laundered linens such as tablecloths, napkins, and kitchen shirts. Capone Griding Company in Boston, which sharpens kitchen knives and cutlery, isn’t making as many pickups and deliveries these days.

Ian Jerolmack, owner-operator of 10-acre Stonecipher Farms in Bowdoinham, Maine, is one of Volk’s food suppliers. He has been providing fresh, farm-to-table produce to several dozen restaurants in Portland, plus a couple “up the coast,” he says, since he began tilling the Maine soil a decade ago. Now the grower of organic fruit and vegetables – a garden of delights that includes tomatoes, carrots, beets, onions, cabbage, turnips, squash, sweet potatoes, and fennel – has been feeling the economic hardship along with the restaurants.

farmer getting paid after harvestBy year-end 2020, Jerolmack says, he is down to only 15 restaurants as customers, a two-thirds attrition from his 45 customers prior to the pandemic. “Our farm was sort of unique in that it almost exclusively sold to restaurants,” he says. “They’re all in various degrees of agony,” he adds, “and I don’t know how the dust will settle. It’s been super-bizarre.”

When the restaurants went into lockdown last March, Jerolmack was faced with zero demand for his produce, and his livelihood was in jeopardy. At the same time, he was forced to reckon how much seed to plant. “There’s only one window in which to plant seeds,” he explains.

He had to decide whether to take on fulltime seasonal workers, which is not a simple proposition. In order to plant, tend and harvest his crops, he’d need to hire and house four Mexican workers under the federal government’s H-2A visa program. By law, he says, he was required to guarantee the foreign workers payment of 75% of their wages for eight months of employment. “I felt as if I were drowning,” he says. “It was a heavy weight.”

“I THREW TOGETHER A FARMER’S CHOICE…”

He opted to hire the H-2A workers and forged ahead with the planting, albeit at reduced acreage, consoling himself with the farmer’s ancient adage: “People always need to eat.”

With restaurants closed, his only recourse would be to sell directly to consumers. Yet Jerolmack had no online presence and was pretty much frozen out of the local farmers markets. So he turned to local restaurants and arranged to sell produce to their top customers. “I threw together a ‘farmer’s choice,’” he says, “a mixed bag of chard, carrots, onions, and beets – or whatever vegetables were in season and charged $25 a bag.”

Right away, he was able to sign up 175 customers paying $100 apiece for four weeks of produce, enough of a cushion for him to sell his “storage crops” and stay in business. Individual customers were grateful to buy the fresh organic food and avoid grocery stores, he says, the arrangement worked out for the restaurants. “They got increased foot traffic and helped their takeout business. Everybody loved it.”

By being creatively entrepreneurial and employing several direct-to-consumer sales strategies, he was able to chalk up revenues of $300,000 in 2020. That’s a hefty, 35% drop compared with the $440,000 in 2019 gross receipts. But Jerolmack says he kept five fulltime workers employed, he’s got a new consumer trade, and he’s getting ready for the 2021 planting season.

Thomas McQuillan, vice-president for strategy, culture and sustainability at wholesale food distributor Baldor, says that in a given year his Bronx-based company – with major operations centers in Boston and Washington, D.C. – delivers high-quality food to 10,000 restaurants from Portland, Me. to Richmond, Va. The wholesaler also supplies food in bulk to corporate dining rooms and cafeterias, hotels, institutions like hospitals and schools, and sports stadiums.

Baldor buys its produce from 1,000 regional farms, both big and small, and trucks in out-of-season produce from the West Coast. A visit to the company’s website discloses a vast cornucopia of edibles and victuals for sale. A few clicks discloses a gastronomic wonderland of fruits and vegetables, organics and cold cuts, meat and poultry and seafood, specialty and grocery items, dairy and cheese, bakery and pastry, and wine.

When the pandemic hit and restaurants went on lockdown, Baldor’s business plummeted by 85%, McQuillan reports, and the company reacted in much the same way as the Maine farmer. “With Covid-19,” says McQuillan, “all industries in the food business were affected. But we knew that the same number of people in our geographic area would be looking for food and we pivoted to a business-to-consumer platform and began shipping directly to people at home.

“We also knew many corporate types were no longer working in offices and, early on in the pandemic, people were fearful of going to grocery stores,” he adds, “and we began deliveries to apartment buildings all over New York. It’s not that different from delivering to a restaurant.”

According to a New York Times story, the company required a $250 minimum for consumer purchases and delivered 6,000 items within a 50-mile radius of New York City. McQuillan told deBanked it pressed its 400-truck fleet of “sprinter vans to tractor trailers” into service for the residential deliveries. The consumer business and limited restaurant re-openings allowed Baldor “to rebound, but nowhere near pre-Covid levels,” he says. By year-end 2020, the company had furloughed 20% of its workforce.

fresh fishFresh fish is for sale on the fishmonger, outdoor seafood market.[/caption]The seafood industry was among the hardest hit by the pandemic’s throttling back the restaurant industry, says Ben Martens, executive director of the Maine Coast Fishermen’s Association. Seafood is much less likely than poultry or meat to be prepared at home or ordered for takeout. Groundfish like flaky cod, haddock, pollack, hake and flounder, he explains, are especially popular dishes in high-end restaurants in New York, Boston and Chicago.

“Seafood is a celebratory food,” Martens says. “It’s a food people embrace when things feel good. It’s covered in butter and people eat it outside when they’re with family and friends.”

Early data, he says, showed a 70% decline in “landings revenue” at the non-profit Portland Fish Exchange Auction, the major marketplace connecting fishermen with wholesalers and processors. Some fishermen and lobstermen have had some success selling directly to consumers by switching over to scallops and other seafood popular with Mainers who, Martens asserts, are somewhat more inclined to prepare seafood at home than people in other states.

But what has really given the industry a boost, he says, has been an anti-hunger program run by his trade association. Seeded with $200,000 from an anonymous donor, and bolstered with $200,000 received through the CARES Act passed by Congress last year, the program purchases seafood at a fair price and funnels it to food pantries. “Maine is the most food-insecure state in the country,” Martens says. “and high quality protein is hard for a lot of people to find.”

The program contributed enough fish portions to contribute to 180,000 meals in 2020, while helping soften economic damage to fishermen. “Now we’re seeing some stabilization with outside restaurant seating,” Martens says.

“A LOT OF OUR RELATIONSHIPS ARE WITH CHEFS AND THEY HAVE FAMILIES”

Sam Cantor, who is vice-president for sales at Gotham Seafood, a New York broker doing an estimated $16 million in sales, according to Buzzfile, sounded glum and subdued in a telephone interview with deBanked. He reports that the company delivers salmon, tuna, lobster, King Crab legs, red snapper and other seafood directly to eateries in Manhattan as well as the tri-state region of New York, Connecticut and New Jersey.

The last year has been a burden. “A ton of places are closed — cafeterias, cafes, hotels,” he says. “People are not going to the Berkshires or the Hamptons, offices are closing. In the beginning of the pandemic when (New York Governor Andrew) Cuomo shut down indoor dining it was brutal. And it’s still a difficult situation.”

Describing layoffs at the company as “significant,” Cantor says it’s also been emotionally draining to see the misfortune that has befallen restaurant workers. “It’s been a hard thing to witness,” he says. “A lot of our relationships are with chefs and they have families.”

Gotham has had some success selling directly to consumers by revamping its website and putting money into advertising on the online platforms Facebook and Instagram, he says, but “we’re not back to 100%.”

Cantor also says he is concerned that the country’s commercial infrastructure is at risk of fracturing. “It’s more than just losing your favorite restaurant or what happens to the individual fisherman and farmer,” he says. “It takes a very intricate supply chain for you to get your favorite fish. There’s a lot of work that goes into it.

“I hope my kids don’t have through something like this,” he went on. “The home delivery has been a shining light. But we want travel and tourism to come back. We want people going back to The Garden to watch the Knicks. I’m hoping there will be a renaissance, and this is just the start of the Roaring Twenties.”

New Jersey Legalizes Recreational Marijuana

November 4, 2020
Article by:

One chill result from the 2020 election was the legalization of recreational marijuana in New Jersey for adult use. In a 2-1 victory, Option One on New Jersey ballots passed, paving the way for a regulated environment for recreational use, possession, and cultivation in the Garden State.

 

Before the vote, Gov. Murphy showed support

 

The amendment was billed as not only a chance to increase tax revenue but as civil rights reform. Advocates argued that prohibition laws disproportionately harmed minority communities. 

The change was initially put before the legislature in 2017 but failed to pass by 2019. A bipartisan supermajority put the choice up to the public referendum. Appearing in Willingboro on Tuesday, long time advocate of legalization, Gov. Phil Murphy, spoke on voting day in last-minute support.

“I got to supporting it first and foremost due to social justice,” Murphy said. “We inherited when I became governor the largest white, nonwhite gap of persons incarcerated in America, and the biggest contributor to that was low-end drug offenses.”

New Jersey was one of four states with legalization on the ballot, and all succeeded, bringing adult use to Arizona, Montana, and South Dakota as well. After Tuesday, more than 111 million Americans- a third of the country live in a state where recreational marijuana is legal.

cannabis legalization map

Image SourceKEY

Blue = Legal

Dark Green = Legal for medical use

Light Green = Legal for medical use – limited THC content

Grey = Prohibited for any use

D = Decriminalized

Cannabis legalization advocates, like Doctors For Cannabis Regulation (DFCR), saw the day as a significant victory for industry and social progress. Dr. David Nathan founded DFCR in 2015, where he serves as president of the board. Dr. Nathan stood up and spoke out against the prohibition of marijuana 11 years ago and said he was one of the first accredited mainstream physicians to do so. 

“I’m not a medical cannabis physician, I’m a psychiatrist who sees how much damage cannabis prohibition does compared to the drug itself,” Dr. Nathan said. “I’ve really been given the platform to speak up, but at the same time, it was hard to get colleagues to speak up on an issue.”

After working for NJ United for Marijuana Reform, Dr. Nathan founded DFCR to create an organization to facilitate physicians who wanted to get involved at a national level. The success of Tuesday’s vote demonstrates how far legal cannabis advocation has come, from a resounding no to a majority yes.

“A lot of doctors who understood cannabis prohibition as a tragedy and a mistake were concerned about what their peers would think about them if they spoke out,” Dr. Nathan said. “Now we’ve got a group of highly respected physicians organized and advocating strongly, not just for legalization but much more importantly for effective regulation.”

Dr. Nathan sees the NJ amendment as a significant chance for improvement in public health. Despite legalization, it is unclear how the new law will go into effect. Per the amendment, the state will create a regulatory framework and tax the sale of marijuana at 6.625%, but implementation is up for debate.

Legislators still have to agree on how a new Cannabis Regulatory Commission will function. The state will also have to choose how decriminalization, possession limits, growing limits work, and forgiveness of past marijuana crimes.

All of which will be figured out and are necessary to the fair implementation of the passage of the amendment, Dr. Nathan said.

But those changes may come fast. NJ, like many states, is hurting during the COVID recession. Last month New Jersey officials approved a budget that is set to borrow $4.5 billion from the Federal Reserve to plug pandemic-sized holes in state spending.

Basing estimates on Colorado’s experience after legalizing cannabis in 2014, the state legislature predicts NJ could see tax revenues of up to $126 million a year from recreational sales.

“According to the Colorado Department of Revenue, retail cannabis sales, excluding medical cannabis, totaled $1.2 billion in calendar year 2018,” The report said. “Assuming New Jersey experiences similar per capita sales of recreational cannabis as Colorado, total retail cannabis sales for New Jersey could reach $1.9 billion, yielding sales tax revenues of up to $125.6 million annually at the current 6.625 percent sales tax rate.”

With such high revenues, some suspect New Jersey to lead the way for other northeastern states; income will spur jealous neighboring Pennsylvania and New York to legalization in competition. 

“If this gives both Pennsylvania and New York a push, that would be great,” Dr. Nathan said. “I do think it’s going to have an impact, now that there will be a state right in the middle of the Mid Atlantic that is going to have regulated sales.”

But even with tristate legalization, the cannabis industry faces a problem with funding. 

Most firms in cannabis supply chains- from growers to dispensaries- are small businesses that suffer from a lack of access to bank funding. Because marijuana is an illegal Section 1 drug like Heroin on a federal level, banks and venture capitalists have their hands tied when it comes to credit. But with Tuesday’s victories for legalization, federal regulation is closure to changing.

“I think that each state that adopts, sends a stronger message to the federal government,” Dr. Nathan said. “The voters in those states are giving resounding victories to the notion that cannabis should be de-scheduled not rescheduled, and then regulated.”

deBanked has been following the SAFE Banking Act since it passed in the House last year, a piece of legislation that hopes to address cannabis banking problems by allowing legal pot firms to open banking deposit accounts. 

The law was bundled into the HEROES act with the rest of business aid projects, stuck between the GOP-controlled Senate and the blue House since the summer. Depending on the Senate’s layout when ballots are fully counted, financial institutions that have left pot companies de-banked may be-danked.

Lights, Camera, Crypto-Transaction – How a Lending Journalist Raised Millions to Build Magic Lamps Through the Murky World of Initial Coin Offerings

November 15, 2017

Magic Lamp

This past July, the winner of the Best Journalist Coverage category at the 2017 LendIt Conference Awards, announced that he would be stepping outside of his journalistic endeavors to raise money for a futuristic lamp company. The product, dubbed Lampix, is described as a lamp with a projector, a camera, specifically placed light-emitting diodes (LEDs), and a cloud-enabled computer. On the company’s “Medium” blog, Lampix promises that the product is “designed to transform any flat horizontal surface into an interactive computer.”

The man behind Lampix, George Popescu (whose Lending Times news site competed against and beat out fellow finalist deBanked at the LendIt Awards), makes for an interesting case study in alternative finance. That’s because Lampix shunned traditional capital-raising methods by relying on an Initial Coin Offering (or ICO), an unregulated blockchain-based corporate event which is similar to an initial public offering. Rather than purchasing shares, as is the case in an IPO, investors in an ICO receive digital tokens instead of shares. In August, Lampix raised $14.2 million through its ICO*.

Insolvency OrderPopescu’s name popped up again a few months after the LendIt award on a regulatory blotter in the UK.

In case details published by the UK’s Insolvency Service on August 1st, the agency announced that Popescu was disqualified from serving as a company director.

Mr Popescu breached his fiduciary duties to act in the best interest of Boston Prime Limited (“Boston Prime”) and/or failed to ensure that both Boston Prime, as the regulated firm, and him individually, as the approved person, complied with the Financial Conduct Authority (“the FCA”) rules and guidance.

$6.2 million was transferred out of the company to a company named FXDD. Boston Prime’s receiver is presently suing FXDD seeking the return of the funds to the company. Proceedings are ongoing. Mr. Popescu is not under investigation and there are no legal proceedings at this time against Mr. Popescu.

It’s an inauspicious beginning for someone financing the “lamp of the future” using an unregulated and controversial strategy. Even so, when its ICO concluded on August 19, Lampix declared its gambit a success after raising $14.2 million through the sale of its digital tokens, which are known as PIX.**

By mid-November, the market value of those digital tokens, which exist on the Ethereum blockchain, had dropped by 50%, causing Lampix investors to suffer losses of $7 million. Unlike shareholders in publicly traded companies, token buyers have few investor protections. It’s not clear they are even considered to be actual investors at all. Buried in the fine print of Lampix’s 85-page “white paper” – a convenient way to avoid the label of prospectus – is a disclaimer. “Buyer should not participate in the [PIX] Token Distribution or purchase [PIX] Tokens for investment purposes. [PIX] Tokens are not designed for investment purposes and should not be considered as a type of investment.”

Additional disclaimers, moreover, declare that the white paper is not a prospectus, that the tokens “are not securities, commodities, swaps on either securities or commodities, or a financial instrument of any kind.”

But the distinction has not deterred people from joining in the frenzy of buying digital tokens like PIX. So much so, TechCrunch reports companies employing this strategy had raised nearly $800 million by means of ICOs in the first half of 2017.

And the SEC is not exactly excited about ICOs. “Fraudsters often use innovations and new technologies to perpetrate fraudulent investment schemes,” a July 29 directive by the SEC states. “Fraudsters may entice investors by touting an ICO investment ‘opportunity’ as a way to get into this cutting-edge space, promising or guaranteeing high investment returns. Investors should always be suspicious of jargon-laden pitches, hard sells, and promises of outsized returns. Also, it is relatively easy for anyone to use blockchain technology to create an ICO that looks impressive, even though it might actually be a scam.”

On September 29, moreover, the SEC brought an enforcement action against REcoin Group, charging Los Angeles businessman Maksim Zaslavskiy and two companies he controls with defrauding investors “in a pair of so-called initial coin offerings (ICOs) purportedly backed by investments in real estate and diamonds,” an SEC press release said.

The SEC alleges that Zaslavskiy and his companies –REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) — have been selling unregistered securities, and that “the digital tokens or coins being peddled don’t really exist.”

SEC BuildingMeanwhile, telephone calls and an e-mail to the SEC seeking the federal regulator’s view on Lampix’s ICO drew a terse response from Ryan T. White, a public affairs specialist, who replied that the agency would “decline comment.”

Deborah Meshulam, a partner in the Washington office of law firm DLA Piper and a former SEC enforcement official, told deBanked: “Regarding the lack of equity ownership, Lampix is seeking to establish that the tokens are not securities. Whether the SEC would agree should it decide to look into the offering depends on the facts and circumstances. The SEC staff would look past form to substance to assess whether the sale of the tokens constitutes an investment contract under legal standards. If so, then the SEC would view the Lampix offering as a securities offering. It may be that Lampix (or its lawyers) already vetted the offering with the SEC but I don’t know the answer.”

Popescu tells deBanked in an e-mail interview, “We had to respect all securities rules and regulations of course, respect the Howey test and so on. There were no hoops to jump through as we are not trying to avoid anything or prevent anything. We honestly built a token to build a community to help us crowdsource (mine) pictures for all applications among which, Lampix.”

“Each PIX token,” the Lampix website explains, “will be used as a form of payment to picture image miners, voters and app developers or to purchase a Lampix, cloud computing and apps.”

“THE ICO STUFF IS SO UP-IN-THE-AIR”

Meshulam also notes that the June, 2017, date of the Lampix white paper pre-dates the SEC’s enforcement activity in this area. She adds, “The statement that ‘token sales or ICOs are not currently regulated by the U.S. Securities and Exchange Commission may be very literal in the sense that there is not a specific regulation, but the SEC has stated that, in the right situation, ICOs are subject to the US federal securities laws.”

Erin Fonte, an attorney in the Austin, Texas, office of Dykema Cox, and the leader of the firm’s regulatory & compliance group, says, “The ICO stuff is so up-in-the-air. The SEC is looking at it closely. But it’s fairly new. And some of them (ICO’s) have been tied to fraud and Ponzi schemes. If a client came to us (seeking advice), we’d want to vet the people behind the offering.”

But what of Lampix, the company that won the Augmented and Virtual Reality category of the South by Southwest (SXSW) Accelerator Pitch Event earlier this year in March – and put a pretty feather in the cap of Popescu?

Popescu’s resume is no doubt impressive. He holds a trio of master’s degrees in various scientific and technological disciplines, including one from Massachusetts Institute of Technology. And he is a serial entrepreneur who lays claim to having founded 10 companies: they include, according to his LinkedIn profile, online lending, a craft beer brewery, an exotic sports car-rental space, a hedge fund, a peer-reviewed scientific journal, and a venture-debt fund.

He’s charmed journalists like Forbes contributor Roger Aitken, who declared: “The founders (of Lampix)…believe that Lampix will impact humans as much as computers or smart phones in the future…Think Tom Cruise in Minority Report. Imagine your room in five years: you will be able to use any surface around you as if it was a computer. The ability to transform any surface into an interactive computer (augmented reality) is going to unleash applications we have not even conceived of.”

Lampix's Infographic
The infographic that appears on Lampix’s website touting their active product inquiries

The Lampix website hyped its ICO with the aid of an infographic listing “active product inquiries” the company has in its pipeline, the likes of which includes Amazon, Apple, Samsung, Microsoft, Sony, IBM, BMW, Bloomberg, PwC, and the Aspen Institute. With all of these names seemingly lining up, it begs the question: Why did Lampix choose the controversial route of an ICO to raise capital?

But it’s hard to determine the seriousness of these corporate relationships. Florin Mihoc, Lampix’s Strategic Partnerships & Development Advisor, said he could not assist us with confirming any of them, citing the slow and cumbersome bureaucracy of dealing with Fortune 500 companies. He did invite us to try reaching out to some of them on our own, which we did.

Bloomberg is one of the few acknowledging a relationship with Popescu’s company. Chaim Haas, head of innovative communication at Bloomberg, told deBanked that the New York-based media and financial communications company “collaborated” with Lampix. Bloomberg, he says, “has used Lampix hardware in its fellowship program (Bloomberg AR Fellows) as a prototype for augmented reality applications.” But Haas declined to elaborate on whether Bloomberg’s relationship with Lampix was more than an experimental one.

Edward Caldwell, director of public relations for East Coast markets and sectors at Pricewaterhouse Coopers, the Big Four accounting firm, declined to comment about Lampix. “We can’t discuss individual companies, clients or engagements,” he reports.

Douglas Farrar, senior manager for communications and public affairs at the Aspen Institute, told deBanked that he could find no business relationship between Aspen and Lampix. “I have gone down quite a few rabbit holes here,” he said in an e-mail, “But I’m coming up empty.”

When Popescu was directly confronted about this, he wrote, “The companies would only figure [in the infographic] if they actually themselves reached out to us and we exchanged emails with somebody from that entity. Most of these entities have many people and most of the companies’ people will have no idea [that] somebody else in the company is talking to us.”

Telephone calls and e-mail requests for comment to Microsoft were not returned.

A spokesperson using BMW of USA’s official twitter account, however, responded to an inquiry by saying they were a customer of Lampix, “but only for office usage.”

Making Millions with ICOsMeanwhile, George Popescu has been on the sales trail. A case in point was his October 5, Youtube interview conducted by Ian Balina, a self-described influential investor in blockchain technology and cryptocurrency – and someone with a reputation as an industry promoter and evangelist. (Balina caters to the get-rich quick crowd and publishes how-to guides trumpeting promises like “How ICOs can make you a millionaire in 3 years” and “make millions with bitcoin.”)

Balina asked Popescu the softball question, could he show viewers a demonstration of the product? Popescu admitted he wasn’t prepared to do that and when he attempted to set one up on the fly, it didn’t work. The incident is notable because Lampix has been promoting the video through its social media network.

Popescu corroborates a number of details about the ICO, however. He confirmed the ICO price of a PIX token to be 12 cents, the US dollar price people had to pay per token. Cryptocurrency exchanges, where token speculators can buy and sell tokens online, show the trading value of a PIX token currently hovering around 6 cents, which translates into roughly a 50% loss in value.

Investors feeling hurt by such a loss can’t contest the purchase of PIX tokens with their credit card issuers. That’s because of a requirement that token sales had to be purchased with ether (ETH), the currency of the Ethereum blockchain. While ether is arguably similar to Bitcoin, it operates on an entirely different blockchain.

To participate in the ICO, in a Youtube video, Lampix also explained to purchasers, for example, how they could first buy ether with dollars through an online exchange known as Coinbase** before forwarding the ether to a digital wallet. Next, investors were instructed to send the ether from the digital wallet to a specially designated PIX address. An automated “smart contract” would then release the appropriate amount of tokens to the buyers’ digital wallets 31 days after the ICO was consummated.

It’s a byzantine procedure. And for investors – especially for those who are not exactly tech-savvy – the rigmarole makes it nearly impossible for them to recover their money should they feel buyer’s remorse. Neither the video nor the Lampix white paper mentions any buyer restrictions. Indeed, Lampix’s white paper specifies that “anyone” in the global market can participate. That means that an investor could theoretically be underage or a citizen of Iran or North Korea. (When asked what steps Lampix took with regards to KYC/AML, Popescu said, we “implemented the standard ones with partners specialized in it.”) Investors could even be citizens of the UK where Popescu is banned from being a company director.

And global they are. deBanked interviewed Rudy (whose last name we are withholding), a graduate student who lives in Singapore that says he bought approximately $2,200 worth of PIX tokens during the ICO. The drop in value has gotten him so frustrated that he’s contacted securities regulators in the United States to investigate Lampix. Despite the caveat in the white paper that tokens are not an investment and should not be used for investment purposes, Rudy said he considered himself to be an “investor” and that his reason for buying the tokens was to sell them in the future for a profit.

Popescu, who wasn’t asked about Rudy’s experience specifically, told deBanked that Lampix is not selling PIX tokens as an investment but rather to primarily build a community. “What people do with the tokens is their choice and we cannot prevent them,” he asserted.

English is not his first language but Rudy said, “I think that [the] SEC should regulate ICOs in the USA. There are no rules currently, teams can promise anything before the ICO and forget everything after the ICO. Things have to change, there should be legal pressure on crypto teams.”

Rudy added that he was “so enchanted” by Lampix’s ideas that he had promised himself not to sell the tokens for at least two years even if they were losing value. He conceded that he was not a tech expert. But, he says, the award at the SXSW competition was an important milepost to him.

“PIX WILL BE THE REAL ALADDIN’S MAGIC LAMP”

deBanked found 700 more people interested in Lampix on the company’s official Telegram channel. The chat history since September 20, which we were able to obtain, has been dominated by talk of the PIX token’s trading value. Those bemoaning the low price regularly use the term “investors” to describe themselves – never mind that the white paper specifies that PIX tokens are not supposed to be an investment or to be used for investment purposes.

The chat’s administrator, who uses the nickname Chester, identifies himself as a “community manager” at Lampix. At one point he too refers to PIX holders as investors. “Hey guys,” he wrote in the channel on October 1, “Lampix is a company, not a single person, we don’t do things that quick, but pretty quick and we try not to confuse our investors by telling you unconfirmed news. Be patient, things will be just fine.”

Laura Toma, another community manager for Lampix, responded to complaints about the depressed price in the channel by saying, “The issue is that people want to get rich in a month.”

Indeed, investors hound not only the community managers, but also Popescu himself, who frequently joins in on the chat and fields questions about the trading price of PIX. “You should care more about the company revenue, clients, users.” Popescu replied to one user.

shooting up to the moon“Are you serious?” a user calling himself Dante fired back. “We are investors, and we care about the return on investment.” Another user with rough English tells Popescu, “As you know, most people come to ICOs for short-term profit. We cannot deny it.”

Others keep the faith. “PIX will be the real Aladdin’s magic lamp,” writes one user. Another hyperbolically predicts the price will “fly out of the earth, fly to the moon, and finally fly out of the galaxy.”

There is very little discussion about the use of the product itself while numerous inquiries are written in Mandarin. “Lampix has a lot of Chinese investors,” writes one. Other users self-identified as citizens of Russia, Romania, and France. Meanwhile, Toma writes, “Yes, there are investors from USA as well.”

Despite the losses that investors have so far experienced with Lampix, among other concerns, Popescu isn’t limiting himself to just one ICO. According to his online statements, Popescu is connected as an “advisor” to another company engaged in an ICO. AirFox, a Boston-based start-up launched by two Google alumni, provides free data to mobile phone users in return for eyeballing advertising. In early October, Airfox’s ICO raised $15 million. But a month later its AIR tokens, which sold for two cents apiece during the ICO, had lost 75% of their trading value. That means investors in AIR, the company’s ICO ticker symbol (which is becoming an increasingly ironic moniker) have seen more than $11 million go up in smoke almost overnight.

Popescu says in their defense, “The AIR tokens are meant to solve a real problem, of remunerating people who watch ads in exchange of getting more data and minutes on their mobile phone. The ecosystem is still being worked upon, the product is not live. Once the ecosystem is live we will see what really happens. Until then the token is mostly being handled by speculators. The price can therefore vary widely and it doesn’t reflect their true value.”

Even as Lampix and AirFox have been racking up massive losses for investors, Popescu announced on November 5 in a LinkedIn post that he would be involved in five more ICOs.

Among them is DropDeck Technologies, at which Popescu is listed as the chair of the advisor board; its ICO is scheduled for November 21. Another company, Factury, for which he is listed as an advisor, is initiating its ICO on December 15.

He’s an ambitious man.

“I FIND IT STRANGE YOU ARE DIRECTING 5 OTHER ICOS”

And his ICO familiarity hasn’t escaped the scrutiny of PIX investors. “I find it strange that you are directing 5 other ICOs,” writes one user in the Telegram chat on November 4. “To make Lampix big, this will require a CEO [who is working] full time working on the project.”

Popescu responds personally. “I am working full time on the project but people have asked me to advise on their ICOs and this grows Lampix’s notoriety a lot in the crypto space,” he writes. He offered further assurances that he wouldn’t be advising those companies’ projects beyond their ICOs.

In an email to deBanked, he writes, “I run right now Lending Times, Lampix and Block X Bank only. The ICOs are just customers of Block X Bank. I have built about a dozen companies in 9 years, sold a few, closed a few. Each company has a team to help me, I am not doing this alone. For the ICOs I am more or less involved as an advisor / helping them project-manage their ICOs. How to run 3 companies? It’s about being effective, organized, delegating, partnering and being productive. Oh and I don’t watch TV, so maybe I have a few more hours per day than the average person. I do work long hours.”

Block X Bank, through which Popescu extends his efforts toward other ICOs, is described on the company website as “a boutique investment consulting company specializing in connecting blockchain projects with funding.”

source code snippet
Above: A snippet of the PIX smart contract source code

In all of these ICOs, money is seemingly being created out of thin air. A consultant who was hired by deBanked to help analyze the technical aspects of both ICOs and smart contracts determined that Lampix raised much more than just the $14.2 million in token sales. In addition to the 114 million PIX tokens sold to investors, our consultant explained, the company also issued 220 million tokens to itself. At the ICO price of 12 cents apiece, those tokens would theoretically be worth $26.4 million – a huge piece of the total ICO pie that Lampix could sell on cryptocurrency exchanges if it wanted to rake in even more money.

There’s a kicker too. At scheduled intervals over the next four years, the smart contract that made PIX tokens possible in the first place is slated to automatically create – and allocate – 330 million new tokens to Lampix. Thus, when Lampix raised $14.2 million in August, the company reserved $66 million worth of PIX tokens for their corporate use.

Popescu said in his e-mail to deBanked that these company tokens are for “corporate usage like employee incentives, M&A, other company investments…etc.”

It’s a mind-boggling sum of money for the development of a futuristic lamp whose followers mostly seem to reside on internet chats like Telegram, reddit, and bitcointalk.org.

And this has occurred despite the company’s withholding any information regarding Popescu’s status in the UK. Balina, who interviewed Popescu on Youtube, told deBanked he wished he had known about his disqualification in the UK. “This is definitely a big issue and I wish I would have known about it so that either my audience or I could have asked him this directly on the live stream,” he said.

deBanked asked Paul Savchuk, Co-founder, CEO, and Chief Product Officer at Cryptocurrency Capital LLC, a US-based hedge fund that only invests in utility tokens as commodities, if Popescu’s ban in the UK would have been relevant information in the Lampix ICO. “Yes, that might be a red flag for us in some cases and require us to perform additional research,” he wrote in an emailed response. “We look at management very seriously – especially since a lot of projects are treated like startups and management is a key component to whether or not many of these ICOs can make it. We try to find such events and spot red flags whenever we conduct our due diligence research on ICOs. The reason: each project has something that needs to be improved. ‘Red flag’ – sometimes conversely can lead to a great opportunity when other market participants ignored it or were too skeptical.”

Mr. Savchuk further said, “Lampix is a perfect example of a coin that on the surface looks very promising, but when you dig a little deeper, you do find red flags that can dampen the excitement for this investment.”

And yet Savchuk spoke rather positively of the Lampix product after reading their white paper. “We believe the project is looking to change the current AR/VR tech industry,” he said, referring to augmented reality/virtual reality. “The project is promising for two reasons. First, they have multiple companies in their pipeline. Second, they have a legitimate product which they will manufacture and sell. They are one of the few blockchain products to offer a tangible product with the ability to disrupt the market.”

ICOs“Third,” he went on, “most companies have gaps in building a strong structure at the outset of their existence. Some have bugs in initial code that cause breaches in cybersecurity. Others release product with a low level of usability – the ones who are aware of such problems have a greater chance of success. We would prefer to see publicly known strengths and weaknesses of such companies. Management has to be transparent about their team and product no matter what. Whenever possible, we want to be in touch with the management team.”

With regard to the price drop, Savchuk said, “This is a danger for all purchasers of ICOs. Sometimes it’s caused by token purchasers (swayed by) fear and greed and (hoping for) easy money and fast money. I doubt somebody sold Apple Inc.’s stock right after its IPO. It is also very difficult to restrict exchanges from allowing massive pump and dumps. That’s not even mentioning the difficulty of measuring the value of tokens,” Savchuk concluded. “Consequently, such projects are struggling with low credibility. However, it also creates a possibility for those who believe in the idea and product on a long-term run.”

Popescu downplays the significance of the UK issue. The root of the debacle, he says, is the result of Boston Prime – the company he previously ran – being forced into bankruptcy by the actions of a company he is now suing called FXDD. “FXDD bought the companies and then bankrupted them and that’s why Boston Prime [went bankrupt],” he writes. “Myself personally and each company separately are suing FXDD for this. UK has archaic laws where if you are a director of a bankrupted company you get disqualified from being a director again for a time. Attorneys charge about 40,000 GBP to defend this automatic case and I weighed the pros and cons and decided to ignore it as I have no plans to be a director in the UK for time being.”

Investors unhappy with underperforming ICOs may be willing to challenge their legality. On October 25, for example, a class action lawsuit was filed against Tezos, a computer networking project that raised $232 million in one of the largest ICOs ever. In a complaint, the lead plaintiff alleges that, among other things, Tezos unlawfully engaged in the unregistered offer and sale of securities and fraud in the offer or sale of securities. “In July 2017, Defendants conducted an ICO in which they sold 607,489,040.89 tokens (dubbed ‘Tezzies’ or ‘XTZ’) in exchange for digital currency worth approximately $232 million at the time,” the complaint reads. The plaintiff, who purchased 5,000 Tezzies, feels he was misled about the company and the offering.

Tezos at Money2020
Above: Arthur Breitman, Tezos co-founder, center, looks at the camera at Money2020

Internal squabbling at Tezos which has delayed the release of its product and the sheer amount of money at stake have put the company on the map with the mainstream media and business press. The New York Times, Wall Street Journal, and Fortune as well as news services Reuters and Bloomberg have all covered the allegations of fraud.

The day before the class action lawsuit was filed, moreover, a deBanked reporter attended an explosive session at Money2020 in Las Vegas that saw Tezos co-founders, Arthur and Kathleen Breitman, attempting to give a status report of the company. A crowd that had gathered outside prior to the doors opening had attendees speculating whether the Breitmans “would actually show their faces” in the midst of all the drama.

To date, no lawsuits have been filed against Lampix despite the drop in the token’s value.

At a cryptocurrency/ICO meetup in NYC in October, a deBanked reporter met with executives at one company preparing an ICO who said they would not allow American investors to participate because of securities-enforcement fears. Pressure is mounting in the Far East as well. Citing their illegality, Chinese regulators in September issued a blanket cease-and-desist order on all ICOs in their country. What that means for Lampix’s Chinese investors bears watching.

Popescu says that Lampix supports regulation in China. “Of course, all Chinese people have to follow Chinese regulation,” he writes.

“WE ARE HERE FOR 5-10 YEARS TO BUILD A $100 BILLION COMPANY AND COMPETE WITH APPLE”

Meanwhile, on the product front, Popescu says that right now a Lampix lamp can be purchased for $10,000, a tidy sum because they must be hand-made. “We plan to improve the manufacturing costs and then we’re planning to do a kickstarter early next year for around $500 [per] Lampix,” Popescu told deBanked in his e-mail interview.

But for investors, it always comes back to the trading value of PIX. On October 25, one investor asks Popescu if the company will buy back its own PIX tokens at the ICO price to pump up their market price. “If you want a pump and dump please go to other companies,” Popescu responds. “We are here for 5-10 years to build a $100 billion dollar company and compete with Apple.”

And it all began with an ICO.

“ICOs also help with bootstrapping the user base – breaking the chicken and egg problem,” Popescu also explains in his e-mail to deBanked. “In addition, given that Lampix is looking to crowdsource images, we prefer many different people hold PIX tokens rather than 2-3 VC funds. And last but not least I think tokens are better rewards for the community (liquid, mark to market, etc.) than illiquid instruments.”

Not everyone agrees that PIX is the most liquid instrument to grow the community. US Dollars come to mind, for example. “Let’s say I’m a customer,” one investor poses to Chester, a Lampix community manager. “I want to use the cloud computing service but then I see I have to pay with PIX. I have no experience in crypto and have no idea how to do that. I just want to use your service fast and don’t want to buy PIX coins first before I can make use of it. Will there be a fiat option?”

Chester is awed by the idea. “Well, you are so professional,” he writes. “Man, you are good. You are good, the question you threw just hit the spot seriously. I guess there is always something Lampix needs to figure out and choose the best solution. Technically speaking they are jolly good at this point, but it doesn’t mean it’s perfect.”

Chester, who assures him that he isn’t being sarcastic, goes on to refer to the investor who asked that fairly elementary question as a “big shark” that is “born to bite.”

LamborghiniIt remains to be seen if the PIX “user base” shares the same philosophy as Lampix. Ian Balina, who interviewed Popescu on Youtube, separately asked his social media followers: “What’s the first thing you’re going to do once you hit your goals in cryptos?”

The responses fly in:
“Buying my Lambo”
“Travel to Paris”
“Buy an island”
“Buy my mum her dream home”
“Quit my job and start up something for me”
“Pay off mortgage and be financially free”
“Buy house in Miami, buy Lambo, enjoy life”
“Retire”
“Easy. Buy more crypto”

Meanwhile on Telegram, where investors continue to engage Lampix management on a daily basis, Dante offers a sobering reminder of what they’ve bought into, “We don’t have equity, we only have tokens,” he writes. “And we are taking a big risk.”


* The amount of tokens sold multiplied by the 12 cent ICO price doesn’t exactly match the dollar amount Lampix says they had raised. That’s because Lampix not only issued bonus tokens to buyers at each stage of their ICO but also because the market value of ether, which users had to convert to from dollars to buy PIX, had fluctuated when they reported how much they raised. Like Bitcoin, the value of ether is volatile.

** The smart contract Lampix wrote to launch Lampix’s tokens into existence specifically named them PIX tokens and dubbed their publicly identifiable symbol to be PIX.

*** Coinbase is a respected digital currency wallet platform based in San Francisco.

All Companies Can Now Submit Draft IPO Registrations Confidentially

June 29, 2017
Article by:

SEC BuildingThere’s a reason the public never got to view BFS Capital’s September 2015 IPO registration documents. Thanks to the JOBS Act, “an emerging growth company may confidentially submit to the Commission a draft registration statement for confidential, non-public review by the Commission staff prior to public filing.” They can then choose to abandon the offering altogether without having to suffer the fate of their financial statements being made public, which is what BFS Capital did. But if they ultimately had chosen to move forward, their documents would’ve been shared in the public domain.

A new decision handed down by the SEC is now expanding that privilege beyond “emerging growth companies” to all companies. That means that any company can submit draft documents confidentially. It will take effect on July 10th.

“This is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors,” said Director of the Division of Corporation Finance, Bill Hinman. “This process makes it easier for more companies to enter and participate in our public company disclosure-based system.”

The only reason BFS Capital’s confidential filing is known, is because the company broadcasted that they had filed accordingly in a press release.

“By expanding a popular JOBS Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital,” said Chairman Jay Clayton. “We are striving for efficiency in our processes to encourage more companies to consider going public, which can result in more choices for investors, job creation, and a stronger U.S. economy.”

It is possible that other companies in the industry have filed draft registration statements, got discouraging feedback from the SEC and then decided to withdraw without any of their competitors being the wiser.

You can read the full explanation by the SEC here

Alternative Lenders Spread Their Wings Internationally

June 20, 2017
Article by:

This story appeared in deBanked’s May/June 2017 magazine issue. To receive copies in print, SUBSCRIBE FREE

global businessAs alternative lending gains global traction, a growing number of U.S-based alternative lenders are exploring international growth, with large companies like OnDeck, Kabbage and SoFi leading the way.

Some alternative lenders have begun their expedition closer to home by extending their reach into Canada. Others are traveling farther beyond to parts of Europe and Australia, for example, while others are eying eventual growth in Asia.

Propelling the opportunity is the fact that a number of international banks are still unprepared to offer online lending on their own and thus are more amenable to partnerships with U.S.-based alternative lenders, according to Rashmi Singh, senior manager in the wealth management practice at EY.

It also helps that the options for local partners are somewhat limited. “There are not a lot of digital lenders [outside the U.S.] at the same level as some of the folks here,” Singh says.

To be sure, international expansion requires extensive time, money and regulatory know-how, and some U.S. alternative lenders may never reach the critical scale to be able to compete effectively. Nonetheless, as globalization proliferates, industry observers expect that additional forward-thinking companies will push beyond the limits of their current geographical borders.

“IT DOESN’T MAKE SENSE TO START AS A U.S. LENDER, DO A FEW LOANS AND THEN JUMP OVER TO THE U.K.”


“The question is not if, but when (and where) U.S. fintech companies will expand internationally,” contends Ryan Metcalf, chief of staff and director of international markets at Affirm, a San Francisco-based fintech that has partnered with Cross River Bank of Fort Lee, New Jersey, to allow shoppers pay for purchases over time with simple-interest loans.

Affirm—which works with more than 900 retailers and recently announced that it had processed its 1 millionth consumer installment loan—has focused on domestic growth so far, but the company is now considering a number of options for international expansion, Metcalf says.

SIZING UP THE MARKET

Certainly, there are numerous opportunities for homegrown lenders to expand internationally given the healthy growth alternative lending is experiencing in other parts of the world. Each market, of course, has its nuances and individual growth patterns.

Europe, for instance, has seen substantial growth over the past few years, with the U.K. leading the way in alternative finance. It has four times higher volumes in aggregate than the rest of Continental Europe, according to a 2016 report from KPMG and TWINO, one of the largest marketplace lending platforms in Europe. (P2P consumer lending is the largest component of alternative online lending in Europe, capturing 72 percent of the total in the first through third quarters of 2016, according to the report.)

After the U.K., France, Germany and the Netherlands are the top three countries for online alternative finance by market volume in Europe, according to a September 2016 report by the Cambridge Centre for Alternative Finance.

Asian markets, meanwhile, show significant promise for alternative finance players to make their mark due to the sizeable population of digitally savvy consumers who are still largely underbanked. China is by far the largest market for alternative lending in Asia. It’s also the world’s largest online alternative finance market by transaction volume, registering $101.7 billion in 2015, according to the March 2016 Cambridge Centre for Alternative Finance report. This constitutes almost 99 percent of the total volume in the Asia-Pacific region, the research shows. To date, most of the growth in China specifically has been from local firms, but that could change as the market there continues to develop.

American FlagAlthough there are many possible international markets to explore, U.S. lenders have to tread carefully before planting roots elsewhere, observers say. Some smaller U.S. lenders may find domestic expansion easier and more cost-effective because of the time, regulatory and financial commitment that goes along with exploring international markets. It’s a lot easier, for instance, to expand from New York to California, than it is to build out internationally.

“Why take on all the added costs and regulatory pressures, when you haven’t fully explored your home market, unless the business that you’re in deems it necessary,” says Mark Abrams, partner with Trade Finance Global, a London-based international corporate finance house, specializing in crossborder trade.

“It doesn’t make sense to start as a U.S. lender, do a few loans and then jump over to the U.K,” he contends.

What’s more, foreign banks looking for alternative lending partners typically prefer to work with larger, more established players. Even though new players’ technology may be ahead of the curve, the banks still want a longer track record. “It’s reputational for these banks,” says Singh of EY.

MANY CHALLENGES TO INTERNATIONAL EXPANSION

Several alternative lenders say they see significant growth opportunities by expanding internationally. At the same time, however, they are mindful of the substantial headwinds they face.

Regulation is among the biggest, if not the biggest, challenge. A lot of firms in the U.S. have invested a lot of time and money to get up to speed on U.S. regulations. When they look to Europe or to Canada or Mexico or elsewhere, there are different regulations. “If you’re speaking to folks in three continents, now you are looking at regulations times three,” says Singh of EY.

Certainly there’s a time commitment involved; it can take six to eight months for a U.S. lender to get their U.S.–based platforms compliant with regulations in another country, she says.

What’s more, regulatory barriers can vary greatly country to country, notes Metcalf of Affirm. Take Canada for example where very low barriers to entry exist with some provincial exceptions. In the U.K., on the other hand, it can take eight months or more to receive a lending license, he says.

That’s why it’s so important for online lenders to make strategic decisions about where they want to invest their time and resources—even if they have sound technology that’s easily adaptable outside the U.S. “The minute you throw in cross-border regulations, it gets very complicated,” Singh says.

Understanding the local culture of the market you’re trying to tap is also crucial, according to Rob Young, senior vice president of international at OnDeck, where he oversees all aspects of the company’s non-U.S. expansion efforts.

piggy bank flies

Within the past several years, OnDeck has begun offering small business loans to customers in Canada and Australia. Frequently Canada is a first step for U.S. companies that want to expand internationally because of the shared language and similarities between the economies, Young explains.

After the Canadian operation was successfully underway, the opportunity arose for the online lender to expand to Australia—which shares several similarities with the Canadian market. OnDeck doesn’t break out how much of its overall loan portfolio comes from these two markets, but it has announced publicly that it’s delivered more than CAD$50 million in financing to Canadian small businesses since 2014.

“So far we’re very satisfied with the performance,” Young says, referring to its expansion into both Canada and Australia.

Young notes that while a U.S.-based alternative lender can leverage certain things like technology from a central location within its home country, having dedicated teams on the ground in local markets is also critical. Marketing and pricing all have to be competitive with the needs of the local market, he says.

In Canada and Australia, for example, OnDeck has found that the “personal element” is really important. Young says customers there expect to interact with sales representatives who have ties to the community, understand the local market and can relate to the issues small businesses there are facing.

“I don’t think you can establish that rapport if you are trying to serve them with a sales team overseas,” he says.

U.S.-based alternative lenders also need to be careful to create products that fit the culture and needs of a particular market. For instance, alternative players that focus on luxury asset-based lending would want to look at countries with high concentrations of wealth. “It doesn’t make sense to grow to a country where there’s very little wealth because you’re not going to have much success,” says Abrams, of Trade Finance Global.

Even knowing the market well doesn’t guarantee results, which Lending Technologies, a white label technology provider for the MCA space, has discovered first hand.

Markus Schneider, the company’s chief executive, is originally from Switzerland and he knows the market there well, so he set out to fill a void he saw for an MCA-like product. However, Lending Technologies, which has offices in New York and Zurich, has hit some roadblocks along the way.

“It’s a very different mind-set there. People are more risk-adverse,” Schneider says.

The company already has a Swiss distribution partner in place, but has had trouble finding a lender willing to underwrite the funds. Schneider would also be willing to work with a U.S. lender that wants to partner with Lending Technologies to provide MCA services to merchants in his home country.

“We’re going to do this. It’s just a matter of time,” he says. “There’s a tremendously underserved segment of the market there.”

FINDING THE RIGHT FIT

To be successful internationally, U.S. companies also have to be willing to shift gears as needed when things aren’t working out as expected.

Take Kabbage, for example. The small business lender expanded into the U.K. in 2013, two years after its U.S. debut. But the company found that having its own small business lending business in the U.K. was too challenging for regulatory and capital reasons. It no longer offers new loans from this platform.

Instead, the funding company decided that a better global strategy was to license its technology to financial institutions in international markets a less capital-intensive, yet economically sound way of doing business.

Kabbage—which recently announced the establishment of its European headquarters in Ireland—has licensing arrangements with Santander in the U.K., Kikka Capital in Australia, Scotiabank in Canada and Mexico and ING in Spain. The company plans to launch operations in several additional countries this year where banks use Kabbage’s technology to offer online loans to their clients, says Pete Steger, head of business development at Kabbage.

“We are partnering with local experts. That’s our strategy,” Steger says.

Funding Circle has also made changes to its international strategy. Earlier this year, the company—which got its start in the U.K.—announced that it would stop issuing new loans in Spain. The Spanish version of the company’s website says that it continues to monitor ongoing loans so investors receive monthly payments for the projects they have invested in.

A spokeswoman for Funding Circle said the company continues “to look at new geographies, but we have no immediate plans for expansion and are focused on building a successful business here in the U.S., U.K., Germany and the Netherlands.” She declined to comment further.

Without divulging too many details, a handful of U.S.-based alternative financiers say they continue to look at additional markets outside their home turf.

For its part, SoFi has announced plans to expand to Australia and Canada this year. The company’s chief executive has also talked about European and Asian expansion in the future.

On the international front, Affirm is currently evaluating markets that make the most sense for its business model, Metcalf says. Affirm is also looking at possible acquisitions in developed markets such as the U.K. and Sweden as well as considering “serious investment” in new distribution models in southeast Asia, Mexico and Brazil, he says.

LendingClub, meanwhile, last November announced a significant partnership with National Bank of Canada and its U.S. subsidiary Credigy. The agreement provides for Credigy to invest up to $1.3 billion over the subsequent twelve months. A spokeswoman for LendingClub said the company has nothing to share about plans for international expansion.

As for OnDeck, Young says the company is exploring a number of options; it’s a matter of finding markets where gaps exist in small business lending and where potential customers have a willingness to borrow online.

“We want to be the preferred choice for small businesses. It’s not necessarily defined geographically,” Young says. “We review markets all the time. There are a number of markets that are interesting to us.”