Feb. 5, 2025

Niche Markets, High Impact: Leading the Charge in Early-Stage Credit Facilities

Niche Markets, High Impact: Leading the Charge in Early-Stage Credit Facilities

In episode re-air, host Lynn Sautter Beal talks with https://www.linkedin.com/in/jillian-jaccard-murrish-b324a52b/, CEO of https://www.pieram.com/, about the waves she and her firm are making in the market — targeting less liquid and underserved areas...

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In episode re-air, host Lynn Sautter Beal talks with Jillian Murrish, CEO of Pier Asset Management, about the waves she and her firm are making in the market — targeting less liquid and underserved areas while focusing on secondary markets and early-stage credit facilities. Jillian shares her journey from working in online real estate to co-founding Pier Asset Management, while offering valuable lessons on flexibility, operational ease, and evolving borrowing bases for early-stage originators along the way.


Join us as we discuss:

  • Why early-stage originators should avoid using expensive equity capital to fund loans
  • The change in defining secured vs. unsecured lending
  • How targeting less liquid areas can help generate alpha and deliver better returns for investors
  • The role of privacy, reputational risk, and the regulatory environment play in decision-making in evaluating potential partners and deals
WEBVTT

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You are listening to Leaders in Lending from Upstart, a

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podcast dedicated to helping consumer lenders grow their programs and

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improve their product offerings. Each week, here decision makers in

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the finance industry offer insights into the future of the

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lending industry, best practices around digital transformation, and more. Let's

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get into the show.

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Hi.

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This is Lynd Suterbil of Upstart, and welcome to Leaders

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in Lending. I'll be joined today by Jillian Murrish, who

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is the CEO and co founder of pere Asset Management,

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a private credit investment firm focused on niche jales and

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specialty finance. Jillian has a deep background on both the

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buy and sell side and the private credit markets. Let's

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get started. Hi Jillian, and welcome to podcast.

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Hi Alinn, I'm so happy to be here. Thank you

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for having me on great Well.

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To start off, can you tell me a bit about

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what role pere Asset Management plays in the market.

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Absolutely so. We are a capital provider in the specialty

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finance space. Specifically, what we do is provide senior secured

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credit facilities to early stage loan originators, so we lend

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against their loan book. They use our capital to go

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out and originate ones. And then second and we act

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as a buyer in the secondary market of these long portfolios. So,

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you know, if a fund is winding down and they

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need liquidity, or a you know, loan originator is winding

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down and they need to sell their long book off,

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or they just have some need for liquidity, they need

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to clear off their warehouse line, they'll come to us.

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We'll put in a bid on that portfolio and buy

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it after it's ben well seasoned. So those are really

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two roles we play as a capital provider.

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Great, well, I know you and and kinter New co

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founded Peer in twenty seventeen. Was this your first time

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being a co founder in a real way?

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Yes, I had. My first company was in college and

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it was a consumer goods companies selling cell phone cases,

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and I was the sole founder of that firm, but

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ended up bringing on a business partner later. But in

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my adult career, this is my first time co founding

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a firm.

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Sure, sure, So what I would say, you know, what's

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been one of the most kind of surprising lessons that

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you've learned since twenty seventeen is being a a co

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founder of a of a new company.

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Well, first, and foremost, I'm so glad I'm not at

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this alone. I've learned that I loved having a co founder.

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It's especially someone who compliments me so so well. So

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people who know Connor and I know that we're opposite

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in demeanor. So I'm more dynamic. Lou would love to

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be social. You know, Connor is a bit more reserved

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and quiet, and so that's an outward you know, easy

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to notice difference in our personalities, But when you dig deeper,

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I get down to the things that we like to

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spend our time doing. You know, what are we good at,

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what are we the best at? It's generally the opposite,

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and so it makes it really fun to run a

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company with someone like that, because I'm doing a lot

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of what I love and very little of what I

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don't love. So I think that's really the real reason

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why having a co founder who's just you know, likes

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doing opposite things it's fantastic. And then, you know, something

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I didn't think about when we started the firm, but

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I started to develop a sense for why the partnership

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has worked so well, and it really comes down to,

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I think the fact that we have the same risk tolerance,

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so when we have very different views on various aspects

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of our business of the market in general. We generally

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approach problems in different ways and identify different risks, but

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at the end of the day, it's a go no

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go decision on various things with the business and with

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investments we make. And having someone who has a similar

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level of risk tolerance of things, you know, imperfect information

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or no, we actually need perfect information on this, but

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not on this. I think it's allowed us to make

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decisions in a seamless way and run the company in

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a relatively frictionless way since inception, which I'm so grateful for.

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He's been an incredible co founder.

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Well good, that's good to hear because I know, I'm

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sure that's a very very closely tied relationship. And just

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you know, having work tear at Upstart from the time

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when we were smaller and pre public and now a

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public company, you spend a lot of time kind of

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in the trenches with people. So how did you, I think,

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how did you encounter meet and then what really led

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to the idea of starting peer asset management.

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So we minted a conference in I think twenty thirteen

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or twenty fourteen. We haven't mailed down the exact exact

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date or which conference it was, but we met in

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person through mutual industry participants, and I remember kind of

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my first conversation and hearing about him from others that

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he was a pioneer in investing in specialties nance. You know,

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at the time, it was really called marketplace lending, and

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I was running the capital markets practice at an online originator,

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so I was producing loans and selling them off into

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the capitol market's ecosystem, and Connor was on the other

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side running a suite of funds buying these loans. So

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you know, he had actually bought one of the first

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whole loans at Funding Circle, you know, it was one

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of the first loan buyers lending club. And when I

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was building out our loan whole loan sale program, he

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was one of my first calls. It was, Hey, he

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was innovative in the space. You know, amendment a conference,

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maybe he'll buy my loans. And it was a real

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estate originator and his bread and butter was consumer and

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small business. So he came in for a meeting and

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very quickly said, you know, I don't think I'm going

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to get comfortable in this space, but was curious, wanted

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to hear you out. And so within the first meeting

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we realized we weren't going to transact, but we were

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opposite on opposite sides of this market, and we were

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opposite participants. And quickly we started providing value to each

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other in terms of kind of under the hood, know how,

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from the other side of the trade, which started providing

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me a lot of value in my work at that time.

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You know, he would share warehouse lenders to the funds

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or requiring XYZ. When you're putting together programs, you know,

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managed them this way. You know, I would say, hey,

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a lot of firms are using you know, sub servicers

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and farming out, you know, servicing even below what you

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would have imagined, and so ask about you know, these specifics.

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And so it became an interesting working relationship where we

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get together probably once a quarter and just share insights,

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talk about the space, see if we could be helpful

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to each other. And in twenty sixteen, I have to

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give Conor the credit. We got together for one of

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our catchups and I walked in the door, sat down

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at the table at Pete's Coffee in Westwood. I remember

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like it was yesterday, and he said, I want to

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spin out from from my firm and form a new

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asset manager. I think we'd make great business partners. Will

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you do it? And whoa? And you know, it was

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actually perfect timing where I was ready to go back

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out and do something on my own. You know, I

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had been that young entrepreneur and then went and worked

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in and helped build firms, but it was really ready

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to go out and strike out on my own again.

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And so the timing was perfect. And so we started

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talking through our thesis that we had on the space

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that we really had been developing over the course of

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a few years. And really we're seeing that the primary

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market in the space was quite saturated and there were

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big institutions and banks buying the loans from all the platforms,

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yields it compressed, and so we were really getting creative

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as to where where was the alpha, like, where could

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we generate alpha? How could we deliver better returns for investors?

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And for me that was sitting within the ecosystem delivering

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loans and see where was there less liquidity? Where were

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the fewer investors when I was bringing things out out

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to market, And for Connor was where was I competing

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against fewer people? And really that was how we identified

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the secondary market, just not having active participants or consistent

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participant and that was really kind of the genesis for Peer.

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And then also the early stage credit facilities just weren't

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weren't really serving loan originators in a great way. And

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I had experienced that as an operator and talking with

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the CEOs and CFOs of all the other early stage originators.

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It was a common problem across the board for kind

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of fifty million dollar warehouse lines. It was, you know,

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I'm using a logic puzzle to fund my loans, some

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with a partner of capital, some with my bank line,

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some of my family office line, and you know, I

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ended up with one large line from a family office

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that funded all my origination flow. And even though it

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was more expensive, it was a great product and it

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was better for operational ease. So that was when I

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looked at Connor and I said, if we can solve

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that early stage or early stage warehouse facility problems, there's

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a lot of demand for it, and we could make

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you know, pretty penny doing it because nobody is and

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it's such a value to these early stage firms.

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No, that sounds it sounds like you guys definitely have

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a really kind of complementary skill set. I think sometimes

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you see people go into business or hire people or

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work with people who have they look for people who

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have very similar sales skill sets and then they have

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those kind of gaps there that they don't know about.

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It sounds like the two of you have complementary skills

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and experiences on the market that's really helped help kind

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of term my charge what you're doing.

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So what else you know?

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I know you mentioned you you worked in an online

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real estate lender. What as you kind of built and

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scaled with that company? What are some of the biggest

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things I mean, obviously that helped you identify the market

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you wanted to go into, But what are some of

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the biggest kind of lessons you learned that you brought

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to peer to help help shape what you're building?

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There?

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Say, first and foremost smaller, earlier stage a loan originators

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require a very different credit facility product than large mature originators.

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And in the early days, you know, not kind of

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twenty thirteen to twenty fifteen or twenty twelve to twenty sixteen,

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the large warehouse providers like the mcqueries of the world's areas.

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You know, we're trying to come in and serve that

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market and you know, being great participants in doing so.

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And I saw there were a lot of challenges you know,

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using the same structure and the same type of terms

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for a small firm versus a mature firm. And really,

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in my view at that time, I developed, you know,

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a very strong view that early stage originators the priority

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for their credit facilities should be that it preserves flexibility, optionality,

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and has ease of operational use. When you're an early

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stage originator focusing on growth in those early credit co words,

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the operational friction that a larger, larger, more structured facility

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can bring can really tank or create bigger challenges than

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a lower cost of capital would make worth. Furthermore, you know, again,

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cost of capital at that size just isn't as important

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because again the growth, the proof of concept, focusing on

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credit quality out was more important. And then lastly, like

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the multi year lockups of the more traditional warehouse facilities,

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we're not providing the flexibility that the early stage originators

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needed around product, like product would evolve and change within

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the first year or two or three. You know, one

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thing I was working well, one product wasn't, and having

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that flexibility of product mixer being able to kind of

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change that barring based subtly based on what products are

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working or not would be most critical for success. So

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I think it was really identifying that it was kind

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of two very different products later stage mature warehouse lines

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versus early stage lines, and the needs change over time,

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where you know, larger mature originators really care about cost

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of capital for good reason, and it starts becoming a

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profit center for them, whereas early stage that's not really

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the focus. So being in the trenches building that capital

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markets practice from forty million to three quarters of a billion,

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I really saw that internally and what was working at

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what stage of the business. And surprisingly some of the

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more structured and sophisticated facilities created risk on both sides

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for being too structured. So like, for example, I received

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a term sheet one time from a kind of quasi bank,

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and I remember they had plattal reportings. It had to

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00:12:22.960 --> 00:12:26.279
be on Wednesdays, and we would sell all of our

234
00:12:26.320 --> 00:12:29.960
loans off our book on Tuesdays. And so the barring base,

235
00:12:30.000 --> 00:12:32.360
which shows you would have no loans tied to it

236
00:12:32.399 --> 00:12:36.480
every Wednesday, and it balance all the cash, and so

237
00:12:36.840 --> 00:12:39.519
that lender would have almost no insight into what was

238
00:12:39.600 --> 00:12:43.799
platteralizing them in between those interim reporting periods. And so

239
00:12:44.559 --> 00:12:48.320
you know, really my viewshade to A, it's just a

240
00:12:48.320 --> 00:12:51.679
different product, and then B, the facility does need to

241
00:12:51.679 --> 00:12:55.559
be built around the early stage originator versus a product

242
00:12:55.840 --> 00:12:58.519
as a credit facility being served to them. So that

243
00:12:58.559 --> 00:13:01.480
was probably the most important learning from from my time there.

244
00:13:02.120 --> 00:13:03.799
And I think you when you when you and I've

245
00:13:03.799 --> 00:13:06.279
talked before, you described that as kind of more of

246
00:13:06.279 --> 00:13:10.039
a solutions oriented capital provider like that, Yeah, the capital

247
00:13:10.080 --> 00:13:12.600
provider is kind of meeting the originator at the at

248
00:13:12.639 --> 00:13:15.039
the place they need to be met, and I could

249
00:13:15.399 --> 00:13:17.279
I can see that with those sorts of kind of

250
00:13:17.399 --> 00:13:20.759
very specific restrictions where maybe the person who is drafting

251
00:13:20.799 --> 00:13:24.320
that isn't actively involved in more of the business side

252
00:13:24.759 --> 00:13:27.399
of what they're drafting, and the the timing of that

253
00:13:27.399 --> 00:13:31.559
doesn't exactly exactly make sense. So you know, I do

254
00:13:31.600 --> 00:13:35.200
think you have a really interesting, unique perspective on that

255
00:13:35.320 --> 00:13:39.080
path to funding for early stage fintech originators, and you

256
00:13:39.159 --> 00:13:40.919
kind of talk through it at a at a high

257
00:13:41.000 --> 00:13:43.360
level that maybe you know, kind of more detail of

258
00:13:43.360 --> 00:13:45.559
of what are those sources of funding like you know,

259
00:13:45.639 --> 00:13:49.759
helping our you know listeners understand, uh, you know, whether

260
00:13:49.799 --> 00:13:52.799
that's partner or personal capital, family office, kind of what

261
00:13:52.840 --> 00:13:57.120
that path looks like and what those capital providers can

262
00:13:57.120 --> 00:13:59.279
offer and maybe some pros and cons as they as

263
00:13:59.279 --> 00:14:00.159
they go through that path.

264
00:14:00.000 --> 00:14:03.519
As a founder, sure happy to talk through this. So

265
00:14:04.440 --> 00:14:07.720
for early stage originators who just started out, you know,

266
00:14:07.840 --> 00:14:11.600
you've been building a product and you've originated zero loans, like,

267
00:14:11.679 --> 00:14:15.240
no loans have gone through your pipes yet. You know,

268
00:14:15.279 --> 00:14:18.240
what we see as most typical source of funding is

269
00:14:18.320 --> 00:14:21.240
usually equity capital. So maybe the firm has raised a

270
00:14:21.279 --> 00:14:23.679
few million dollars of equity capital. They're using that to

271
00:14:23.759 --> 00:14:26.679
build out their tech and their infrastructure and you know

272
00:14:26.720 --> 00:14:30.440
barber acquisition channels, and then they reserve maybe five hundred

273
00:14:30.480 --> 00:14:34.080
thousand dollars for that first cohort of loans other founders,

274
00:14:34.120 --> 00:14:36.879
which I think this is a very smart move. What

275
00:14:36.919 --> 00:14:39.759
they what we've seen happen often is the founder will

276
00:14:39.759 --> 00:14:42.720
actually go out to either friends and family or they'll

277
00:14:42.759 --> 00:14:46.519
also seen those venture partners personally do this where they'll

278
00:14:46.519 --> 00:14:50.360
give a one hundred thousand, two hundred thousand dollars unsecured

279
00:14:50.399 --> 00:14:54.039
promisory note to the operating company, and the intended purpose

280
00:14:54.120 --> 00:14:57.000
is to be used to fund loans. And you know,

281
00:14:57.039 --> 00:14:59.759
it's a fixed coupon. Generally it used to be twelve

282
00:14:59.799 --> 00:15:04.200
for then it's probably higher now, and and they use

283
00:15:04.240 --> 00:15:06.480
that capital to fund the first five hundred thousand or

284
00:15:06.519 --> 00:15:09.840
a million dollars of loans. I think that's a fantastic model.

285
00:15:09.840 --> 00:15:11.759
You're not using your equity capital, which is the most

286
00:15:11.799 --> 00:15:14.519
extensive capital, to fund your loans. But you're also not

287
00:15:14.559 --> 00:15:19.320
trying to structure something and get into covenants and you know,

288
00:15:19.480 --> 00:15:22.960
creating SPVs because at that point it's too small. You

289
00:15:22.960 --> 00:15:25.159
have to prove the concept that you can actually originate

290
00:15:25.159 --> 00:15:28.000
and get loans through your pipes before you go through

291
00:15:28.039 --> 00:15:30.879
all that headache to actually set up something as structured.

292
00:15:31.840 --> 00:15:33.320
So from there, I think, you know, once you have

293
00:15:33.399 --> 00:15:36.399
five hundred one thousand, two million dollars of loan volume,

294
00:15:36.919 --> 00:15:41.279
generally the next step is dependent on how fast your

295
00:15:41.320 --> 00:15:45.000
loan product shows performance. So very short duration products you

296
00:15:45.000 --> 00:15:48.559
could have a full revolution or revolution of that credit

297
00:15:48.679 --> 00:15:52.720
product within three months. Longer products that have you know,

298
00:15:52.759 --> 00:15:55.960
maybe it's student loans with five year term, you have

299
00:15:56.000 --> 00:16:00.039
to start showing early performance data, but that is a

300
00:16:00.120 --> 00:16:02.399
larger challenge and you're going to have to stretch out

301
00:16:02.440 --> 00:16:05.639
that time really to see performance before you're going out

302
00:16:05.720 --> 00:16:08.840
for this next facility. So just bear that in mind

303
00:16:08.919 --> 00:16:11.000
and keep that in mind for the pace of growth

304
00:16:11.039 --> 00:16:13.519
from kind of zero to one million. It depends on

305
00:16:13.559 --> 00:16:16.399
how quickly you can kind of show any sort of performance.

306
00:16:17.200 --> 00:16:20.960
So from there it's really approaching firms like ours and

307
00:16:21.120 --> 00:16:24.919
potentially family offices to get a ten to fifteen million

308
00:16:24.960 --> 00:16:28.879
dollar first credit facility. This is unique compared to the

309
00:16:28.879 --> 00:16:32.279
first promise promisor re NOOTE structure, and that an SPV

310
00:16:32.440 --> 00:16:34.759
is generally required to be set up which is a

311
00:16:34.799 --> 00:16:38.480
subsidiary of the operating company and it's a bankruptcy remote

312
00:16:38.559 --> 00:16:42.639
spe that houses the loans that the loan originator originate.

313
00:16:43.559 --> 00:16:47.080
Usually a credit facility provider of ten to fifteen million

314
00:16:47.279 --> 00:16:50.480
will want to refinance and own whatever loan or put

315
00:16:50.519 --> 00:16:52.759
in whatever loans are already on your book into that

316
00:16:52.879 --> 00:16:55.600
SPD and then you can draw down capital and grow

317
00:16:55.679 --> 00:17:00.679
from there. So really there's only a few institutional providers

318
00:17:00.679 --> 00:17:03.000
that will do warehouse lines that small you know, we're

319
00:17:03.039 --> 00:17:05.599
one of them. There's probably three or four others that

320
00:17:05.640 --> 00:17:08.640
we know of that are quite active. And then other

321
00:17:08.640 --> 00:17:10.759
options we've seen are you know, it's a family office.

322
00:17:10.759 --> 00:17:13.200
We know that we're close to the founders that identified

323
00:17:13.640 --> 00:17:16.400
that will do that first smaller credit facility.

324
00:17:17.119 --> 00:17:19.319
Sure, So what do you I mean? It sounds like

325
00:17:19.359 --> 00:17:22.519
the path can be can be varied and depends on size.

326
00:17:22.559 --> 00:17:25.160
And I you know, as you were talking about the

327
00:17:25.240 --> 00:17:28.039
duration of the loans that they're offering here, it almost

328
00:17:28.079 --> 00:17:32.240
made a case for some of the press releases Upstarts

329
00:17:32.240 --> 00:17:34.880
had around our parallel timing curve and how we think

330
00:17:34.920 --> 00:17:39.559
about testing a model over time and even though the

331
00:17:39.640 --> 00:17:42.440
duration's long, particularly as you look at products like like

332
00:17:42.599 --> 00:17:48.559
mortgages or or very long duration duration products. So you know,

333
00:17:48.559 --> 00:17:50.559
when you think about kind of then graduating to the

334
00:17:50.599 --> 00:17:53.920
capital markets, like what is that? Is it just a

335
00:17:53.960 --> 00:17:56.880
function of size of the lender of the originator? Is

336
00:17:56.920 --> 00:18:01.319
there some sophistication like how do you think about a

337
00:18:01.359 --> 00:18:05.440
firm being ready to really access institutional capital money versus

338
00:18:05.960 --> 00:18:09.440
more of the you know, a family office VC backing.

339
00:18:10.240 --> 00:18:12.960
Sure, So I think it's really that next step beyond

340
00:18:13.039 --> 00:18:16.480
firms like ours is the more traditional institutional capital markets

341
00:18:16.480 --> 00:18:18.599
they'd be accessing. And I think it's a function of

342
00:18:18.640 --> 00:18:21.960
two things. One loan book size, so how much of

343
00:18:22.000 --> 00:18:25.920
you originated? And two is there any sort of performance indication?

344
00:18:26.480 --> 00:18:29.319
Like you said, really long dated assets can do you

345
00:18:29.400 --> 00:18:32.839
show month over month performance and really get kind of

346
00:18:32.799 --> 00:18:37.839
a show show a similar loan product that has longer

347
00:18:39.119 --> 00:18:41.880
credit history that you can kind of show your performance

348
00:18:41.920 --> 00:18:45.279
curve agains and start giving a picture to what performance

349
00:18:45.319 --> 00:18:47.880
is going to look like. So when I say size,

350
00:18:47.920 --> 00:18:50.960
generally that means fifteen million dollar book. You can start

351
00:18:51.000 --> 00:18:53.759
having those conversations and they'll come in when the book

352
00:18:53.799 --> 00:18:56.640
is maybe twenty million in size, and at that point

353
00:18:56.640 --> 00:18:58.759
you're reaching for a fifteen million or one hundred or

354
00:18:58.759 --> 00:19:01.319
one hundred and fifty million dollars. Credit facility is usually

355
00:19:01.319 --> 00:19:04.240
that next stutter step, and that's coming from the firms

356
00:19:04.279 --> 00:19:06.599
like the Cross Rivers that out of lie is the aries,

357
00:19:07.519 --> 00:19:11.680
the larger, more well known institutional asset managers who are

358
00:19:11.720 --> 00:19:15.559
doing those facilities. They're usually a multi year term instead

359
00:19:15.559 --> 00:19:18.440
of shorter duration. It's usually and three year terms is

360
00:19:18.440 --> 00:19:21.680
what we see. Often some sort of kind of lock

361
00:19:21.799 --> 00:19:23.680
up for a period of time to make it worth

362
00:19:23.799 --> 00:19:26.839
their time to do those deals, and that generally the

363
00:19:26.880 --> 00:19:30.720
cost of capital becomes more effective because oftentimes we see

364
00:19:30.720 --> 00:19:32.960
those types of firms use leverage on the back end

365
00:19:33.279 --> 00:19:35.759
for their source of capital so they can provide lower

366
00:19:35.799 --> 00:19:38.200
costs and still make a return that makes sense for

367
00:19:38.240 --> 00:19:42.240
the commensurate risk. So it's a function of those two things.

368
00:19:42.279 --> 00:19:45.640
And one thing I just realized I missed on the

369
00:19:45.680 --> 00:19:50.480
previous stage of growth before you access these institutional capital

370
00:19:50.519 --> 00:19:54.119
markets is some firms actually launch their own internal fund,

371
00:19:54.559 --> 00:19:57.319
so they go raise a fund that's ten million dollars

372
00:19:57.359 --> 00:19:59.680
and go make their loans out of that. That is

373
00:20:00.119 --> 00:20:05.000
I would say the most complex, riddled with challenges that

374
00:20:05.079 --> 00:20:07.759
I would recommend, But you know, some folks are really

375
00:20:07.839 --> 00:20:11.880
successful doing it, and oftentimes the yield you have to

376
00:20:11.920 --> 00:20:14.440
pay in that type of vehicle can be lower than

377
00:20:14.640 --> 00:20:17.720
accessing a credit facility from a firm like ours or

378
00:20:17.720 --> 00:20:22.720
our competitors. Yet again there's a lot of complexity, compliance risk,

379
00:20:23.000 --> 00:20:25.440
legal risk in doing so, but we see it a

380
00:20:25.440 --> 00:20:27.720
few times a year that that's kind of the option

381
00:20:27.799 --> 00:20:30.799
that that stage kind of some fifteen million uses.

382
00:20:31.119 --> 00:20:33.079
Sure, and I could see that where that would be

383
00:20:33.119 --> 00:20:36.440
a pretty resource intensive thing to do internally at a

384
00:20:36.480 --> 00:20:38.640
company where you have to hire a lot of expertise.

385
00:20:40.359 --> 00:20:42.880
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397
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and now back to the show.

398
00:21:24.839 --> 00:21:27.319
What are some I think kind of common missteps you

399
00:21:27.359 --> 00:21:31.279
may see originators make going through this process. Whether it's

400
00:21:31.319 --> 00:21:35.200
not hiring the right expertise, whether it's not really understanding

401
00:21:35.279 --> 00:21:37.920
terms of various deals. But what sort of mistakes do

402
00:21:37.960 --> 00:21:39.640
you see you get made in this space?

403
00:21:40.680 --> 00:21:43.039
So to detail on what I was just talking about,

404
00:21:43.079 --> 00:21:47.279
I would say making things too complex too early and

405
00:21:47.359 --> 00:21:49.960
there's a variety of categories and buckets I can talk

406
00:21:50.000 --> 00:21:53.319
about for what too complex means. But generally, the more

407
00:21:53.359 --> 00:21:56.880
complex and complicated you're making your funding source and funding

408
00:21:56.960 --> 00:22:00.359
structure early on, the more pitfalls you can make so

409
00:22:00.480 --> 00:22:04.079
simpler the better, trying to use one funding source instead

410
00:22:04.119 --> 00:22:07.519
of many, and trying to keep the structures light. So

411
00:22:07.559 --> 00:22:10.400
that's why that promisory note suggestion for the five hundred

412
00:22:10.480 --> 00:22:12.799
k a million dollar first part of the loan book

413
00:22:13.200 --> 00:22:16.640
is very simple in structure. You know, there aren't many

414
00:22:16.680 --> 00:22:19.599
covenants you could trip or mistakes you can make in

415
00:22:19.640 --> 00:22:22.480
how you're managing that capital. It's just kind of here's

416
00:22:22.720 --> 00:22:25.400
here's the charter of what you can do with the money,

417
00:22:25.720 --> 00:22:29.000
and beyond that, it's a very light touch. So trying

418
00:22:29.000 --> 00:22:31.200
to keep things simple for what a simplest for the

419
00:22:31.240 --> 00:22:36.079
stage of your business. More specifically, some examples of complexity

420
00:22:36.240 --> 00:22:41.519
I've seen that cause pitfalls are generally around giving up

421
00:22:41.599 --> 00:22:45.119
optionality too early. So you know, maybe the ten million

422
00:22:45.160 --> 00:22:48.359
dollar lender who signs a three year deal with a

423
00:22:48.440 --> 00:22:52.000
large institutional lender and they have signed a deal with

424
00:22:52.039 --> 00:22:55.680
a very specific loan product and there's no flexibility for

425
00:22:56.519 --> 00:23:00.000
you know, criteria in that facility where is that problem

426
00:23:00.240 --> 00:23:02.400
no longer works and they want to do another product

427
00:23:02.519 --> 00:23:04.759
or pitch that to the firm, There's not as much

428
00:23:05.160 --> 00:23:09.559
flexibility there, and they can end up slowing growth or

429
00:23:09.599 --> 00:23:13.480
just being hamstrung entirely. So we've seen that happen other

430
00:23:13.559 --> 00:23:17.599
things like equity, you know, giving up structured equity alongside

431
00:23:17.640 --> 00:23:22.759
your credit facility too early. With control rights, we've seen where,

432
00:23:23.079 --> 00:23:26.119
you know, very early, if one of these lenders get

433
00:23:26.119 --> 00:23:28.160
stars in their eyes, we can get one hundred million

434
00:23:28.200 --> 00:23:30.799
in depth from one of these large firms, and we're

435
00:23:30.799 --> 00:23:33.480
going to give up ten percent and a board seat

436
00:23:33.680 --> 00:23:37.160
and you know consent on XYZ for M and A

437
00:23:37.359 --> 00:23:39.880
for this and that, and you know, a Series A

438
00:23:40.359 --> 00:23:42.920
or even seed stage company doing that, it's just leaving

439
00:23:43.000 --> 00:23:45.839
so much equity value on the table for their business

440
00:23:45.839 --> 00:23:50.400
by giving up that optionality and flexibility. So I think again,

441
00:23:50.519 --> 00:23:55.000
preserving optionality, preserving flexibility, keeping things simple as you're smaller

442
00:23:55.599 --> 00:23:57.039
generally are the keys to success.

443
00:23:57.559 --> 00:24:00.799
Yeah, that's a great point. As I think about I've

444
00:24:00.839 --> 00:24:02.720
been at Upstart a little over four and a half years,

445
00:24:02.720 --> 00:24:06.200
but the company has been around since twenty twelve. You know,

446
00:24:06.240 --> 00:24:09.480
we've certainly made a lot of changes on our product suite.

447
00:24:09.559 --> 00:24:14.000
So the first iteration of loans that were made by

448
00:24:14.000 --> 00:24:17.079
the company is not what the personal loan product looks

449
00:24:17.119 --> 00:24:20.240
like today. And now we've added on, added on new products,

450
00:24:20.279 --> 00:24:23.519
and I think if we had been constrained from R

451
00:24:23.559 --> 00:24:26.400
and D and really developing, that we wouldn't be the

452
00:24:26.440 --> 00:24:29.279
same company we are today. Do you think that's a

453
00:24:29.559 --> 00:24:31.960
is it A part of it is just the excitement

454
00:24:32.000 --> 00:24:34.279
of growing too wanting to grow too fast, that there's

455
00:24:34.319 --> 00:24:35.960
somebody here who wants to give you a lot of

456
00:24:35.960 --> 00:24:37.920
money and you want to say yes, and you want

457
00:24:37.960 --> 00:24:40.960
to access that and you want to experience that rocket ship.

458
00:24:41.079 --> 00:24:43.640
So you may put blinders on a little bit to

459
00:24:43.680 --> 00:24:45.160
what you're giving up as part of it.

460
00:24:45.880 --> 00:24:49.119
I think it's probably the twofold you know one many

461
00:24:49.200 --> 00:24:53.119
of the early stage firms may not have capital markets

462
00:24:53.160 --> 00:24:56.440
expertise on the founding team and may not be able

463
00:24:56.440 --> 00:24:59.200
to afford that higher. It's an expensive higher if it's

464
00:24:59.240 --> 00:25:04.039
not and know how of an existing founder, so you know,

465
00:25:04.079 --> 00:25:07.200
in that instance there may they may not know how

466
00:25:07.599 --> 00:25:12.240
how restrictive that those equity rights could be, or they

467
00:25:12.319 --> 00:25:15.640
can't you know, they's you know, hey, locking in a

468
00:25:15.720 --> 00:25:18.359
roafer with this large one firm and only having one

469
00:25:18.480 --> 00:25:20.799
capital funding source. You know, maybe they don't have the

470
00:25:20.920 --> 00:25:24.160
experience or understanding that. In COVID, some of these, you know,

471
00:25:24.200 --> 00:25:27.799
some firms pulled their funding and said, hey, material average change,

472
00:25:27.839 --> 00:25:30.640
no more funding. So it's just a lot of know

473
00:25:30.720 --> 00:25:32.920
how in that seat that can be expensive to buy

474
00:25:33.000 --> 00:25:35.559
and founders don't have it. I think that could contribute

475
00:25:35.559 --> 00:25:39.400
to making that decision. I think also fear of not

476
00:25:39.440 --> 00:25:42.680
finding other good options for capital, Like it's scary to

477
00:25:42.799 --> 00:25:46.039
choose a twelve month facility that's fifteen million and have

478
00:25:46.160 --> 00:25:48.680
to go get your next facility a year later. That

479
00:25:48.839 --> 00:25:51.559
is that those are two deals you have to get

480
00:25:51.559 --> 00:25:53.920
done instead of one, maybe even three deals you'd have

481
00:25:53.960 --> 00:25:55.960
to get done instead of this one multi year deal.

482
00:25:56.559 --> 00:25:59.519
So and then again they're you know, they're if it's

483
00:25:59.559 --> 00:26:01.880
a venture company, growth is the number is one of

484
00:26:01.880 --> 00:26:05.119
the number one metrics, and the that can seem to

485
00:26:05.160 --> 00:26:09.079
be a clear path there, Yet if you've seen it

486
00:26:09.119 --> 00:26:12.119
happen a number of times, there there can be pitfalls

487
00:26:12.119 --> 00:26:13.279
with making that choice.

488
00:26:13.640 --> 00:26:16.640
So sure, and I think we you know, we certainly

489
00:26:16.680 --> 00:26:21.799
saw and during during COVID, the funding markets changed very

490
00:26:21.920 --> 00:26:28.119
rapidly for in a almost in intra day, very fast

491
00:26:28.200 --> 00:26:31.039
early and early in twenty twenty. I know you you

492
00:26:31.119 --> 00:26:34.519
had mentioned we were talking previously that you're seeing more

493
00:26:34.559 --> 00:26:38.799
opportunities and where there's kind of distress sales happening across

494
00:26:38.799 --> 00:26:41.519
some originators. So just tell me more about that and

495
00:26:41.960 --> 00:26:45.039
what what is happening to some of those uh like

496
00:26:45.240 --> 00:26:49.119
distressed sales, what what preceded that, and kind of where

497
00:26:49.119 --> 00:26:53.599
those originators ended up having to to sell in the secondary.

498
00:26:54.680 --> 00:27:01.119
Sure. So really there's a whole cohort of finn specialty

499
00:27:01.119 --> 00:27:05.519
finance loan originators who were founded pre COVID and had

500
00:27:05.519 --> 00:27:09.440
to go through that period. And the COVID period was

501
00:27:09.480 --> 00:27:12.440
good for some and very hard for others. And there's

502
00:27:12.480 --> 00:27:15.400
this cobort that it really did not serve well. And

503
00:27:15.440 --> 00:27:18.400
the reason is twofold one. There was so much stimulus

504
00:27:18.400 --> 00:27:23.000
that origination volume for certain segments of lenders dried up completely.

505
00:27:23.279 --> 00:27:25.440
You know, for consumer lenders, it was tough. There was

506
00:27:25.960 --> 00:27:29.039
tons and tons of stimulus. Borrowers weren't needing to borrow

507
00:27:29.119 --> 00:27:32.519
because they were receiving a stimulus check. And then second,

508
00:27:32.720 --> 00:27:36.799
you know, as stimulus who were off certain loan originators

509
00:27:36.799 --> 00:27:39.680
had gotten more aggressive with lending criteria to be able

510
00:27:39.720 --> 00:27:42.160
to actually put loans on the street, and then when

511
00:27:42.200 --> 00:27:45.720
stimulus dried up, performance suffered. And so there's a cohort

512
00:27:45.759 --> 00:27:47.839
of borrowers that kind of sit in that narrative and

513
00:27:48.039 --> 00:27:50.799
struggled through that kind of twenty twenty to twenty twenty

514
00:27:50.839 --> 00:27:53.960
two period and have some black marks in their credit

515
00:27:54.039 --> 00:27:57.839
quality or origination volume history. And what we're seeing is

516
00:27:58.279 --> 00:28:00.680
those firms are not able to raise the series A

517
00:28:00.920 --> 00:28:04.119
v r C. And you know, the adventure community seems

518
00:28:04.119 --> 00:28:06.480
to have, you know, really turned their back on those

519
00:28:06.480 --> 00:28:09.200
types of firms. You know, it's if the story wasn't

520
00:28:09.319 --> 00:28:12.759
up into the right it's you know, hey, we're not interested.

521
00:28:13.359 --> 00:28:15.920
So a lot of those firms are burning through their runway.

522
00:28:15.960 --> 00:28:18.920
Now in the last year, there's been a number who've

523
00:28:18.920 --> 00:28:21.440
had to shut down, and as they're shutting down, one

524
00:28:21.440 --> 00:28:23.720
thing they need to clean up is selling their loans

525
00:28:23.720 --> 00:28:26.599
off whatever credit facility they have or wherever it's sitting

526
00:28:26.599 --> 00:28:29.079
on their balance sheet. And so, you know, again for

527
00:28:29.119 --> 00:28:31.720
our business, we're a secondary market buyer, so we come in,

528
00:28:31.839 --> 00:28:33.599
we try to get active on those deals and buy

529
00:28:33.599 --> 00:28:38.000
those lung portfolios on the flip side, it's interesting. So

530
00:28:38.039 --> 00:28:41.920
there's this whole cohort of of VC back companies that

531
00:28:41.960 --> 00:28:44.599
have kind of been abandoned to had black marks through

532
00:28:44.640 --> 00:28:47.720
COVID and aren't getting funded and or shutting down. But

533
00:28:47.799 --> 00:28:51.039
on the opposite side, we're seeing companies that were launched

534
00:28:51.240 --> 00:28:54.400
twenty twenty two and later who are showing you know,

535
00:28:54.519 --> 00:28:57.839
great performance, showing great growth, and are getting funded left

536
00:28:57.839 --> 00:29:00.480
and right by the venture community. So it's the kind

537
00:29:00.519 --> 00:29:03.359
of divergent path where we're seeing a lot of the

538
00:29:03.440 --> 00:29:07.559
new great originators tackling very specific borrower segments and really

539
00:29:07.599 --> 00:29:11.200
thoughtful ways we're responsibly and doing a great job. They're

540
00:29:11.200 --> 00:29:14.000
getting equity funded. Those firms are in need of credit

541
00:29:14.039 --> 00:29:16.960
facilities to grow and scale. And then on the other hand,

542
00:29:17.000 --> 00:29:19.680
these originators who started and probably have bad luck with

543
00:29:19.720 --> 00:29:22.640
timing are not getting funded, and so it's it's hard

544
00:29:22.640 --> 00:29:26.720
to see you know, the flame out happening more often

545
00:29:26.759 --> 00:29:30.640
and more often. And but then on the other side,

546
00:29:30.680 --> 00:29:32.960
there's all this happy, happy growth and story for the

547
00:29:32.960 --> 00:29:34.359
newly formed firms.

548
00:29:34.680 --> 00:29:38.279
Sure, and and honestly for firms like yourself, some of

549
00:29:38.279 --> 00:29:43.160
those uh distressed situations for other that where they were

550
00:29:43.200 --> 00:29:46.480
hit by bad timing or opportunities for other players in

551
00:29:46.519 --> 00:29:48.920
the market. And that's that's true everywhere, so across the

552
00:29:48.960 --> 00:29:51.960
market that there's there's always opportunity. It just depends which

553
00:29:52.240 --> 00:29:54.759
which side of it you're on. So I think that

554
00:29:55.640 --> 00:29:59.440
the timing pieces is important and obviously not something that

555
00:29:59.440 --> 00:30:01.079
those found could have known in advance.

556
00:30:01.160 --> 00:30:04.599
That maybe just a little.

557
00:30:04.359 --> 00:30:06.960
Bit of being a victim of bad news. And you know,

558
00:30:07.039 --> 00:30:09.559
similar to the bank failures last year, none of us

559
00:30:09.599 --> 00:30:12.039
really had that on our on our BINGO card for

560
00:30:12.079 --> 00:30:17.599
twenty twenty three, So a surprising, surprising event that had

561
00:30:17.599 --> 00:30:20.000
a lot of downstream impacts. So you know that you

562
00:30:20.039 --> 00:30:23.200
mentioned the green shoots that there are some originators who

563
00:30:23.279 --> 00:30:26.119
are are able to access and start to get into

564
00:30:26.200 --> 00:30:29.400
series A, Series B, anywhere else. You're seeing really like

565
00:30:29.559 --> 00:30:33.319
opportunity for originators on that side of the type of

566
00:30:33.359 --> 00:30:33.759
work you do.

567
00:30:34.880 --> 00:30:38.720
Yes, again, to reiterate I briefly mentioned in my last answer.

568
00:30:39.440 --> 00:30:47.000
The originators who are finding very specific borrowers segments and

569
00:30:47.079 --> 00:30:51.279
serving those in a really unique responsible way are finding

570
00:30:51.319 --> 00:30:53.559
a lot of traction in the venture community, is what

571
00:30:53.599 --> 00:30:57.799
we're seeing. So the more hyper niche a lender can

572
00:30:57.839 --> 00:31:01.359
get in the problem they're solving well, we're seeing more

573
00:31:01.359 --> 00:31:05.359
success with venture rounds getting done. Okay, that's interesting.

574
00:31:05.400 --> 00:31:07.240
So trying not to not trying to like boil the

575
00:31:07.240 --> 00:31:11.119
ocean with solving the problem for every person, every market,

576
00:31:11.119 --> 00:31:14.799
every asset class. But focus, do you have a preference

577
00:31:14.839 --> 00:31:19.880
as you think about loans like secured versus unsecured? Does

578
00:31:19.920 --> 00:31:23.400
your firm get involved in any secured loans as well,

579
00:31:23.480 --> 00:31:26.279
or are you going to focus specifically on one or

580
00:31:26.279 --> 00:31:26.599
the other.

581
00:31:27.839 --> 00:31:30.799
I like talking about this question, so I think the

582
00:31:30.799 --> 00:31:35.640
definition of security and unsecured has really has changed over

583
00:31:35.680 --> 00:31:40.279
time since probably twenty fifteen. And my first question is,

584
00:31:41.039 --> 00:31:44.640
you know, it's obvious that hard equipment like chapters, trailers,

585
00:31:44.799 --> 00:31:47.640
or real estate would be in the secured market, But

586
00:31:47.960 --> 00:31:51.799
would lending against a music royalty stream where the capital

587
00:31:51.880 --> 00:31:55.119
is paid directly from the streaming firms like Spotify, Apple

588
00:31:55.160 --> 00:31:58.000
YouTube into your own bank account as the lender, is

589
00:31:58.039 --> 00:32:01.759
that secured lending or unsecured. And so we're in this

590
00:32:02.000 --> 00:32:06.559
unique situation at peer where we're lending to these originators

591
00:32:06.599 --> 00:32:10.880
who have found the most ingenious quarters of cash flow

592
00:32:10.920 --> 00:32:13.640
to lend against that may or may not be tied

593
00:32:13.640 --> 00:32:16.680
to a physical hard asset but is that cash flow

594
00:32:16.720 --> 00:32:20.680
stream that they have their hands wrapped around a secured asset, So,

595
00:32:21.000 --> 00:32:23.480
you know, a peer, we certainly do deal with the

596
00:32:23.519 --> 00:32:28.000
most classic unsecured consumer loans where there is no clateral there,

597
00:32:28.000 --> 00:32:31.079
it's an unsecured personal loan. And then we have this

598
00:32:31.160 --> 00:32:33.559
gray area of things like the music boral, these cash

599
00:32:33.559 --> 00:32:36.920
flow streams, and then we have the most crystal clear

600
00:32:37.000 --> 00:32:41.759
secured things like equipment or real estate or auto and

601
00:32:41.799 --> 00:32:44.960
so that's a spectrum to us. And we used to

602
00:32:45.000 --> 00:32:48.119
look at our our firm and look at deals in

603
00:32:48.160 --> 00:32:50.799
that way, and we you know, we classify to secured

604
00:32:50.880 --> 00:32:52.640
or unsecured in the way we were thinking about it

605
00:32:52.839 --> 00:32:56.319
presenting it internally, and we actually pulled that off of

606
00:32:56.359 --> 00:32:59.920
our criteria years ago of how we how we view them.

607
00:33:00.079 --> 00:33:02.880
It's just it's a gray area and there's differences and

608
00:33:03.039 --> 00:33:05.920
good things about you know, one versus the other. So

609
00:33:05.960 --> 00:33:07.559
we do it all at pure as the answer.

610
00:33:08.000 --> 00:33:10.079
Okay, well that's a good point because I think that

611
00:33:10.920 --> 00:33:13.119
secured could be a physical asset, but in your case,

612
00:33:13.160 --> 00:33:16.559
it's a stream of you know, talking about like music

613
00:33:16.599 --> 00:33:19.519
reyalties as an example, like, it's not a physical asset

614
00:33:19.559 --> 00:33:21.480
at the end of the day, but there is a

615
00:33:21.559 --> 00:33:26.079
recurring revenue stream there driving it versus just a just

616
00:33:26.160 --> 00:33:29.240
a kind of an installment product. What are some of

617
00:33:29.240 --> 00:33:31.720
the most I think is you're thinking about those like

618
00:33:31.880 --> 00:33:36.839
niche opportunities where people are creating companies that are originators,

619
00:33:36.880 --> 00:33:40.240
that are lending to very specific areas. What are some

620
00:33:40.279 --> 00:33:42.519
of the most interesting things you've seen are the most

621
00:33:42.759 --> 00:33:45.119
most niche opportunities there.

622
00:33:46.160 --> 00:33:48.240
So a day we did as a past here that

623
00:33:48.279 --> 00:33:51.920
I learned was to a small business lender who would

624
00:33:52.000 --> 00:33:55.480
lend and be clatteralized by a license to the small

625
00:33:55.519 --> 00:34:00.599
Businesses Data asset. And before diving into this lender, I

626
00:34:00.640 --> 00:34:05.160
was unaware of the amount of liquid marketplaces there are

627
00:34:05.640 --> 00:34:09.519
for various data sets. And you know or there's also

628
00:34:09.639 --> 00:34:12.480
vast broker networks for certain types of data sets that

629
00:34:12.519 --> 00:34:15.440
can be liquidated quite quickly as well. And so it's

630
00:34:15.480 --> 00:34:19.920
everything from a healthcare company who has a trial data

631
00:34:20.079 --> 00:34:22.679
that they can sell that can be the piggyback jumping

632
00:34:22.719 --> 00:34:25.760
point for another healthcare trial. It could be a sneaker

633
00:34:25.800 --> 00:34:29.679
company who packages and sells the data for the number

634
00:34:29.679 --> 00:34:33.840
of times a consumer clicks on shoe options before buying,

635
00:34:34.000 --> 00:34:36.840
and how many clicks resulted in what sort of cart

636
00:34:37.000 --> 00:34:40.639
value and those sort of you know, various both data

637
00:34:40.639 --> 00:34:43.679
sets can be sold in lots of different ways and

638
00:34:43.719 --> 00:34:48.440
liquidated quickly. So fascinating firm that's doing, you know, small

639
00:34:48.480 --> 00:34:51.960
business data lending where I think during COVID everyone heard

640
00:34:52.000 --> 00:34:55.079
about the large deal where the airlines were selling customer

641
00:34:55.119 --> 00:34:59.280
lists or information about their loyalty programs and that is

642
00:34:59.280 --> 00:35:02.920
helping these uh these airlines day afloat during COVID period,

643
00:35:03.159 --> 00:35:04.639
and so it was it's that but on a very

644
00:35:04.679 --> 00:35:08.119
micro scale and with this liquid data. So it's an

645
00:35:08.280 --> 00:35:11.440
interesting deal. In the book, we really like that lender.

646
00:35:12.519 --> 00:35:14.960
Fun the fun things that we've seen that we haven't done.

647
00:35:15.119 --> 00:35:19.280
You know, there is one lender who was like leasing pets,

648
00:35:19.320 --> 00:35:23.239
like actually the physical animal and we've been out adult

649
00:35:23.280 --> 00:35:26.679
concerns about like buffer they repossessing a dog, and it

650
00:35:26.760 --> 00:35:28.599
was we were too busy in the time to dig

651
00:35:28.639 --> 00:35:30.400
in and so perhaps this firm is great and it's

652
00:35:30.400 --> 00:35:33.280
a wonderful lender, but at the time it was just

653
00:35:33.280 --> 00:35:34.960
a quick like, oh, we're too busy with other things.

654
00:35:35.000 --> 00:35:39.519
That move on. So we see, we see really things

655
00:35:39.559 --> 00:35:42.400
across the board. I would say another another one that

656
00:35:42.400 --> 00:35:45.800
we we liked is a lender who lends to students

657
00:35:45.880 --> 00:35:49.000
going to software coding camp. It's a very specific niche lender.

658
00:35:49.039 --> 00:35:51.159
They can really understand that bar and what they do,

659
00:35:51.480 --> 00:35:53.920
what the placement out of the school is. Yeah.

660
00:35:54.000 --> 00:35:57.559
I think the lending for pets one has actually come

661
00:35:57.639 --> 00:36:01.199
up anecdotally here as we've been talking about other other

662
00:36:01.239 --> 00:36:04.079
companies and what they do. And there's a company not

663
00:36:04.199 --> 00:36:07.039
just the leasing, but the loans for the pet stores

664
00:36:07.079 --> 00:36:10.280
where it's a you know, really an overpriced animal in

665
00:36:10.320 --> 00:36:14.480
many cases and to somebody who probably is not should

666
00:36:14.519 --> 00:36:18.280
not be maybe borrowing to buy a puppy what maybe

667
00:36:18.320 --> 00:36:21.000
a puppy mill dog. And it's always interesting like what

668
00:36:21.039 --> 00:36:24.159
could the consumer consequences of that? And and and who

669
00:36:24.199 --> 00:36:28.400
regulates a company that does that that sort of business?

670
00:36:28.440 --> 00:36:32.199
So certainly interesting. Yeah, and I think the you know,

671
00:36:32.239 --> 00:36:34.239
how do you think that? It kind of raises a

672
00:36:34.559 --> 00:36:37.000
really a last question for me then, like, as you're

673
00:36:37.039 --> 00:36:41.400
thinking about about other companies like that where you're you're

674
00:36:42.079 --> 00:36:45.159
gonna set up a facility for or or even buying

675
00:36:45.840 --> 00:36:49.159
secondaries from how do you think about things like privacy,

676
00:36:49.360 --> 00:36:52.559
reputational risk, so not just kind of the quantitative parts

677
00:36:52.559 --> 00:36:56.440
of the deal, but the more kind of subjective risks

678
00:36:57.400 --> 00:36:59.800
in evaluating who you do partner with or who you

679
00:36:59.800 --> 00:37:00.840
work with in the future.

680
00:37:01.599 --> 00:37:04.360
That is at the forefront of our decision making before

681
00:37:04.400 --> 00:37:08.159
even getting into the qualitative aspects of a product. So

682
00:37:08.800 --> 00:37:11.480
things that may resemble payday lending, you know, are where

683
00:37:11.480 --> 00:37:15.800
it's the bar doesn't have a great path to success

684
00:37:15.800 --> 00:37:17.679
in paying off a loan, where it's you know, loaning

685
00:37:17.719 --> 00:37:19.960
stacking and that sort of thing. You know, that's a

686
00:37:20.000 --> 00:37:23.440
big no no for us at peer you know, again,

687
00:37:23.960 --> 00:37:27.159
challenges with usery rates across states that can raise flags

688
00:37:27.239 --> 00:37:30.800
for us. You know, we were fortunate that there's such

689
00:37:30.800 --> 00:37:33.360
a wide swath of great businesses to work with that

690
00:37:33.400 --> 00:37:38.639
are serving really useful, really productive purposes that it's quite

691
00:37:38.719 --> 00:37:41.800
clear and easy to pick those off the top and

692
00:37:41.840 --> 00:37:44.559
say those are the ones we want to pursue. And

693
00:37:44.679 --> 00:37:46.960
anything that has a sort of ick factor, you know,

694
00:37:47.000 --> 00:37:49.119
we don't need to reach for or spend time on.

695
00:37:50.239 --> 00:37:55.000
Consumer lending products obviously have a greater compliance environment than

696
00:37:55.079 --> 00:37:57.440
commercial loans, and so we have to have a greater

697
00:37:57.519 --> 00:38:00.960
scrutiny when we're getting involved with consumer lunch and sumer lending.

698
00:38:01.000 --> 00:38:03.239
We do a lot in the space, and it's really

699
00:38:03.320 --> 00:38:06.719
just about understanding it, making sure your your counterparts have

700
00:38:06.840 --> 00:38:11.159
the correct licensing, have a great compliance environment internally, and

701
00:38:11.199 --> 00:38:13.159
then you can be funding great products that are helping

702
00:38:13.239 --> 00:38:18.119
people in fantastic ways. So it's yeah, it's it's it's

703
00:38:19.119 --> 00:38:20.559
I think it's one of those things where it's like,

704
00:38:20.559 --> 00:38:23.360
you know when you see it to stay away, and

705
00:38:24.239 --> 00:38:27.119
our space is so small, the specialty finance corner of

706
00:38:27.119 --> 00:38:31.159
the world that we all live in, and it's it

707
00:38:31.239 --> 00:38:33.559
helps in both directions. It's very easy to work with

708
00:38:33.599 --> 00:38:36.679
great companies and great people because you know, you can

709
00:38:36.719 --> 00:38:40.559
triangulate with contacts that you're close with to get great references,

710
00:38:40.800 --> 00:38:42.239
and then on the flip side, you know you can

711
00:38:42.280 --> 00:38:44.559
also learn about firms who may not be doing things

712
00:38:44.599 --> 00:38:47.000
so well in a quite quick way with a few

713
00:38:47.039 --> 00:38:50.079
phone calls. So it's I think it's helpful being in

714
00:38:50.079 --> 00:38:53.239
such a niche space with a number of close people

715
00:38:53.320 --> 00:38:56.000
who've been at this for about a decade now.

716
00:38:56.519 --> 00:39:01.360
Sure, sure, And I do think the the uh, the

717
00:39:01.360 --> 00:39:06.440
good players will self regulate absolutely, absolutely, and and and

718
00:39:06.480 --> 00:39:09.960
collectively there's a there's a lot of industry associations that

719
00:39:11.079 --> 00:39:14.000
are dedicated to really like helping us share that guidance,

720
00:39:14.079 --> 00:39:16.920
provide the guidance, and and some of the larger companies

721
00:39:17.480 --> 00:39:21.920
who may have more resources and have more experience in

722
00:39:21.960 --> 00:39:24.440
the market, can help provide that to some newer originators

723
00:39:24.440 --> 00:39:27.480
as well. So I think there's a lot of partnership

724
00:39:27.480 --> 00:39:30.639
happening across the across the fintech industry goes in.

725
00:39:30.760 --> 00:39:34.840
It's better for everyone when people are, you know, originators

726
00:39:34.840 --> 00:39:37.480
are doing things the right way. So it's it's really

727
00:39:37.920 --> 00:39:40.920
great to see firms like like yours who are providing

728
00:39:40.920 --> 00:39:43.000
that guidance and and getting out there and being the

729
00:39:43.079 --> 00:39:44.840
leaders and examples and compliance.

730
00:39:45.639 --> 00:39:49.400
Absolutely so well, thank you, definitely, thank you for for

731
00:39:49.480 --> 00:39:52.920
joining us on the podcast. Certainly interesting to hear about

732
00:39:52.960 --> 00:39:55.639
the work that you've done and are doing it. Pere

733
00:39:55.800 --> 00:39:59.519
and any any last uh kind of hot takes or

734
00:39:59.559 --> 00:40:01.079
thoughts to leave us with.

735
00:40:01.719 --> 00:40:06.280
Ooh fun question. Oh very specific to what we do.

736
00:40:06.519 --> 00:40:12.440
But the other early stage credit facility providers or firms

737
00:40:12.480 --> 00:40:15.599
seem to or really like to take equity or invest

738
00:40:15.599 --> 00:40:17.760
in equity and the firms that they work with, I

739
00:40:17.760 --> 00:40:19.880
think it makes a lot of sense because they're providing

740
00:40:19.920 --> 00:40:24.000
a lot of equity value. I really disagree with that

741
00:40:24.039 --> 00:40:26.480
because I think it makes you a bad predator. So

742
00:40:26.559 --> 00:40:29.119
that's my hot take against a lot of what the

743
00:40:29.159 --> 00:40:31.960
general tie thinks and does. So I think as a

744
00:40:32.079 --> 00:40:34.400
creditor and doing credit facilities, you should not own the

745
00:40:34.440 --> 00:40:38.079
equity in the companies because then you can really enforce

746
00:40:38.119 --> 00:40:40.280
your rights. Is that senior security lender and you're not

747
00:40:40.360 --> 00:40:43.159
conflicted by owning the equity in a business, And that

748
00:40:43.239 --> 00:40:46.039
seemed to be quite a common practice, but we I

749
00:40:46.079 --> 00:40:48.599
say no to that. Great, well, good.

750
00:40:48.679 --> 00:40:51.800
It sounds like being a founder is the right place,

751
00:40:51.840 --> 00:40:55.039
so you can kind of branch out on your own

752
00:40:55.079 --> 00:40:57.719
with those new ideas. But it makes a lot of sense,

753
00:40:57.800 --> 00:41:00.199
right the conflict of conflicts of interest. If you are

754
00:41:00.280 --> 00:41:02.239
kind of on both sides of it, it's a little

755
00:41:02.239 --> 00:41:04.280
bit harder to draw a line in the sand.

756
00:41:04.880 --> 00:41:07.679
Exactly. Yeah, that's my hot take. That awesome.

757
00:41:07.760 --> 00:41:10.639
Well, thank you, thanks again for joining us here on

758
00:41:10.719 --> 00:41:11.440
leaders Lending.

759
00:41:12.000 --> 00:41:14.199
Thank you for having me, Lynn, I really appreciate it.

760
00:41:14.719 --> 00:41:17.159
Up Start partners with banks and credit unions to grow

761
00:41:17.199 --> 00:41:21.159
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762
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764
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