New P2P Lender, Daric, Files an S-1 Registration

Daric

For many years now retail investors interested in p2p lending have had two options: Lending Club or Prosper (unless you live in one of the disallowed states). That is about to change. Last week, Daric, a new entrant into this market, filed an S-1 registration with the SEC.

What does this mean? When their S-1 registration is approved Daric will be able to attract regular investors, not just accredited investors.

Over the last couple of years we have seen a couple of companies get started looking to compete with Lending Club and Prosper. There was Peerform that launched in 2011 – they are still operating but have failed to attract enough funding to be a legitimate competitor. Then there is Circleback Lending, who I reviewed in February; they have recently opened for accredited and institutional investors. But neither of these companies has filed an S-1 registration that will allow them to attract regular investors.

This is why the emergence of Daric is significant. They are not positioning their platform for just high net worth individuals and hedge funds to attract investor money; they are looking to retail investors. I reached out to the management team at Daric this week but unfortunately they could not talk with me because they are in a quiet period right now while their S-1 registration is pending.

But I can tell you this. I did a little digging and they have raised significant seed capital from some heavy hitters in financial services. Former Wells Fargo CEO and Chairman Richard Kovacevich, who is one of this country’s most experienced bankers, is an investor and advisor. The Johnson family, who founded Franklin Templeton Investments, are also investors.

The S-1 Registration

The Daric S-1 registration is public record so most of what we can learn about Daric right now is included in this document. Here are some highlights:

  • Loans will be from $1,000 to $35,000.
  • Borrowers will be assigned loan grades A1-G5 at interest rates ranging from 6% to 25%.
  • At launch loans will be issued to borrowers in California, New York, Florida, Texas and Illinois.
  • Loan origination fees will range from 0.75% for A-grade loans to 3% for G-grade loans, slightly lower than Lending Club and Prosper.
  • Minimum borrower eligibility: FICO score of 660 or above, no current delinquencies or recent bankruptcies.
  • Investors will incur a 1% service charge on all loan payments.

As you can see Daric is basing their model very closely on Lending Club. They have the same loan grade breakdowns and service fee model. In fact, when you look at their expected default rates they mimic Lending Club’s expected default rates exactly as detailed in Lending Club’s latest prospectus. An interesting side note is that Daric is based in Redwood City, California which is the former home of Lending Club. But to attract investors Daric will need to be more than just a Lending Club clone.

Once their S-1 registration is approved, and if all goes well that should be some time in September, I will provide much more detail on Daric including a Q&A with their CEO. For now, I believe they are a company to watch closely.

Comments

  1. Randawl says

    This is very interesting and exciting news!

    I’m glad to hear that another competitor is soon to be added into the mix that is available to regular investors. With borrowers initially restricted to being from CA, NY, FL, TX, and IL, I wonder if there will be similar restrictions on the investor side regarding state of residence.

  2. HotKarl says

    Another exciting day for online lending!

    Looks like copying LendingClub (who is not mentioned once in the S-1, even as a competitor!) with slightly stricter borrower requirements, not sure how they plan to scale up to recoup fixed costs, or differentiate from LC or Prosper since there really isn’t anything Daric will be doing that’s new, just trying to undercut on price on select loans. I hope I’m wrong but this doesn’t appear to be innovative.

    From the S-1, 3rd paragraph under “about the loan platform”:
    “We have positioned ourselves in the peer to peer lending market as a platform for higher quality borrowers. To borrow on our platform, borrower members must have a minimum FICO score of 660, a debt-to-income ratio (excluding mortgage) below 30% and no current delinquencies, recent bankruptcies*, collections or open tax liens.”

    *defined as less than 7 years later in doc

    Marketing- nothing new
    “We will attract members to our website, http://www.Daric.com, through a variety of sources. We will drive traffic through referrals from other parties (which include online communities, social networks and marketers), through search engine results and through online and offline advertising.”

    Lenders might be able to see a borrower’s education level?
    “Borrower members supply a variety of unverified information that is included in the borrower member loan listings on our website. This information includes a borrower member’s stated social affiliations (such as educational affiliations), home ownership status, job title, employer and tenure. Lender members also have no ability to verify borrower member information.”

    Interesting:
    “We reimburse lender members for the unpaid principal balance of a Note that is dependent on a member loan obtained through identity fraud”
    “As of March 31, 2013, we employed 3 full-time employees.”

    Very interesting:
    Looks like they’re missing a competitor here; in fact, there isn’t one mention of Lending Club in the entire document. Maybe they haven’t heard of them 😉
    “Our competitors in the peer to peer lending space include Prosper Marketplace, Virgin Money, Daric and Zopa. Some of our competitors focus on a broader range of borrowers than we do, including sub-prime borrowers. Our exclusive focus is higher quality borrowers.”

    • says

      I noticed that above quote and I think it was just a simple mistake. They say they are competing with Daric which is obviously wrong. They also mention Virgin Money and Zopa, neither of which have been operating in the U.S. for several years. That whole paragraph should have been proofread by someone who understands the industry.

    • Tim Johnson says

      The reason they don’t mention LC is because 1. they lifted the language directly from Lending Club’s filing when Zopa (no longer in US) and Virgin (no longer in US) were “competitors” and then 2. instead of adding Lending Club they added themselves as their competitor LOL

  3. says

    Thanks Peter. A truly significant turn of events. I wish Daric huge success. Peer to peer lending has been significantly improved through the competition of our two parties, so three should really shake things up for the better.

    I am interested if they simply mimicked Lending Club with their S-1 to gain approval, and plan to innovate later. Looking at their filings, they say they plan to differentiate themselves with “higher quality borrowers”, but this sounds like a stock answer considering they have the same 660 FICO, etc. Once they’re up and running, I bet we will begin to see the actual differentiation happen, and I am sincerely thrilled to see what that entails.

    Interesting they’re going with the black/yellow coloring as opposed to the red/blue mix we have now. Also interesting is this “we can help you collateralize your hard assets, such as gold” approach. Any thoughts on this?

    Welcome Daric. Good luck getting Texas :)

    • says

      Simon, The management team of Daric have a history in hard assets like gold, so I think it will be very interesting to see if they bring any innovations in that area. I agree there will be some differentiation from LC that will be apparent when they launch.

      And I would be very surprised if they try and get Texas as a lender state – there is no mention of lender states in the prospectus at all, only borrower states. The TX mention was for borrowers only.

    • says

      “Interesting they’re going with the black/yellow coloring”

      If I recall correctly, Lending Club started out with black/gold/yellow/orange color too.

      I think collateralizing gold for investors is an interesting twist. Basically, Daric will try to generate income from non-income producing assets. Sign me up! If S-1 and website is any indication, I believe Daric will bring some new innovations to p2p lending. LC and Prosper seem to have stopped innovating and just focusing on increasing loan volume and growth.

      • says

        I agree Anil. The level of innovation for retail investors in the last 2-3 years has been almost non-existent at LC and Prosper. So there is plenty of room for innovation from a third company – I am looking forward to see what they come up with.

  4. says

    Not sure what to think about this move. I may be a good diversification not to have all eggs in one Lending Club. Let’s see what their platform will look like.

    • says

      Disagree with the comment about “total lack of barriers to entry” in p2p lending. Filing an S-1 registration typically costs between $500K and $1 million in legal fees – that is a barrier.

        • SeattleSun says

          Edit: replace with “…..we used to round all our estimated project cost numbers to the nearest million….”

        • says

          Yes, it is all relative. But I know the S-1 registration requirement is a barrier to entry here. I have been contacted by many entrepreneurs who have been looking to get started in this space but struggle to attract the funding needed to do an S-1.

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *

Notify me of followup comments via e-mail. You can also subscribe without commenting.