Industry Veterans Create Private Equity Fund for Marketplace Lending

LendTech_Fund_Launch

LendTech Capital Partners is a new investment advisor focused on equity investments in the marketplace lending industry. Their newly created fund brings together industry leaders Liberum, Ranger Capital, and Velocity Venture Group.

Liberum is a London based investment bank that has raised over $1.9 billion for marketplace lending funds and platforms. Ranger Capital has two offerings in the marketplace lending industry. The Ranger Specialty Income Fund is their private fund that invests on US platforms and the Ranger Direct Lending Fund is a publicly traded fund on the London Stock Exchange (RDL). The final partner, Velocity Venture Group has investment experience in the payments, transaction services and banking industries deploying over $3 billion. We spoke to Bill Kassul, who is Partner at the Ranger Specialty Income Fund to learn more about LendTech Capital Partners.

They began talks about the creation of what became LendTech in late 2014. Both Liberum and Ranger have been around the marketplace lending industry for quite some time and have had an immense amount of experience doing due diligence and making debt investments on various platforms. They continued to see companies flourish as the platforms were able to bring in debt investors and the team felt they were leaving money on the table by only having exposure to debt investing. There were instances where they could negotiate warrants and options as part of these deals, but they still lacked a focus when it came to private equity investments.

Ranger doesn’t have a private equity group, but they saw an opportunity to bring on others with experience in this area. With their public fund in London, they had the option to invest 10% of the funds raised in equity, but for many reasons they have not done much in the way of equity investments so far. They didn’t see the need to increase the risk in the fund which is already doing well returning 12%. In addition, many of the platforms they work with are already profitable so they have little need for capital in exchange for giving up equity.

So they connected with Liberum and eventually Velocity Venture Group to bring in more expertise with the goal to focus specifically on equity investments. The demand for such an investment fund came organically and Bill told us that both Ranger and Liberum were often approached by other firms who wanted to know when they were going to do debt investments so they could piggyback off the deals. Due to their experience in the history they have a unique perspective of the industry across the globe. After they had brought Liberum into the mix they still had the issue of not having a U.S. private equity partner which is where Velocity Ventures came in.

The team at Velocity Ventures, including Andrew Rueff, had experience doing large deals in the payment processing industry, but approached Ranger due to the tie-in of payment processing and small business lending. Velocity Ventures had focused on FinTech, but naturally moved into direct lending as they believed this would lead to unique origination flow.

Bill stated that LendTech will benefit by having three partners, each bringing something unique to the table. They are starting to raise money for the new fund, but already have investors lined up and have a few deals in the pipeline. The fund will invest in seed rounds, Series A and early Series B rounds. LendTech will help incubate the companies and as these companies grow bigger investors will take over in future funding rounds. They anticipate investments will be in the $3 to $5 million dollar range (total for seed plus Series A)  and will likely be split 50/50 between the US and international investments. Bill told us that the biggest opportunity is when you take a platform and give them debt they are set to grow. At that point, it often makes sense to do an equity investment to participate in the upside of that growth and LendTech can now provide that.

When we asked Bill about current valuations in the market he didn’t seem that worried. He thinks some concerns are overblown and that if we were to experience a broader downturn the industry will weather it much better than most people think. And once we get through such an event and investors see that this industry suffered very little in the way of principal loss then the floodgates will open. We will come out on the other side at a much better place than we are today and the big money will notice that.

Conclusion

The creation of a private equity fund focused on this industry will be welcome news to platforms in the industry. The team is well equipped to access deal flow and evaluate companies through their extensive experience in the industry. LendTech is entering the market at a time when the sentiment for some investors has changed and that will provide both challenges and opportunities for them. It will be interesting to stay on top of any investments they make public.

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