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.