New P2P Lender Daric Launches Today

We first heard about Daric in the summer when they made a bit of a splash by filing an S-1 registration with the SEC. They were the first company outside of Lending Club and Prosper to file an S-1 in this industry.  The significance of an S-1 is that it allows a company to sell their securities (in this case the p2p loans) to the general public and not just to accredited investors.

Fast-forward a few months and the S-1 registration is still in process. But Daric is moving forward anyway. Over this past weekend Techcrunch broke the story that Daric would be launching this week. So, I called their CEO and Co-founder, Greg Ryan, to get the scoop. He confirmed that Daric is launching today but it will be a small and conservative launch. Daric is already completely open to borrowers and will scale up for accredited investors soon. However, they will not be open for retail investors until some time next year. The significance of today, though, is that Daric will begin issuing loans to borrowers.

Open Today for Accredited Investors

While they plan on completing their S-1 next year they have decided to launch for accredited investors initially. This requires no S-1 registration and is a much easier process. While I would like to see another option for retail investors I actually think this is a good move. It simplifies their launch dramatically.

According to Ryan, they have more than $1 million in borrowers ready to go and will be slowly issuing these loans in the coming days and weeks. They also have 200-300 accredited and institutional investors who have expressed interest, more than enough to fund these initial borrowers. In fact, Ryan said they really don’t need any new investors at this stage and this is why there is no signup option on their Investor page.

When I asked him about the S-1 registration he said that Daric is still very committed to retail investors. But it made sense for them to start slowly and ensure all their systems are working well before they scale to take on retail investors. Just as Lending Club and Prosper have maintained support for retail investors long after they really needed them, Daric sees retail investors as important. Not only does it provide a diversified capital base but borrowers like the peer to peer aspect of the business – borrowing from individuals rather than a large hedge fund or insurance company.

An Automated Approach

While initially all processes will be manual Ryan said that they intend to have the first fully automated underwriting system of any p2p lender. At Prosper and Lending Club borrowers always need to communicate with a person during the loan application process – at Daric that will not be the case. They intend to use software and systems to handle all aspects of underwriting. Ryan says that they have been working with some of the smartest minds in consumer and small business lending – taking their knowledge and building automated systems that will make underwriting decisions.

This is a lofty goal and it remains to be seen whether Daric can pull this off. It will likely mean borrowers will get their cash more quickly which should result in less cash drag for investors. But how good will these systems be at identifying bad credit risks? And what about fraud? These questions are yet to be answered. But if they can make this happen it will mean Daric will have a much easier time achieving scale than Lending Club or Prosper.

Building a Technology Company

This was a theme that was often repeated during our conversation. Daric is not looking to the banking and credit card industries to build their team as Lending Club and Prosper have done. First and foremost they want a technology-focused team. Ryan considers Daric more of a technology company than a financial services company.

Right now their team consists of Ryan and two Stanford educated computer science engineers. Ryan says their next hires will be engineers as they see technology as the key to their success. And being based in the Bay Area, Stanford will provide a good source of leads for Daric.

Launching With Small Business and Consumer Loans

Daric is not content to just offer consumer loans. They are launching with consumer and small business loans for investors. The maximum loans size for consumers is $35,000 and for small business loans is $50,000. The minimum FICO score for consumers will be 660.

Ryan maintains that from a systems perspective underwriting consumer and small business loans is not that different. You need reliable data and then systems that can analyze this data and make a decision. They will be building a ratings system for both consumers and small businesses.

What About Investors?

As I said earlier Daric will be open only for accredited and institutional investors initially. Their loan marketplace is not ready for launch yet; loans are being funded in a manual way by the more than 200 investors that have signed up. The minimum investment per loan will be $25 and service fees will be 1% in keeping with the industry standard.

Ironically, even though Daric is a complete startup they have received strong interest from investors already. So much so that they not actively seeking new investors right now. You can send an email to their investor support email address (investorsupport@daric.com) to express interest but they have enough investor dollars to fund their first wave of borrowers.

Daric’s Goals Are Very Ambitious

What I like about Daric is that they are taking a completely different approach, questioning everything that their predecessors have done. By doing this they have set themselves some very lofty goals. Many will scoff that what they are trying to do is simply impossible. That you cannot create a completely automated system to underwrite loans. That small business loans are so different to consumer loans that you should not launch with both kinds of loans.

The skeptics may well be proved right, I don’t know. I will be signing up as an investor so I can at least keep close tabs on what they are doing. And I will be following up with a more in depth post once they have some operating history. Whatever happens Daric is bound to create some waves in 2014.

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writing2reality
Nov. 27, 2013 12:06 pm

I’m glad there will be another player in the market and obviously hope they continue through with the plans of being available for retail investors. The more options the better as it will push the industry even further. We’ve seen where both Lending Club and Prosper have made moves to emulate the other so continued improvement is welcome. I am also very interested to see how they end up pricing and offering the small business loans as historically this is a relational business, so automation takes that out aspect of the picture.

As an aside, Peter you’ve invested in several other opportunities as an accredited investor. Would you be will to share your progress/performance in some of your other investments in addition to those you already provide with Lending Club and Prosper?

writing2reality
Nov. 27, 2013 12:58 pm
Reply to  Peter Renton

Very different indeed. I am looking forward to how the technological approach alters the perspectives provided by those who started in the banking and credit card industries.

Thank you Peter. Your level of transparency is appreciated and respected by all of us, and one that I know I strive to emulate with my own blog.

nonattender
nonattender
Nov. 28, 2013 3:19 pm

Let’s start small. What’s with the name?

Frances
Frances
Dec. 6, 2013 8:36 pm

Is the website working? I tried applying but the website does not work properly. I sent an email but never received a response. Just wondering if anyone else is going through the same.

Frances
Frances
Dec. 7, 2013 8:58 pm
Reply to  Peter Renton

Thank you

joseph martins
Mar. 25, 2014 12:21 pm

I’d put an experienced home financing operations staff up against Daric’s algorithm and overall process any time. And I feel completely confident stating that Daric will underperform on all but the most vanilla applications and circumstances.

Why? Home financing is ripe with nuance and exceptions as well as constantly evolving rules and interpretations of the rules. It is true that IBM’s Watson — quite possibly the most advanced AI on the planet — did well with what amounts to memorization combined with a virtually flawless reaction time. But home financing isn’t Jeopardy and Daric isn’t Watson.

If Greg Ryan is interested, I’d be happy to assemble a team and arrange that challenge. If Daric outperforms (measured by loan quality, accuracy and risk, not speed obviously) then Mr. Ryan will have earned some very powerful bragging rights. If Daric, fails, well….I suggest the company rethink its future.

joseph martins
Mar. 25, 2014 9:54 pm
Reply to  Peter Renton

Thank you for the clarification Peter, I appreciate it. I was mistakenly under the impression it was also engaging in or planning to engage in mortgage lending. Now it all makes sense to me.

If ever the company wishes to venture into the mortgage industry, the offer stands. 😉