Peerform is Back With an Interesting New Investment Partner Random Forest Capital

I first wrote about Peerform way back in 2010 when they began life as Lendfolio. Even though they are not that well known beyond marketplace lending enthusiasts they are in fact the third oldest platform still operating in the US – behind Prosper and Lending Club.

I haven’t covered Peerform for almost three years so when their founder Mikael Rapaport contacted me recently I was curious to find out what they had been up to. It turns out a lot has happened at Peerform since 2014.

Late last year Strategic Financial Solutions (SFS) a leading debt settlement company, acquired Peerform and they have been building out new product offerings. Speaking of which they have three distinct products today:

  1. Marketplace loans – unsecured consumer loans, typically prime or near prime borrowers, up to $25,000 with rates ranging from 5.99% to 29.99%.
  2. Direct pay consolidation loans – unsecured debt consolidation loans, mostly prime consumers, where the debts are paid directly to the credit card company.
  3. Debt negotiation loans – debt settlement customers who qualify to accelerate their settlements with a loan.

SFS looked at many marketplace lending platforms before deciding to acquire Peerform. They were impressed by their underwriting and regulatory sophistication, their strong brand presence online, their low customer acquisition costs and how they had been frugal with the capital they had raised.

Peerform has been online since 2010 and so have an established web presence. Because of this they get a great deal of free traffic from Google – appearing on the first page of results for many popular search terms. This alone made them a very attractive acquisition target for a company like SFS.

A New Investment Partnership

Enter Random Forest Capital. They are a new investment management firm started last year with a focus on data science and machine learning. They love taking masses of unstructured data and not only making sense of this data but finding new predictive power in this data.

Kevin Farrelly and Austin Trombley (formerly of Prosper) are the co-founders and both have an obsession with data. This is what led them to Peerform. They wanted to partner with a platform that could give them far more than the hundred or so standard data points from the main bureaus. Peerform overhauled their APIs to be able to pull in thousands of data attributes and millions of data points for analysis.

The team at Random Forest was able to build proprietary credit models using this new data which they said was more data than is available from any other marketplace lending platform today. As Kevin pointed out, “the money will go where the data is”.

What they also appreciated about Peerform was that they allowed active selection of loans. Most platforms today don’t allow active selection from institutional investors but Peerform encourages it. They also buy some of their own loans in the marketplace and hold the assets on their balance sheet.

While Random Forest has invested in the regular unsecured consumer loans they like the access they can get to a unique product, the debt negotiation loans. Random Forest is the first outside investor to buy these loans and because this is not a standard product there was a unique data challenge in building models for these loans. But that is their core competency and while they have only been buying loans for a short time they like what they have seen so far.

Random Forest also invests in other asset classes beyond consumer credit. They have positions in secured auto, fix and flip real estate and secured commercial debt – bringing their unique data science skills to each asset class.

My Take

While many of the early challengers to Lending Club and Prosper are no longer around Peerform is still going strong. In fact, they are one of the few platforms that have been acquired and are thriving inside their new parent.

They have become a hybrid platform using their marketplace and balance sheet to grow their lending operation. Their deal with Random Forest is an innovative one and the new loan products they are bringing to market are unique in the industry. Peerform has clearly blazed some new trails and they are now a company to watch.

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