When I profiled Orchard back in February, the company was just a few months old and fresh off a $2.7 million funding round. But that wasn’t your typical seed round—Orchard attracted the likes of Vikram Pandit, the former CEO of Citigroup and Tom Glocer, the former CEO of Reuters as investors in that round.
While that was impressive, today they have announced a $12 million funding round from a group of A-list players in our industry. These are people with deep histories and intimate knowledge of the inner workings of p2p lending. But before I get to that, a quick primer for those of you who don’t know Orchard.
Orchard Platform traces its roots back to the LendIt Conference in 2013 where co-founders Matt Burton and Angela Ceresnie presented on some of the challenges facing p2p investors. This led them to create the first company devoted to providing the infrastructure that connects institutional investors with loan originators. They started with Lending Club and Prosper and now connect multiple platforms to their growing investor client base. They provide institutional investors with real-time trading and reporting, investment strategy, data analysis as well as access to loan supply.
I caught up with Orchard CEO Matt Burton earlier today to discuss this new funding round and the names that participated.
“We went out trying to get one or two big names into this round,” said Burton. “We had more interest than we expected and we ended up with many big names.”
Who are These New Investors in Orchard?
John Mack – former CEO of Morgan Stanley and an existing Lending Club board member.
Nigel Morris – co-founder of Capital One and an existing Prosper board member.
Hans Morris – former president of Visa and an existing Lending Club board member.
Max Levchin – co-founder of Paypal and currently CEO of Affirm.
Not only that, Ron Suber, president of Prosper, invested in this round as well as Anthony Abenante, former CEO of Instinet. The round was actually led by Spark Capital and Canaan Partners, who also led Orchard’s first round last year.
So what will Orchard do with this large cash war chest? Burton pointed out a number of important priorities:
Enable expansion to Europe where Orchard plans to open a London office in the first half of next year.
Expand their technology to additional loan originators.
Do the legal and regulatory work necessary to prepare for the secondary market.
Help create new financial products such as a closed end fund or an ETF.
When I asked Burton if we would see an Orchard ETF any time soon he was quick to point out that Orchard does not want to enter the wealth management business. Or the loan origination business for that matter. He sees Orchard’s role as connecting wealth managers and other institutional investors to the growing list of loan originators. So, we might see an “Orchard-enabled” ETF some time in the near future.
The rapid growth of the industry this year has surprised Burton. Orchard has exceeded their own growth projections in 2014 as the industry has exploded. “No one saw the amazing growth at Prosper coming this year, or the large number of new platforms coming online,” said Burton.
Speaking of Prosper, it was very interesting to see that Ron Suber, president of Prosper, as a big supporter and now an investor in Orchard. I also reached out to him for a comment this morning. “A diverse, efficient and automated ecosystem linking retail and institutional capital to the numerous online market places for credit globally will be critical in the year ahead as our industry scales,” said Suber. “Orchard is one of many platforms providing analytics, reporting, transparency as well as education, awareness and understanding which remains our industry’s competition.”
Orchard is clearly one of the leaders in this industry today. They have quickly established themselves as the leading option for institutional investors looking to enter the space today. According to Burton, they have been able to do that because they have put together a very strong team that is building world-class technology. He also sees Orchard as part of the community and it is important for them to give back to this community. They do this by hosting Meetups, providing free research articles and data analysis on their blog and participating in conferences.
Impacting the Loan Origination Space Globally
Finally, I was curious to get Burton’s thoughts on the state of the industry and where he thinks it is going. He had an interesting take.
“Historically, there have been two different business models in the lending industry: balance sheet and securitizations. What Lending Club has proven is that a third model is possible: the marketplace lending model. This is a big shift and will have an impact on the loan origination space globally.”
The last word goes to John Mack. I thought his quote in the press release today was also very interesting.
“For institutional investors, the direct lending market wasn’t even a blip 18 months ago,” said Mack. “Now we’re seeing a situation where investor demand is outstripping supply. That isn’t going to last as more and more lenders recognize the opportunity to scale and diversify their capital by embracing marketplace funding.”
The Wall Street Journal was the first to report on Orchard’s funding round late yesterday.
Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.