Symfonie P2P Ltd (“SymCredit”) is launching a peer to peer finance platform focused on Central Europe. SymCredit will offer consumer and business loans to credit worthy consumers and businesses, initially in the Czech Republic and Poland. Savers will have the opportunity to invest in these loans and receive regular payments of principal and interest.
The Czech Republic and Poland, the first two markets where we will launch services, represent a combined market with population of about 48 million. Consumer lending in the two countries totals about €40 billion and is growing. Lending to the SME sector in the two countries is about €50 billion. On the investor side, savers in the two countries have amassed about €250 billion in savigs deposits and investment funds.
On the investment side, demand is driven in part by the low interest rate environment. Investors are simply thirsty for higher yielding investment alternatives, in our view. When interest rates risk demand for our investment product starts to become more a question or relatively low volatility compared to bond and equity funds. Overall economic growth and rising disposable income among investors are also favourable for demand. On the lending side, demand is driven by overall economic growth, rising consumer purchaing power that enables consumers to take on more debt. High interest rates and tight credit conditions in the bank sector also are good for our demand profile.
On the lending side our product is a consumer or business loan with relatively flexible terms and an interest rate that is competitive with rates found in the banking sector. In some instances borrowers will select us simply because they are underserved by a banking sector with tightening lending standards. On the savings side, there are very few alternatives that are relatively safe and high yielding. Bank deposits are safe but offer low yields. Also the client must lock up the entire principal in term deposit. Bond and stock funds are relatively volatile and risk. Our product should find a comfortable middle ground.
On the consumer lending side our target customers are middle market consumers looking for loans between €1,000 and €15,000. We believe the typical consumer will be looking to refinance relatively high interest rate bank loans. On the business lending side our target customers are small and medium size enterprises looking to borrow between €10,000 and €150,000. We see the typical profile being a family owned firm that has been in business for several years and is looking for capital to expand the business. On the investor side we believe our typical clients will be moderate and high income individuals looking for a relatively safe, high yielding alternative to bank deposits and classical investment funds.
Our service is internet based. Mainly our customers will transact with us via the internet, but we will support our internet services with in bound customer sales and support classically with telephone and on-line chat. We will use the internet for highly targeted brand building efforts. We will focus our marketing efforts on internet sets and print publications that specifically cater to middle market consumers in the lending space and relatively sophisticated savers who are most likely to relate and understand our investment product. In business loans segment we plan on hiring in-house commercial loan officers with established relationships to credt worthy borrowers.
Loans generate an origination fee. Typically this between 1% and 3% of the loan amount. Additionally, the business earns a loan servicing fee for administering loans, collecting and distributing payments. This fee is typically 1% of loan value annually.
The key metrics for our business are the number of loan contracts closed annually, and the number of investors served, the value of loans originated and the value of loans serviced. These metrics drive the revenue and cost structure for the business. In other markets where peer to peer lending has taken root the peer to peer lenders have typically gained between one and five percent of loan origination volumes past few years. Given the size of our markets (about €10 bn in consumer loans and about €50 bn in business loans, in next few years similar penetration implies a peer to peer lending market of about 250,000 consumer borrowers, lending volume of about €500 mn.
Our product is an alternative or substitute for bank deposits and bank loans. Our competitors by definition are banks. As a peer to peer loan company we have a built in advantage. We can find a middle ground between savers and borrowers that banks cannot profitably find. We can provide investors higher rates than they can obtain in bank deposits. With respect to borrowers peer to peer lenders offer both an alternative and a complementary product to what is offered by the banking sector. We need not provide steep discounts to bank interest rates. Rather, we can offer more flexible terms and conditions and fewer service charges. We believe also there is a large base of credit worthy borrowers who are systematically underserved by the banking sector. This has been one of the drivers of peer to peer lending globally. In the peer to peer space we would be the first genuine middle market peer to peer lender to take hold in the Czech Republic. In Poland a few peer to peer lenders have begun operating. Our product is fundamentally different in that we offer investment into an automatically diversified pool of loans. Our consumers need not spend time getting educated about the bulletin boards and the process of investing. Second, we differentiate ourselves with our credit process, which we think we will be more robust and more transparent than that of our competitors. Finally, we are likely to be the first entrant into the business loans space.
We are using the money to complete installation and testing of our systems and launch operations. We expect to be operational in the coming months.
We budget that we would be generating profits with three years after we launch. We are performing in line with or better than the capital expenditure and startup cost budget we envisioned. Our capital requirements could be subject to change if we fail to generate as munch revenue as we anticipated or if we have to incur more costs to develop our business faster than we anticipated.
We have a strong investor base, having been seeded by an angel investment fund. This fund is our lead investor and provides us a supervisory board of knowledgable, well connected professionals who can help us develop our business. More recently we’ve obtained financed from sophisticated, high net worth individuals who share our vision and have direct finance and corporate governance experience. Our core strength is in our understanding of credit and the credit process. Our key management members have been in the business of analysing and investing in credit instruments for more than 10 years. Second, we’ve put in place a high quality management team that is focused on executing the business plan. We are finding that the peer to peer space allows the opportunity to expand the business not only into new markets, but across the product spectrum into equity finance. Being a startup we are constrained by a low capital base, especially relative to banks, but also relative to our peer companies operating in other markets who are well funded with venture capital finance. The threat is that one or more of these well financed competitors will come into our market more quickly than we can develop an entrenched position. We have a strong management team. Our key inputs are internet technology and people. Our operating systems are developed and managed in-house by a team of dedicated, experienced professionals. We obviously depend on a well motivated, talented base of employees to handle our operating processes and develop sound lending models. We are fortunate to operate in a market where well trained, highly educated people are the norm.
We are startup operation. We are not as well capitalised as larger, established firms in other markets. We don’t have a track record of proven performance originating loans and generating returns for investors. Our credit models must be tested and adjusted based on actual experience issuing loans.
There are a wide variety of investment alternatives to choose from and a wide variety of lending products to choose from. Customer loyalty in our business is maintained by providing investors relatively safe, predictable investment returns they can rely on, and by providing borrowers flexible terms and conditions that suit their needs. The business opportunity in our region extends beyond peer to peer lending and into a wide range of investment and financial services products. In other markets we have seen equity crowd funding companies move into debt finance. We have also seen peer to peer lenders move up the credit spectrum into larger loans, property loans, secured loans and receivables financing. By serving our customers well and generating a reputation for being a reliable, well managed financial services firm we can launch products that expand the scope of our business.
We consider our business to be highly regulated. Applicable ares of law and regulation include financial services authorities supervision and consumer protection laws. However, the regulations are not uniform from country to country. Generally speaking there is a well developed regulatory and commercial framework that we can operate in.
Our revenue stream is difficult to predict. We may have trouble attracting and keeping customers. Our expenses may be greater than we anticipated and our capital might not be sufficient to incur a long period of operating losses. The regulatory and legal environment may change so as to prevent us from operating as we planned to operate. We may incur higher legal costs as a result of changes in regulations and laws. Our ability to attract and keep investors is a function of our ability to attract borrowers whose behaviour is consistent with our lending models. If credit losses are larger than we anticipate our investors may suffer poor or negative returns and we will have difficulty attracting and keeping customers as a result. We are dependent on well functioning, fast IT systems. If our systems don’t function as we anticipated we can incur high costs and have difficulty attracting customers.
Michael Sonenshine, Excutive
Mr. Sonenshine has more than 20 years of experience in finance and investment management. He is a specialist in credit analysis and structuring credit portfolios. He has a track record of success managing high yield credit funds. His career experience includes senior positions at Credit Suisse First Boston, ING Bank, and ING Investment Management. He has an MBA in Finance from the University of Rochester.
Jitka Rombova, Finance
Ms. Rombova has a career in finance spanning more than twenty years. She is a Partner in CQK Invest which provides financial and business support to innovative startup companies. Her professional experience also includes 10 years in senior management positions in HBO Europe, where she was ultimately promoted to Chief Financial Officer. Ms. Rombova holds an MBA from University of Pittsburgh.
Stepan Alexa, Information Technology
Mr. Alexa has 15 years of experience developing, testing and implementing database software solutions. His held senior positions at major software and systems providers such as Oracle and Sitronics. Mr. Alexa was chief architect and director of R&D for telecommunications solutions for delivery to tier one companies such as MTS, T-Mobile and Vodafone. He holds a Masters Degree in Computer Science and Psychology from the Prague University of Economics.
Ewa Chronowska, Business Development
Ms. Chronowska has ten years of experience in corporate finance, strategy consulting, business development and capital transactions. Prior to joining Symfonie she was CEO and co-founder of Capital Ventures, advising and providing financial and business support to start-up, early stage and SME companies. She was also CEO at Grasp Capital, which provided consulting and seed capital finance to Polish companies. She holds a Master’s Degree in Finance and Accounting from Warsaw School of Economics.
Peter McGregor, Operations
Mr McGregor has over 20 years of banking operations experience. He was Chief Operations Officer on assignment at Banco Nacional de Guinea Ecuatorial, overseeing implementation of banking and risk management IT systems, policies and procedures. He also spent 14years with ING, managing operations at ING installations in Central Europe and Monaco. He has a BSc (Hons) in Mathematics from the University of Witwatersrand, Johannesburg, South Africa, and a D.Phil in Computer Science from Oxford University, England.
Katerina Stanikova, Business Development
Ms. Stanikova has more than ten years of experience in journalism and communications. Her career includes producing and reporting for broadcasters such as Czech Radio, FTV Prima. She also worked for U-Turn Media Group, one of the first providers of mobile news in the world. She works with Helgi Library, a start-up company providing economists around the world with statistics and data. She holds a Master Degree of Journalism and Media communication from Charles University, Prague.
Symfonie Angel Ventures is the lead shareholder in this company. SymCredit fit many of the criteria we established for the Angel Fund. We highlight our key considerations.
- Unique, compelling product with proven demand.
- Potentially attractive acquisition target.
- Inherent competitive advantages.
- Strong, focused, motivated management team.
- A business the leverages our core competence.
Symfonie Angel Ventures invested in this company because we believe in the potential peer to peer finance has if done well in the Czech Republic and Poland and in Europe generally. Second, we think the management team is strong. They understand the business and how to execute the strategy. Third, the business is scaleable. It can expand into other markets and into other product lines. Fourth, given the developments in peer to peer lending generally, we think this business can attract premium valuation in time. Symfonie Angel Ventures brings expertise to this venture. We are helping the business implement sound financial and management practice. We are also bringing knowledge and understanding of retail financial product marketing.