When was the last time you heard of someone getting a loan from an institution that they had never visited, whose employees they never met, with which they had no credit history … and recieved funds the very next day?
That’s the basic thrust of what Lenddo is doing. But it’s not so much what they’re doing, but how they’re doing it.
To learn a bit more about Lenddo, I spoke to Dan Gertsacov last week about the company’s work in Colombia, its plans for the future and about the Latin America startup scene. Among other roles, Dan was previously responsible for Google’s Andean, Central American and Caribbean business, and he has a long history in the region.
Lenddo: more than microfinance
It’s initially tempting to dismiss Lenddo as just another microfinance operation. There are certainly many of these throughout Latin America, and while it’s now considered an established and respectable business, much of the intial novelty of microfinance is gone.
Lenddo is different, though. As Dan put it, Lenddo is trying to do “for credit worthiness what Klout is doing for social influence,” which is an apt description. Klout is not without its detractors and Lenddo may eventually draw some fire as well, but Lenddo’s position in such a numbers-driven field as finance suggests that its performance is more mathematically testable than Klout’s and thus more empirically defensible.
The basic idea is that Lenddo uses information gleaned from “the social graph,” i.e. data points that are collected using social networks, to make lending decisions. The company makes relatively small short term loans, principally to young, upwardly mobile and highly connected people, in under-banked regions, that occupy the sweet (or sour, depending on your perspective) position between the very poor and the very rich. In less-developed countries, this was historically not a large group, but particularly in Latin America, the segment is growing very quickly, and banking services are not keeping pace.
The concept was piloted in the Philippines, and Gertsacov was asked a short time later to build a pilot program in Latin America. While the company initially considered Brazil and Mexico, both were dismissed as too big and complex for a pilot. Colombia was more manageable from a regulatory standpoint and fit Dan’s background well.
Lenddo’s average loan size is about US $700 and he says the current default rate (in the Philippines, which has run longer and has a larger sample size) is about 5%, which is comparable to the default rates that traditional banks expect for consumer credit. The interesting part is that, compared to traditional banks, Lenddo’s decisions are based on algorithms derived from information on the social graph, and Lenddo therefore makes the decision very quickly, often transferring the funds the next business day. Lenddo charges 1-2% per month interest on loans that are typically 12 months.
Not surprisingly, that requires a lot of data. Gertsacov says the company is now using a data graph with over 50 BILLION edges. Yes, billion with a B. He told me that they use literally over a million data points for each lending decision. The company’s data analysis branch is based in New York, staffed by the kind of people that the American financial press calls ‘quants.’
And that’s the most fascinating aspect of Lenddo’s business from my perspective — if the company can successfully and consistently produce lending returns based on data (and it appears they can), the information they collect and use can be applied to other problems. Gertsacov told me that other companies — including phone companies and cable TV companies — had approached them for help in making credit decisions. And the market, even “just” in Latin America is huge.
The wisdom of the business model has not gone unnoticed. Lenddo’s Series A financing raised $8 million, with such investors as Accel, Bloomberg Ventures, the Omidyar Network, as well as local Latin American investors, and the company is in the process of raising a Series B round. Gertsacov said that Lenddo was on a “hyper” growth path, adding 1-2% per day to their membership, and they expect to have over 50,000 members in Colombia by the end of the year.
VC in LatAm: “More than you think, but…”
Gertsacov’s comments about the Latin American startup scene echoed those we’ve heard from others with experience on the ground. His view of venture capital in the region is that there is “more than you think, but less than there should be.” Still, he is confident that money will always be available to those whose businesses generated a demonstrable return on investment.
He cautioned, however, that while there are lots of good ideas throughout Colombia and Latin America, the region still lacks a base of strong teams with a track record of building return that demanded additional capital investment. Nevertheless, he remains optimistic that this may be “the” time for the Latin American startup scene. And Gertsacov and Lenddo are betting big.