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Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

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Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#11

Post by vkorshin »

temuze wrote: post #5

Cool idea! I wish you guys existed a few years ago. What loan management systems do you integrate with? They can all be so wildly different that normalizing over all of them is a great accomplishment. Being a marketplace for lenders to credit warehouses could be neat. You can get data from the LMS, normalize it, show a bunch of credit warehouses at the same time, and see who offers the best deal. That's a cool vision…

You know the space well and it seems like you get the vision.

We've found little overlap between customers in terms of LMS. Most use spreadsheets or build something in house. I imagine this will change in the coming year or two.

BTW, if anyone wants to build a universal LMS or a Plaid for LMS I think it's the right moment.

We've had investors ask why Pipe doesn't just do this and we respond with, because it's a just a different beast. We currently have a fairly broad funnel but we'll be specializing more during this next growth stage.

Retaining companies as they scale will be an issue, particularly at first. Once the software and marketplace are robust, we'll be able to go much further with our customers.

We're trying to avoid lock-in mechanisms like ROFRs and warrants. The product is either efficient and founder friendly, or it is not.

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#12

Post by nkmnz »

Is there a way to short such a business model? Don’t get me wrong: I wish you every success in this world, I want neither yourself, nor your business partners to go bust. Still, I think lending to lenders is a high risk business and susceptible to even the tiniest liquidity shortages in the money markets. We did not see any liquidity problems for more than 10 years, so shorting this would be a good hedge. Good luck, though!

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#13

Post by temuze »

vkorshin wrote: post #11
temuze wrote: post #5

Cool idea! I wish you guys existed a few years ago. What loan management systems do you integrate with? They can all be so wildly different that normalizing over all of them is a great accomplishment. Being a marketplace for lenders to credit warehouses could be neat. You can get data from the LMS, normalize it, show a bunch of credit warehouses at the same time, and see who offers the best deal. That's a cool vision…

You know the space well and it seems like you get the vision. We've found little overlap between customers in terms of LMS. Most use spreadsheets or build something in house. I imagine this will change in the coming year or two. BTW, if anyone wants to build a universal LMS or a Plaid for LMS I think it's the right moment. We've had investors ask why Pipe doesn't just do this and we respond with, because it's a just…

For LMS, we use LoanPro: https://loanpro.simnang.com/

Canopy is a recent new entrant: https://canopyservicing.com/

Using a vendor for LMS added some complexity (integration is a pain, idempotency is a concern, etc), but it helped us focus on things that differentiate our business. We certainly wouldn't have launched five months after founding without one.

I've talked to some startups that built an in-house LMS. The moment a payment reverses or someone backdates a payment or they backdate a loan change or modify a due date... they have big problems.

> We've had investors ask why Pipe doesn't just do this and we respond with, because it's a just a different beast.

Next time they ask, ask them why Google's VC branch doesn't just take their deals :)

It's astonishing to see how some investors don't realize how deep of a field lending is.

> We're trying to avoid lock-in mechanisms like ROFRs and warrants. The product is either efficient and founder friendly, or it is not.

Nice. Godspeed!

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#15

Post by jetblowfish »

moritonal wrote: post #14

Out of curiosity, why Level? You're the second up-front cash-flow company called Level I've heard of. Is it a market term?

Coincidence, most likely. We joined as a team and decided on the company name Level when we were working on an entirely different business.

We liked the name because it seemed very versatile, which has proved to be the case as we've refined our business.

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#16

Post by likecarter »

nkmnz wrote: post #12

Is there a way to short such a business model? Don’t get me wrong: I wish you every success in this world, I want neither yourself, nor your business partners to go bust. Still, I think lending to lenders is a high risk business and susceptible to even the tiniest liquidity shortages in the money markets. We did not see any liquidity problems for more than 10 years, so shorting this would be a good hedge. Good luck,…

You can’t really short private companies…

But in a liquidity crisis, everything will get hurt. Banks will be hurting the most.

Buy puts on banks or even SP500 if you want a hedge.

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#17

Post by manishsharan »

likecarter wrote: post #16
nkmnz wrote: post #12

Is there a way to short such a business model? Don’t get me wrong: I wish you every success in this world, I want neither yourself, nor your business partners to go bust. Still, I think lending to lenders is a high risk business and susceptible to even the tiniest liquidity shortages in the money markets. We did not see any liquidity problems for more than 10 years, so shorting this would be a good hedge. Good luck,…

You can’t really short private companies… But in a liquidity crisis, everything will get hurt. Banks will be hurting the most. Buy puts on banks or even SP500 if you want a hedge.

“The stock market can remain irrational longer than you can remain solvent.” -- Keynes

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#18

Post by gsibble »

jetblowfish wrote: post #9
MattGaiser wrote: post #4

Is there reason to be a lending company for other lending companies rather than just lending directly and using the innovative founder types as franchisees of a sort?

When lending to an end borrower, a lender is often focused on their ability to underwrite the borrower to understand the risk of the loan. We think it's very unlikely that Level could become the best underwriters of all the different types of borrowers in the world by lending directly. Instead, the most innovative founder types in the lending space are often finding creative ways of using non-traditional sources of d…

Why not just sell default swaps to smaller lenders? That would probably open up that market significantly.

The solution you are presenting is overly complex.

Re: Launch HN: Level (YC S21) – Flexible financing for early-stage lending startups

#19

Post by stevesimmons »

Does this imply you expect to fund 100% of the loan book? Or dynamically assign individual loans between Level and other debt funders?

(I spent a period as CRO of a fintech lender... As our loan book grew, much of our energy went on managing the various debt covenants. They made sense for a steady-state portfolio, but were a real impediment to profitable growth... Please do reach out if you'd like to talk further; my email is in my profile).

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