GlobeFunder – Hedge Fund or Peer Lending?

I received a promotional email from GlobeFunder today. What amazes me is that they seem to be targeting hedge fund qualified investors, but the email says that they have only originated $100,000 loans since January 1st, 2008. That is a slow start in volume and one that is not likely to entice many major institutions to invest. It is not worth the paperwork to invest such small sums from a large portfolio — it simply will not move the ROI needle. Dwarfing that number Prosper has pushed out $117 million in loan volume. The same article mentions that January 2008 alone was $7.2 million in loans.

Edit 11/28/2008 : See the comments following this article in the comments by the Globfunder CEO.

Here is the text of the GlobeFunder email:

When the media is absorbed in (some would say paralyzed by) the global credit crisis and market downturn, it’s hard to bring attention to a global event closer to home: GlobeFunder is shaking-up the traditional lending world. But we’re being noticed by the likes of Forbes and others – check out the 2-11 article at Forbes.com, and find more links to recent news stories on our website.

We continue to build and strengthen our positioning and unique proposition against “sympathy-lenders” and “feel-good social network” competitors like prosper.com and lendingclub.com. After all, we’re in the business of making it convenient, transparent, and affordable to borrow money first. When we’ve accomplished that, we’ll move on to “feeling good” second.

A sneak peek at our partner strategy: we’ve successfully inked a deal with Cal Spasand C&S Financial. (Cal Spas is a pioneer in the Home Resort(TM) market and redefines “luxury outdoor living”). This is a working template for like-partnerships where GlobeFunder in essence acts as the financing arm for organizations with a broad customer base and aggressive sales pipeline. Our goal: instant access to large numbers of credit-worthy borrowers.

We continue to refine and streamline our registration process with our partner eDominate. At the same time, state licenses continue to trickle in (sometimes maddeningly slow) and we’re currently up to 14 states served, with 10 more states added by next week, and several large states (yes, same states that feature large in the elections) coming on-line soon. Against that backdrop, we have a trajectory from $0 loan requests to more than $700,000, with more than $100,000 successfully funded since January 1. With additional licenses we will reach the critical mass necessary for on- and off-line advertising to dramatically ramp-up the number of borrowers.

As you may remember from our last eCard, GlobeFunder India was launched in January and, together with our partner Intellecap we are nearing the point of funding a variety of Microfinance Institutions (MFIs).

Last but not least, the “official” GlobeFunder blog is up and running! Featuring weekly observations and commentary on lending and related topics by our leadership team, it is ready to receive your learned wisdom or spontaneous reactions, whichever come first. Above all, point other folks our way so we can really get some interesting dialog going!

Pompous, yet exciting.

I decided to check out the Forbes article referenced and I noticed this quote:

“These sites, with names like Prosper.com, Zopa, Lending Club and GlobeFunder, use social networking tools and other software to simplify the borrowing and lending of capital between strangers and even family and friends. For entrepreneurs, these sites offer an alternative and needed source of capital. For lenders, the fast-growing sites offer competitive rates of return and the opportunity to easily participate in the cornerstone activity of capitalism.”

Check out the investment requirements below to become a lender — GlobeFunder is not P2P lending. Although, to be fair, Maureen Farrell does go on to explain how GlobeFunder works:

“GlobeFunder and Virgin Money USA don’t use social networking mechanisms. GlobeFunder allows borrowers to appeal for funding, determines an interest rate range, and then working with its partners–institutional investors and hedge funds–finds out whether there’s enough interest in the loan to fund it. Richard Branson’s new venture, Virgin Money USA, which was formerly Circle Lending, facilitates the transfer of money between friends and family. Friends and family members negotiate rates, but Virgin Money sets up payment schedules and legal documents and charges fees accordingly.”

I have to once again point out that Maureen Farrell, like most journalists, simply quotes Chris Larsen’s default statistics when the late (rather than defaulted) statistics show the referenced number is a distortion. She does mention the short time frame of LendingClub statistics, but still her analysis seems rather rosy on the performance topic.

“Right now, default rates at Prosper and Lending Club are relatively low, but that could change with the downturn in the economy. Prosper’s CEO Chris Larsen says the rate of default is now around 4.7%. At Lending Club, borrowers with poor credit are excluded and therefore interest rates are lower. The site has only been in operation since mid 2007, but as of now, Lending Club claims to have a 0% default rate and says that only a small fraction of borrowers–0.012% –have made late payments (30 days or more).”

I decided to go back to the GlobeFunder website to see if I could register. However, not only is Globe Funder not into “feel-good” they are not even a peer-to-peer lending site. In fact, the rules to register (and it takes up to 30 days to review your application) sound much more like Hedge Fund requirements than a peer-to-peer lending site. You must meet one of the below requirements to become a lender on Globe Funder. I can’t understand why they compare themselves to LendingClub and Prosper with these lending hurdles.

Also, why are they bothering to blog about credit card companies when their target investor market is the hedge fund set. Their two target markets, portfolio managers and those in need of a personal loan, are too far apart to have a blog targeted at the audience. How many people in the hedge fund crowd know anyone who needs a small personal loan for high interest rates?

I am not interested in feel-good lending either. I would like to make a decent return and I think most investors in Prosper and Lending Club loans also want to earn a positive return. However, I do not meet GlobeFunder’s requirements for lending:

• Regulated Entity – I am (i) a U.S. bank or any banking institution… (ii) a U.S. savings and loan association… (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; (iv) a U.S. insurance company; or (v) an investment company registered under the Investment Company Act of 1940.
• Business Development Company – I am a “business development company” as defined in the Investment Company Act of 1940.
• Private Business Development Company – I am a “private business development company” as defined in the Investment Advisers Act of 1940.
• Small Business Investment Company – I am a “small business investment company” licensed by the U.S. Small Business Administration under Section 301(c) or 501(c)(3) of the Small Business Investment Act of 1958.
• Entity Not Formed For The Specific Purpose Of Acquiring The Security Offered – I am an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986… with total assets in excess of $5,000,000.
• Individual (Net Worth) – I am a natural person whose individual net worth, or joint net worth with my spouse, as of the date hereof exceeds $1,000,000.
• Individual (Income) – I am a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with my spouse in excess of $300,000 in each of those years and I have a reasonable expectation of reaching the same income level in the current year.
• Employee Benefit Plan – I am an “employee benefit plan” within the meaning of Title I of the Employee Retirement Income Security Act of 1974… total assets in excess of $5,000,000…
• State Plan – I am a plan established and maintained by a State … total assets in excess of $5,000,000.
• Trust – I am a trust with total assets in excess of $5,000,000
• Revocable Trust – I am a “revocable trust” that may be amended or revoked at any time by the grantors thereof, an all of the grantors are “accredited investors”.

Well, I will not be lending at GlobeFunder any time soon.

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