Michael Garrity learned firsthand that when you’re an entrepreneur everything takes longer than you think it will. The road to launch for his company, CommunityLend, was paved with roadblocks and obstacles – most importantly getting their Peer to Peer Lending Marketplace properly regulated. “That whole regulatory process took us three times longer than we had originally estimated and cost us four times more than we had budgeted,” he says. “It was humbling, to say the least.” While the company was founded in 2007 the regulatory hurdles delayed launch until this year. Garrity says getting to launch took a tremendous amount of collective focus, collective personal sacrifice and external support from their shareholders, Board and families. “I can tell you that it tested our organizational mettle early and it gave us an operational discipline which will likely make us a better company for our customers.”
After overcoming the hurdles CommunityLend launched on January 11, 2010, and is now live in Ontario and Quebec. The company allows people to borrow money directly from private investors and institutions. The goal is to get personal loans into the hands of Canadians looking for better rates than the banks are offering. CommunityLend is the only service of its kind in Canada, but similar companies like Prosper and Zopa exist in the United States and the United Kingdom.
Along with regulatory issues a big challenge that Garrity faced was fundraising, and after raising several rounds of funding he has a lot of insight on the pitching process. “Most investors are looking for a company that is uniquely positioned to grow quickly and profitably into a large inefficient market with a capable and committed management team,” he says, adding that “if you break your pitch deck down into that sentence you are likely covering the key basic qualities.” Though he says getting an investor to a positive decision on writing a cheque and signing your subscription agreement is a hard and often quite random task. He says investors often want to invest in areas of professional interest to them personally, regardless of how well you know your own market. He stresses the importance of catching an investor when they are in an investment “mood.” “This may sound self-evident but if markets are tanking, angels are likely feeling nervous and not keen to make any risky investments,” he says. “Similarly if a VC has just come out of a brutal LP meeting where redemptions were discussed, they’ll likely be gun shy on any early stage investments which are going to take longer to get to a liquidity event.” The only way around those types of complexities is to really do your homework on likely investors and to pitch a lot of them in multiple geographies.
He advises finding investors who understand your space and who have invested in companies at your stage of development before. In terms of when to raise, how much to raise and from whom Garrity says the bottom line is if you need money now to make your business work then all the advice out there is a luxury you can’t afford. “The time is ‘now’ and the amount is essentially ‘whatever you can get’ and the who is from ‘whomever is ready to write a cheque.’ You can get picky when you are Facebook and right now you aren’t Facebook.” He says to constantly be raising investment interest around your company while you continue to work to deliver on the promise of your pitch.
Garrity’s first vision of CommunityLend is very different from what it is now. “We started out with the sincere belief that we could use online marketing to efficiently and rapidly originate good quality borrowers looking for a better priced loan through a better online process and, that we could attract significant individual lender interest in the high return possibility associated with consumer lending,” he says. “We were wrong.” While individual borrowers and lenders are still encouraged to visit their site directly it’s no longer the sole focus. They changed their focus quickly to partnering with third party borrower origination channels which can deliver them a steady stream of good quality borrower applicants cost-effectively, and to partnering with institutional capital players interested in the proceeds of consumer lending assets. They’re still in the process of finishing all of the requisite technical and operational changes to fully support the pivot but are already seeing positive results.
The road has been long and winding, and Garrity can see three clear next steps for the business. The company is closing another capital raise for the company to support growth plans. “It was a slog, like all financings are these days in Canada, but we’ve been lucky in attracting some terrific investors.” They’re also introducing new products including a 5 year loan product which will help lower monthly payments for borrowers. They’ll also introduce a new product to support auto lending. Finally, they’re looking to add to their team (specifically developers and loan officers). And while they may not be Facebook right now, watch out – with Garrity’s determination and passion you can’t help but wonder if he’ll be a household name one day soon.