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In an article last year, the International Monetary Fund said that the global private credit market topped $2.1 trillion globally in 2023, with 75% of that in the U.S. That number has been rising rapidly for many years as more companies look beyond banks and the public debt markets to raise capital. Along with this rise in private credit, some fintech companies have taken advantage of this growth, bringing new opportunities to investors.
My next guest on the Fintech One-on-One podcast is Nelson Chu, the CEO and Co-Founder of Percent. They have created a marketplace where private credit deals get underwritten and presented to a wide range of investors, including individual accredited investors. They have provided access to this fast growing asset class to many investors for this first time. Full disclosure, I have been an active investor on the Percent platform since 2019.
In this podcast you will learn:
- What Nelson saw in the market that led to the founding of Percent.
- Why they decided to focus on retail accredited investors.
- Why private credit has boomed the last two to three years.
- How investor interest has changed over time.
- How they can graduate their borrowers to much larger amounts.
- How their platform works.
- The geographies where they have borrowers.
- How they decide what deals make it on to their platform.
- How they work with credit funds that bring asset-based deals.
- The different revenue streams they have.
- The huge range of deal sizes that come on their platform.
- The performance they have provided to investors.
- How their technology stack has improved over time.
- How they manage balancing their multi-sided marketplace.
- The blend of retail and institutional money on their platform.
- The scale they are at today.
- Nelson’s vision for the future of Percent.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 519 – NELSON CHU
Episode 519 – Nelson Chu
Nelson Chu: It’s been an interesting asset class, been around, to your point, for a long time. It really came to a head during the post-global financial crisis era when banks started to get hit with really steep requirements around how much capital they have to hold to be able to do lending. As a result, you had a bunch of these non-bank lenders come out, you ran LendIt, right? So you were a part of the first generation of fintech lenders, non-bank lenders, if you will, backed by VCs. That whole rise led to a really interesting opportunity for private credit to come to the forefront where the demand for loans from consumers and small businesses didn’t go away. It just was met by a different audience, and that was these VC-backed non-bank lenders, fintech lenders if you will. But private credit, because the durations are a little bit shorter than public market credit because the actual assets themselves tend to turn over a little bit more quickly, you have a situation where it actually works out well that it’s a little more floating rate and little bit higher yielding than you get somewhere else.
Peter Renton: This is the Fintech One-on-One Podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter Renton, and since 2013, I’ve been conducting in-depth interviews with fintech founders and banking executives. On the show today, I am delighted to welcome Nelson Chu. He is the CEO and Founder of Percent, one of the leading private credit investment platforms. Now, full disclosure: I have been an investor on the Percent platform since 2019, so I have firsthand experience of that side of their business. Today, we talk about the growth of private credit, how the Percent platform works, investor returns, balancing a three-sided marketplace, and much more. Now, let’s get on with the show.
PR: Welcome to the podcast, Nelson.
NC: Thanks so much for having me. Always good to see you.
PR: Yes. Good to see you as well. As I said in my introduction, I’ve been an investor with Percent when it was known as Cadence. I started many, many years ago. I love what you’re doing. Tell us a little bit of the background that led you to start Percent.
NC: For sure. Yes. And thank you for being a long-time supporter. We haven’t been called Cadence in a very long time. So clearly, that tells you how long you’ve been here with us. We founded the company in 2018, but the idea for it came around 2017. And for someone like you who’s so savvy on all the different alternative investment platforms that are out there, you’ll know that I think back then there were a lot of different things that were coming to market. There was a lot of real estate and a lot of startup equity crowdfunding. There was some, maybe a little bit of collectibles. There were some debt-yielding opportunities, but it wasn’t really that, I would say, well accepted in terms of that being an opportunity to invest in. And when we took a look at the landscape, we were seeing just a lot of things that we didn’t feel were great experiences for the investors. The duration was super long. So you were investing in things that had four to five-year lockups. The minimums were super high. So you had $25K, $30K minimums as your first investment. And if it was a yielding product, if it yields anything at all, like startup equity, it doesn’t really yield anything until there’s a liquidity event. If it yields anything at all, then it was always in the 9% to 16% range. So we thought it would be really interesting to come up with a platform that could provide access to opportunities in a much shorter duration, like one month, a much lower minimum, like $500. And if it was yielding the same, then it would be compelling a value prop for investors. And the best asset class to fit that was private credit. And that wasn’t intentional. We didn’t front run or have the foresight to believe that private credit will get to where it is today, but we got very lucky in that regard. And so it was sort of like a match made in heaven, bringing private credit investment opportunities that were short duration, low minimum and comparable yielding to the masses.
PR: Yeah. Why did you decide to do it to the masses? Wouldn’t it have been a lot more efficient to go right out to ultra-high net worth, hedge funds, and family offices?
NC: For sure. I think we always wanted to get there, but I think there’s also the actual reality of the situation, which is that those guys have really good access to deal flow on their own as is. They can go through Apollo, they can go through Blackstone, they can go through all different places to get the yield and get access to private credit. So we knew that if we wanted to provide something compelling and competitive, we would have to go further down market to be able to create something that the borrowers needed that they couldn’t find elsewhere. And then investors could see good risk-adjusted returns as well. And so going to retail and accredited investors was the best option. And it’s paid dividends for us because now, as we go further and further up market, we’re able to better support a borrower through their entire debt capital markets life cycle.
PR: Right, right. Yeah. And I’d love to get your perspective on private credit because I have seen this term around over the years, you know, because I’ve been investing in different lending type products for a long time, but private credit now, everyone’s talking about it. It’s growing tremendously. You see it in the Wall Street Journal all the time. And I’m just curious: why do you think it has boomed in the last two or three years?
NC: Yeah, I think it’s been an interesting asset class, been around, to your point, for a long time. It really came to a head during the post-global financial crisis era when banks started to get hit with really steep requirements around capital, how much capital they have to hold to be able to do lending. And so, as a result, you had a bunch of these non-bank lenders come out and you were, I mean, you ran LendIt, right? So you were a part of the first generation of fintech lenders, non-bank lenders, if you will, backed by VCs, that whole rise led to a really interesting opportunity for private credit to come to the forefront where the demand for loans from consumers and small businesses didn’t go away. It just was met by a different audience. And that was these VC-backed, non-bank lenders, fintech lenders, if you will. So that has pushed it really into the forefront. But private credit, because the durations are a little bit shorter than public market credit, because the actual assets themselves tend to turn over a little bit more quickly, you have a situation where it actually works out well that it’s a little more floating rate and a little bit higher yielding than you get somewhere else. So, for our opportunities, we tend to be about 10 %-ish above the risk-free rate. When it was a zero-interest rate environment, everyone was starved for yields. They didn’t always want to put into equity markets. They were looking for other things. And that’s why private credit got really attractive because you get 10%, 11 % returns against zero from your savings account effectively. And then as the rates ticked higher from the Fed raising rates, we were pushing up to like 15%, 16%, 17%. And again, that’s a good risk-adjusted return against money markets, treasuries, etc. So, by always perpetually there and a little bit perpetually higher alpha than what you get elsewhere, it becomes something that I think investors are looking for when it comes to diversification. And I think it just helps that the overall market has been more receptive to alternatives across the board, whether it’s private credit or something else. RIAs, family offices, etc., they’re all looking for alternatives exposure, and private credit is one of the more established ones, if you will. It’s not like collectibles, for example, which just have a really hard market to make coming out of them.
PR: Right. Gotcha. Okay. So, I want to talk about the investors for a little bit here. I imagine when you launched, a hundred percent retail accredited investors?
NC: Oh my goodness, yes.
PR: It was?
NC: For sure.
PR: And then how has that changed over time? And how has investor interest changed over time?
NC: Yeah, absolutely. I think when we first got started, it was the Percent friends and family audience of retail investors that were coming in to backstop some of these deals, which was wonderful and we’re very appreciative of them. But like you mentioned earlier on, it was very much a smaller type offering. We were going after lower middle market private credit, sub-five million dollar opportunities that hedge funds probably wouldn’t touch because it was too small for them. And so naturally that meant that it was an accredited retail audience. And I think they really gravitated towards that. It’s just something that they really didn’t see elsewhere. Other investment platforms had private credit somewhat through a fund, somewhat through some weird, wonky structures. And we just standardized it and made it much more palatable and approachable for these investors. So it really struck a nerve, and that was great. I guess it’s a blessing and a curse to do well when you’re going after the lower middle market is that the borrowers themselves get bigger and their demands for capital get bigger. So naturally, they’re going to need to want to hit the institutional markets. And I think when we were smaller, younger back in the day, we had nowhere to send them because we just couldn’t grow with them. So we had to find an institutional takeout for them through a proper credit fund or something like that. And we tried to do that as best that we could. As our audience has grown, as we’ve become more mature, as I think we’ve become more institutionally friendly as well, we’ve been able to capture and attract family offices, RIAs, credit funds, et cetera, to be able to come on board. And now, the off-ramp to the institutional market stays on the platform. And so, at the end of the day, the beauty of the platform for borrowers is that we can see them through their entire debt capital markets life cycle. And that’s something that we hoped we would be able to do when we first got started, but it has lived up to expectations. So a credit or retail supports these borrowers at an early stage, their first half million, one and a half million, two million. And then as they grow, accredited retail starts to fade out because the capital needs are so high. And then institutional investors step in and fill that void that accredited investors are leaving behind.
PR: Right, right. So, as an individual accredited investor, I see all the deals that come on your platform. But what you’re saying is some of those companies that I never see again, they’ve graduated to like a… do you have like a separate institutional platform or do you just do these deals one-on-one?
NC: Yeah, I think the nature of the beast is basically when you first get started, borrowers themselves also don’t care how many investors are in our deal. And so they’ll take thousands if that’s what it takes to get capital into the door. And then as they get larger, they also want less exposure, less investors. They want less people holding their debt. And so it reaches a point where it’s like two or three investors that take all of it. So, our platform itself is pretty granular in the sense that you can actually whitelist who sees opportunities. So, some of the borrowers that you mentioned that have gone bigger and bigger that you haven’t seen again, it’s likely that they’ve actually done private deals with several other institutional investors still on the platform. It’s just that, unfortunately, you’re not whitelisted to be able to see that anymore like you were before. So sorry about that.
PR: That’s okay.
NC: But yes, if there’s one that you really want to see, let me know. I will get you back into it.
PR: Okay. So, okay. Why don’t you then describe how the platform works today. How do you attract borrowers? How’s the underwriting done? That sort of thing.
NC: Yeah, absolutely. The interesting thing about our business is that it’s a three-sided market, right? And think you’ve been in the VC world for a long time. You’d understand or appreciate that you should never start with a three-sided market on day one. That is a miserable opportunity to try and build, and you’re going to fail pretty much exclusively every single time. So we knew that going into it. And we knew that we had to take down one side ourselves. And that meant that for better or worse, whether we liked it or not, we were going to be the underwriter in this instance. So we were finding borrowers, we were finding investors and making that market. In doing so, I think we were at the beginning, pounding the pavement and going to conferences. I think we’ve been regulars at the conferences that you used to run back in the day. And it was fantastic. The speed dating was phenomenal. I think we probably hit like 15, 20 borrowers in one day. And we were able to get them into the door. The unique part of this is also that there was a pretty wide audience of borrowers as well. So it was the US, it was Latin America, it was Europe. And with places that are significantly less established in terms of capital markets like Latin America, when you get one of them on board, I think all their competitors come calling as well. And so, we ended up building naturally a very big Latin America presence just by virtue of the fact that we hit Mexico, we hit Colombia, we got Peru, we got various different countries down there. And it just worked out really well for them, in which case it worked out really well for us as well. So onboarding a borrower, there’s a pretty rigorous process that we have to go through because the name of the game is, let’s get you institutional on day one. My job, or our job as Percent, is to be able to grow you so that you become institutionally ready. So the structures that we implement have been grown, acquired, and learned over time, but it’s now reached a pretty steady state where there are basically 52 different levers that we pull to be able to create a structure that we put these borrowers into that’s asset-based, that pledges securities or assets into an SPV. We do all the diligence, and we do all the underwriting to ensure that it meets our standards that we think it can perform and that you can put good structure around any type of quality of deal up to a certain level to better protect investors. Once they get through that process, then we run a syndication process, we help borrowers get the best pricing. I think you’ve seen the platform before, so you know that there’s almost like a quasi-Dutch auction system where various rates come through, and you put in what’s the best rate you’re willing to get and what’s the highest amount you’re willing to put in. And then the order book builds, and then the borrower can choose, do I want more money that’s more expensive or less money that’s less expensive? And it becomes their choice. And we give them that flexibility, which is semi, you know, like the public debt markets. That’s sort of been our comp there. And on the investor side, it’s just on accredited investors, the usual growth marketing tactics, whether it’s paid acquisition, whether it’s sponsoring newsletters, things like that. And then on the more institutional side, the family office, RIA side, it’s just a bunch of golf at the end of the day. That’s still what it takes to get them to cross. Yeah, I can’t say that my golf game is very good, but our head of sales, who does this a lot more than I do, his golf game has continued to improve as he goes out more and more. And we just get all the expense reimbursements from various different, you know, green fees and things like that.
PR: Right. That’s great. That’s great. Then, you know, it was a couple of years ago that you moved away from underwriting your own deals. Although I have noticed that there’s been some that come that you are underwriting. I just saw this week. I want to be clear. And I really don’t know this. How do you decide what deals make it onto your platform today, whether you’re underwriting it or not?
NC: Having done, I think we’re at like over 750 at this point, transactions, you start to get a really good sense of what works on the platform, like what do investors look for? Because we have so much data around that. So we know what’s going to sell and what’s going to sell well. And we also have a certain level of standard we have to uphold. So, like I mentioned, the institutional-grade structure we put in place is not fit for a lot of borrowers. They just can’t do it. And if they don’t want to give us cash control, if they don’t want to be able to put DACA account in place or be able to hit certain requirements around reporting or be able to maintain a certain OC level that’s fit for them, it’s just never going to make it, right? So we make sure we focus on attracting borrowers who will be able to have aspirations to reach the next level and know how to get to the next level. That’s the biggest thing. So that weeds out a lot of different borrowers at that stage. After a certain point, then, it just comes down to what level of structure we can put in place that they’re open to. So we obviously want to protect investors to the best of our abilities. And sometimes, it just doesn’t make sense for them. So our job is to maintain and uphold the highest standard of structure as best that we can and then find the borrowers who are willing to meet us where we are in that instance. But in terms of who underwrites what, we have offered various different products over the years, whether it’s lender finance, like asset-backed opportunities or asset-based opportunities. And we also tinkered and dabbled with venture debt and corporate debt for a little bit. The asset-based side, given where we are on the credit cycle, we like it a little bit better than corporate debt, venture debt at this stage. And that’s why you’re seeing more of those pop up. For the asset-based opportunities, the people who can underwrite it are significantly less, right? So, an average placement agent is not going to know how to underwrite an asset-based opportunity. A credit fund can, and so you’ll see credit funds come in as underwriters for those opportunities in addition to ourselves. But for corporate debt, venture debt, a lot more different groups can do it. And so that’s why you see more of those deals underwritten by other people. Given where we’re headed and what we see in the market as better quality credit around the asset-base side, it’ll be natural that we are underwriting more of them in addition to other credit funds we have as clients.
PR: Right. And so the credit fund that’s underwriting this deal and then handing it out to you, they typically will put in like 50% of the deal and they’ll say we want your investors to put in 50%, or how does that work?
NC: Exactly, yeah. So there are a couple of ways to make it work for them. So, it could be that they are interested in extending capital to a group. They haven’t done it yet. And they come to us and say, hey, help us fill out the rest, essentially. And there could be a situation where the pricing is different in favor of the credit fund. Like, that’s great for them, right? In the instance where they already have a position, and they want to downsize that position, they can also syndicate out an existing position to our users. And again, if it prices differently, then they can net a spread as well. So all of that kind of works in favor for the funds. And that’s why we have such a good value prop for them, because it allows them to diversify their exposure, get some capital back if they need it, and be able to redeploy it to something else. So that’s a very clear benefit for them. And that’s why we have a lot of different credit funds that are interested at various different sizes and scales.
PR: Right, right. Okay. So then I want to talk about your business model itself. Like what are the different revenue streams that you have?
NC: As a three-sided marketplace, I think the goal would be to find a way to charge everybody so nobody feels like they’re being taken advantage of. So I’ll do the one that you’re familiar with, which is the investor side. So it’s pretty easy math. It’s 10% of the yield, right? So if some product is yielding 15%, we will take 10% or 1.5% on an annualized basis against that opportunity. And that’s if you invested directly into the deal. You found a US SMB lender that you liked, you put it in, and you earn 15%, we will net it against the interest that we pay out every month. If you want to invest in our managed products, which family offices tend to want to do, they like that because it’s customized and built for them. They can create almost like a quasi ETF diversified basket. They can get exposure to private credit. Then we charge a 1% management fee on top of that. And that manager fee is assessed against the AUM, also netted on a monthly basis. So investors are very conventional, like management fee plus carry type model, give or take, right?
PR: Right.
NC: On the borrowers and underwriters, it’s the same fee structure. It’s just who do we face, right? So if an underwriter like a credit fund comes to us, we will charge them, and they figured out with their client, the borrower. If a borrower comes to us and we underwrote the deal, then we will charge the borrower because we have direct access to them. And that fee structure is more conventional investment banking. So you’re going to see like an onboarding fee plus a placement fee based off of how much was closed. And that’s just a percentage basis. That’s a sliding scale. So effectively, the bigger the deal is, the smaller the percentage, but the better the dollar value for us. The smaller the deal, the higher the percentage, but the lower the dollar value at the end of the day. So all in, we do charge everybody. And that’s on the marketplace side of the business. We also do have a software business that is very nascent, but it is getting off the ground. So the software that we’ve built for ourselves to run our own market is honestly very easily replicable in a white-label fashion to somebody who wants to run their own ecosystem as well. It’s their borrowers, it’s their investors, and they manage it entirely using all the tools that we have. And so we have some fledgling revenue coming from that also. That will be an interesting thing to see as the business evolves and grows over time. We do think that will be a more prominent portion of our revenue.
PR: Interesting, interesting. And what is the range of deal sizes? Like I think I’ve seen them as low as $250K, but what do you go up to as far as the top end?
NC: Yeah, there is, I would say, really marketplace opportunities and then off-marketplace opportunities—some of those private deals that I mentioned, some of those institutional deals that I mentioned. So, I think the smallest deal we ever did was $12,500. That was the first one that ever came out of the gate in 2019. No one saw that deal because we had no users. It was just, I think my dad and Prath, our president’s parents, who invested in that deal and got it done. I think we made like 200 bucks, but, wonderful. Everyone starts somewhere. But yes, on average, it’ll be around like $250K to $500K as the first deal that goes out the gate for a borrower, depending on their size. We did recently close an $8 million inaugural opportunity. So, wonderful. That’s because the borrower is more established, they’re larger, and it kind of makes sense. The largest deal we ever did was off-market or off-marketplace. So, it was private transaction; I think it was a rated transaction, too, but it was about $144 million. So it does happen. But it’s much more infrequent. Not every borrower can get to that size and scale. But there’s no shortage of, I would say, $50, $75 million opportunities that happen off-platform. And those are just good wins for us because we maintain a relationship with that borrower.
PR: Right, right. Okay. Okay. So I want to talk about performance. As an investor now for almost six years, it seems like performance has gotten a lot better. I think in the early days, obviously some of deals, more of the deals went south than have happened in recent years. And what can you share about performance for potential investors who are looking at it?
NC: Absolutely. It’s a great question. And we track that very closely as well. So, I would be remiss if I said that we had a perfect track record because that’s definitely not the case. And I think you do learn along the way. In the early stages, we were still trying to figure out what more we could add and enhance to our structure to better protect investors. We lived through COVID casualty, fraud, and duration mismatches in terms of assets versus the actual structure. All these things have come into play, right? And with each of those workouts and defaults and charge-offs, we learned what we can do to make things better. So now, for example, on the fraud side, we have collateral verification to make sure what they’re saying is actually real. In terms of the COVID casualty, we don’t really lend out to a single obligor anymore. So a lot of the things are in place in addition to just adding more bells and whistles to structure. So, for the last two years, we’ve actually returned 14.6 % to investors essentially in 2023 and 2024. And compared to, I would say, the rest of the market, that’s pretty good, right? Like it’s better than Apollo, Blackstone, Aries. It’s better than your treasury money market account, obviously. That’s been net of all charge-offs, et cetera. And I think that’s why it’s been such a compelling value prop for investors to be able to get that diversification. But yes, we’ve definitely gotten a lot better. And I would say even when there is a workout, we’ve also gotten a lot better at getting recovery on that as well. Because especially in the asset base side, corporate debt’s a little bit harder, but on the asset base side, these are loans that were extended that are technically performing in some respects, right? So, it shouldn’t be a zero. There should be recovery as these loans pay back. And you get that type of recovery out of it. So it’s gotten a lot better. We’ve had a hundred percent recovery on some of these workout deals as well, which is wonderful to see. And that just means, again, the structure is working, and we’re a lot smarter than we were back in 2019 and 2020.
PR: That sort of gels with my personal experience as well. I think the returns, like you said, it’s, in many ways, a noncorrelated asset class, certainly with the stock market. That’s one of the reasons why I love it so much. But anyway, I want to talk about technology for a second. Because when we first chatted, I think it was probably 2019 or so, you made a big deal about this blockchain technology that you’ve built.
NC: I knew you were going to call that out.
PR: And I remember going through, you had everything on your website. You can see all of the different entries, blockchain entries that were happening. Is that technology still in place or how are you doing your backend technology today?
NC: Yeah. No, it is definitely not in place, and I can give you that whole rundown, but you were there. You lived through it with us and I was very excited about that. So, let’s rewind back to 2017 and 2018 again. Crypto was obviously in its first, maybe first, or second, or third wave, depending on how you want to call it. But there was a security token craze at the time, right? And that was all the rage. Everyone was saying, this is going to change the game. It’s all tradable, all this, all that. And so to be able to, I think, offer something compelling to investors, VCs, to raise equity for us, we thought that would be the right angle to take. And it wasn’t hard to do. And our angle was actually a little bit different because we were coming from it from a very, very regulatorily compliant perspective. There were people that are trying to skirt the regulations, go under the table, and keep it all gray, and we wanted to be very above board. And so the way to do it above board was to offer a security token-ish that mirrored in the real world what you see on chain. And so, to what you were saying, we used to publish an Ethereum address or wallet that basically had every single investor in there as a wallet that transferred money in and transferred money out. Distributions were marked on the chain. And you could see almost like a publicly private cap table for every single transaction we ever did. The funny thing is, I don’t think anybody cared about it.
PR: Right. I didn’t.
NC: Yeah, exactly. And I think the kicker was too, there were some investors that said, if I even smell the word blockchain in this, I’m not investing.
PR: Right.
NC: So that’s when we were just like, let’s just issue good products, if that’s the case, that are good quality credit, nothing beats good underwriting. And I think you’ve seen that as well, play out in the crypto markets, in the real world asset market, where a lot of these private credit, you know, platforms, lenders, whatever you want to call it, they’ve blown up because the underwriting hasn’t been good. And so you just can’t top good underwriting at the end of the day. And that’s what we double down on. So today our tech stack behind the scenes, there is not an ounce of blockchain in there. We are also a regulated broker-dealer by FINRA, and they were very clear that they said if you touch crypto, you’re getting that license, we’re having a real discussion around that license and your broker-dealer and all of that. So we are, at this point, prohibited and don’t want to do anything in that space. Traditional tech stack, but it’s just significantly more efficient at the end of the day. We aren’t burdened by legacy systems. We built it the way we wanted to build it. We have a four-sided platform, one for borrowers, one for underwriters, one for investors, and one for servicers as well, to be able to manage cash flows, banking, and things like that. So we use it ourselves as an underwriter and as a servicer, but anybody else can use it themselves to run an entire ecosystem on their own.
PR: So just talking about that multi-sided marketplace that you have, how do you balance everything? Because there are times when you may have a lot of investor demand, there may be other times where you’ve got a huge borrower pipeline, the underwriters. I mean, how are you managing the balance there?
NC: For sure. I think the beauty of a marketplace like this is that if you have money, people will come and they will be wanting to ask you for your money. So you have to solve one side. That actually is the biggest thing. And the capital side is the most important. And so you’ve seen us grow over the years. We used to only offer direct investment opportunities. You, as an investor, can find a borrower that you like, that we’ve offered a deal for, you invest directly, you can build a diversified portfolio if you’d like, and that’s kind of how it works. We’ve evolved that model to now offer managed products, which I was mentioning around family offices, and retail investors can invest in a mandated blended note that we create for you. So you, Peter, can get into it as well if you want to. And so that is considered captive capital. It has a mandate and a thesis around what they can invest into, and it automatically allocates every deal that fits that opportunity. And then we also now have an interval fund that we’ve kind of joint ventured to launch. We did our first close in October. It continues to grow. That’s going to be a big part of our RIA strategy going into 2025 and for the rest of this year. So, all of that means that we have various different sources of capital that come in. And when you have captive capital that tells you what they want, you can start to be able to more convincingly close these borrowers because you can say, “I know you’re looking for, for example, $8 million. I have six and a half of that already secured from institutional and captive capital, and now retail will fill out the rest.” That’s a much more compelling proposition than, “We’re going to best efforts this, and this is sort of how it’s priced in the past, but I can’t guarantee it because the market’s a little weird right now.” And so it’s a very different pitch, right? So, we don’t have a shortage of borrowers in the pipeline by any means. A lot of them are extremely good quality. It just comes down to whether we have the capital to support it on the other side. And these various different vehicles that we have, especially captive, are going to change the game for us in 2025.
PR: So that means, they have these blended notes that you put on your platform. Does that mean you’re going to be doing them more often or bigger? What does that mean?
NC: Yeah. So retail, you should, I think you’ve seen it probably. We go off for one a month, pretty much, right?
PR: Yeah.
NC: Or sometimes two a month with different themes. It could be total market. It could be US ABS only. It could be, whatever. That’s the retail side. We continue to close what we call bespoke blended notes. And these are ones that family offices say, “I don’t want that theme. I want to make my own theme.” And there’s all those different levers that we have, whatever criteria they want to pull, we use that as part of the investment criteria for the blended note. And that’s a great product for family offices who are savvy on private credit. And the interval fund is the one where there’s, again, no say, but the interval fund allocates into our deals. But it is a more conventional fund structure that an RIA is interested, willing and able to invest in versus some bespoke SMA product they’ve never seen before, like the bespoke blended notes.
PR: Right, right. Okay. So I’m sure the total dollar volume is much higher from the institutional side, but I’m thinking about the number of deals that are getting done. What is the blend of retail and institutional today?
NC: Yeah, I would say retail still makes up a big portion of our capital base and they are for sure the highest in terms of the count of retail investors versus count of institutional investors. I think the institutional investor side is growing just by virtue of the fact that these bespoke lending notes, these interval funds are captive capital that actually doesn’t go away. And so there’s a three-year maturity on these, and it just continues to naturally grow, versus retail, you’re almost at the whims of sort of what their personal needs are. Like if they want to buy a house, they’ll pull out a bunch of cash, and we would never know it or why it happened, but they just do it. So, right now, I would say it’s about close to like two-third, one-third, give or take, in terms of retail to institutional. But we do expect that to be closer to 50-50 probably by the end of the year.
PR: Okay, interesting. So can you give us a sense of the scale you guys are at today? Like how many deals, how many investors, that sort of thing?
NC: Yeah, so we’ve done over 750 deals in the company’s life. That has been across about $2 billion worth of flow. So issuance volume, both off-platform and on-platform. On- platform has been a hair over a billion probably at this point. So, it’s still really good. Several thousand retail investors, I would say less than a hundred institutional investors, but they obviously put a lot more quantum of capital in. And it’s across, I think, over a hundred borrowers now in the company’s life, give or take. And our AUM is sitting at, I think you can see it when you log in, but it’s like above $230, $250 million, give or take, on any given day. And it’s continuing to grow. So, we’ve almost doubled year over year from 2023 into 2024. And we expect this year to be an even better year in terms of overall growth of AUM.
PR: Okay, great. So then, last question. What’s your vision here? Where are you taking Percent?
NC: Yeah, I think we have a really interesting opportunity in front of us, and we’re not built like most startups, right? I think a lot of startups are almost like, “this is what you do, and you’re to do a very good job of it. And then this is where it’s going to go.” We happen to have two businesses that are almost very complimentary to one another. You have a core, almost like asset management, wealth management, marketplace-type business that actually can be very profitable. It’s an AUM game at the end of the day, but it does spit out a lot of cash, ultimately. And we have the luxury of building adjacent, complementary, whatever you want to call it, businesses alongside that, which includes our software business, right? Which I think is, again, nascent, getting off the ground, but I do have high hopes for that in the coming years. And I think that will be a big part of our revenue as we continue to grow and scale. And the marketplace is almost like the best paradigm of how you’re supposed to use this. And it is basically the de facto sandbox that we can use to test, iterate, and build the software that helps the other side of our business. So it’s a multi-revenue stream, multi-faceted company that I think we’re in a very fortunate position because there is anchor revenue we can fall back on at that point. So, for us in the future, I’d like to say that we’re building some sort of, you know, Switzerland’s independent-esque, market data, market infrastructure type company that happens to have a marketplace built into it. But you know, I think time will tell, we don’t really have, there are a lot of people that build out a five-year plan, and I think that all sounds well and good, but the way private credit is moving my five-year plan doesn’t make sense in six months. So I think we’re really trying to figure out and adapt to the times, but I think we’ve done a decent job of it so far in being nimble and capturing the zeitgeist of what people are looking for in private credit.
PR: Okay. We’ll have to leave it there, Nelson. Always great to chat with you. Best of luck. You know I’m rooting for you because I love being an investor on your platform and best of luck in the future.
NC: Thanks so much for having me, and thanks for all the support. Hopefully, another six years to come in terms of support on your side.
PR: Yes, yes indeed.
Why I continue to like the Percent platform is that I can build my own diversified portfolio of private credit deals. I can invest in small business loans, litigation finance, unsecured consumer credit, earned wage access, invoice factoring, just to name a few. All niche asset classes that are uncorrelated with the stock and bond markets. What I think is most important here, though, is that Percent has found a way to democratize access to private credit deals in a way that was simply not possible before. Anyway, that’s it for today’s show. If you enjoy these episodes, please go ahead and subscribe, tell a friend, or leave a review. And thanks so much for listening.