Symfonie P2P - building a P2P lending platform in Central Europe.
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Symfonie P2P, LTD30 March 2014- Proprietary and Confidential –
London: 16 High Holborn, London WC1V 6BX Prague: Klimentska 1216 / 46, 110 00
Symfonie aims to build a profitable Peer to Peer finance business that provides consumers and businesses a convenient way to borrow at competitive rates and offers investors the opportunity to earn significant higher rates of interest than they earn on classical term deposits.
Peer to Peer finance entails the provision of an internet platform that functions as a marketplace where borrowers and savers can meet. The internet platform does not constitute provision of loans. Rather, it is a fee based financial service.
In addition to matching borrowers and savers the internet platform will enable companies seeking finance to present their businesses to investors looking for investment opportunities. The platform’s business revenues will come from listing and advisory fees paid by businesses and investors
Focus on Central Europe Relatively fast economic growth
Efficient banking systems
Increasing internet penetration
Open market access to credit providers
Wide gap between borrowing and lending rates
Legal protections for creditors
High growth market segmentsConsumers – increasing ability and willingness to borrow
SME – growing business sector, under-served due to tightening credit requirements among banks
Data are based on the current business plan and are subject to change.
Milestones
Seed capital - Done. The company was seeded with a GBP 100,000 from the founders and Symfonie Angel Venture Fund, LP
Management team – Done. The company recruited a team of highly experienced professionalsto execute the strategy.
Platform Development – Operating software has been purchased and is being customised to support operations in EUR/USD/GBP/CZK/PLN.
Credit Models – Credit scorecards for Consumer and SME loans are in development and being back tested against live data. We will have proprietary models and in addition we are contracting with Experian for expert scoring models.
Capital Raise – In process. The Company is raising GBP 150,000. This will see us through launch of commercial operations.
Launch of Commercial Operations planned for September 2014.
Investor Terms – Round 1
Total Capital Raised Up to GBP 150,000Total shares sold – 75,000 25% of the Company, post money)
Preferred SharesVoting10% dividend, plus participation in overall company dividendCZK 75 / EUR 2.7 / GBP 2.4 / US$3.8 per share
Common SharesVotingCZK 65 / EUR 2.4 / GBP 2 / US$3.1 per share
Note: the company’s base currency is pounds, so the price when translated into other currencies is subject to change.
Business Opportunity
• Central and Eastern Europe is a market of 92 mn people
• EUR 877 bn in GDP
• Approximately EUR 50 bn in consumer debt
• About EUR 600 bn in commercial debt
• Debt/GDP in Central and Eastern Europe is about 50% of debt/GDP in Western Europe.
• GDP growth is generally higher than in Western Europe while unemployment is generally lower
The business is valued with DCF (r=30%) and with an assumed earnings multiple of 15x earnings. Once functioning and developing according to plan the business should have value in the near term of GBP 8 mn. This valuation does not incorporate growth opportunities as the Company expands into Poland and other countries.
Source: Symfonie Capital estimates, based on business plan targets.. DCF assumes r=30%. PE 15 assumes 15x earnings multiple.
Company Value Over Time
-
10
20
30
40
1 2 3 4 5 6 7
Year of Operations
GB
P m
n
DCF PE 15 Capital Invested
Growth Opportunities
SME lending in the Czech Republic
Build on success in the Czech Republic to enter Poland and other Central/East European markets
Tie to Angel Fund means add-on equity funding platform
Source: CLFA - www.clfa.cz, Czech National Bank www.cnb.cz, National Bank of Poland and Symfonie Capital estimates. CZK and PLN translated into EUR at constant rates.
• Non-banking - about 33% are for used cars.
• Non-banking - about 33% are revolving loans
• Non-banking - about 33% general consumer purchases
• Non-banking – average loan size is about EUR 1,500
• Banking – about 20% is revolving credit
• Banking – about 75% is for consumer purchases
• Used car market in Czech Republic is about EUR 550 mn annually and about EUR 3 bn annually in Poland
•Loan rates, especially non-bank loans, are 10-20%
•Smaller loans and shorter term loans are much more expensive than bigger loans and longer term loans.
•Revolving charge cards are expensive – 20% and higher
•Consumer loan pricing is not always transparent – non-interest charges increase loan cost substantially
•Many consumer lenders charge clients for early repayment – usually about 1% of the outstanding amount of the loan
•Many consumer lenders charge a monthly account fee in addition to the interest rate
The window of opportunity is to identify credit worthy clients who are paying high interest rates and re-finance them at same or lower rates with consumer-friendly terms, policies and procedures.
• Base interest rate – based on credit risk score each borrower is assigned a base interest rate.
• Borrowers who continually meet the payment schedule can be credited back interest as a reduction in principal. Late payments are charged over-due fees.
• Each borrower carries payment protection insurance. P2P provider earns a commission on the payment protection insurance.
• A margin is added to the base and is the fee earned by the P2P loan intermediator.
Few lenders offer interest look backs, step-down interest, no-prepayment penalties, flexible credit policies. We can compete by offering borrowers an interesting alternative to classical loans.
Competitive Edge – Opportunities to Get Market Share
Lower costs - pass cost savings on to the borrowersKnowing the client better - understand the borrowers to keep default rates lowData gathering - gather data on customers so and tailor products to meet their needsSize doesn’t matter – Develop a lending model that doesn’t automatically impose higher base interest rates on smaller size loansFlexible - we allow borrowers to easily shorten or lengthen loan tenorProactive credit management - work with clients to help them manage credit problems before they turn into defaultsChoice of flat or declining payment - offer loans with declining monthly payment as an alternative to the traditional flat payment structurePayment holidays - build one or two months per year into the payment calendar where no payment is dueRising payment loans - offer loans that have smaller payments on the front end and larger payments on the back end.Look-back rewards - reward consistent payers with cash-back, credit toward principal balance, step-down interest ratesCross selling - cross sell customers into other financial products besides lending and borrowing
Source: Symfonie Capital. The above list is indicative and does not necessarily reflect final product features, terms and conditions.
COMPETITOR BASE OFFER•Loan amount – EUR 2,574 Interest 17.2% Monthly Payment – EUR 51•Total Payments - EUR 4,320 and after cash-back for 100% on-time payments, EUR 3,600 – EUR 720 savings
SYMFONIE BASE OFFER•Loan amount – EUR 2,574 Interest 17.2%•Monthly Payment – Starts at EUR 68, declines each month….last payment is just EUR 19.•Total Payments - EUR 4,141
Borrower saves nearly EUR 180 vs. Competitor base offer.
SYMFONIE REWARDS PROGRAM•Loan amount – EUR 2,574 Interest 17.2%, declines by 100 bp per year•Monthly Payment – Starts at EUR 68 declines each month.•After each 12 monthly on-time payments, 1/3 of the interest is credited back to borrower, reducing the outstanding principal balance•Total Payments - EUR 3,491
Borrower saves nearly EUR 830 AND reduces payment time to 72 months.
Source: Symfonie Capital. The above list is indicative and does not necessarily reflect final product features, terms and conditions.
• Cetelem – wide product offering, easy repayment options, competitive pricing on payment insurance. RPSN ranges from 11% for larger loans to 19.8% for smaller loans. Growing network of retail distribution partners. Advertised on-line pre-approval in a few minutes.
• Home Credit – relatively expensive lender, no offer on payment insurance. RPSN for smaller sized, shorter tenor loans as high as 46%. RPSN on longer tenor and larger terms as little as 11%. Wide point-of-sale network. No on-line application.
• Provident – loans 45 - 100 days. Quick approval. 50% interest rate. Mainly for consumers who can’t get credit and are high risk of default. EUR 150 – EUR 3,000. More than 10% of non-bank loans are via Provident.
• Symfonie business model looks to develop about EUR 73 mn in annual loan originations in the Czech Republic by year 5, which is about 6% of the current annual tally of personal loans within the non-bank sector and less than 1% of the annual figure for the banking sector.
Source: Czech Leasing & Finance Association www.clfa.cz). CZK translated in to EUR at constnat rates.
Own Equity – Well capitalised P2P companies may use some of their own capital in order to fill gaps between arrival of borrowers and lenders to the site.
Family Offices – Symfonie believe appetite among family office for relatively secure high yield product is strong. P2P providers with robust operations should enjoy good access to this sector of the lending market.
Alternative Investment Funds –Hedge funds represent about EUR 1.5 trillion in assets, of which about 10% or EUR 150 bn is invested in credit markets.
People – Symfonie expect ample supply of lending capital from the retail market. Bank deposit rates are less than 2%. Household bank deposits in Czech Republic are EUR 80 billion and growing. Household investments in capital markets are EUR 40 bn.
Borrowings – P2P companies borrow to ensure growing demand for loans can be met.
• The current plan targets issuance of about EUR 4 mn of loans in the first 12 months following launch, rising to an annual volume of EUR 80 mn by the 5th year of operation.
• The revenue model assumes an average loan tenor 3 years and an average loan size EUR 2,000
• Origination fees are expected to average 3% of loan, collected up front. A loan servicing fee of 2% of the monthly payment amount, collected over tenor of the loan is expected. Additional fees can come from the sale of payment protection insurance, which reduces loan default risk and benefits borrowers and lenders
• The revenue target implies about 4% of the consumer loan market by year 5
Source: Symfonie Capital, There is no assurance the targets will actually be achieved. Actual performance may differ depending on market conditions and product terms and conditions. Revenue model is subject to change.
Operating staff, management and marketing are the largest cost items, accounting for nearly 80% of the expense budget. The Company plans to keep marketing costs contained during the first 12 – 18 months after start of operations while it ensures quality control and makes initial product adjustments.
Source: Symfonie Capital. The cost model presented is indicative and subject to change without notice. Actual results may differ.
Expenses Year 3
Credit check fee
Office Rent
Office Supplies
IT Systems
Business admin & analysis compensation
Management compensation
Communication
Supervisory Board
Accounting
Legal
Travel
Marketing
Credit staff compensation
Operating Staff vs. Volumes
• Operating staff includes customer service/sales, loan origination, loan administration
• Operating principles include classical banking and financial services control procedures
• Staffing plans were derived from analysis of planned processes and are generally consistent with what we have observed at other P2P and financial services providers
• Management and employees earn ownership in the Company.
• Management and employ ownership consists of options to buy shares in the Company, vested over time and with cash payments in exchange for the shares. Vesting begins after 18 months of service and take place over an 18 month period. Managers therefore must work for 36 months in order to become fully vested.
• Management buy-in is 23% of the Company on a fully diluted basis.
• Management and employees also have an incentive programme and can earn options to buy shares in the Company. The incentive programme begins after three years and is vested over a two year period, so management must stay with the Company for five years in order to be fully vested.
Management Incentive Plan
Option Plan for Year 4 Earnings
0%
2%
4%
6%
8%
10%
12%
14%
85,98
5 17
1,969
25
7,954
34
3,938
42
9,923
51
5,907
60
1,892
68
7,876
77
3,861
85
9,845
Year 4 Earnings (EUR)
% o
f Com
pany
Ear
ned
Option Plan for Year 5 Earnings
0%
2%
4%
6%
8%
10%
12%
14%
149,5
46
299,0
92
448,6
38
598,1
83
747,7
29
897,2
75
1,04
6,821
1,
196,3
67
1,34
5,913
1,
495,4
59
Year 5 Earnings (EUR)
% o
f Com
pany
Ear
ned
• Management earns options on company equity depending on profits produced in year 4 and 5
• Option plan is subject to adjustment by the Company’s directors and approval by shareholders
Symfonie P2P - Michael Sonenshine – CEO
Michael Sonenshine, CFA – Investment Principal
Mr. Sonenshine More than 20 years of experience in banking and investment management. He specialises in credit investments. He founded the Symfonie group of companies in 2012.
•MT Thaler, Prague/London: CEO/Partner, Head of Research. Investment funds focused on central and eastern Europe and pan-European credit markets
•CSFB, London: European High Yield Debt Research
•ING Bank, London: European High Yield Debt Research
Ms. Rombova is responsible for overseeing and monitoring the company’s finance.
•More than 20 years professional experience in managerial finance and business development
•Partner, CQK Invest, providing financial and business support to innovative startup companies
•10 years experience in senior management positions in HBO Europe, promoted to CFO
•MBA, University of Pittsburgh, Diploma, University of Chemical Technology, Prague
Symfonie Advisory Board
The Symfonie Advisory Board is a group of highly experienced financial professionals. Symfonie has regular meetings with the Advisory Board to discuss the Fund’s investments, strategy, research on P2P providers. Advisory Board members are independent of Symfonie and do not have legal or regulatory authority or status within Symfonie.
Willem NavesHolland
•More than 25 years of experience in investment and corporate banking.•Banking advisory projects in Macedonia, Poland, El Salvador and Indonesia•Twenty years experience in credit trading management positions in the ING Group, working in Amsterdam, London and Sao Paolo•Erasmus University degree in Law
Pavel KohoutCzech RepublicFifteen years experience in economic analysis and investment managementDirector of Strategy at Partners Advisors, a leading Czech financial advisory firmAuthor of several books on economicsMember of Czech National Economics Advisory BoardMember, Expert Panel of Advisors to Czech Ministry of Finance
Source: Symfonie Capital. Shareholding structure assumes all Round 1 and Round 2 investors participate via Symfonie Ventures`
Seed investors own Preferred shares preferential rights to dividends to 10% per annum notional dividend (when/if declared), parri-passu with common thereafter. Convertible to common at any time.
Seed investment EUR 125,000 - CLOSED
Round 1 GBP 600,000 for startup and launch of operations – NOW OPEN
SymCreditPoland
Operating company in
Poland
100 % ownership of operating subsidiaries
Shareholding
Seed & Round 132%
Round 222%
Management earn-in
23%
Management incentive
23%
• Indicative shareholding structure, post money, assuming all authorised capital sold and issued.
Shareholder Value
A win-win for management and shareholders
Based on 1 mn EUR mn invested, shareholders generate 8X multiple over 5 years
Management earn value through buy-in and profit incentives
*Value of investors’ shares prior to the first year of operations is equal to the cash invested, assuming all shares sold in Round 1 and 2 are common shares.
** Value of management share prior to the first year of operations is equal to the potential total amount of money management pay for shares acquired through the buy-in and incentive plans. In years 1 to 5 value is based on the full number of shares reserved for the buy-in and incentive plans.
In EURPeriod End Seed + Round 1 and 2 1 2 3 4 5Firm Value ‐ DCF ‐ 5,834,505 8,272,960 10,897,972 13,673,020 16,915,081 Firm Value ‐ 15x P/E ‐ ‐ ‐ 5,783,811 12,897,679 22,431,880
‐ Total value of investors' shares* 1,069,813 3,111,736 4,412,245 5,812,252 7,292,278 9,021,377 Total value of management's shares** 167,794 2,722,769 3,860,715 5,085,720 6,380,743 7,893,705
• New issuance of capital must be approved by at least 75% of outstanding shares.
• The business may not incur debt totaling more than 20% of share capital without at least 65% approval of outstanding shares.
• The business must payout at least 50% of net earnings as dividends unless at least 75% of shareholders approve otherwise.
• Drag provision to incorporated into the statutes. If at least 85% of shareholders agree to sell their shares the other 15% are bound.
• Tag provision all shareholders are entitled to participate pro rata in any offer to buy secondary shares.
Key Risks
• Underperformance - If the business plan is underperforming more capital will be needed. In this case the shareholders will decide whether to authorise additional capital or decrease management incentive pool.
• Competition – other P2P operators may enter the markets faster than we do.
• Finance – the business is likely to need additional capital to expand into other markets. There is no guarantee capital will be readily available on favourable terms and conditions.
• Exit strategy – there is no guarantee the business or the shares will be readily marketable when and exit is desired.
• Legislation – adverse legislation may prevent the business from developing or may prohibit the business entirely
• New operations – all procedures, policies and systems will be new, untried and untested.
• This document has been prepared by Symfonie Capital Investment Management LLC (“Symfonie Capital”) for persons reasonably believed by Symfonie Capital to be persons of the categories to whom Symfonie Capital are permitted to communicate financial promotions. This document does not constitute or form part of any offer or invitation to sell, or the solicitation of an offer to subscribe or purchase any investment. Symfonie Capital believes that the information it provides is accurate as at the date of publication, but no warranty of its accuracy or completeness is given and no liability in respect of errors or omissions is accepted by Symfonie Capital or any partner or employee of Symfonie Capital. Past performance is not necessarily a guide to future performance.
• This presentation is for illustration and discussion purposes only and is not intended to be, neither should it be construed or used as, financial, legal, tax or investment advice nor an offer to sell, nor a solicitation of any offer to buy, an interest in any of the funds managed by Symfonie Capital (the “Funds”). None of the Funds have shares registered under the U.S. Securities Act of 1933, as amended.
• This presentation is as of the date indicated and subject to change without notice.• Any indications of interest from prospective investors in response to this material involves no obligation or commitment of any kind.
Subscriptions can be made only on the basis of a Confidential Offering Memorandum to qualified investors. The investment objectives and methods summarized in this document represent our current focus and intentions.
• There is no assurance that Symfonie Capital or the Company will achieve its objectives. Investors may lose money upto the full value of their investments. No representation is made that the Company will achieve its objectives or that any investor will or is likely to achieve results comparable to any that may be shown. There can be no assurance that any investor will make any profit at all or will be able to avoid incurring substantial losses. Past performance is no guarantee of future results.
• This presentation does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. Before making any investment, you should thoroughly review the the Company’s Confidential Offering Memorandum with your financial and tax advisor to determine whether an investment in the Company is suitable for you in light of your financial situation.
• This presentation is subject to revision and updating. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. This presentation is confidential, is intended only for the person to whom it has been delivered and under no circumstance may a copy be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient. Symfonie Capital is solely responsible for the content herein.