Last week, Nick and I emailed our 10,000 investors to say “we hear you.” Many of you wrote back to take us up on our call for input, feedback and ideas for dealing with the overwhelming demand. Hundreds of you are now regularly buying up our loans within minutes, faster than we can supply them. Based on investor feedback, we’ve decided to introduce two changes that will take effect immediately with our next batch of loans.
First, going forward, all loans will be announced at least 24 hours prior to funding. This longer preview period will allow more people to plan ahead. We have heard that a few hours isn’t enough time, especially when loans are released at certain times of day. Longer term, as many of you have suggested, we plan to develop tools that will automate the investment process, including taking advance instructions during the preview window. The current feeding frenzy that occurs when loans are released is inconvenient and unpredictable. We will engineer that out of the Groundfloor investor experience, ensuring that popular loans aren’t allocated based on how quickly one can invest.
Second, and more significantly, we will begin testing a loan participation limit. Our analysis of recent activity indicates that a few large dollar investments could start crowding out people who would otherwise be able to participate. Just as speed shouldn’t determine one’s opportunity to invest, nor should the size of one’s portfolio. While we value allowing everyone the freedom to invest as they will, what truly sets Groundfloor apart is our mission to broaden investor access. Set as a percentage of the loan size, the limit will now control how much any one person can invest in each loan. The larger the loan, the larger the limit. Most people invest around $500 per loan and won't be affected. Of course, there's no limit to how much one person can invest overall. Long term, we believe that clearing the way for hundreds of smaller investments makes for a healthier marketplace.
That last point bears emphasis, especially given recent events in our industry. Several online lenders operating in segments other than real estate have reported disappointing results this month. The problems at Prosper, LendingClub (NYSE: LC), OnDeck (NASDAQ: ONDK) and Square (NASDAQ: SQ) relate to their reliance upon capital sourced from institutional investors.
There’s nothing inherently wrong with institutional capital. We’ve never taken any at Groundfloor, but someday very likely will. Introduced too early, taken on too fast and in too high a proportion, however, capital supplied from non-retail sources is notoriously unpredictable. It plays out exactly the opposite of how one might think. Instead of serving as a strong foundation, the size as well as the structure wield dangerous and unanticipated power. On one hand, many industry participants are suffering from the aftereffects of an institutional capital sugar high. On the other, several face a highly contagious and chronic case of financial sclerosis. That situation is precisely what Groundfloor was originally conceived to avoid and withstand.
Whereas every other platform in our space has apparently emphasized growth over structure, we’ve patiently chosen the opposite. We didn’t start Groundfloor to be a new way to serve the same old keepers and allocators of capital, but aimed much higher: To form a new kind of capital, distributed in a new way, by new sources themselves. Sources that could and will withstand the ups and downs of business cycles and Wall Street sentiment. Sources that are stronger because they are more diverse and distributed, and therefore we believe wiser: You.
That’s the real story behind today’s changes. Together with our investors and borrowers, we’re building a better Groundfloor -- with increasingly more loans to diversify into every month, and more opportunity for more investors. While providing more notice and limiting investment won’t themselves deliver more loans any sooner, we are taking steps to preserve the breadth we set out to achieve as our original vision.
We'd be remiss to close without also addressing the issue of loan supply. Our loan pipeline continues to grow steadily, even though the throughput isn’t yet where we want. March and April yielded ten loans in each month out of hundreds of applications. This month we’re on our way to growing past that level. We’re taking time now to prepare the necessary systems, processes and people to ensure that our already high lending standards remain that way, and become even more rigorous over time.
We appreciate all of your feedback. Today’s changes are a direct effect of that dialog, as will be many more improvements to come. Stay tuned!
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