Credit where it’s due: Exclusive interview with Fasanara’s Daniele Guerini
Fasanara’s Daniele Guerini gives Marc Shoffman his view of the peer-to-peer lending market
Alternative credit and venture capital investor Fasanara has backed more than 130 platforms across the world including peer-to-peer lenders.
Its initial focus was invoice finance but it has now expanded to other assets such as consumer loans and even sports lending.
Daniele Guerini (pictured), Fasanara’s head of fintech, origination and due diligence explains how the firm weighs up investment opportunities and reveals his outlook for P2P lenders.
Marc Shoffman (MS): What does your role involve?
Daniele Guerini (DG): I have been working in finance for more than 20 years in various roles across mergers and acquisitions, private equity and family offices, before joining Fasanara in 2019.
I knew Fasanara’s founder Francesco Filia before the business started. I met him in 2010 when he worked for Merrill Lynch. I had been involved on the credit side of Fasanara previously, as the family office I worked for was the largest investor in the fund.
MS: What is Fasanara’s history with P2P lenders?
DG: We started investing in the sector in 2014 in the original Fasanara fund, by looking at invoice financing marketplaces.
They included companies such as Kriya – formerly MarketFinance – and Workinvoice in Italy. Then things generally opened to other asset classes such as real estate development loans.
Read more: Fasanara agrees €200m debt facility with Spanish fintech
Over the years we have covered the vast majority of the underlying assets. Invoice financing is our bread and butter but we also do real estate, business and consumer loans as well as investing in balance sheet lenders and areas such as buy-now-pay later. Ideally we pick platforms that are not reliant on large amounts of investors.
MS: How do you choose who to invest in?
DG: When we focus on P2P lenders we need to understand our position. P2P lending is tricky. You need to work on both sides of the equation, the origination and finding investors.
That doubles your effort for a business providing the same kind of return as those working with one debt provider.
We need to understand how strong and robust the target is on sourcing capital and how reliant they are on repaying investors, which is a source of capital that is very volatile.
Read more: P2P investor Fasanara inks $200m deal with Canadian pension fund
We want to establish relationships where ultimately we become the main provider of capital, if not the exclusive one, as that is the way we can move to the ramp-up phase.
We want platforms that really want to scale their loan books. Most of the platforms we work with now are balance sheet lenders.
We have noticed a trend over time, where the ones able to scale want a reliable source of funding for the bulk of their needs and then top it up with high-net-worth investors and old legacy sources of funding.
Balance sheet lending is a lot more predictable than P2P lending. With pure P2P lending there is an ongoing exercise of luring new investors and substituting investors who leave.
That is the big difference and that’s why once you reach a certain scale, the preference tends to go towards one debt provider who can cover everything.
MS: What sort of terms do you seek?
DG: We like to have an alignment of interest. Most of the alternative credit providers have deals with an equity component, that is a function of our role. If we provide a lot of capital or are early in the game, then participation in the equity side is higher.
We have patient capital. We know the time horizon is many years. Now we have a track record of understanding how quickly or slowly these companies grow and set out expectations accordingly. We want to be seen as as a long term partner on the debt and equity side.
MS: How has the sector evolved?
DG: The move to balance sheet lending is a significant one. I don’t just mean on their own balance assets, it could be a special purpose vehicle funded by third parties. There has also been a trend of fintech companies to move towards this approach.
We don’t see many new P2P firms but we have seen something happening in software as a service financing, it is huge in the US but is smaller in Europe and taking longer to scale.
Read more: P2P backer Fasanara aims to raise $350m for new fintech fund
Regulation has had a significant impact. We have not been too focused on the P2P model but clearly the constraints that have been placed on the sector have been one of the reasons why some of them are coming to us and saying we are looking for a more reliable funding source.
The two things can co-exist. We have seen good models where you have a combination of institutional and retail P2P lending. CrowdProperty is a good example of this. They work on the basis of a good combination of private capital and institutions. But private capital has become more challenging and more expensive once you consider all the associated costs.
MS: Is there still space for retail P2P lending?
DG: There is a bit of space, not a huge amount. Going to P2P companies that have one or more institutional-grade debt provider is a sign that retail investors should decide which ones to back as they at least know someone has done due diligence of the counterparty.
Retail investors don’t have access to information to do proper due diligence, they many not know much about the operational risks. All of those things are relevant today. Knowing there is someone who has access to the data can help.
MS: What is your outlook for the alternative lending market?
DG: I am very positive about fintech gaining market share from traditional financial services providers with very specialised offers and niche products. The biggest challenge is scale. There are too many companies being started and not enough mergers. It is a market fuelled by a lot of equity capital. Merging will help companies breakeven.
On P2P lending, the outlook is a bit tougher. If it is difficult for traditional fintech to break even on a traditional balance sheet model, then it will be tougher for P2P which needs to manage two sides of the marketplace.
That means hybrid strategies with a combination of retail and institutions is probably going to be the way to go in order to scale over time or focusing on tremendous quality. If you have tremendous quality and a good track record then the money will come.
Fasanara was the winner of the P2P Institutional Partner of the Year award at last year’s Peer2Peer Finance Awards. This year’s awards are taking place on 12 December 2023. Click here for more information.