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A New Source of Private Credit: the Crowd

Venture capital-backed Orchard seeks to bring a crowdfunding approach to the institutional private lending market, a space dominated by banks and other intermediaries.

Orchard, which operates an online crowdfunding marketplace for small business owners and others, launched a product on Tuesday that connects hedge funds, institutional investors, and others directly to loan originators.

The new offering, called Deals, hopes to give investors access to a wide range of investments, including secondary loans and credit facilities, as well as underlying data. Bill Ullman, Orchard’s chief commercial officer, says the product aims to offer banks and other intermediaries better transparency into deal information as well as a new source of investments for hedge funds and others.

In the ten years since the financial crisis began to unfold, banks have pulled back from lending, making private credit one of the fastest-growing asset classes. But with private deals hatched between players, information can sometimes be hard to come by. Ullman points out that one aspect of the offering that may be appealing to these investors is deal information that is not readily available on private credit in today’s markets.

Although institutional investors have entrenched processes for getting deal flow, Orchard’s backers are confident that the new service will attract big users.

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“Investors such as hedge funds have an obligation to find the best investment ideas. And once they’re on, the supply side will come on,” says Ullman. 

Using the service, deal originators may be able to lower their cost of funding by reaching a larger audience of potential buyers. Ullman thinks another draw for the platform will be its data analytics offering. Deals also offers credit analytics that investors can use to evaluate investments.

Orchard’s primary venture capital backers are Spark Capital, Canaan Capital, and Thrive Capital. Strategic investors include John Mack, former CEO of Morgan Stanley, and Vikram Pandit, former CEO of Citigroup.

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