Five Questions with Brendan Carroll, Senior Partner and Co-Founder, Victory Park Capital

Victory Park specializes in investing in the specialty-finance sector. How do you define that marketplace?

For us, specialty finance is predominantly non-bank lending. It may be a platform that does it online, it may be an institution that has brick-and-mortar locations, or maybe it’s a hybrid of the two.

They’re lending to small businesses, they’re lending to consumers, they’re providing factoring, they’re providing point-of-sale finance. Basically, anything a bank won’t lend to, for us, falls under the specialty-finance umbrella.

In terms of the number of transactions we have done, call it 35 [deals]; 30 or 31 are balance-sheet deals. We’re not buying whole loans. We’re lending money to a company that’s then relending it back out to their customers, be it a consumer or small business. I’d describe us as a lender to lenders.

That said, we have done some whole-loan purchasing or what people would define as peer-to-peer lending. We have done some stuff with Prosper; it’s public that we’re Square’s first outside provider of capital.

Peer-to-peer is an industry that’s faced some headwinds recently, correct?

There typically hasn’t been a demand issue from the customers. For the most part, the underwriting hasn’t been the issue. The issue has been having a consistent and reliable funding source to take advantage of the demand for this product. And a lot of that depends on the securitization market.

That is dependent on institutions like ourselves or others buying those loans on a monthly basis. If those institutions decide not to buy those loans anymore, that presents a funding issue.

The vast majority of businesses we deal with [are] not as reliant on the capital markets being favorable.

A lot of these businesses developed over the last five to seven years. Do you have concerns about their ability to survive a downturn?

They can’t just take the money and do whatever they want, right? It’s a set product with set pricing, in a set jurisdiction. We’ve got numerous covenants and restrictions in place to make sure that we can quickly assess and monitor on a very frequent basis whether that capital is performing.

I want to know that when we’re providing capital on a company’s balance sheet, they’re incentivized to make sure those loans are performing. That they’re providing capital alongside of us on each and every loan they make. So if they’re lending a dollar, we might be 85 or 95 percent of that dollar, but they’re also contributing off their own balance sheet.

Do you expect to see more consolidation in this sector?

I think you will see it in the not-too-distant future.

I just think it’s a lot harder than it was, even 12 to 18 months ago, to raise money within this sector. I think it’s a lot harder for some of the smaller businesses, or even a new entrant, to raise equity, given that you kind of know who the leaders are in their respective niches, at least in the U.S.

What types of investment opportunities is VPC looking at, right now?

A lot of what we are doing from a transaction standpoint, month by month, is to continue to support and grow with our existing portfolio companies. With that said, we continue to look at new deals, [the recent investment in] Cognical being a good example.

We’re looking a lot outside the U.S. as well, maybe to markets or geographies where the business of non-bank lending, or online lending, is a few years behind where we are here in the U.S.

This interview was edited and condensed by Sam Sutton. 

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Photo of Brendan Carroll courtesy of Victory Park.