Venture Capitalists Wary Of Online Lenders

With an early string of alternative lenders having a tough go of it, startups looking to raise money are having to show how they will avoid the woes of the online lenders before them.

According to a news report in CNBC, BlueVine CEO Eyal Lifshitz said that when meeting venture capitalists in recent years, the company has had to have a good story as to why it is different from other online lenders in order to get funding — something it didn’t have to deal with three years ago.

BlueVine, which is an online lender that is focused on the small business market, raised funding last year and has secured a total of $188 million in venture capital funding since 2013. The executive noted that investors are looking at the “viability of the overall lending model” and what effect it will have on the weaker players.

Lending Club and OnDeck were the early players in the alternative lending game, raising tons of money as venture capitalists and investors bet this avenue was the direction in which the market was heading. But Lending Club ran into trouble with compliance requirements, resulting in the resignation of CEO Renaud Laplanche.

Meanwhile, OnDeck has been under a lot of pressure over concerns about its ability to grow and the default rates at the company. While the stocks increased on good earnings in August, CNBC noted the shares are only valued at a fraction of what they were when they went public in 2014.

At the same time that online lenders and startups have to prove their ability to thrive, investments overall in that area of the internet are slowing down. CNBC cited CB Insights, which found the number of venture capital funding rounds for online lenders could hit a five-year low this year ,while the dollar amount of investments is expected to decline to $2 billion. That is less than half of the $4.4 billion in investments online lenders saw back in 2015.