So it is time for me to write about something I have very limited experience with and most importantly no success to date: start-up investing. Even this definition might be loose since Mintos was founded in 2015 and at a valuation of €68mio, it is not exactly a small company.
My preference is to invest low amounts in a big number of companies valued < 5 million: I do not have the time to do a deep due diligence and I do not have the access to the management team to understand how good they are; at this valuation, a company can reasonably 100x and still not being a unicorn. I invest in companies close to my expertise: fintech, payments, platforms, now nurseries (yes, it is a thing) but I stay away from things I do not know like restaurants and food. This also means I invest in little more than an idea and a limited proof of market fit.
At 68mio valuation, Mintos would be normally out of my range: to have a meaningful return I would have to write a 10x bigger cheque. The advantage Mintos offers compared to my standard investments is the knowledge they have a great management team. Creating a company that has 50% of European p2p market is no small feat. My principle is:
idea < timing < execution
Mintos founders had the right idea, at the right time and executed it perfectly; it would have been a great investment five years ago. The issue now is that they are at a junction, they have to change their business model.
In October Lending Club, one of the first p2p platform in the US, stopped their retail platform. They bought a traditional bank, mainly to have a quick banking license, and they are revisiting completely their strategy. They will offer p2p loan only to institutional investors and it is not clear what product will be available for retail investors.
Curiously, Mintos is launching a new product called “Notes”…which is the same instrument and name Lending Club used for their retail investment offer, the business they deem not profitable and drove below performance:
The reason Mintos has to change its business model is two-fold, in my opinion:
- their original model is showing some deficiencies
- to grow their valuation they have to find new ways to monetise their user base
Original Model
The quality of the platform is directly related to the quality of the loan originators, Mintos capacity to select them and eventually enforce investor protections. Only time will tell how many of the recent LO defaults happened due to an extreme event like Covid-19, the reality is that there were too many for a platform that makes the ‘buyback guarantee’ a prominent feature. Conflicts of interest are also emerging: the cross-ownership of Mintos and some of the LOs that fund their activity on the platform might put investor interests in second or third place. Recently they introduced a new risk scoring system but it will take years to understand if this change was for the best or not. In the end, as shown by other platforms like Uber or Airbnb or Ebay, it seems like a very simple business model but it make it work you need to find the right nudges so that users on both sides (investors and LOs) act fairly to each other.
The New Model
In their pitch deck, Mintos show a comparison between other company valuations and users that I found interesting.
My understanding is that they will try to diversify in two directions: new instruments like ETFs and new banking-like services.
The Good
I work next to the BlackRock building in London; we are also a client, so (pre-Covid) I used to access that building quite regularly. It is amazing what you can build out of a couple of simple index ETF charging few basis points. (I also think of the Barclays poor bastard that years ago decided to sell the iShare business to BlackRock because it did not represent their core-business…). If Mintos nails their ETF project, it can represent a HUGE golden goose. The ETF is your main door to a lot of retails investors but, more importantly, to institutional investors: this is where the real money is. And if you do not think so, Google why Bitcoin investors are so pissed that they do not have their ETF yet. The ETF is an opportunity but to get there it will need an equal huge amount of work with regulators, easier said than done.
The Bad
I know a lot of people that use Revolut and never bought a stock. I do not know anyone that uses Mintos but is not an investor. The lateral move for Revolut from FX to banking to business accounts to…everything else they do make sense to me because these are services close to one another. It is hard to me to envision why someone that uses Mintos would need an IBAN…
You cannot use Mintos if you do not have an IBAN, so you are trying to sell your clients something they already have for sure and most likely they made a reseach on it; do you think someone found Mintos but is still banking with an institution that charge them 5EUR for a banking transfer? What’s your value proposition here?
The Ugly
As Netflix boss once said, their main competitor is sleep. You want investors to keep money in Mintos. Offering a debt card, something to get money out of Mintos in an easy way, is like if Netflix reminded their viewers between each episode that is better to spend time with real friends than on your couch. It is hard enough to teach people to save, why would encourage someone on the right path to go back to spend?
The End
Future is not a linear path, to have success in this field you need to have vision and Mintos management needs to have it too. When FB IPOed, their share price was discounting a lot of future good things AND changes in their business plan happening. Zuck delivered and I did not invest.
Mintos is on the right path but in order to have a successful investment you need them to pivot and deliver big, given the initial valuation. That is a high risk for me…but I feel quite alone in this spot since they raised 500% of what they originally planned. Good luck!
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