- Professional active money management in the Mid and Large Cap universe is a sun setting business model due to the field being overly crowded by the institutional investment community, largely efficient information dissemination, and the emergence of passive strategies comprised of low cost ETFs.
- The future of professional active money management is Micro Cap investing. Professional active money managers can differentiate from their peers, deliver superior performance for clients, and survive the increasingly competitive money management landscape through Micro Cap investing.
- The Micro Cap universe offers greenfield opportunities for talented money managers to manufacture true alpha for the suppliers of capital. The Micro Cap universe makes up only 2% of the entire market by capitalization, but represents nearly 50% of the investible universe.
- The Micro Universe has little to no formal research coverage.
- The Micro Cap universe has historically delivered superior long term performance.
- The Micro Cap universe consistently experiences an outsized concentration of M&A activity.
- Our business – Micro Cap Research – aims to support professional active money managers who are focused on Micro Cap investing through research services that deliver insights, uncover value, and exploit inefficiencies.
Online Lending Leaders: Lending Club & OnDeck
The online lending industry has been red hot this bull market in terms of origination growth. Companies started coming public in 2015. The big names are Lending Club (LC) and OnDeck (ONDK). However, the post-IPO performance has been train wreck for a number of one-off reasons, pushing the valuations for these two online lending pioneers to mind-boggling lows. Now is the time for savy value investors to come in and swoop up these “next-gen” business models that will be paving the way forward in the industry for decades to come. We expect shares of ONDK to double to $10+ equal to a reasonable 3x current book value. LC’s revenue is set to double to over $1 billion by 2020, which we expect to also cause the share price to double to $12+ equal to only 2.5x revenue.
Online Lending Industry Overview
Lending Club and OnDeck Capital debuted their IPOs in 2015 presenting growth investors with an attractive opportunity in online lending. One company is a pioneering marketplace lender serving consumers, while the other is a balance sheet lender transforming into a licensing technology serving small businesses. These two companies (and others) got their start during “perfect storm” conditions for entrepreneurs targeting financial services. Now, public and private market investors increasingly have their choice of lending businesses that are rapidly disrupting the vast credit landscape. Combine these ingredients – a favorable backdrop and a large addressable market – and you get a long runway of opportunity ahead as users increasingly turn to alternative channels in both consumer and commercial lending. The lending market is undergoing one of the most significant transformations in its history.
Here are eight key themes to focus on: