POP: Driven Financial Corporation

Real World Assets Pool Onboarding Proposals (POP)
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Overview:
● Business Name: Driven Financial Technologies Corporation
● Current AUM: Net lending book of C$70MM as of Q1 2022
● $ Volume of Transactions Completed Last 12 months:C$166MM loans originated to SMBs across the Q2 21 - Q1 22 period
● Target Launch Date: Q3/Q4 2022
● Location and Team Size: Montreal, Canada – 100+ full-time employees
● Years in Operation: 16 years
○ If less than 2 years in operation, number of years founding team has worked together: N/A
● Historical Loan Tape (years): 10+ year loan tape available (from 2012 to 2022)
● Key Professional Partners (legal, accounting, operational, technical, structuring): EY (Auditor), Torys (Legal / Structuring)

Strategy:
● Business
○ Describe your business and go to market strategy.
■ What makes your approach unique within your industry?
● Driven has extensive knowledge of Canadian SMBs, having successfully underwritten over C$1BN in credit over the past decade
● Driven provides an integrated suite of data-driven credit products and applications that address the financial needs of Canadian SMBs
● Clients can apply in minutes and have 24/7 online access
■ Why are you a good partner for Centrifuge?
● Driven is a sophisticated lender that brings a long history of institutional-level underwriting and lending
● Driven has been active as an SMB lender for 15 years
● We have secured C$100M+ of financing from Tier 1 Canadian banks
● Purpose Unlimited, Driven’s parent company, is an innovation-led organization, and is currently a global leader in digital asset management, having launched the world’s first actively managed crypto ETFs through its Purpose Investments business (Purpose Bitcoin ETF – BTCC, Purpose Ether ETF – ETHH). We continuously seek opportunities to innovate in financial services
■ How do you differentiate yourself from competitors?
● Driven has a leading-edge proprietary technology platform
● Our underwriting leverages data from banks (through Plaid/Flinks integration) and our own proprietary 15 years’ worth of credit data to make decisions
● Credit availability is automatically refreshed as repayments are made, and credit limits are reviewed every 30 days based on business health and repayment history
○ How is your entity financed today, what are the current sources of capital:
■ Equity raised – C$50M+ from institutional investors (e.g., OMERS, Allianz, etc.) through Purpose Unlimited (Driven’s parent company) financing
■ Debt raised: Credit facility of C$110M with Scotiabank and CIBC and of C$30M with Equitable Bank and Canadian Western Bank
○ What is your entity’s revenue/fee model:
■ Origination fees: N/A – Driven does not charge an origination fee
■ Target spread: Average effective APR of ~30% on loan book
■ Other: N/A

● Capital
○ Please explain the source(s) of, and ability to scale, your first-loss junior (TIN) capital in the pool: We presently fund our first-loss equity tranche through our own balance sheet capital / retained earnings and would expect to do the same with Centrifuge
○ Please explain the source(s) of, and ability to scale, your senior (DROP) capital in the pool: See response to ‘Capital Relationship’ item below
○ Capital relationships and how much you will bring through Centrifuge KYC to invest in either senior or junior tranche of your pool: We have a wide investment management distribution network through Purpose Unlimited (Driven’s parent company) that we would be able to leverage to attract investors. While not directly the same investors, we manage over $2Bn of crypto funds through Purpose Investments.

● DeFi
○ Outline why DeFi is important to your business strategy: We have extensive experience as a global leader in digital asset management and we want to continue to innovate in the crypto/web3 space by experimenting with the potential of bringing some of our lending assets to DeFi. Crypto is a core component of our strategy and we want to continue to learn, drive innovation and test for areas where there is potential to further scale. We are continuously experimenting in the crypto space to identify new opportunities for our business.
○ Articulate why Centrifuge’s community and protocol is a fit for financing: Centrifuge has been recommended to us by multiple contacts we have within the crypto/web3 industry. We are active in the crypto community and are involved in several crypto ventures (e.g., we were the founding sponsor and have a strategic investment in Ether Capital). In addition, Centrifuge is a strong fit with the types of DeFi experiments we are interested in exploring. We are encouraged by Centrifuge’s track record to date, the community that you have built, the operating processes you have developed and the strong governance models in place.

Structure: Risk & Terms
● Please explain the key risks inherent in this opportunity and asset class:
○ Credit Risk: Risk of default in payment by Driven Financial corporate borrowers (Canadian small businesses), which may affect the returns to investor and/or the ability of investors to realize their investment in the notes prior to the final maturity date
○ Macro-Economic Conditions: Difficult macro-economic conditions may adversely affect the performance and the realization value of the loan receivables. It is also possible that the loan receivables will experience higher delinquency and default rates than anticipated.

● Pool Size & Pipeline:
○ At Launch: Driven Financial Corporation has a net lending book of C$70MM as of Q1 2022 and is expected to originate close to C$200M over the full year 2022. We have the capacity to support a potentially large pool and already have an existing origination.
○ 6 Months after Launch: See response to ‘At Launch’ item above
○ 12 Months after Launch: See response to ‘At Launch’ item above
○ Origination Pipeline Details: Driven Financial Corporation has a net lending book of C$70MM as of Q1 2022 and is expected to originate close to C$200M over the full year 2022.

● Asset & Rates:
○ Asset Type(s): Merchant cash advances, loans, and other small business finance receivables
○ Average Ticket Size: ~C$35-40K
○ Average Asset Maturity: 14 months
○ Expect Default Rate: ~5-8%
○ Expected borrowing rate on senior tranche (on-chain): ~5-7%
○ Expected lending rate to end borrower (off-chain): Average effective APR of ~30% on loan book

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The Centrifuge community has reviewed the POP for Driven Financial Corporation , based on the 10 criteria, and the result is: :nine: / :ten:.

SCORE

For each criteria, either a :zero: (criteria not met) or :one: (criteria met) will be given.

Below you will find the results of the individual criteria:

Business Years in Operation: :one:
Off-Chain Institutional Investors: :one:
Strong Pipeline: :one:
Volume Originated last 2 years: :one:
Historical Loan Tape: :one:
TIN Tranche: :one:
DROP Tranche: :zero:
Pool Value at Launch: :one:
Pool Value in 1 Year: :one:
Asset Maturity: :one:

RESULT

:white_check_mark: This proposal meets the threshold of >66% and has passed step 2.

NEXT STEP

Step 3 will be to get a recommendation from the Centrifuge DAO. This will be done within the next 5 days and the result will be published here on the Forum.

If you want to see all the steps of Stage 1 of the POP process, you can check this post here .

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POP Review k/factory: Driven Financial Corporation

Hello I’m Jeannice, Partner and Portfolio Lead at k/factory, the core team building Centrifuge. I’m writing this review together and on behalf of the k/factory business development team, and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice and nothing contained in this post constitutes a solicitation, recommendation or endorsement of any investment. Community members should do their own independent research.

The proposition for the higher APR of ~30% is interesting: the rate is quite attractive (at least relative to the average current pool on Tinlake) but the question is really about the amount of risk potential investors are taking for the increased return. We like that Driven has been around for 16 years, and that the parent company is in the digital asset business. The team’s articulation of why DeFi is important to them also resonates with us.

We would suggest the following questions for the pool party:

  • What is the exact collateral here? Is it receivables? If so, what type? The average tenure of 14 months also seems quite long for the asset class, although admittedly, we want to see this compared to industry average for the collateral.
  • At the average APR of 30%, what is the range of APRs offered to end-borrowers?
  • Do you extend add-on funding to existing borrowers?
  • Without breaking confidentiality, can you share what makes your underwriting process leading-edge and differentiated?
  • We would love to see a live demo of the loan application process.
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POP Review DCM: Driven Financial Corporation

Hi I’m Mike, the Founder of DeFi Capital Markets (“DCM”), an entity in the Centrifuge community that is focused on building the future of decentralized capital markets by onboarding institutional investors, assets and infrastructure to the DeFi ecosystem. Previously I was a core member of the Centrifuge team and we at DCM are currently contributing to the Centrifuge, RWA Market (Aave) and MakerDAO ecosystems. The current, and future, employees of DCM are largely from institutional investment and credit backgrounds and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice and nothing contained in this post constitutes a solicitation, recommendation or endorsement of any investment. Community members should do their own independent research.

I will reuse my recent macro wrap: Macro conditions have broadly deteriorated broadly across markets as inflation has reached a multi-decade high and has spurred a more aggressive Fed policy. The resultant rise in interest rates has driven a sharp sell-off of global financial assets, crypto being no exception. DeFi liquidity has contracted markedly in the last few months, and recently we have witnessed several large scale insolvencies that have shaken confidence in the sector. As deFi investors retreat and significant swathes of capital are erased from the ecosystem it makes for a notably difficult backdrop to raise new financing. That being said, real-world assets tied to productive cash flows outside the crypto ecosystem offer investors a new avenue to generate yield in a more sustainable fashion. Given the financial conditions, investor appetite for new endeavours is expected to remain limited for the time being, however we are optimistic this could improve once the dust settles and RWAs may become an emerging trend.

Driven appears to have a solid history of lending in the Canadian SMB market and we are excited by their existing footprint in the Web3 ecosystem. It’s our view that pre-existing crypto knowledge and the dynamics there within could make being an issuer a much easier journey. Driven reports having raised equity and debt facilities from high quality counterparties which signals to us that credit quality is likely suitable. Driven’s existing capital base also sounds very promising and we are intrigued by the prospect of them bringing more capital to the Centrifuge ecosystem through already developed investor channels.

We would suggest the following questions for the pool party:

  • The expected default rate looks relatively high, how would you expect this to trend as credit conditions tighten?
  • How confident are you that you could bring new capital on-chain to support the pool? How much of this capital could be arranged for launch?
  • With the desired senior rate, what is the size of the prospective junior tranche?
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Good day!

Step 4: Forum Poll is open now and everyone is invited to vote!

Thanks, everyone for voting!

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Thanks everyone for voting.
The poll was closed with 7 votes Aye and 0 Nay.

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