POP: Lend East

Real World Assets Pool Onboarding Proposals (POP)
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Overview

  • Business Name: Lend East
  • Current AUM: US$ 30million
  • $ Volume of Transactions Completed Last 12 months: US$ 30 million
  • Target Launch Date: 1st August 2022
  • Location and Team Size: Singapore, 7 members
  • Years in Operation: 3.5 years
  • Historical Loan Tape (years): 3.0 years

Key Professional Partners

  • Legal: Withers Khattar Wong
  • Fund Manager: Silverstreak Asset Management Company Singapore
  • Fund Administration: Ocorian
  • Fund Audit: Ernst & Young
  • Accounting / Secretarial / Trust: Camelot Trustees, Rikvin
  • Technical: Greypath Solutions

Strategy:

Business
Describe your business and go to market strategy.

What makes your approach unique within your industry?
Lend East is a digital lending platform that connects global institutional capital with alternate lenders & technology ventures in Emerging Asia (Southeast Asia & India). Lend East is revolutionising alternate lending by offering scalable growth capital with zero dilution. Leveraging Spa{R}3k, its proprietary credit and risk analytics platform, Lend East has made high impact investments in Indonesia, the Philippines, Singapore & Vietnam since 2019.

Key Highlights

  • Founded in 2019 by a team of former fintech entrepreneurs, fund managers, investment professionals, bankers & data scientists with industry expertise, deep regional networks, disciplined origination, robust due diligence and special situations expertise

  • Since inception, Lend East has evaluated over 130 alternate lenders and onboarded 60+ of them on Spa{R}3k, its proprietary credit analytics & risk platform

  • Lend East has committed US$50mn in investments across eight market leading platforms across Singapore, Indonesia, Philippines & Vietnam; all borrowers are backed by marquee equity investors like Sequoia, Ant Financial, DST Global, Arbor Ventures etc.

  • Strong performance track record, generating healthy risk adjusted yields for investors with no delays or defaults in borrower repayments

Our Investment Thesis
Lend East facilitates the flow of debt capital to growth stage, tech forward, Alternate Lenders with strong teams & scalable portfolios in Emerging Asia. Our borrowers are backed by marquee global VC, Private Equity & Strategic investors and working towards the cause of financial inclusion in the region.

Our borrowers are market leading alternate lenders with:

  • Seasoned credit portfolios with underwriting models having gone through multiple iterations (at least 3+ years)
  • Strong support of marquee PE / VC/ Strategic investors as well as lenders
  • Proven and established business models in their specific geographies/products
  • Regulatory compliance & licensing in operating regions
  • Visibility around business scalability in the medium to long term

Why are you a good partner for Centrifuge?
Founded in 2019 by a team of former fintech entrepreneurs and operators, Lend East is the first player in Emerging Asia to successfully connect crypto assets to real-world investment opportunities via a fully regulated VCC (Fund) in Singapore. Our offerings have low correlation to traditional Equity, Bond & Crypto Markets, offering the Centrifuge community an opportunity to diversify their portfolios with institutional-grade structured credit products generated from real ventures and revenues anchored in the Web 2.0 space.

Our proprietary credit risk anaytlics platform Spa{R}3k evaluates over 1 million KPIs to underwrite investments with strong focus on capital preservation. Since inception we have originated over a 100+ deals in the region. Spa{R}3k has onboarded over 60+ alternate lending platforms with the aggregate AUM of US$ 500mn across 4 countries. We maintain a solid performance track record, generating healthy risk adjusted yields for our investors with no delays or defaults in borrower repayments. Our portfolio companies have grown considerably and raised multi-million dollars in equity funding from marquee investors, further strengthening our security.

How do you differentiate yourself from competitors?
Our origination strategy is primarily driven by our deep regional network of founders, VC, PE, Strategic investors in the form of introductions / referrals. Since inception, we have organically developed a differentiated brand, leading to a strong inbound interest from ventures seeking non-dilutive growth capital solutions.

Our proprietary platform, Spa{R}3k helps to manage the end-to-end life cycle of every investment. Using its three modules of Research, Relative Value & Risk Management, Spa{R}3k helps us conduct an extensive due diligence on each borrower and monitor portfolio health post deployment. In our man + machine model, significant time is spent on building structural safeguards (excess portfolio cover, seniority on the balance sheet, corporate guarantees etc.) to generate a healthy return for our investors while ensuring capital preservation.

How is your entity financed today, what are the current sources of capital:

  • Equity raised: US$ 3mn (Convertible Notes)
  • Debt raised: US$ 30mn (in the VCC fund)

What is your entity’s revenue/fee model:

  • Origination fees: 1%-2%
  • Target spread: 6%-8%
  • Other: NA

Capital

Please explain the source(s) of, and ability to scale, your first-loss junior (TIN) capital in the pool:
A portion of our anchor debt capital has been earmarked for provision of first-loss junior capital. This can be scaled up depending on the size of the pool.

Please explain the source(s) of, and ability to scale, your senior (DROP) capital in the pool:
We are in active discussions with DeFi investors to expand our stable coins fund raise. These funds could potentially be allocated to the senior pool.

Capital relationships and how much you will bring through Centrifuge KYC to invest in either senior or junior tranche of your pool:
We can leverage our existing & incoming DeFi funding streams to invest alongside the Centrifuge community

DEFI

Outline why DeFi is important to your business strategy:
As former entrepreneurs and operators, we have experienced the difficulties of raising capital firsthand. We built Lend East with the vision to make high impact investments by helping founders access scalable debt capital. Like our fiat investors, DeFi investors also need to diversify their investment portfolio. Along with the short-term liquidity mining rewards and capital gains, a sustainable source of healthy fixed income yield which connects the crypto community to real world borrowers presents an attractive opportunity to generate returns while making an impact at the grassroots level. Hence, we are bullish about the platform Centrifuge has created.

We have spent the last three years connecting accredited fiat investors to this upcoming asset class. Now, we want to make access to this asset class simple, transparent & frictionless for Crypto investors. We are excited to bring great investment opportunities to the Centrifuge community.

Articulate why Centrifuge’s community and protocol is a fit for financing:
Lend East is excited to raise capital through Centrifuge because we believe in leveraging the power of crypto to create real world financial inclusion. We are the first player in Emerging Asia to successfully connect crypto assets to real-world investment opportunities via a fully regulated VCC (Fund) entity in Singapore. We are excited to expand our pool of DeFi investors in partnership with market leaders like Centrifuge.

Lend East is targeting to fund at least US$ 50 million in diversified lending opportunities, on the Centrifuge protocol over the next one year.

STRUCTURE: RISK & TERMS

Please explain the key risks inherent in this opportunity and asset class:

RISK DESCRIPTION MIGITATION
Market risk Market risk is impacted by broad factors such as political changes, investor sentiment and significant external events (e.g. natural disasters) Lend East will actively monitor the state of the market and identify possible changes in the investment strategy to minimize its effects on the current portfolio and future investments
Interest Rate Risk The risk that the capital value or income of an investment may be adversely affected when interest rates rise or fall. The income from the underlying assets can fluctuate in reaction to large changes in interest rates Lend East investments are made at a fixed rate of return, not linked to market base rates. This helps to mitigate any interest rate fluctuations in the market
Credit Risk Credit risk relates to the risk of issuers defaulting on their financial obligations. The value of assets within can change due to changes in the credit quality of the issuer and from changes in the value of similar securities Lend East will seek to mitigate this risk by active management of the assets it invests in. Monthly portfolio reviews will help to identify early warning indicators and in turn take corrective action.
Regulatory Risk Lend East or its investments may be adversely affected by changes in government (including taxation) policies, regulations and laws, or changes in generally accepted accounting policies or valuation methods Lend East has close ties with the regulators in the markets where it operates. Investments are only made in duly licensed alternate lenders and technology ventures ensuring safety from regulatory risks

Pool Size & Pipeline:

  • At Launch: US$ 10 million
  • 6 Months after Launch: US$ 20 million
  • 12 Months after Launch: US$ 50 million
  • Origination Pipeline Details: Visibility to take AUM to US$100 million by December 2022

Asset & Rates:

  • Asset Type(s): Private Debt Investments in VC backed Alternate Lenders & Technology Ventures in Emerging Asia
  • Average Ticket Size: US$ 4million
  • Average Asset Maturity: 24 months
  • Expect Default Rate: < 5%
  • Expected borrowing rate on senior tranche (on-chain): 5-7%
  • Expected lending rate to end borrower (off-chain): 14%
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Hi @LendEast,

I have a couple of questions regarding your submission in relation to the TIN and DROP tranches:

It sounds good that it can be scaled up, but could you please clarify what a portion means, i.e. provide some specific figures, if possible?

Does this mean that they are willing to fund (part of) the DROP tranche? What is preventing them from doing so?

Thank you.

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@Rhano Hi Orhan,
Thanks for your queries. Please find our response below.

First-loss capital: We are in the position to furnish up to 15% of the total transaction size as first-loss junior capital.

Senior capital: We are aiming to raise US$ 50mn in a combination of Junior & Senior capital. At present, our investor conversations are in preliminary stages. Hence, we are unable to give concrete comments on the source of capital for the Senior tranche. We envision working alongside Team Centrifuge to market and raise this pool.

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Thank you for the clarification @LendEast, appreciate it.

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The Centrifuge community has reviewed the POP for Lend East , 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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Before moving into further stages of this POP, I’d like to understand the Defi protocols that you’re potentially engaged with on senior. Further, given your success in traditional markets, what’s the ability to bring off-chain senior capital on-chain through this POP.

POPs are most interesting when they have the ability to expand the capital markets of DeFi by not only tapping into existing DeFi Protocols, but most especially when they’re able to bring off-chain traditional senior lenders on-chain through their Centrifuge Pool.

Could you share more details into whom you’re engaging with both on and off chain for senior capital?

It could be very impactful to see representatives from those senior lenders join this thread and participate in your POP.

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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.

We would suggest the following questions for the pool party:

  • What is the total AUM that has been originated over the past 3/3.5 years
  • What are your default procedures?
  • What is your range of asset maturity; I see average as 24 months but would like to know how wide the range is
  • Do you provide fixed or floating rate facilities?
  • Can you describe where your business comes from? I.e. % inbound referrals, % extension of current facilities, etc.?
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We are in active conversations with platforms like Goldfinch. Most of the discussions are in early stages. Happy to provide more colour as and when the discussions advance further.

We have clear visibility on junior capital that we can bring to the Centrifuge Pool from our anchor investors (up to 15% of the pool size). There is limited visibility on off chain, senior capital. We envision working with the Centrifuge community to raise Senior Capital for our pool.

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Very helpful and appreciate the transparency in your approach.

As I see it now, I think it’s important to have some visibility into funding on-chain to understand the senior lender demand within DeFi for your Centrifuge Pool.

It’s no secret that many high quality RWAs and Issuers have approach broader DeFi through Centrifuge over the past couple of years, bringing both RWAs and their junior tranche.

However, the senior lender is typically hardest to secure, most especially within the macro landscape.

A good example of the typical path has been to approach MakerDAO, which you can see through efforts such as this one: BlockTower Credit - Introduction & Arranger Proposal - Collateral Onboarding - The Maker Forum

I think seeking to establish a Centrifuge Pool, without the ability to finance the senior tranche through either on on-chain or off-chain lender, is sub-optimal.

If there’s a senior lender, that could be included in this POP, that would be quite compelling and perhaps give this POP more validity.

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POP Review DCM: Lend East

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 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 continue as an emerging trend.

We are extremely encouraged by Lend East’s efforts to raise senior capital to support their pool. Given the current market conditions, senior capital has been a difficult lift, especially given then relatively low expected financing fee. We are not intimately familiar with SEA lending market or prelevant rates, however the desired funding rate does seem rather tight to us for the proposed EM geographies.

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