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Small Business Funding in the Coronavirus Era: What COVID-19 Means for Small Business Lending in the Future?

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The following text is a transcription of the Fundamental Fairness podcast.

Small Business Funding in the Coronavirus Era: What COVID-19 Means for Small Business Lending in the Future?

Presenter

Welcome to Fundamental Fairness, a podcast about bridging the gap between fintech and financial inclusion. Brought to you by Camino Financial with your host, Sean Salas.

Sean Salas

Hi and thanks for joining the first episode of Fundamental Fairness. And for this first episode, we had to bring a very special guest, Glenn Goldman.

Glenn Goldman is a veteran in the fintech industry before it was referred to as fintech. He’s had multiple roles as CEO and most recently was the CEO of Credibly, an AI driven SMB lender in the United States. Glenn also advises early and mid-stage fintechs, including Orchard Platform, BizCapital and, yes, Camino Financial. Glenn and I become friends. He’s very wise and he’s been there and done that.

He managed through the 2008 recession and saw how it impacted the small business lending industry. And COVID-19 will create a new transformational period, which he’s going to discuss in detail in this podcast. I really hope you enjoy it.

Glenn, welcome! 

Glenn Goldman

Hello there! Thrilled to be here, thank you.

Sean Salas

All right.

Glenn Goldman

Although I will say this, and I think, you know, I speak on behalf of all of us. You know, we’re going to talk a lot about, you know, the crisis and, you know, some context around it and what the other side could look like. We’re going to talk about, you know, prior crises. We’re going to talk about how this one is different, current state of affairs. We’re to talk about what does it look like when we come through this and how do we make this a launchpad for us when we come through this.

But I do want to acknowledge that what brings us here is COVID-19 and all of us in one way or another are dealing with distress. And I do want to give a shout out and send thoughts and prayers on behalf of all of us to, you know, the first responders, you know, our frontline health care workers and anybody that any of us know who is fighting a battle that could use, you know, our prayers and support. And so for all of those folks, we dedicate this fireside chat.

Sean Salas

Great! Well, that’s a great way to kick off the discussion. And as a headline reminder, we’re going to talk about what COVID-19 means for small business funding for the future.

And you mentioned in that introduction, you know, it’s good to put these things into context relative to prior crises, specifically crises that fintech lenders have experienced in the past. So before we start talking about COVID-19, I’d love to first talk about prior crises, so we can contextualize if this one is worse or how is it different from prior crises that we’ve experienced as an industry and you’ve experienced firsthand.

Glenn Goldman

Ok. Sure. So… Let’s start with, you know, the Internet bubble of 2000, which is probably still a bit early for many of the folks on this call, but it was and is highly relevant, you know, for the work that we do every day. So I’m sure many of you, most of you, have heard about, you know, the bursting of the Internet bubble of 2000. You know, leading up to that, kind of mid to late 90s, you know, we were experiencing, really, the first introduction of broad based online business models on a global scale.

There were probably, you know, somewhere between 100 and 200 IPOs, which, you know, represented very early stage business models. But all of those IPOs led to what I would call, kind of, inflated valuations. And if we marvel at the business models more recently around us today, as we read about other companies, competitors and others, if we marvel at the business models that focus very little on profitability, I can tell you it was even less of a consideration in the late 90s.

Literally, companies were valued for IPO purposes based on the number of eyeballs. And that was a term, “eyeballs” on websites, visitors, visits, users. The conversation very rarely had anything to do with fundamental unit economics and profitability. 

Sean Salas

Sure. But have we truly learned from our lessons from the dot com bust with the emergence of SoftBank making big bets at really high valuations?

One can make an argument that those are inflated valuations; they made investments in WeWork and Uber, and now we’re seeing how the public markets are reacting to that. They’ve also made an investment in a fellow fintech, SoFi, granted maybe those fundamentals are better aligned. What are your reactions to that? 

Glenn Goldman

Yeah, so… A lot of what we learned, you know, or chose to ignore from that experience, served as the foundation of how we think about, you know, technology and financial technology, you know, businesses today. And I would say that, you know, in certain quarters of financial technology and technology, and just, you know, what I would call “newer age business models”, collaborative consumption, like WeWork and Airbnb, there was at least a willingness for those companies that were demonstrating market dominance, complete market dominance like Airbnb, like Uber, to look the other way when it came to fundamentals like profitability.

But, I think, you know… I like to say we live in a post WeWork world. I think that, you know, what happened with WeWork and SoftBank… You know, as the story goes, the emperor is really wearing no clothes. In that case, there were two emperors not wearing clothes.

WeWork who, you know, up until things went sideways, seemed like they couldn’t make any mistakes anywhere. And SoftBank seemingly had a golden touch, everything they touch turns to gold. And I think what we learn there is that this notion of not focusing on fundamentals, union economics and profitability, is a lesson that we were given the opportunity to learn now for the second time. I think folks are pretty much embracing it, right? We’re seeing it now in business. We’re seeing it at Camino.

So, just kind of going down the path there, so that dot com bubble happened in 2000. Just to give some context, when we talk about COVID, all of those IPOs traded on not the New York Stock Exchange, but the Nasdaq… The Nasdaq lost 80% of its value. 80% of its value.

Just to put things in context: as a result of COVID, the stock market dropped about 34% and has already regained a little more than half of that. So just imagine the impact. The Nasdaq dropped 80% of its value.

Now, some people were saying that part of the problem was the target addressable market, right? So the old guys were the pioneers for us. There were only 400 million people online in 2000, today there’s over three billion, you know? There were only 17 million websites in 2000, today there’s over 200 million. So, you know, it’s a very different market today. The impact was much narrower. It was on technology and financial technology companies. But as I said, a lot of the lessons learned or ignored came out of that first crisis.

Sean Salas

Got it. I think it’s worth noting as well, I mean, 2008 was pretty bad, right?

Glenn Goldman

Yeah. So, yeah. So, we’re gonna go through the parade of horribles as they say. And now we’re moving closer to people’s collective conscience here. But yes, the Great Recession of 2008 was driven by an overheated housing market, right? And all the related collateral damage that goes along with that. You know, you’ve heard about derivative securities that were traded in the billions of dollars and investors didn’t really understand. Everybody’s balance sheet was over leveraged in the insurance space, in the banking space. This ultimately led to enormous sell off in securities. It led to a rapid drop in housing values, you know? There were initially tons of layoffs in the housing and financial labor space, but that then led to lower consumer spending and further job losses. pretty much the entire economy came grinding to a halt.

As a result of that very specific situation of inflated housing prices, and all the things connected to that… and here, the Great Recession, as we now call it, lasted 18 months. That’s a long time. And the stock market dropped 57%, ok? 57%. Again, COVID, 34%, half of it came back. Back then, 57% until the stimulus came in.

And the stimulus for the Great Recession was just under 800 billion dollars. Now, just to keep things in perspective, so far, the stimulus around COVID is a little over 2 billion. You know, conventional wisdom says it’s going to get closer to 3. So we’re going to see stimulus coming into the market that could be as much as four times greater than the stimulus that came into address the Great Recession of 2008.

There’s another one, as long as we’re going again through the parade of horribles. I just think it’s worthwhile for people to know about, and that’s the Mother’s Day massacre. I don’t know if everybody has heard that term before, but it refers to Mother’s Day of 2016…

Sean Salas

And this one specific to the fintech industry, right?

Glenn Goldman

That’s exactly right. What happened was… So this is not on the scale of other crises by any stretch of the imagination, but it was triggered by the ousting determination of the founder of Lending Club. You know, it was reported that he, you know, maybe done some self-dealing with the company, wasn’t fully transparent with all of the information of things going on in the company… That’s why, you know, we are all so hypersensitive to being transparent about everything.

But the result of it was, again, this was back in 2016. There was a lot of skepticism around fintech. A lot of skeptics that used to refer to fintech as shadow banking. Now, some of this was due to the rise of cryptocurrencies and things like that, but what happened as a result of this, and it’s called the Mother’s Day massacre because he was let go on Mother’s Day in 2016. You know, it really resulted in the entire world questioning fintech as a whole. You know, lenders pulled back, investors pulled back.

And it really brought into stark relief the importance of transparency, and resulted in a lot of lenders and investors starting to ask a lot of the really important, seemingly obvious questions to all of us, of the companies that they were investing in. Hundreds of fintech platforms lost access to capital. And, you know, maybe this sounds a little bit…

Sean Salas

Including Camino Financial, by the way. Just for context for those that are listening: of the, call it, macro issues that the tech, fintech industry, has experience, this is one… And for those who have been around since 2016, you know, we experience ourselves. I mean, this closed a lot of… Virtually all early stage investments into the fintech industry, closed. And then, gradually the money came back and started consolidating with larger players. So even in total new investments made, that number has actually stayed down since the Mother’s Day massacre.

I mean, certainly put Camino Financial in a difficult situation when we actually did raise money that year, but it was very difficult. I felt like you had to talk to… When you could talk to 30 a year, now talk to 90 investors to be able to raise capital. And certainly the capital was more limited at that point in time. So anyways, just to give people context that, Camino Financial directly experienced the repercussions of the Mother’s Day massacre. 

Glenn Goldman

And what I would say is, I mean, for everybody on the call, you can see this in the culture at Camino Financial, this culture of, you know, we might not like what the facts say, but the facts are the facts, right? You know, there’s the truth that hurts and the truth that sets you free. You know? You see it in the culture around sharing all news, even if it’s bad news.

And so, that’s one thing I want to point out, that that experience, and I think it’s the nature of Sean and Kenny and the management team, you know, really shifted the way companies needed to think about their business. 

The other thing is, is that it raises the importance of self-policing, right? We all paid a price for that, alright? We all paid a price for that. The capital that Camino Financial raised was more expensive as a result, all right? And it became more difficult to access capital. So self-policing, sharing best practices, is a really important part because it shows the outside world that, you know, we’re not sticking our heads in the sand, there are those of us who know what best practices are and we’re prepared to live by them. And so that to me was a very positive outcome of that experience. You know, there’s a saying that when the tide goes down, you find out who’s not wearing a bathing suit, right? And that’s very much what happens in this scenario.

Sean Salas

I love your saying Glenn. So now I think it’s a good step way into COVID-19. And before that, let me just paraphrase, the best as I can, what we discussed, right? We’ve, roughly, experienced three crises before COVID-19 up until this point, right?

There’s the Internet bubble of 2000 that said, you know, where the business fundamentals… There were no business fundamentals. If your name ended with the dot com, you got money, potentially were publicly traded, which led to 80% loss and die at the Nasdaq. I think what makes this situation different from that, I guess, or what was very unique, better put, was about this crisis was, to your point, the total addressable market was narrow at that point in time and it was very… and its impact was relatively narrow as well, right? 

Then we had 2008, which had real embedded financial issues relating to the mortgage prices, to real mispricing of mortgage and credit in the market that was embedded in our financial system, to the point where 800 billion dollars of stimulus needed to be injected into the company. And that was a… Because of its, called it, entrenched issues that cause the crisis itself, we actually saw, to your point, a relatively slow recovery compared to 2000.

And then the third one is the Mother’s Day massacre, which I think, if the 2000 crisis was narrow, this was very narrow. It was directly targeted to the fintech industry, questioning the validity of fintechs, questioning whether they could even compete against things that, you know, where the compliance infrastructure now was starting to be seen as a strength versus a weakness, right? But then, to your point, as a reaction, there were self-policing, money eventually, while it was pulled out of the market and a lot of it, I would argue, is still very… it hasn’t returned to the levels in terms of new investments in the space, the aggregate dollars have come back into the market. But, of course, you know, doubling down on winners, sort of speak, right?

So that’s very good context, and one of those three crises, Camino Financial directly experienced. So now let’s talk about… Set up the stage for COVID-19  and how is it different from what we just discussed? How is this different? How is this unique?

Glenn Goldman

Sure. So, you know, this one, we’re all living in real time, right? So, you know, this was not triggered as Sean was just saying, by inflated asset values or otherwise. It’s a global pandemic in the form of a flu virus, and it’s horrible, you know? Basically there’s a global shutdown. 97% of the United States is on lockdown, you know? Some version of what we’re all doing right now, you know? All but the central businesses are closed and the economy is largely at a standstill.

Now, this might not be the same in every country, but everyone is affected and everyone is affected in very significant ways. You know, as I mentioned before, you know, the stock market almost immediately dropped 34%. That’s the broad stock market, not just the Nasdaq, which is, you know, technology firms. And we’ve recovered about half of that value. But, you know what? That statement could be wrong tomorrow because the volatility in the market is so extreme.

But let’s talk about, you know, how this is different, and it’s different than a lot of ways. And I think in some sense, in a way that really amplifies, gives us the ability to look at fintech, you know, 180 degrees juxtaposed from the way we looked at it, you know, in the Mother’s Day massacre or during the Internet bubble, for that matter.

And so the biggest difference is, you know, first of all, this was not self-inflicted, ok? This is health driven, not driven by underlying economic factors or inflated asset values, alright? It’s not demand driven, you know? Consumer demand was really strong. We were in a low interest rate environment, low inflation, low unemployment, a benign credit environment, you know? There are always things to watch out for, but, you know, there weren’t significant pressure on credit and portfolio performance, no real asset value bubbles or inflation. There was very little consumer leverage, alright? Relatively low levels of consumer debt and corporate leverage, banks balance sheets are solid… 

Sean Salas

Yeah. 

Glenn Goldman

And in many ways, technology and fintech companies have already been rationalised, right? So we had the Mother’s Day massacre, which kind of was a cleansing and a rebooting of fintech. We had the, you know, WeWork debacle, alright? Which is still reverberating, which, again, was a cleansing and a rebooting of the way investors and management teams look at their businesses.

And so, you know, those are really, really big deals because, it’s almost as if things are happening in slow motion and we have the opportunity to really watch things change in fundamental ways. You know, the opportunity for fintech, I think, is really a significant one, you know?

We’re watching, you know, folks like Camino Financial consider how can we be part of the solution for small businesses to access government stimulus. So rather than being part of, you know, shadow banking, we are now actually part of the solution and we’re demonstrating that we can do things that need to happen, that traditional providers of capital can’t do, alright?

You know, the SBA… You know, there’s about 30 million small businesses that are going to be applying for stimulus. In a busy year, the SBA processes 800,000 applications. Now, these are simpler applications, but it still gives you a sense.

The other big difference is the amount of stimulus, alright? 800 billion dollars in the Great Recession of 2008… We’re going to end up with over three trillion dollars this time around. And the other thing, and let me just say, these are a little bit more… Well, you’ll know what I mean when I describe them. You know, we’re all in this together. 

Sean Salas

Yeah.

Glenn Goldman

In many ways is bringing us together. You know, there’s a common enemy: the virus, you know? It’s not Wall Street, it’s not irrational exuberance, it’s not inflated Internet valuation, it’s not derivative securities, you know? There’s a social consciousness. There’s an awareness and an interconnectedness, you know, that is, you know, bringing us all together and helping us come through this, and come through this in a way that is stronger and more adaptable.

Sean Salas

If you don’t mind, I’d love to comment on that. I was just… So, for context to those on here, which is most of the team which I love, when we had our Board meeting in response to COVID-19, what I described to the Board, and I actually just repeated it myself this morning with someone that I was on a call with, is that: from, you know, a degree of 1 to 10, 10 being impossible challenge, you know, one being this is essential, get over it, you know, I told them, you know, this is anywhere between a 6 and a 7, you know? So it’s difficult, it’s unprecedented for any lender.

But guess what? 2018, when we went through a full restructure of our line as a lender, we had 3 to 4 months with a runway that we had extended 10 months, you know? We had to, in the process, find a lender, and that was our debt, that was our debt. And like, that to me, was 8-9 out of 10, almost impossible. I think I called it, I think I said it was 9.

And the reason why I said that situation was different and harder versus the one we’re going through right now, is your point on: that situation was very unique to Camino Financial. The world didn’t know the scale that we’ve been able to prove ourselves, at least as of last year, that, you know, we were still a nice, relatively big, but a project, an experiment, right? Number one.

We never really have the capital partner in our corner to help us see through that project into a real business, and so we were effectively putting ourselves at the whim of luck to find the right capital partner in a short period of time and pray that everyone would stay on the team while you’re figuring things out.

And guess what? We did do it. Whereas now, what’s fundamentally different, you said it, is that we’re all in this together. You’re right: it’s a difficult situation, but the fact that we’re all in this together, and now we actually have a great partner and we have real scale that were able to build over the course of 2019 to demonstrate this is no longer a project or an experiment, this is a real business that can emerge from this stronger and better than ever before… That makes this, in my mind, a less difficult situation than what we experienced in 2018 when we had to actively restructure our business in a big way. Anyways, at that I give people that context ’cause your point on that is spot on.

Glenn Goldman

And listen, I think the company and its investors, its shareholder is fortunate to have, you know, you and the folks that make it just a little less scary. This is scary stuff men, and it’s totally ok to be scared and to be vulnerable. But having had one or two near-death experiences, certainly prepare you.

So, what’s the current state of affairs? There’s a saying, you know, when things like this happen… We’re all in an elevator going down, we just don’t know what floor it’s going to stop on, alright? And we still don’t know. And so what does that require? It requires, you know, rapid adaptation, you know? 

I think back over the last eight weeks, and I think about how quickly the senior management team was moving to address things, you know? It was impressive. And as I said before, it should give a lot of people comfort that there’s strong leadership in place. And I’ll talk in a minute, there’s an opportunity for everybody to be leaders. 

But, you know, listen: we’re making changes on the fly, we hope that most of them are the right changes, we’ll find out, my guess is most of them will be, you know? We’re having to figure out how to manage portfolio risk, and I’ll call out, for example, some of the work that Tarek and his team have been doing around forbearance and relief programs. You know, we want to continue to support our members and community, so I’ll call out some of the changes to the underwriting guidelines that have been made to make sure we can continue to make capital available. And this is important, I really want to emphasize adapting, you know?

Charles Darwin, author of The Theory of Evolution, you know, said that it is not the strongest or the smartest that survive, rather, it’s those that are the most adaptable. And so that’s why we’ve got to keep sharing best practices, we’ve got to continue to communicate, hyper communicate with our shareholders and lenders and investors. And this is what’s happening but it needs to continue to happen. You know, we can’t predict the future, but we can plan and adapt. And that’s absolutely critical.

The other thing I just wanna mention real quick, just a couple of other points. You know? There’s still a lot more to unfold. Every day we’re getting new data, right? In terms of this new world. I don’t even know if we have more than, you know, 40 or 50 business days of data. That’s not really a lot. But what it means is every day we learned something either new or re-affirming, and so that’s a really big deal for all of us and we have to just be very aware of that, whether it’s, you know, understanding the impact of the stimulus once it starts to filter its way into the economy, you know? Understand how people access capital, understand how loan forbearance is going to impact our customers, you know? Whether there are, you know, SME loan forbearances  or consumer loan forbearances, how people are paying their mortgages or not… Any kind of behavioral signals are going to be making us smarter, they’re going to make our models smarter. And they’re all unfolding in real time. The real key here is to make sure that our antennas are up and we’re watching for this.

Sean Salas

What helps us better understand what the exit looks like? What’s the light at the end of the tunnel? What data shall we be looking at as an indicator that things may be getting better over a certain period of time? Because right now, to your point, I do feel uncertain and I do feel being open about that, right? Our market is relatively unique, right? 

In terms of, you know, how… if we are going to recover, because I honestly think the survival rate of our market is going to be higher than other demographics, but I also think the pace of recovery will be slower. So like, how may… Where’s the light at the end of the tunnel? Maybe more at a macro level, we are not too specific to the Latino market, but, what measures the light at the end of the tunnel?

Glenn Goldman

So, you know, the way I like to think about it is not when we’re going to see stabilization, but rather line of sight to stabilization, alright? So what are some of those signals, ok? In New York, for example, which, you know, for better or worse, is kind of the tip of the spear here in the US, L.A. is not that… We’re starting to see a slowdown in the number of new hospitalisations. That’s a good sign. Now, that’s not, you know, a shining beacon, but it’s a glimmer, ok?

We’re starting to see stimulus funds being distributed. Again, not a shining beacon, but it’s a glimmer. And so look for things like, slowdown in jobless claims. Look for things like the further development of testing capabilities, which will allow the economy to reopen. Even just some intelligent thought around what the timeline and process looks like to open up our economy. Those are all really important, at least very early indicators that there are, again, glimmers of light and that’s when we should start to get increasingly more comfortable, in little bits and pieces in relation to the brightness of that light. But those are the things to look for.

Now, whether this is like a deep V, you know, kind of economic recovery or it’s the Nike swoosh, I wouldn’t try to spend too much time trying to figure that out but rather, you know, make sure that the platform is strong, adaptable, and you’re watching for these signals. 

Sean Salas

Great. So you mentioned something that caught my attention. Everything you say catches my attention, but one saying is we of all, become students, right? So can you elaborate a little bit more on what you’re saying? And what does that mean? 

Glenn Goldman

It means a couple of… First of all, what it means is, is that we’re all in uncharted territory. And there’s two different kinds of people that emerged from this: people either stick their head in the sand or they look around and figure out, ok, let me figure out what’s going on here, you know? There’s the saying the three R’s, alright? There’s the reaction, there’s resilience and then there’s reinvention, ok? And so…

Sean Salas

Write that down everybody! Reaction, resilience and reinvention. I loved that!

Glenn Goldman

We should all commit to be students here, you know, regardless of how broad or narrow, ah, our responsibility is. You know, we’re also going to be forced to figure out how to make do with less. You know, when I got my first car, I could never afford to have more than 1/8 of a tank of gas. It was always on E (empty) but I never ran out of gas. I always figured out how to… Like, I knew where all the downhills were, where the gas stations were so if I had to just roll to the gas… But I never ran out of gas. And so in times like this forced us to be creative and to be students.

And when I remember, and I didn’t think I’d be saying this until I just heard Sean tell that story, but I remember like very early in my career… So I used to be the youngest guy in the room, now and the oldest guy, and I remember it very early in my career I went to… 

Sean Salas

You are the best best in the room. Let’s be clear…

Glenn Goldman

Well, thank you. I try. So, I remember coming out of this meeting and there was a guy that was my mentor at the time, and he said: The difference, Glenn, between you and those guys on the other side of the table is their gray hair and what they did to earn that gray hair, what gave them that gray hair. And I think you all heard Sean. You know, even though he is finally qualified today, as usual, you know, I think that experience, both in 2016 and then a couple of years later in renegotiating the credit facility, both put a world of teaching.

And my point here is: nobody on this call is a rookie anymore. Nobody can look at you and say, well, you know, you weren’t around in 2008 so you really don’t know. Well, you know, you aren’t around in 2016, you really don’t know. The fact is, none of us are rookies anymore. 

Sean Salas

Yeah. I love that. 

Presenter

This episode on what COVID-19 means for small business lending in the future is brought to you by Camino Financial.

Sean Salas

So I have one last question for you. Before we open it up for Q&A. And finally, I’ve gotten a few questions already in our Slack channel, know that in the charts and know that people are engaging and have questions right on the available. But my last question is: ok, we talked about the situation, how it’s different, how we all become students, how now we’re battle tested, we could see it, right? Because we are going through something that no one could debate whether you kept your model, our resilience as a team… And so now, how we understand what does the other side looks like, you know? Ok, we’ve talked about helping understand like what’s the line of sight. But now I want to understand, ok, what does the other side look like? How do we emerge from this, then, from your perspective?

Glenn Goldman

Sure. So, you know, I started off by saying, you know, that, you know, every crisis is different. And it is. But the aftermath is always the same, always, always the same. Demand for capital springs back even stronger. I would say even stronger in this case with lower risk profile. So why lower risk profiles? Because by definition, we will be lending to businesses who were able to adapt and get through this crisis, ok? And that’s really, really important that you think about what we learned through this and what our business owners are. They’re fighting battles every day, too.

So demand for capital springs back stronger with even lower risk profiles, stronger profiles. Weaker, less capable competitors go away. Banks tighten credit and reduce lending. Scoring models get smarter and the business grows. Every crisis is different, but what I just described happens every time. As people, as individuals: Déjame caer si debo caer. La persona en la que me convertiré me atrapará. Pardon my accent there, but what that means is: Let me fall if I must fall. The person I will become will catch me. 

Sean Salas 

I love that.

Glenn Goldman

So what that means is, as I said before, these are scary times. We’re gonna make mistakes, we’re gonna be challenged, and, you know, we’re all gonna in some form or another, fall. But if we remain students and we remain thoughtful, the person that we become as a result of this will catch ourselves. I would say this is a time for self-reflection. While we’re all students, we also have the opportunity to be leaders, which means being vulnerable, embrace bad news, be kind to yourself and work to bring out the best in your coworkers.

Think offense and defense. So what does that mean? I would even go as far as suggesting that you have a team of people focused on defense and offense. So defense means: what do we have to do to stabilize our platform and ensure we can weather whatever storm comes our way. Offense means: let’s focus on identifying the opportunities for our platform to optimize post-crisis opportunities and to allow us to pursue them from positions of strength.

The important thing here is, and this is the last time I will attempt Spanish is: el descubrimiento no se trata tanto de ver nuevas vistas sino de ver a través de nuevos ojos. So: Discovery isn’t about seeing new vistas, but rather seeing through new eyes. And this is really super important because this is an opportunity for us to rethink all of our fundamental principles. Some we will reaffirm and some we will change, ok? How can we be even better at what we do? What does that mean? And how can we rethink or revalidate our mission and our vision? How can we rethink customer delight? How can we rethink our product roadmap? Our value proposition? What is “the best us”? What does “the best us” mean?

And this, this last piece, is what is meant by the third R, right? Reaction, resilience and reinvention. That is what reinvention is all about. So it’s not… A lot of companies are saying, ok, we’re going to hunker down, we’re gonna  get through this tough time, and then when we come out to the other side, we’re gonna be back to a strong economy and there’ll be more demand and we’re going to be fine, and we’re off to the races. And, you know, maybe that’s ok for some people, but here’s an opportunity to completely rethink things in some very significant ways. And so that’s what reinvention is about. 

Sean Salas

Perfect. Well, thank you, Glenn, for that. I’m confident that we will reinvent ourselves and emerge stronger than even before. Let’s hope that with your  guidance and new level of engagement and curiosity that I’m seeing on two different channels, on Slack and one of the chats, so…

Tarek, why don’t you kick us off? I know you already had a question readily available. For those that are comfortable speaking your questions, feel free to unmute yourself after Tarek, and… We’ll get started but Tarek, why don’t you go ahead and kick us off.

Tarek Elsheikh

Sure. Thank you Glenn for the time and, then, for everything you do for us and all the support you’ve given us and time, you give each of us actually all the time. So I just wanted to call that out and thank you.

Glenn Goldman

My pleasure. 

Tarek Elsheikh

My question would be with regards to M&A. How do you see the M&A market playing out in the next period of time from the experiences you’ve seen before? And you think that we at Camino Financial, seeing that we will survive this, can make use of this time, in this period, in this situation of COVID-19, come up exponentially growing our business through any kind of M&A situation or probability? 

Glenn Goldman

So, you know, lately, the first quarter of this year, the first two months, maybe last December, January, February, there was already kind of this upswing in M&A activity, right? Plaid was acquired, you know, Intuit bought Credit Karma, right? So what we were starting to see was, you know, traditional financial service providers broadly defined, recognizing that, you know, there are fintech solutions that will allow them to be better, stronger, more nimble, expand their products set, get to innovation faster. 

Now, that is going to be on hold for a little while. Why is it gonna be on hold? ‘Cause everybody is just kind of figuring out, ok, like, you know, how is this impacting my business? But I think once we get through that, I think that that trend is going to continue, perhaps even at a higher level. Why? Because asset values are going to come down, you know? A company that could have been bought for four billion dollars, you know, maybe six months ago, might be available now for two and a half billion dollars. Now, that’s still a lot of money, but that opens up the universe of buyers, ok? 

The second reason why I think that’s true is that unlike 2016, the Mother’s Day massacre, and unlike the Internet bubble of 2000, this has been the opportunity for fintech to really shine, right? We’re stepping in because banks can’t process loan applications fast enough. We’re stepping in ’cause the SBA can’t process access to stimulus fast enough, alright? We are providing capital independently of stimulus, alright? All other types of technology are facilitating, you know, the new lifestyle that we find ourselves in. So I think for those reasons, we’re going to see…

And then the other reason is going to be that some companies aren’t going to make it and they’re going to get swooped up at deep, deep discounts, right?  Now is an opportunity for folks to come in and do some, you know, some bottom fishing. And that’s what always happens. But I think the value proposition for fintechs and who would be likely buyers, as if anything, just been reinforced and we’re going to see a lot more of it, you know?

Will there be opportunities? I think that, Tarek, and just for the sake of time and just to give you a little bit of homework, I would say that goes into the reinvention bucket. That goes into the offense and the offense-defense bucket, you know? It’s worthwhile. Let’s sit down and spend some time and say, ok, how do we want to rethink what we’re doing? I mean, the traditional answer would be: well, we want to buy our next competitor, the guy is a little bit smaller than us, that maybe adds the potential to be a real threat. Well, ok, you know, maybe that’s a conversation that we’ll have. But there’s also other ways once we start to think about what’s our value proposition, how do we best serve our customers, how are their needs going to change and how do we make sure we meet that need. But that’s where the reinvention piece comes in. 

Sean Salas

Yeah. Makes perfect sense. So you have great questions so if you don’t mind unmuting yourself and asking Glenn your question directly. Go ahead.

Marisol Loza

Thanks Glenn for being with us. You mentioned that after this whole pandemic is over, what has happened before is the demand for capital increases, right? So the question would be: how soon should we open up for our portfolio to new clients after the pandemic is over?

Glenn Goldman

So… I think the answer to that question lies in the answers to a few questions. And that is: are we seeing a return of consumer demand, alright? So, are we seeing our business customers and do we believe it’s sustainable? And I think the only thing that would threaten its sustainability is if there is, you know, some second wave. I don’t mean a seasonal one, because flu season will be flu season, but I mean, if for any number of different reasons, people open their economies too soon.

But I think we have to look at the signals, you know? Our business is seeing, you know, a return to demand. Were they hurt, but not killed? And so are these gonna be businesses that, with the right amount of capital, you know, they’ve been smart, they’ve gotten through this, they’ve demonstrated adaptability, they’ve demonstrated, you know, creativity, they’ve demonstrated selflessness, meaning that I would ask questions about how you treated your employees and what did you do to return back to the community to get through this situation…

And so I would look at those kinds of signals, you know? Is their revenue returning? Do we believe it’s sustainable due to exogenous factors? Are they the kind of business that will continue to thrive in that environment, you know? Has the owner done the right things and are these… You know, you might decide we’re only going to focus on the upper band of our scoring models and do things like that as a way of kind of easing your way into customers…

As opposed to starting at the bottom credit score, you start at the top credit score and work your way in. Maybe you start with shorter duration loans, maybe you start with slightly smaller balances. So you kind of feather in your exposure so that you’re not taking on too much too fast. But I think the signs are going to be very apparent. I don’t think we’re going to have to go digging too deep to see the signals. It’s just a question of what is our risk tolerance. 

Sean Salas

Thank you. Thank you Marisol for the great question. Miguel Angel Gonzalez… If you don’t mind unmuting yourself and now you want to go a little deeper into how we emerge in terms of… And what resources by the government are beyond what we need. So to go ahead, unmute yourself and  get your question. 

Miguel Angel Gonzalez

Thank you Glenn for your great talk. It’s very, very interesting. My question would be: from your perspective, which would be the engine that takes US economy from this crisis, besides government support and the restarting of the activity in the companies and all the global economy?And how fintechs like we, like Camino Financial, can help to get this recovery as soon as possible? Thank you very much. 

Glenn Goldman

Sure. So, I work backwards, you know? I think that what Camino Financial can do is… And this is one of the things that I find so appealing about Camino Financial, is that it focuses on a particularly underserved and vulnerable, yet enormous and growing target market. And that is to get capital to that market, get capital where 25% of borrowers don’t have credit scores, ok? Get capital to, where, you know, 70% of borrowers have less than 5,000 dollars in their bank account. Get capital to this target market when we know most other lenders and traditional sources of capital stay away, are afraid and don’t understand it.

I think what brings us back beyond the stimulus is, and I think it’s a very boring answer, but I think it’s people getting back to their daily lives, you know? I don’t think… We’re going to really appreciate all these amazing, simple things that we had in our lives once we can go back to our favorite coffee shop, once we can, you know, stop at our favorite taco stand, once we can get back to the gym, alright? That’s what’s really going to drive this.

And the reason why I say that is that we were in a really good place before this came along and there will be some sectors that are permanently impacted by this. I don’t think it’s the sectors that we’re involved with, and I think getting consumer demand back to even 70% of what it was before is going to create enormous opportunity for us. Because again, the banks are going to pull away, they always do. They were not really that present in our target market, and they’re going to be even less present.

Sean Salas

Right, great. So we’ll leave that for two more questions, I know we only have five more minutes, you may have to be relatively… Ernesto Almeida, if you don’t mind unmuting yourself and asking your question. It’s a very good technical question.

Ernesto Almeida

Hello! 

Glenn Goldman

Hey there!

Ernesto Almeida

Hey, can you hear me? 

Glenn Goldman

Perfectly.

Ernesto Almeida

Ok, so. Well, my question is a bit specific. I’m going to be brief. Well, you mentioned that during the Great Recession traditional banking was hit hard, among other reasons, because they were overly leveraged in order to ran more mortgages, am I right, right?

Glenn Goldman

Yes, that’s correct. 

Ernesto Almeida

How does a fintech balance sheet look regarding leverage? I am assuming it’s quite different than traditional banking. And how can this be beneficial or detrimental?

Glenn Goldman

So, part of what happened in the housing crisis was that… Usually when you go to get a mortgage, you put down a 20% deposit, the bank lends you 80% of the value of the home, and they do an incredibly extensive due diligence on you and your ability to pay. They do an appraisal of that home and they see how that value has changed over time. And typically that value might change, you know, 5% a year, maybe a little bit more if it’s in a hot market like Manhattan, for example.

What happened during the Great Recession was that people were making loans to homeowners without even doing appraisals. They were assuming that home values were going up 20 or 30% every six months. And in many cases, they were lending 100 cents on the dollar, not 80 cents. You know, within the fintech space, lenders are typically lending, you know, 60, 70 or 80 cents on the dollar, maybe in some cases, 85. And so there’s good asset protection, there isn’t underlying asset value inflation. 

Sean Salas

Great. Ali Surti, do you mind unmuting yourself? He has a question that touches a little bit along the theme of the third hour we’ve mentioned. Go ahead Ali.

Ali Surti

Yeah. So, in your experience as a pioneer in the fintech industry, what is your opinion on the best way to get an unusual or good idea spread? 

Glenn Goldman

(Laughs) You know, if it’s a great idea, we don’t want anybody else to know about it except for us. When you’re talking about, like, kind of a product idea or a marketing idea, is that what you’re talking about? 

Ali Surti 

Yeah, exactly.

Glenn Goldman

You know, I’ve always felt that, you know, good ideas speak for themselves. And what I mean by that is if you’ve identified a need that nobody else has identified, then you don’t need to do a lot to get the word out there, if that makes sense. And I’m not trying to talk in cryptics. You know, the key here… I would be focusing our energy on thinking about what are the things that we can be doing for our customers, right? ‘Cause I don’t think that changes, right? Our target market doesn’t change. Who we want to serve doesn’t change, but how we serve them, certainly can change. And I would focus on that.

And I think there’s a richer set of opportunities just because this market has been undisturbed for so long and misunderstood. And yes, I know we have competitors. And yes, I know they make our lives miserable. We don’t like losing deals to anybody. But it’s an enormous market. It’s still incredibly underserved. I would be focusing on what are the needs that nobody has yet figured out how to serve, and then it will sell itself. And that gets into, you know, you should be on team offense with Tarek if you guys break up into offense and defense.

Sean Salas

Great. Well, with that said, Glenn, thank you so much for this discussion.

Glenn Goldman

I’d love to try to end this on a positive note. Can we do that?

Sean Salas

Yeah, let’s do it. 

Glenn Goldman

Because, you know. So we started off talking about this parade of horribles, right, all of these crises and certainly we’re in the throes of one now. I’m hoping that this conversation is given context and has, you know, reaffirmed to folks that we’re not alone, alright? You know, if we embrace this opportunity to be students, we’re going to emerge from this stronger, wiser and more adaptable.

You know, the world is gonna become more digital, whether it’s telemedicine or telecommuting, just to name a few. The world is going to become much more digital. I will tell you that Uber, Airbnb, Robinhood, many, many others, all launched or experienced exponential growth immediately after the Great Recession of 2008, and you can go back and look at when these companies were founded.

For us, the crisis has reinforced and amplified the fundamental value proposition of fintech to the global community. And that’s a really good thing for us. So we’re going to have the opportunity to serve our customers, our members, who are going to need us more than ever. And so if you ask yourself, you know, what can I do? Think about being a leader, alright? You can be a student and a leader at the same time. Think about those three R’s, right? Think about it: reaction, we’re past reaction. Now, resilience, it’s reinvention. And if you live the three R’s, which you can all do, then Camino is going to live with three R’s. Camino can’t do it independently of everybody on this call because Camino is everybody on this call.

So if you live the three R’s, then Camino lives the three R’s and this crisis becomes a launchpad, not just for you personally and professionally, right? ‘Cause you’re not rookies anymore, but also for Camino. And so just think about that. That’s the big opportunity that’s incredible of us. 

Sean Salas

I love it. Well, with that line, let’s go back and reinvent ourselves, everybody, and amplify our value proposition to our members, which won’t change because helping them build patrimonio, generational wealth for themselves, their families and the community. So Glenn thank you for being part of that mission and kicking off the fireside chat. This is… We couldn’t get anyone better than you. 

Glenn Goldman

My pleasure. 

Presenter

Thanks for listening. Please make sure to like and subscribe to our podcast on your favorite platform. We’d like to thank Bethany Sands for sound and editing. Our creative team: Tania Chaidez and Daniel Bustamante. Talent producer: Gerry Cervantes. And our senior producer, Elianet Romero.

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