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pid. Many fi ntech unicorns that have managed to stage public
off erings have been severely punished in the aftermarket.
LendingClub went public in 2014 with a valuation of $5.6 bil-
lion. Today it is worth $1.2 billion. On Deck Capital, a New York
City–based fi ntech that makes superfast small business loans,
is worth $290 million today, down from $1.9 billion the day it
IPO’d in late 2014. It’s a similar story for other fi ntech IPOs like
Funding Circle and GreenSky.
“[These] companies positioned themselves as tech compa-
nies, [but] in reality [they] are just leveraging tech to further an
old-school business solution like consumer lending,” says An-
drew Marquardt of Middlemarch Partners and formerly of the
New York Fed and BlackRock. “You have investors looking at it
and saying, ‘This is a bank, it is not a tech company.’ ”
By Forbes’ count, some $15.6 billion in market value has al-
ready been wiped out thanks to ill-fated fi ntech public off er-
ings. Other large lenders like Prosper Marketplace and LoanDe-
pot have either fi led to go public and abandoned plans or re-
main private. More infl ated valuations are hiding in plain sight.
All of this could eventually spell big trouble for Cross Riv-
er. Some fi ntechs it has done business with, like GreenSky
and LendingClub, have already become investor fi ascoes (see
sidebars). There may be more train wrecks coming (see table,
p. 128). Five of its biggest fi ntech clients by market value have
raised $2.25 billion at a combined value of $50 billion. None
seems ready to undergo the scrutiny of a public off ering even
as the stock market hits highs and consumer defaults remain
near record lows.
At the moment, though, it’s boom time in Fort Lee. But
the party could end fast. Filings with the FDIC show person-
al loans—virtually all from fi ntech lending partners—account
for a high 60% of the loans on its books. A good deal of the
loans Cross River carries have sky-high interest rates, forbidden
in states like New York and Connecticut with strict usury laws.
The bank itself is venture-funded, attracting money from the
likes of Andreessen Horowitz and Battery Ventures—some $28
million in late 2016. A year ago, KKR & Co. led a $100 million in-
vestment round, valuing Cross River at nearly $1 billion, rough-
ly three times what a similar-size regional bank would typical-
ly be worth.
“Our strategy is to be the only fi nancial services provider to
the fi ntech ecosystem globally,” Gade says excitedly. “Changing
people’s lives is why we do this, before anything else.”
Prior to his arrival at Cross River, Gade had a decidedly con-
ventional career. He’d done stints at Bear Stearns and Bar-
clays and as CFO of New York mortgage lender First Meridian,
known for issuing loans under the licensed name Trump Finan-
cial. Early in his career, Gade, who was born in Paris, took two
years off to study the Talmud. In 2008, he decided to make his
move, pooling some $700,000 in savings with $9 million from
friends and others to invest in Cross River, a community bank
that had received a bank charter but had no assets.
During Cross River’s fi rst year in operation, Gade and his
small team mostly traded in and out of government-backed and
auction-rate securities. Then, less than two years after the bank
opened, Gade was approached by David Zalik, an entrepreneur
whose fi ntech, GreenSky, was growing rapidly by enlisting con-
tractors to make no-interest loans to property owners for home
Fintech Fiasco
GREENSKY INC.
HOME IMPROVEMENT LOANS
IPO: MAY 2018 MARKET VALUE LOSS: $3.7 BILLION
Fintech Fiasco
ON DECK CAPITAL
HARNESSING BIG DATA TO MAKE SMALL-BUSINESS LOANS
IPO: DECEMBER 2014 MARKET VALUE LOSS: $1.6 BILLION
Cofounded in 2006 by David Zalik, a serial entrepreneur whose
businesses have ranged from selling refurbished PCs to real-es-
tate investing and cofounding a bank that failed, GreenSky uses
tech to make loans—oft en at zero interest—for home improvements
and repairs. Roofers, plumbers and other contractors with mobile
phones are its loan offi cers. For banks
it provides great fee income and off -
loads a good deal of the upfront cred-
it risk.
Last May, GreenSky went public,
raising $955 million. But not long aft er
the IPO, cracks in GreenSky’s busi-
ness model became apparent. In 2018,
GreenSky cut its full-year adjusted
earnings guidance from $192 million to
$175 million, spooking investors.
Things have gott en worse since, as
its lenders, including Cross River, have
pulled back. The startup is also dealing with legal trouble over its
contractor relationships. GreenSky reached a $160,000 sett lement
in 2017 with New Jersey’s att orney general to resolve consum-
er complaints, and it is now facing a similar problem in Alabama.
Since its post-IPO peak of $26, GreenSky’s stock has fallen to $7,
but Zalik has siphoned out so much that his net worth of $1.6 billion
is now larger than the company’s market capitalization.
Founded in 2006, On Deck uses data and algorithms to quickly
approve small-business loans—a group many banks are reluctant
to lend to. On Deck’s loans range from $5,000 to $500,000, and
its biggest bank partners have been JPMorgan Chase and Utah-
based Celtic Bank. Celtic accounts for some 20% of its loans.
By 2013, On Deck had originated
$400 million in loans despite charging
sky-high rates of up to 36%. In March
2014, it raised $77 million from Chase
Coleman’s Tiger Global and others.
A few months later it went public. On
Deck’s stock soared 40% to a $1.9 bil-
lion valuation on its fi rst day of trading.
It was downhill from there as mar-
keting expenses ballooned, growth
slowed, and a new crop of competitors
like Fundbox, Kabbage and BlueVine
gained steam. In early 2017, On Deck
reported a 15% net charge-off rate of its loans due to defaults.
Two years later JPMorgan said it would stop working with it.
The original strategy was to “grow, grow, grow—which doesn’t
usually translate into good credit performance,” says Giuliano Bo-
logna, an analyst at investment bank BTIG. “What people really
started to realize is that, while there was a lot of tech, they’re really
more ‘fi n’ than tech.” On Deck’s stock is down 75% from its IPO.
CEO David Zalik
CEO Noah Breslow