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OnDeck is going after the biggest most broken Fintech market, small business lending

OnDeck is currently one of three ventures on my Fintech IPO Watchlist. Like Lending Club, OnDeck Capital is in the “alternative credit” space i.e. not via banks. OnDeck is clearly focused on small business lending. Lending Club is more generalized but HBR analysis shows that a big growth driver for Lending Club is small business lending.

 

Small business lending is one of the biggest and most broken markets. Two other lending markets work – imperfectly but they work:

 

 

 

In comparison, small business lending is fundamentally and completely broken. Lenders resort to treating small business borrowers either like Consumers or like Corporates:

 

 

There are two lending models that are native to small business lending, both of which take from contracted future revenue to give you cash today:

 

These native small business lending models work and they have scaled for both Borrowers and Lenders, but most small business owners hate them for their high fees and  interest rates.

There are two ways to go after big broken markets such as this:

 

I have not yet dug into the OnDeck model to see which strategy they use. I assume there has to be fundamental innovation that will create a new ecosystem, because they are doing an IPO. So tomorrow’s post will be “Understanding OnDeck’s secret sauce”.

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