Founder, Khrom Capital ManagementValue investor backed by a major university endowment. College dropout has posted some good returns while keeping a. View Eric Khrom’s profile on LinkedIn, the world’s largest professional community . Eric has 1 job listed on their profile. See the complete profile on LinkedIn and. SEC profile for Registered Investment Advisor (RIA) KHROM CAPITAL MANAGEMENT, LLC including address, website, AUM, assets, growth, total accounts.

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FICO also does not help an underwriter decide on the appropriate loan size to offer and interest rate to charge each unique pizzeria.

Khrom Capital 2015 Letter; Long OnDeck Thesis

OnDeck can generally underwrite a small business earlier in its life before it qualifies for a bank loan. Small businesses are an extraordinarily large part of the United States economy, accounting khroom about half its private GDP and workforce. The antiquated process that banks still rely on created the opportunity for OnDeck to disrupt the small business loan market.

Moreover, having a wider lending spectrum than its competitors enables OnDeck to generate a relatively higher customer lifetime value.

We see evidence of this in multiple areas, from customer service to innovation. As a result, OnDeck can now underwrite the widest credit spectrum compared to its competitors, which gives it a cost advantage in acquiring customers. Accounting rules require OnDeck to expense advertising and loan loss provisions up front, while its interest income is amortized over the life of its loans.

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Noah drives innovation to keep OnDeck ahead of khrok competitors: On the other hand, it is valuable for Partners to understand the type of investments Khrom Capital makes. As our Partners know, our philosophy is not to disclose investment ideas in our letters, in order to prevent commitment bias and to protect our intellectual property. These partners include the largest bank in the U.

The traditional method requires small business owners, who have limited time to step away from their businesses, to dedicate over 20 capittal to the loan application process. Let us just say paying even 10 times book value and holding it for cwpital years would have still provided an investor with khro, satisfying return. In the first half ofas charge-offs and consumer bankruptcies continued the ascent that began a few years ago, several of our competitors either exited the credit card business or retrenched.


Comparatively, the average NPS score for a national bank is 9. To balance these conflicting goals, we find capitaal prudent to occasionally walk through a particular Khrom Capital investment. Except for the most recent quarters inthe billions of dollars that OnDeck lent over the past eight years have completed their lifecycle. We remain excited about the investment returns we think we can deliver to our Partners over the next decade. A typical lender gets insight on the health of its borrowers only 12 times a year.

Send me ocassional third party offers Yes No. I look forward to writing to you again in the summer. OnDeck is the only publicly traded lender that we know to report a day delinquency ratio to its investors, as opposed to the standard 30 days. OnDeck reminds us of Capital One in the s.

Unlike a typical lender, whose borrowers are required to send in monthly payments, OnDeck gets automated electronic repayments from its borrowers either on a weekly or daily basis. But as with almost any innovation, imitators quickly followed. There are several important reasons that give us that conviction.

OnDeck is bringing its superior value proposition and competitive advantages to a very large market. One that is extraordinarily data-rich…With this information, we can conduct scientific tests; build actuarially-based models of consumer behavior…Using advanced information technology and sophisticated quantitative analysis, we mine the vast amounts of data we have collected on millions of actual and prospective customers… and tailor products, pricing, credit lines and account management to meet the individual needs and wants of each customer.

Assume that Competitor A and OnDeck pay for ten sales leads.

Khrom Capital Management

We took the time to get to know Noah, and his qualities match what we look for in CEOs. There are many ways that the underwriting paradigm can evolve in what is now a Big Data world. OnDeck fulfills these needs, while continuing to enlarge its competitive advantages.

OnDeck lost less than seven caapital for every dollar it lent out sinceand only nine cents in Subscribe to ValueWalk Newsletter. As always, if there is anything you wish to discuss, please feel free to call me. The first team to implement this change was the Oakland Athletics. Most lenders to small business are clustered at either end of the credit spectrum—from subprime to prime—and offer only one or two products.


It describes the transition that talent scouts made from recruiting players using jhrom personal judgments—which were impaired by cognitive biases and lacked regard for scientific data—to instead employing computer-generated statistical analyses. Using hindsight, what was the appropriate book value multiple to pay for Capital One in its first year as a public company?

OnDeck has spent almost a decade building out its OnDeck Score—a credit score for the small business, not the business owner. He is highly ambitious and greatly believes in the future of OnDeck, with virtually all of his net worth invested in the company. He sticks to a clearly defined goal: A current investment of ours is in a company called OnDeck, which operates an online platform for small business lending.

Without needing to do anything, small business owners could be preapproved for a loan khdom by logging into either their Chase checking account or QuickBooks software. In its first annual report, Capital One discussed how the company was revolutionizing the credit card market through better use of information analytics, or as management called it, Information Based Strategy IBS. This problem exists partly because banks lack the incentive to make small business loans.

As a result, banks are less likely to engage in lending at the smallest dollar level.

More importantly, among the competitor CEOs whom we spoke with, Noah stands out as the most capable. We respect your privacy no spam ever.

OnDeck, on the other hand, receives data 52 or times per year. It is crucial to understand the nuances of how OnDeck differs from most lenders. To invest in OnDeck, an investor must have confidence that its underwriting is prudent and that the business can withstand economic recessions.