Britain's Got Business Talent - The Deep Dive
Crowdstacker dives deep into accounts to assess suitable businesses for peer to peer investing
The FCA is due to publish a review of the crowdfunding and P2P industry in late 2017. It is expected that one of the key outcomes will be a requirement for platforms to conform to a basic standard of due diligence with regards how they choose businesses that are allowed to raise money on their platforms.
One of Crowdstacker’s founding principles has been to ensure we are always seeking out the highest quality of businesses to work with. And a key part of ensuring we can be true to this principle is putting in place a good due diligence process.
Here, Mark Bristow, co-founder, and CFO of Crowdstacker, explains more about how this works.
Jacques Cousteau made a career out of it. The Cuvier's elusive Beaked Whale has broken records at it. And the Crowdstacker management team is renowned for the time and attention it puts towards it.
The subject, of course, is diving. And whilst Jacques and the whale both specialize in deep sea diving, Crowdstacker dives deep into accounts and company information to assess whether a business is suitable as a peer to peer lending investment. Different but no less challenging.
Diving deep into a company’s financial records, the way the business is run, the skills of the management team and the sector the business operates in, are all absolutely key for any lending platform enabling businesses to borrow money.
Any peer to peer lending platform worth its salt should go through this type of process. And they should make all salient information available to potential investors to help them make a decision about whether to add the investment to their portfolio.
We want to encourage investors to make the right choices.
But what exactly is this ‘deep dive’ looking for, how do you know where to find it, and once you’ve found it what does it tell you?
The importance of getting beneath the surface
Whilst the process of finely picking through and interrogating a business’s accounts may not sound as enthralling as swimming in the deep waters of the world’s oceans, it is nonetheless a founding principle of how any good quality peer to peer lending platform should work.
Without a thorough knowledge of a business that wants to borrow money, the platform shouldn’t offer it to investors as a good quality risk.
And it shouldn’t offer it to investors with a summarised version of all the relevant information required by investors to ensure they are making the right choices for their personal portfolios.
Additionally, it is hard to appreciate the true strengths and weaknesses of a business without having a holistic view of how it works.
A business is, after all, a system. Like all systems how one part acts or reacts is dependent on how other parts act or react.
Therefore, getting beneath the surface and truly understanding how a business works, how successful it is, and how successful it could be, relies on seeing that system in totality.
This means looking at everything from:
- Checking the numbers stack up – such as cash flow, profits, capital expenditure, assets, and how the business currently funds itself
- Who are the people in charge – what is their vision, how innovative are they, can they demonstrate they move forward by learning and adapting to change, and do they operate well as a team
- Operations – is the business efficient, does it have variables under control and resources effectively deployed
- Stakeholder satisfaction – for example, the satisfaction of employees can be a key indicator of likelihood for success, but similarly, a business must have effective communication with all its stakeholder groups to be maximizing potential
- The environment – what is the sector that the business operates in looking like, and how does this particular business operate within this
Also required is the skill to interpret and evaluate this information to make informed choices about the risk profile for potential lending and lenders.
Learn out more about our three-stage due diligence process.
And you can find out how we interpret this information to present to investors and lenders.