Investing in Setpoint

Behind many of life’s most important financial transactions — be it buying a house, applying for a mortgage, getting a small business loan, or refinancing a personal credit card — exist a network of trust and credit relationships. Billions of dollars of these transactions are financed every day via warehouse facilities by the world’s largest investment banks, credit funds, and capital markets counterparties. And while much time and investment have been spent over the years in the fintech industry innovating on the consumer-facing front-end of these transactions, the reality is that many of the capital markets workflows behind the scenes remain largely manual — a product of email, Excel, and FTP folders. The result is more friction in this system and higher costs for both borrowers and lenders.

We felt this problem firsthand at my last company, Bond Street, a small business lender that I co-founded in 2013. We raised over $900 million in debt capacity across a few large capital markets counterparties, and while the front end of our borrower experience was a streamlined one with APIs and slick mobile-optimized UX, the back end of originating and financing these assets was a complicated web of CSV exports and manually generated reports.

To originate and finance a small business loan, we needed to gather documentation (i.e., tax filings, business financials, credit reports, etc.), verify that the asset fit within the eligibility criteria set by our lenders (typically done by a third-party data agent), and finally report on the performance of these assets on an ongoing basis against a set of complicated parameters (i.e., concentration limits, cumulative delinquency, default rates, etc.). The ramifications of making a mistake — i.e., originating the wrong loan or tripping a covenant in our credit agreement — could be severe, requiring us to buy back the asset with equity or risk being shut off entirely (which could mean lights out for an early stage fintech company).

As a result of this experience, I’ve always believed that these manual capital markets workflows can and should become software and that there might be an opportunity to build a network that could deliver significant value to fintech companies as well as provide peace of mind to their lenders.

It’s with this thesis in mind, as well as our belief that the future of private markets liquidity will start with investor relations software, that we’re so excited to be partnering with Stu, Ben, Michael, and the entire team at Setpoint. They’ve done an incredible job turning these capital markets workflows into a Funding OS — with an initial focus on the proptech space, where the document-intensive nature of real estate transactions is even more severe. Their product not only helps leading proptech companies like Opendoor and Flyhomes scale their originations and capital markets activities with less manual work, but importantly, also helps reduce the amount of time required to hold these assets on balance sheet. This minimizes the equity intensity of these businesses and/or the amount of interest paid to expensive mezzanine lenders — a vital benefit in this macro environment.

We’re excited to be partnering with such seasoned entrepreneurs and have been incredibly impressed with the capital efficiency with which Stu and the team have scaled the business. We’re also particularly excited about the potential for network effects here. Much like Carta built distribution among startups and consequently allowed venture investors to monitor their entire portfolios in one place, so too is Setpoint beginning to deliver significant value to the world’s largest credit investors across many of their warehouse relationships. This is resulting in more borrower introductions and a pull into other asset classes like single-family rentals, mortgages, as well as consumer/small business products.

We believe that Setpoint is well positioned to help improve workflows behind life’s most important transactions and we couldn’t be more excited to be leading Setpoint’s Series A round of financing and to be joining their board of directors.