Pioneer Interview with Sean O’Riordan of GRID Finance

GRIDGRID Finance is an online platform transforming banking and financial services in Ireland by building innovative financial products for the connected generation. In this interview, co-founder and COO Sean O’Riordan explains how the company’s first p2p lending product for small businesses got started.

The easiest way to describe GRID Finance is …

GRID Finance is a peer-to-peer lending platform where we connect great businesses in Ireland with access to finance.

What does GRID Finance do?

GRID Finance is an alternative online small business borrowing and lending platform that literally anyone can use –it is open to everybody. Anyone can become a lender by lending as little as €5 up to thousands of euros while selecting their own interest and repayment terms ranging from three months to three years. Borrowers on the platform represent the backbone of the Irish economy – SMEs, limited companies, sole traders – the myriad of people and organisations that find traditional funding sources difficult or impossible to obtain. Funding through GRID’s auction-type funding system enables these businesses to find funding that allows them to take their business to the next level.

Since GRID launched in October 2014, we have fully funded projects ranging from €2,000 – €10,000 and we currently have two more projects now looking to fund €10,500 and €55,000 projects each.

How does GRID Finance work?

Every business that submits an application for funding undergoes a full credit assessment undertaken by our GRID Credit Team. For limited companies, this assessment combines scores from external credit rating agencies, Vision-Net and Experian as well as an evaluation of the business’ management and financial accounts and bank statements. Those businesses that make it through are listed as funding projects on GRID for a period of 28 days.

During this time a type of auction takes place where potential lenders view listed GRID projects, read how much a business is looking to raise, what terms they are looking for, and what they plan to do with the funds. Potential lenders then lodge a lending bid of the amount they want to lend along with their desired interest rate and repayment terms.

At the end of the 28 days – the aim is to have more lending bids than what is requested – and GRID Finance takes the best bids for the borrower, those that have the lowest interest rate. The funding project is then successful and the borrower is handed a final funding amount with the weighted average as the interest rate.

It sounds easy in theory, but a bit complicated in practice with many different terms on a single funding campaign.

It took us a while to figure out exactly how this auction-type lending platform would be built, but the end result is a win-win for both lenders and borrowers. Underpinning GRID’s system is the fact that GRID Finance has direct debit originator status – which means we can call direct debits. We can go to the borrowers bank and request the money according to the terms – and then notify lenders that the repayment is there. The lenders can then take out the money or leave it in the platform and reinvest in another opportunity.

What about regulation?

The peer to peer lending industry is not regulated in Ireland so GRID Finance is presently not regulated by the Central Bank of Ireland. The industry has been regulated in the UK since April 2014 by the Financial Conduct Authority (FCA). We’ve built the business in line with these FCA rules and taken them on board to build trust and reduce risk. Lenders and borrowers are satisfied with this as they’ve come back a second time to use GRID Finance’s alternative lending platform. Alternative lending overall is growing quickly, easily doubling every year in the UK and moving into the mainstream.

In your opinion, what is the secret for success of GRID Finance?

We put a huge emphasis on community. GRID Finance is a community business, funding community businesses. GRID projects add to how businesses engage with their customers and the wider community. On other online lending platforms, people may not know the borrowers. But a high percentage of GRID’s lenders are directly engaging with borrowers (mainly consumer focused businesses to date) on a regular basis.

Is there a typical GRID lender?

We don’t have a typical lender, but rather a range. You have people putting in from very small €5 amounts to a few thousand Euro and then everything in between. We are building a community. We want people lending to businesses that they know and trust. Lenders funding a coffee shop cafe project stated they loved using the GRID because it was helping a business they regularly used and they were part of the story to see it grow.

The idea for GRID Finance came from …

The idea for GRID started in June 2013 when myself and Derek Butler, co-founder and CEO, had a ‘let’s do this’ conversation. Derek felt there was an opportunity in the credit side of business. SMEs simply couldn’t get credit. We started looking at what we could do and then we spent time doing all the necessary things like building the idea, the team, and fundraising. GRID Finance’s public launch came over a year later on 20th October 2014.

What funding was used during this early start-up phase?

During the year prior to pushing GRID Finance’s public launch button, Derek and I bootstrapped the business. Enterprise Ireland helped early on giving guidance, initial feasibility funds and identified GRID Finance as a high potential start-up. Enterprise Ireland opened doors, and accelerated making connections and introductions to take things to the next level.

We also spent a lot of time engaging with the Irish start-up community – putting the idea of GRID Finance out there, meeting people, pitching, going to the right events. Enterprise Ireland also spoke to potential investors, helping everyone get comfortable. We now have three private investors along with Enterprise Ireland that have funded the business so far.

What were your backgrounds to start GRID?

Both Derek and I are chartered accountants with extensive financial services backgrounds, working as managers with leading global professional services companies. We both had worked in Ireland and internationally – and once the opportunity to provide credit to SMEs was identified, we used our backgrounds and networks to develop what we wanted to do, to determine what we could do and what was reasonable to do. Neither of us had particular entrepreneurial experience in our backgrounds – professional services being very focused on billable hours – but we were both looking for a challenge and felt we could make a difference. Derek also worked with aid agency GOAL and saw how successful mircro-lending initiatives were in East Africa.

What is your favourite success story so far?

I don’t have just one because everything we got over the line was big at that moment. The first two beta versions, the time when we had repeat lenders – all of the many incremental milestones were exciting and important at the time. And if these targets were not hit, then the whole project could have stopped at any of these points.

And while there are public successes, there are other things under the hood. Fundraising is one – if we didn’t manage to get that right, then nothing else would have happened. From a business perspective, the biggest challenge would have been fundraising. Convincing people that GRID was worth it and a good idea.

A unique fact/statistic that surprises people about GRID Finance is …

GRID finance is led by two chartered accountants, an MBA and a PHD!

What are GRID Finance’s future plans?

This is the start, we are constantly thinking of new ideas and new products. But we can’t do them all and have to stay focused. There is one product in development which will eventually go live and ideas for further development in the pipeline. While everything for now is Irish-based, we will internationalise, but we need to stabalise first and get it completely right before entering new countries.

Right now we have 2 projects open on the platform for funding, but eventually we could have 20 or 200 at one time. We are in engaged in discussions with about 500 potential borrowers. Not all will go forward, some will drop off naturally or during the credit assessment process. And some of the 500 will become lenders rather than borrowers. With a two-sided business model, we need to build up borrowers and lenders at the same pace and we are doing that by getting borrowers that are quality businesses.

GRID Finance Overview:

Founded: October 2014.

Projects: 6 successful funding and 2 open projects to date.

Team: 6 full-time employees and 3 Advisory Members.

Funding Raised: Undisclosed.

Lending Bid Range: €5 up to a few thousand euros.

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