AlphaFlow connects institutional capital with local lenders and makes a commission from loans it sells.
There is a good chance that AlphaFlow emerges as a strong player. There are strong network effects at play in the loan brokerage industry. Loan seekers want a platform with the greatest number of loan providers to get the best possible terms. The reverse applies to loan providers too.
However, it is unlikely that AlphaFlow will emerge as the sole winner in this industry because the loan brokerage industry has characteristics of an oligopoly, where there are multiple dominant players. It isn’t a winner-takes-all market. In the long term, one can expect a convergence in the loan terms provided by different financial players because capital is a commodity. As long as a platform provides something close to the market rate, the loan seekers will choose it; a loan provider with greater market share isn't likely to offer them a more compelling loan offer beyond a certain level.
Institutional loan buyers have more incentive to access the platform with the greatest loan flow, so they can calibrate their portfolio. But even here, the marginal value of an additional loan being carried on a loan brokerage will taper off at a threshold; also, remember it is possible that loan seekers post their loan interest across multiple platforms nullifying the edge of any one platform. To put it differently, the minimum scale required to serve institutional loan providers is higher than loan seekers, but even that threshold will be met by other competitors. This means AlphaFlow isn't operating in a winner-takes-all market.
It is unclear whether AlphaFlow can totally automate the loan sourcing and syndication process. About 60 percent of the company's 26 employees (based on LinkedIn; read below about the tech team size) appear to fulfill operations/financial analysis roles and the company has been operating for five years. This suggests that perhaps the company hasn’t fully automated their loan sourcing and syndicating and this is at least now a rather high-touch enterprise. If AlphaFlow doesn't offer a predominantly self-serve tool, there will be doubts about their scalability and margins; they would in effect, be an investment bank with fancier looking dashboards, not a FinTech firm.
It is unlikely there will be significant dilution. Their biggest costs are going to be talent and marketing. Their tech costs are likely low. The company has a skeletal tech team of ~4 software engineers out of the 26 employees (once again based on LinkedIn). This suggests that the tech necessary for this is rather minimal or the team is outsourcing their software development. Either way, their tech costs are low.
AlphaFlow's marketing costs and related financial metrics like CAC-LTV are likely healthy as well. Because the company is brokering between entities who have a sustained interest to either seek or provide capital for loans, they represent long term customers. This helps amortize their CAC over a long time and gives a high LTV.
If AlphaFlow delivers on its promise and emerges as a dominant loan brokerage firm, a major financial institution acquires them for north of a billion dollars. With access to cheap capital and the need to burnish their tech capacity, financial firms have been spending big money on acquisitions; the most prominent being Plaid, which provides one API access to fragmented banks accounts, for 7 billion by VISA.
There are no perfect deals. My biggest concern is whether this is a real tech firm or just a fancy investment bank. I am also aware this isn't a winner-takes-all market. But these concerns are offset by the fact, that the value cap is low. Their traction also indicates that they a lot of room for them to grow. The FinTech market is hot and this company stands a good chance of being acquired at a good valuation. It is worth investing in AlphaFlow