July 6, 2021 – On today’s podcast, we welcome special guests Jared Kaplan, CEO of OppFi, and Kyle Cerminara, President of FG New America. OppFi, a leading financial technology platform that serves the everyday consumer, recently announced a merger with SPAC FG New America Acquisition Corp in a deal that valued the fintech company at $800 million.

On the podcast, Jared and Kyle discuss:

  • The need that OppFi fills in the market and what sets it apart from traditional financial services companies
  • How OppFi utilizes artificial intelligence for its financial products
  • The thesis behind FG New America and why they chose OppFi as a merger partner
  • What sets OppFi apart from other fintechs in the market
  • And more

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: We are live with Jared, from OppFi and Kyle from FG New America, really excited to get into things today. Both of you guys are in very interesting business lines, FinTech, SPACs, all the good stuff, and you guys are currently merging the companies, bringing OppFi public in a big transaction, which we’re going to get into the details later on the show. But prior to getting into that, we always like to give our listeners a sense of, you know, your backgrounds, what you guys are all about, how you got into the businesses that you’re currently in. So, to kick things off, Jared, could you walk us through your background career, joining OppFi in 2015 and what exactly attracted you to that opportunity within OppFi and how have things sort of evolved since then?

Jared Kaplan: Yeah, for sure. So first of all, thank you for having us on it. It’s nice to talk to you rather than read your Twitter feed every morning as I start, so this is good. We’re moving up in the world. 

Julian Klymochko: Glad you enjoy it.

Jared Kaplan: Yeah, so my career, I started Goldman. I was an analyst in their tech media and telecom group, an undergrad and worked with some of the sexiest media and technology companies, before moving on to investing. I joined a private investment firm called Accretive, and it was unique in that we tried to start businesses from the ground up rather than investing in growing concerns. We would have a sectoral analysis; we do a bunch of work. And I like to say I focused on only the most boring industries there, but I recognized that those are sometimes ripe for the biggest opportunities of value creation.

And I actually became an expert on worker’s compensation, which I always joke was not my lifelong dream, but it culminated in the founding of an insurance technology business called, Insureon, which was the first online insurance brokerage for freelance businesses. At the time, the only people online looking for freelancers, as it related to insurance were lawyers looking to defend claimants for various insurance issues, so we started that business. I actually went and joined the CEO we hired as his number two employee to build it out. And it was my first frayed operating, and that’s where I learned online acquisition and how you deliver exceptional profitability, the balance sheet companies, how you build proprietary technology. We were the fastest growing insurance brokerage in property and casually when the Schwartz Family approached and it was a CEO gig. So, I ended up the number two for four years and I was ready to be the number one. And I took the job because it goes back to my investing roots, which was we invested in ideas where we felt we could drive value creation for a customer above and beyond their next best alternative. That was certainly the case for Insureon, but for OppFi and what the Schwartz Family, our founders had stood up, it was clear. I mean, you had a marketplace here of 150 million consumers that lack savings, they have less than a thousand dollars of savings. There opportunities for credit access are essentially nil when they have poor credit scores, less than 625 credit scores in the markets of last resort are really poor products, payday loans, and all credit loans. So, using the OppFi platform as a facilitator of credit access with much better products in the market, for last resort, and then with the greater vision and what we’re building at now, which is the digital financial services destination for, we call it the everyday consumer was a huge enticing opportunity, best decision I ever made. And it’s been a heck of a lot of fun to get to this point. And we got a lot of work and a lot more fun in our future.

Michael Kesslering: Thank you for that Jared, I was actually driving past a payday loan, a store with my father this past weekend and had made the comment that really looking forward to some changes within that industry. And so, it’ll be exciting to hear a little bit more about what OppFi does and to address some of that within the industry. But first before that, Kyle, can you share a little bit about your background and kind of some of the founding principles behind the FG New Acquisition platform that you’ve built?

Kyle Cerminara: Yeah, absolutely. And thanks again for having us on, as Jared mentioned you know, the FG New America team came together. I started my career back at T. Rowe Price as an investor and have spent most of my career investing in financial services companies and FinTech companies. At this point invested in, you know, several hundred financial services companies, one of which was actually Ameritrade but you know, the span of my career invested across consumer finance, banks, brokers, online brokers, exchanges, credit cards and all kinds of different types of financial services companies. You know, I started at T. Rowe Price. That’s where I met the chairman of our, of our SPAC in 2001, Joe Moglia. Joe had just taken over as the CEO of TD Ameritrade when it was called Ameritrade back in 2001.

And at the time it was about a $700-800 million market cap company. I was a, you know, young and aspiring analyst at T. Rowe Price in the financial services sector. And ultimately, we made a very large bet on Ameritrade. And we became the largest outside shareholder at T. Rowe Price. And over the next few years developed a really strong bond with him. He articulated a really interesting strategy of consolidating the online brokerage industry and using the platform that they were building to really benefit from the scale of you know, combining these platforms into one much larger thing, you know, company and ultimately you know, over the next 19 years, he consolidated 11 of those online brokers and eventually sold the company to Charles Schwab in 2020 for over $20 billion. So, it was one of the great success stories of my career. But, you know, during that time, I spent about six or seven years at T. Rowe Price. Eventually left, was recruited to go work for Steve Cohen who runs, what’s now called Point72 Asset Management. I worked for Steve for three or four years during the financial crisis. Actually, sat next to him for about two of those years during the financial crisis and you know, learned a tremendous amount about you know, that the capital markets and financial services from him and then eventually left and was the sector head of financial services for a Tiger Cub called HIGHSIDE CAPITAL that had spun out of Maverick about a $5 billion Tiger Cubs. And then in 2012, I founded FG with Joe Moglia. At the point in my career where it was time to start my own company and went to Joe and told him about what we were doing, and he wanted to be a part of it. Since then, we’ve grown, you know, significantly. We’ve invested in dozens of companies. And we have now done our first SPAC after the New America.

Julian Klymochko: So, prior to getting into this OppFi and looking at the underlying business model, how things function and the SPAC deal, I wanted to touch on this FG New America SPAC platform that you’ve been building Kyle. And is this exclusively FinTech focused? You’re obviously a specialist in financial services. Are you looking to expand outside of FinTech with respect to subsequence SPAC? What’s your underlying thesis behind the SPAC platform?

Kyle Cerminara: So, we’re building a SPAC platform under FTC Financial Group that trades on the NASDAQ under FGF. Larry Swets the CEO of our SPAC platform. He’s also the CEO of FG New America Acquisition Corp, and you know, Larry has a long experience of being both an investor and operator of SPACs. This is his third SPAC, but he’s advised on a number of other SPACs and invested in hundreds of SPACs over the course of his career. And, you know, we came together and decided that we would have both FinTech focus SPACs. So, the Joe Moglia focus SPACs, the FG New America Acquisition, FGNA you know, and potentially future ones in beyond that. And then outside of that, we have what we call our partner SPAC.

So, you probably saw Aldel Financial ticker ADF which was done with Rob Kauffman, who was one of the first founders of Forest that IPO and in April of 2021, and that is not exclusively focused on FinTech. And we have a number of other people similar to Rob, you know, with really strong backgrounds and would like to do partner SPAC with us where, you know, our team and FG Financial provides you know, the sort of the operations and back office and all of the due diligence and other aspects of it of the SPAC process given our knowledge of the SPAC process and let somebody like Rob Kauffman you know, sort of who doesn’t have as much experience in SPACs go out and find the right deal for him, and then you know, benefit from the platform. So, we have partner SPAC, and then we also have the FinTech focus SPACs and the FG New America platform.

Julian Klymochko: Right? So, Jared, when I was doing my research into OppFi, I noticed that one of the main kinds of driving factors behind the business is the fact that nearly 60 million consumers lack access to mainstream financial products, which is just pretty shocking to me in 2021, when basically everyone has a high-tech mobile device, I was wondering, how does OppFi come along and fill this need for basically unbanked consumers?

Jared Kaplan: The crown jewel of the platforms, is the credit decisioning technology. 

Julian Klymochko: Okay.

Jared Kaplan: And it has been built with a very large dataset. At this point, we have over 7 billion data points in the credit decisioning algorithms that encompasses over 15 million repayment events. We’ve facilitated over a million, and seven of loans. And the idea is that the traditional world uses FICO and mainstream credit scoring to determine someone’s credit worthiness and for the majority of the country. And specifically, this set, it’s not a great indicator of credit worthiness. An Alternative data can be very powerful to figuring out who’s got both the ability and the willingness to repay despite what their credit score may show. And so that is what the platform has been built on. We power banks, so banks hire us to acquire, to underwrite into service this customer on their behalf, and it’s all done with the alternative data.

And we also do something really cool in the beginning of the process, which is we actually try to go get them mainstream credit first. So, someone applies and we’ll ask them, hey, would you like us to go and do a diligent search on your behalf? Of course, the vast majority of people say yes, and then we will go to 20, what we call near prime platforms to see if they’ve got an appetite for the product and were successful 1% of the time of giving the business away. 

Julian Klymochko: Right. 

Jared Kaplan: Which pathetic, but it just proves the point, which is, hey, there’s a long way got to go, is a massive space for a lot of consumers. It’s not low-income consumers either, right? This is your median, U.S. consumer. They’re making 50 grand, they got a job, they got a bank account. They just have a poor credit score.

Julian Klymochko: Right.

Jared Kaplan: And we’re here because of the macro landscape. You’ve got wages which have been flat for decades. And you’ve got, even though inflation has increased. Wages here in the short term, all of the major costs of living, housing and healthcare and childcare and education had been increasing at a faster pace. And so, you know, people making minimum wages just can’t save. And if your car breaks down or something unexpected, medically happens to you and you can’t get credit access, you’re in a really difficult situation. I always tell people don’t believe a word I say, go and see what the customers say, right? They tell the story better than I ever could. So, you go to Google or The Better Business Bureau or Lending Tree or Trustpilot, and just read the reviews. You will understand the reality of this country, why these products are crucial, but they must be structured in the right way.

And when we talk about the platform that we’re building, it’s not just about the access part up front, that’s critically important. People love us because they got laughed out of their bank, and we said yes, with our bank partners. But beyond that, once they’ve proven their credit worthiness, it’s the right thing to do to graduate them back to more mainstream products. That’s why we’re launching the OppFi credit card here shortly, and then longer term, can we help them build savings and build wealth. And having Joe on the team, not only can we defend against the spread offense a little bit better than we ever could before given us football, acumens, but his business leadership is tremendous. And clearly his understanding of investment platforms, I think may really help us down the line, not tomorrow, not the next day, decade long vision, but that’s what we’re trying to do for this customer.

Julian Klymochko: Now, with respect to uprise business model, the lending platform, how do you guys generate revenue and profit? Are you taking the credit risk or you’re basically just a loan sourcing platform for banks?

Jared Kaplan: So, after banks hire us to do the acquisition, the underwriting, the servicing, before they originate the loan, we will typically buy back about 95% of the economics of that loan. And then we have made the decision to hold the vast majority of that on balance sheet to build the business rather than sell to third parties, although there’s quite a robust market to do so. The thought being there is we wanted to maximize unit economics. You make about double the money by holding the economics versus selling it. These assets are relatively short-term and duration, they’re four and a half months. And we really believe in what we’re doing and whether you hold it or you sell it, it’s the credit risk, which is important, right? Because if you sell it and the credit risk doesn’t perform, people don’t buy it anymore.

So, we’re very comfortable with that model historically with the products as we move into some of the longer duration products you know, we will look to sell some more of these to third parties, but that’s how we’ve generated the economics of the business. And it’s allowed us to build it without equity. 

Julian Klymochko: Right.

Jared Kaplan: So, The Schultz Family put in 12 and a half million before we got there. But since November, 2015, when I joined, we haven’t raised a dollar of equity to build a platform. Now when we get out to the SPAC world and we’re telling the story, institutional investors were like, who are you guys? We’ve never heard of you? And I’m like, well, sorry, we’ve been gapping a profitable since 2015, and we didn’t wait. We don’t need the money. It’s like, it’s counterintuitive. We thought we were geniuses. And The Schwartz Family were terrific and Todd Schwartz our founder just like very supportive and almost a Buffet mentality to building a business, like grow it fast, but only growing as fast as you can drive profit. And that’s what, [Inaudible 00:15:31]. So, we’re enjoying the process of educating the institutional investor world and who we are and how we got here, and what is typically thought of a capital-intensive business. We’ve been able to make an incredibly efficient by building the delivery model with the banks the right way. 

Julian Klymochko: And that’s a funny notion that you mentioned somewhat ironic in that the most high-profile startups or new firms are the ones that raise the most amount of money. And it’s the ones that are solidly profitable and not bragging how much money that they’re raising at these astronomical valuations; those are the ones flying under the radar. And the thing that I like about the business model is in terms of your underwriting, you’re effectively eating your own cooking, such that you would definitely have conviction in the technology and in the loans that you’re making. So, speaking of that technology, I noticed that you utilize quite a bit of AI, artificial intelligence in the process. Would you mind describing how that works?

Jared Kaplan: Well, if you’re a FinTech and you don’t say AI, machine learning, blockchain and crypto, like, what are you these days?

Julian Klymochko: Exactly.

Jared Kaplan: We are heavily involved in what I would, I put our AI [Inaudible 00:16:38]. The idea is to, on the AI side is automate what we can to make the process as frictionless for the customer as possible. So, when a customer wants to go straight through the technology works in such a way where the banks can approve the right customers and customers can get through the process quite seamlessly. We have gone from 0% automation there to at the end of the first quarter, we publicly disclosed 40% of the approvals are automated. We’ll get to 60% by a year. And that’s just continuously improving the technology to be able to do more of that. And we haven’t lost the ability to do business the old-fashioned way as well.

I mean, the other thing I love to tell people about is we’ve got the phone number on the website, like find a FinTech company, to put your phone number on the website and for the smaller percentage of people that want to reach out and touch the business. You know, the number one question we get on the phone is, are you a real business? And we pick it up if its 16 seconds and we tie what a great business we’re building. So that adds to the customer service quality, the customer reviews that makes it easier for others to go straight through because it builds trust and credibility. So that’s a bit of our secret sauce. The machine learning side, this is the idea that as the data set grows from the decisioning technology, we’re able to expand the approval box upon the bank’s approval.

We’re able to expand that decisioning engine so that more customers can get access at same loss rates, right? We’re not looking to necessarily drive down loss rates. We are looking to approve more people at the same loss rates. And that allows us to begin the journey right, which is to get people access day. One that is much better than there are other alternatives out there. So, we’re constantly looking at that. We’re prudent about how the machine learning works. It’s not done in a vacuum. I think the other part of our success is we’ve been really thoughtful about growth and making sure, you know, that one vintage is much larger than the other. You don’t want to introduce a bunch of new variables that can turn you upside down pretty quickly. So, we’re very thoughtful about testing and then updating. And it’s a continuous process and we’ve seen a lot of success early on. I think we approved like 4% of the new applications today, the banks are approving 10% of the new applications. So that means we still suck, but we got a lot better than we were early on, and we got a lot more room to improve in the future, so that’s how that works. And it is the core lever of the business that has made us successful. 

Julian Klymochko: In terms of the opportunity set, the total addressable market. It appears that you’ve found this huge niche, very profitable niche that you guys have certainly capitalized on. I was wondering what separates and what sets OppFi apart from traditional lenders, banks, and why haven’t they capitalized on this hole in the market?

Jared Kaplan: Well, banks, you know, I saw this in insurance too, the big insurance carriers, the big banks, they have become wedded to the historical ways of thinking about risk, and it’s really hard to change when you’re that big. In this world, the OppFi world, having confidence in alternative data to drive credit worthiness is a challenge for a lot of the bigger banks. 

Julian Klymochko: Right.

Jared Kaplan: And they’re still relying on FICO. Half of our customers are at the large banks.

Julian Klymochko: Right.

Jared Kaplan: They’re at the top eight banks, 50% of the customers, but when the car breaks down, they go to a car repair alone. They’re laughed out of the bank. I mean, they won’t touch them. So that that ability to understand which alternative data drives predictability has been critical to the model. I would say, I also believe like whoever wins cost of acquisition, here wins the space long-term, in addition to the data set. So, our acquisition model is turned upside down from traditional platforms. Most people are relying on direct mail, 80% of their businesses is direct mail. And I actually wanted to shut off direct mail when I first joined. And the founder said, you may want to take a look at the numbers. And it works really well, but the problem is anyone can mail the mailbox. So, we lead with a search engine optimization and email marketing and customer referrals. And we built deep relationships with 50 plus marketing partners where we’ve got a proprietary API, that’s able to optimize business based on a number of variables so that we don’t waste their time and they don’t waste our time. And we’ve built tremendous market share on those platforms like the LendingTree and the Credit Karma, but also with near prime platforms that don’t have an appetite for this business and other third-party site that serve this customer and wanted a lending option.

So that’s a big differentiator. And I would say the third piece is this, it’s a bit more qualitative, but it’s quantitative in the reviews, right? These outstanding 4.8-, 4.9- or five-star reviews across the board help us drive the whole thing. Our office is in downtown Chicago pre pandemic. We used to have a lot of pride. People would walk into the office; you’ve got like a hundred flat screen TVs. We’re tracking everything in real time. You know, and people would say, well, how do you kind of have this office in downtown Chicago? You’ve got like people that won’t answer the phones, you’re saying you’re high tech. And like, for us, it’s not mutually exclusive. It’s all of that, which allows you to build a great place to work. You have happy employees; they deliver great customer service customers. Customer who were happy, who leave great reviews that converts more customers that don’t talk to anyone, and, you know, the whole end to end funnel there has worked out very well by building it that way.

Julian Klymochko: Now, from an investors perspective, what are some of the risks that we should be aware of? You know, traditional with lending. There’s credit risk, fraud risk, where’s the downside here?

Jared Kaplan: Key risk of our businesses regulatory. 

Julian Klymochko: Right. 

Jared Kaplan: In the niche of the space that we’re in, we’re very aware of it. We spend a lot of time on it. The best way to de-risk regulatory risks is to diversify the products that we’ve recently launched here. We’ve added a product called salary tab, which looks very similar to our legacy installment loan product. We call that product opp loans, but the salary tap product is an installment loan, that’s repaid through payroll deduction. 

Julian Klymochko: Right. 

Jared Kaplan: And this is a really cool payroll deduction technology that’s getting developed these days. And so, we’re first movers there, and it means a customer will agree to send us a portion of their direct deposits to repaid alone. So those products are much lower cost. So that helps the OppFi card. We’re super excited with the OppFi card, that launches in the second half of this year, that will be considered mainstream. It’s a mainstream credit card product, so that helps. Actually, going public was a big part of thinking about how to go public and why didn’t it go public was the amplification of the story and the platform. We’ve got the data, right? We try to give the business away every single day. And we can’t do it, and that just shows the dearth of access, but the access has got to be connected to protection guardrails, consumer need to be treated in the right way. And we have lots of thoughts about what legislation and regulation should look like in the space where we think it should be in the form of access plus guard rails, not supply constraints, because supply constraints don’t do anything about demand, and you have too many people that need access. And without products like this, you’re left to markets last resort, you left to the tribal market, you left the unregulated markets. So, we spend a lot of time and energy meeting with members of Congress, regulators. We’re big fans of the CFPB, small dollar rule. That’s been hanging out there forever. We think they should put that in place. And I’m hopeful that when we get on these calls and talk about our social impact story, talk about our success and graduating customers to more mainstream products showing them that there’s a real sustainable, positive way of doing this. I think we’ll end up in a really great space and we’ve got legislation called the small dollar loan act that we’re starting to educate people on, which would look like the credit card act for a credit card, but for small dollar loans. And I think like any industry, whether it’s Uber or Airbnb, or any of the great big industries that have developed, there’s always this regulatory precipice that you’re on. And we think we have the data, the story, and the customers to get to the right answer here. And if we’re successful there, we’re going to build a massive, massive platform. And that’s what we’re setting out to do.

Michael Kesslering: So, when you look at improving your unit economics moving forward, when looking at kind of the illustration of your unit economics. The largest costs is your net write-offs. And what you described earlier is that you’re looking to target a loss rate. And so, my initial thinking was moving forward, you to look to refine the credit decision making algorithms to improve that write-off portion, but if you’re targeting the write-off portion or to improve that, are you really looking then to just find additional areas of revenue and cross selling to improve that top line, as opposed to just trying to slash costs on a scalable basis?

Jared Kaplan: Yeah, our unit economics are incredibly strong today. That’s, what’s driven the cashflow and the ability to fund it with ourselves, right, with cashflow, from operations and from debt capital. There are some leverages in the cost to capital that can drive down further. There’s some leverage across the servicing platform on other cost of acquisition, but we actually look at it, like we want to extend lifetime value. Today the customer is with us about 11 months on average. And if we’re able to graduate them to the opp five card and the wraparound mobile banking, and then ultimately investing and maybe get them their first mortgage, right, you’ve now built what SoFi has built for the Henrys. You’ve built it for the everyday consumer, and we’re not looking to drive unit economics higher. I think if anything, we’re looking not to be greedy and to work with the banks, to continue to make the products more and more affordable.

Like we’ve been very, very successful the last couple of years, we got the banks to wave all the late fees, get rid of the NSF fees, start rewarding the borrowers who are refinancing, and there’s a lot more we can do there as we get bigger and we get more scale. So, I think when you look at our projection, we’ve kept the margins flat, actually they’re down a little bit, and that’s the combination of continually giving back to the customer and then graduating them to more mainstream, lower margin products. It’s a big, big space, and that will bode very well for building the company we want to build for the next 5-10 years.

Julian Klymochko: That makes sense, if you have the customer acquisition into your ecosystem, then you know, it’s only logical to develop that flywheel, to offer additional financial products, such that you have synergies.

Jared Kaplan: Especially if they love you, right? 

Julian Klymochko: Yeah.

Jared Kaplan: If they love you, because this is a person who is frustrated, right? They can’t get access and they almost have the point of view of, you actually saw me for my true self. You ignored this score that everyone tells me is such a bad thing, and that creates gratefulness, loyalty. And so that’s why we’re very focused on building up the product suite. The Neobank have led with user experience, they’ve led with early wage access, they’ve led with waving overdraft fees, maybe spotting you a couple hundred bucks. We’ve led with $1,500 installment loans, right. And that is what is highly differentiated and unique. And so, as an access play, and then wrapping around these other more traditional banking services, I think we can build this digital financial services destination for this everyday consumer. And that’s what the exciting vision here.

Julian Klymochko: Yeah, another thing that’s super exciting is the recently announced going public transaction. OppFi recently announcing a merger with FG New America Acquisition, bringing a company public at a $900 million enterprise value. You mentioned the goal in going public, one of them being amplification of the story. What else are you seeking to accomplish as you transition from private co to Public co?

Jared Kaplan: It was a long process to decide how to get public, if we should get public? We looked at a traditional offering. We saw a lot of SPAC interests as a fast-growing FinTech company that was profitable. We ultimately made the decision to go the SPAC route because of FG. We thought that we’re the right partner with Joe and Kyle on the team there, you know, they have deep background in up market investing, have been very helpful through the process. We also thought that the SPAC process gives you the opportunity to really talk about the vision. I also thought it was going to be the most expeditious route. I think what’s unique about the SPAC process versus a traditional IPO is you announce it and it takes you six months to get it closed. Whereas a traditional IPO you announced you’re on the road, and two weeks later you got the deal closed. So that was something I probably didn’t anticipate. And it creates a little bit of an overhang just going through that process, but it has been relatively seamless. I think, you know, we were pretty well set up. Our financials have been previously blessed with [Inaudible 00:29:38] and in some of the hardest hills to climb as you’re going public, it doesn’t mean we haven’t had to build some infrastructure and beef the teams to making sure what we need to have to be a public company, but I’ve got a great team, like a fantastic team, and they’re ready to go, and it will change the business going forward. Like it should be vastly for the better, and it having a more amplified voice in a platform with a great partner like FG. We are excited to get this deal closed and then put our heads down and go execute. That’s what we did at Debt Capital Markets, the first debt facilities we had were quite, I should say for optimized and people didn’t know who we were. And then we just basically did everything we ever told our debt capital providers, and they reward us in spade and we have fantastic relationships there. And we’re going to do the same thing on the equity side.

Julian Klymochko: It’s always great to have both the private company that’s going public along with the SPAC sponsor on the same podcast, because we get to get, you know, feedback and insights from both sides of the table. Now, Jared, you mentioned what appealed to you with respect to FG New America. Now, Kyle, I’d like to know what stood out about OppFi and selecting the company as FG merger partner?

Kyle Cerminara: You know, we had a good idea of what we were looking for and we found all of it in OppFi. You know, OppFi is a very profitable company, it’s rapidly growing. We found a company where we could invest in it at a very reasonable valuation. So, we think that the valuation is reasonable for as fast as it’s growing, it’s a profitable company. We think that there is a very obvious to us, you know, clear pathway to multiple expansion you know, so valuation expansion with the development of the OppFi platform. So, if this was just like, let’s go build opp loans as a mono-line lending business. You know, we think that we paid a very reasonable valuation for it, but it wouldn’t have interested us as much as building the OppFi platform.

So, we think that as we build up the OppFi platform and diversify into what we think will be a lending, saving, investing platform. Then I’ll look a lot more like SoFi over the next few years. We think that the valuation is going to look a lot different. We’ll get significant multiple expansion than if it was just a mono-line lending business. We love the management team. We think very highly of Jared. We think he’s going to be an incredible public company CEO. We think the team that he’s built around him is great, we think our team’s going to be you know, if you look at the skillset of our team and what they’re trying to build, we think it’s a perfect fit and to build a lending, saving, and investing platform. I mean, I can’t think of you know, someone that should have more credibility in building a platform like SoFi than Joe Moglia the guy that built TD Ameritrade over the last 20 years.

Michael Kesslering: And Kyle, as a sponsor, what of the SPAC process differ most from your expectations going into this process either positively or negatively?

Kyle Cerminara: In terms of maybe, could you clarify that question?

Michael Kesslering: Yeah, so basically expectations as a sponsor, starting when you’re launching the SPAC you know, you’re not through the entire transaction yet, but was there anything that you found either very positive that was unexpected when looking at companies and whatnot as you pursued the transaction or on the other side, on the negative side, that was a little bit unexpected?

Kyle Cerminara: The SPAC market has evolved over the last few years, I think that SPAC sponsors like ourselves with someone like Joe Moglia, who has tremendous amount of experience as an operator with people like Larry and I who have great experience on the investing side. I think like, we make for very credible SPAC sponsors. I think that a lot of SPAC sponsors and there’s a lot of other great SPAC sponsors out there right now as well. I think that the SPAC market has evolved. And there’s just a lot of people that have come into the SPAC market, which I think is great, because it’s really made it a viable you know, viable, alternative to the IPO process. At the same time, I think that, you know, maybe the market got a little overheated, you know, six to nine months ago.

And that was just a lot of SPACs IPOs and a lot of money flowing into it, into you know, some SPACs that maybe you shouldn’t have received capital, you know, as we went through the process for identifying a target, I think that you know, one thing that we found to be interesting was some of the evaluations that some of the companies that did, you know, announced targets we thought that they went for higher evaluations than we would have paid. I think we paid a very reasonable valuation for alpha. In fact, I think that you know, I’m surprised that we think that the market will react very favorably to this, you know, when the transaction closes. So that’s probably, you know, been our biggest surprise is just how much the market has developed, you know, how many people were in the market? And you know, the quality of companies that are now pursuing a SPAC today versus you know, perhaps two years ago

Julian Klymochko: Now to touch on the market reaction, what the market thinks of this story? If you were to give a sixty second elevator pitch to a bunch of investors on why they should pay attention to OppFi as an investment, you mentioned other high profile FinTech companies recently going public, or that went public, SoFi, et cetera. Why should they pay attention to OppFi? And why do you think that, you know, the streets should notice it and be excited about it?

Kyle Cerminara: Yeah, as I mentioned, I think, you know, you’ve got a very profitable, rapidly growing company trading at a very reasonable valuation that has historically been in a mono-line lending business. That’s evolving into more of an OppFi, SoFi like, you know, diversified platform that I think is going to be, you know, lead to much higher, multiple expansion over time. Even if you look at the comps, the publicly traded comps that are relative to its existing business, I think that the valuation upside is very significant. And then as we execute on, you know, the transition to the broader lending-saving and investing platform over the next few years, I think you’re going to see dramatic multiple expansion. I think the management team here, you know, I’ve found that when you invest in great management teams you often do well. I think Jared has built a great team around him. I think he’s going to make for a great public company CEO, as I already mentioned. And I think having our team behind them and Joe Moglia behind him, it’s going to be you know, very helpful to them as a public company. So, you know, I see this as a really interesting public company and you know, I’m really glad that we own out of stock and I think we’ll be involved in it for a long time.

Julian Klymochko: And to the extent that other investors want to get involved currently trading under the symbol FGNA and once the deal completes, new symbol will be OPFI for OppFi. So, Jared and Kyle, I want to thank you for coming on the show today, provided some very key insights into the underlying business model of both OppFi, FG New America and you know, key aspects of the going public transaction, which is super interesting and great details for investors and potential investors to know about the story. So, thank you for sharing and wish you guys the best of luck as you pursue this new opportunity. 

Kyle Cerminara: Thank you for having us on. 

Jared Kaplan: Thank you. 

Julian Klymochko: Alright cheers. 

Jared Kaplan: Appreciate it.

Julian Klymochko: Bye everybody.


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