Direct participation into deal flow in partnership with MCA funding companies can provide many benefits to an investor. However, the category is not without risk, so it is critical to understand the characteristics of these investments. Diligently structured and attentively monitored, the risks can be managed, and these participation investments can provide generous returns when compared to other yield-generating alternatives.
Compelling attributes of MCA participation interests include:
- High yields
- Short duration – measured in months, not years;
- Diversification across hundreds of merchant deals
- High velocity of reinvestment of remitted capital
The MCA is a maturing asset class
The MCA industry is maturing, that is, stronger organizations, including large, branded public companies, for example PayPal and American Express are now participating, bringing both capital and greater financial discipline. Certainly these larger companies see an attractive opportunity for profits likely well above their traditional business lines return on equity. One may conclude that the addition of larger capitalized firms entering the marketplace over the last several years would create pricing pressures resulting in lower yields to investors. Contrary to those expectations we have seen consistent and stable pricing commiserate with historical pricing and term.
It is currently nearly impossible for an accredited investor or even an institutional investor to directly purchase participations in MCA contracts directly or on any type of exchange. The industry remains largely fragmented with hundreds of funding firms plying their trade resulting in billions of funded advances in spite of the aforementioned large corporate players. Even if an investor were to perhaps strike a relationship with any individual MCA funding firm that would allow such participation the risk may outweigh the potential returns. Exposure risk to a single funder comes in two main forms, one being the belief their historical performance and underwriting skills will remain strong and two the single point of overall business risk of the Funders operating business. Without extensive access to the funders current portfolio, underwriting guidelines and changes within their operating business or governance, an investor may be taking on substantially more risk than the projected returns would compensate for.
The Supervest Difference
Our intent at Supervest is to solve for the issues preventing accredited investors from participating in an asset class that they otherwise would be unable to gain entry or lack the industry knowledge to balance the tradeoff of risk and reward. Our approach to initial diligence to a MCA Funder and the continuous ongoing diligence from both a performance standpoint and the Funders operational capability/stability provide a level of security to our investor base that is likely unrivaled.
The opportunity to participate in a diversified portfolio of short duration, high yield MCA participation deal flow is timely and attractive in a world starved for yield. Investors must remain cognizant of both the portfolio risk and business risk inherent in the MCA space in spite of the attractive return potential. The Supervest model attempts reduce those risks while retaining healthy end returns for our users.