Analyst & Investor Day June 9, 2016

Transcription

1 Analyst & Investor Day June 9, 2016

2 Welcome Kathryn Miller, Head of IR

3 Forward-Looking Statements This presentation, including the accompanying oral presentation (collectively, this presentation ), does not constitute an offer to sell or the solicitation of an offer to buy any securities. This presentation is provided by On Deck Capital, Inc. ( OnDeck ) for informational purposes only. No representations express or implied are being made by OnDeck or any other person as to the accuracy or completeness of the information contained herein. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements include statements about scalability, growing distribution channels, credit predictability and information concerning our future financial performance, business plans and objectives, potential growth opportunities, financing plans, competitive position, industry environment and potential market opportunities. Forward-looking statements can also be identified by words such as "will," "enables," "expects," "allows," "continues," "believes," "anticipates," "estimates" or similar expressions. Forwardlooking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. Moreover, we do not assume responsibility for the accuracy and completeness of forward-looking statements. As such, they are subject to inherent uncertainties, changes in circumstances, known and unknown risks and other factors that are difficult to predict and in many cases outside our control. As a result, you should not rely on any forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations. Important factors that could cause actual results to differ from our forward-looking statements are the risks that we may not be able to manage our anticipated or actual growth effectively, that our credit models do not adequately identify potential risks, and other risks, including those under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other documents that we file with the Securities and Exchange Commission, or SEC, from time to time which are available on the SEC website at We undertake no obligation to publicly update any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations, except as required by law. In addition to the U.S. GAAP financial information, this presentation includes certain non-gaap financial measures. We believe that non-gaap measures can provide useful supplemental information for period-to-period comparisons of our core business and is useful to investors and others in understanding and evaluating our operating results. These non-gaap measures have not been calculated in accordance with U.S. GAAP. You should not consider them in isolation or as a substitute for an analysis of our results under U.S. GAAP. There are a number of limitations related to the use of these non-gaap measures versus their nearest GAAP equivalents. For example, neither Adjusted EBITDA nor Adjusted Net (Loss) Income is a substitute for Net (Loss) Income and Operating expense (or any of its components) net of stock-based compensation is not a substitute for Operating expense (or any of its components) presented under GAAP. In addition, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. Adjusted EBITDA excludes some recurring costs, including interest expense associated with debt used for corporate purposes, non-cash stock-based compensation, depreciation and amortization expense and fair value adjustment for our warrant liability. Therefore Adjusted EBITDA does not reflect interest expense, the non-cash impact of stock-based compensation or working capital needs that will continue for the foreseeable future. Adjusted Net (Loss) Income excludes stock-based compensation expense and warrant liability fair value adjustment which will continue for the foreseeable future and therefore will generally be more favorable than Net (Loss) Income determined in accordance with GAAP. Please refer to the Non-GAAP Reconciliations at the end of this presentation for a description of these non-gaap measures and a reconciliation to Net (Loss) Income. Attention is also directed the additional safe harbor disclosure in the Financial Model section of this presentation. 3

4 Introduction Noah Breslow, CEO

5 Agenda The Day Ahead Evolution of Online Lending OnDeck Strategy What you will see from the team today? How has the online SMB lending industry evolved and where is it headed? What are OnDeck s business and financial strategies for continued market leadership? 5

6 Key Objectives Improve the general understanding of OnDeck s business model and strategy Highlight OnDeck s key points of competitive differentiation, including: Sophisticated customer acquisition and retention strategies Immense database and advanced analytical capabilities Scalable technology platform and continued focus on innovation Widest set of product offerings and robust channel distribution strategy Sound and adaptable approach to the evolving regulatory landscape Demonstrate the inherent resiliency of OnDeck s model throughout an economic cycle, including structural protections and our hybrid funding model Outline OnDeck s path to profitability, including key sources of operating leverage 6

7 The Three Phases of Online Lending After years of development, large amounts of funding led to platform stampede in Low Awareness Skepticism Stampede OnDeck Cumulative Originations Volume ($MM) $4.4B Q

8 Leading to a Fourth Phase in 2016 In 2016, industry stress will likely lead to the end of the stampede and fewer players in time Low Awareness Skepticism Stampede Shakeout / Opportunity Sources of industry stress: equity/debt capital markets, evolving regulatory requirements, macro concerns, trust issues, and pullback of venture capital OnDeck is well positioned to benefit from industry stress due to its leadership position and capital access 8

9 Despite Industry Stress, Adoption Trends Are Sound Small business owners are increasingly turning to online loans, and large companies are taking notice 30% of SMBs view online lending as a likely source of financing 91% of SMBs are likely to take out another loan from an online lending company 22% of SMBs sought funding from online lenders in 2015 Breakdown by age of small business owners who applied for a business loan within the last two years Google Trends OnDeck Source: Pepperdine University, Private Capital Access Index, First Quarter ETA The Electronic Transactions Association, 2016 Online Lending Drives Main Street Small Business Growth and Satisfaction Survey conducted by Edelman Intelligence of 592 SMBs in March Federal Reserve Banks of New York, Atlanta, Boston, Cleveland, Philadelphia, Richmond, St. Louis, 2015 Small Business Credit Survey. 9

10 OnDeck s Business Strategy 100% focused on leadership in Small Business lending Lifetime SMB relationship Widest range of offerings Diverse distribution Total Credit Solution Technology- Powered Simplicity Tremendous Service Scoring / data leadership Trusted SMB Lending Platform Platform partnerships 10

11 % of Defaults Eliminated Business Strategy: Analytics and Technology Leadership Continued advances in SMB credit scoring and analytics coupled with bank-ready technology platform Analytics GROVER SMB Database covering ~10 million businesses Robust and proven OnDeck Score v5 Laser focus on SMB credit and data collection Technology OnDeck as a Service platform for integration with major banks Web/Mobile customer experience Investment in data security, compliance, and controls Acceptance Rate (%) OnDeck Score Personal Credit Score Random 11

12 Business Strategy: Complete Customer Solution Lines of credit, short-term loans, and long-term loans for the full spectrum of SMBs Manage Grow Invest Gives me the most flexibility for my ongoing working capital needs Enables me to finance projects that have an immediate return Enables me to finance larger projects that have a longer payback Full spectrum underwriting and pricing can handle both bank and non-bank risk tolerances Line of Credit Short-term Loan Long-term Loan 6 Month Term $100,000 Max Size 6-12 Month Term $500,000 Max Size Month Term $500,000 Max Size Can work with an SMB owner from early stages as they grow to maturity 12

13 Business Strategy: Lifetime Customer Relationships Complete solution of products increases conversion rate on marketing and partnering All Customers Acquired in 2013 and 2014 At comparable seasoning points, 2014 shows improved returns Unit economics sound at the transaction level and extremely compelling on a lifetime basis $8,000 Cohort Contribution per Customer % Businesses Cross Sold 2 11% 2014 $6,000 8% $4,000 6% 6% $2,000 4% $0 -$2, Quarters +10 Quarters 1% Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 1. Contribution is defined to include interest income and fees collected on initial and repeat loans, less acquisition costs for repeat loans, less the following items for both initial and repeat loans: estimated third party processing and servicing expenses, estimated funding costs (excluding any cost of equity capital) and charge offs. For this purpose, processing and servicing expenses are estimated based on the mix of new and renewal originations and outstanding principal balances. Includes all loans originated in the period. New or repeat loans sold funding cost is estimated based on the average on balance sheet cost of funds rate in the period. 2. Number of businesses implied by graph may not map exactly onto unique customers served 13

14 Business Strategy: SMB Lending Partner of Choice Enabling partners to expand core solutions and value added services SMB Solutions Online Lending Banks ISOs/ Processors Includes affiliates, subsidiaries and divisions. 14

15 Financial Strategy: Resilient Hybrid Funding Model Moving to holding more loans on balance sheet Mix of Q4 15 Term Loan Originations Mix of 2016 Term Loan Originations Guidance 15-25% 40% 60% 75-85% Balance Sheet Marketplace OnDeck s hybrid funding model allows the company to continue growing despite industry stress, and optimize for long-term profitability 15

16 Financial Strategy: Scale and Operating Leverage Investing in productivity and automation initiatives to drive operating leverage Loans Under Management ($MM) Adjusted Expense Ratio 1 $890 $982 30% $572 20% 21% 18% $233 $ Q1' Q1'16 1. See Appendix for definitions of Non-GAAP measures and reconciliations to GAAP 16

17 Financial Strategy: Path to Profitability Focused on growth in LUM, discipline on pricing and credit and operating leverage Data-driven decisions on CAC, credit, and operational efficiency Balance sheet-led capital markets strategy maximizes economics Prioritizing operating leverage while protecting long-term opportunity Metric Current Level (Q1 16) Steady State Loans Under Management (LUM) $1 Billion $3 Billion NIM After Credit Losses 1 20% 16-18% Adjusted Expense Ratio 1 18% 10-12% 1. See Appendix for definitions of Non-GAAP measures and reconciliations to GAAP. 17

18 Today s Agenda Begins Concludes Presenter Topic 10:05am 10:10am Kathryn Miller, Director Welcome & Safe Harbor 10:10am 10:30am Noah Breslow, CEO Opening Remarks 10:30am 11:00am Andrea Gellert, CMO Sales & Marketing 11:00am 11:30am Krishna Venkatraman, SVP Data, Analytics and Credit Scoring 11:30am 12:00pm LUNCH BREAK 12:00pm 12:30pm Pamela Rice, SVP Technology 12:30pm 1:00pm James Hobson, COO Products & Channels 1:00pm 1:30pm Daniel Gorfine, VP External Affairs & Regulation 1:30pm 1:45pm BREAK 1:45pm 2:30pm Howard Katzenberg, CFO Financial Model and Capital Markets 2:30pm 2:45pm Noah Breslow, CEO Closing Remarks With the exceptions of the Welcome and Opening Remarks, all sections are scheduled to include 5-10 minutes of Q&A with the in-person audience. 18

19 Marketing Andrea Gellert, CMO

20 Introduction Joined in November 2012 ANDREA GELLERT Chief Marketing Officer 15 years at American Express in both OPEN and Merchant Services Bachelor s degree from Harvard and an MBA from Kellogg 21 Professionals on Team 167 Factors per Database Record 163,000 Monthly s Sent 20

21 Our Customers They are there to help understand what business you have, what business needs you have and what s the best option for your company They don t just say that, or just give you a check and walk away. They stay in partnership with you. OnDeck has helped our business go from a $100,000 business to a $400,000 business. Phyllis McElligott, Owner, Diamond Janitorial Services 14 Years in Business 4 OnDeck Loans Taken $167K Total Amount Borrowed 300% Business Growth Since 1 st Loan 21

22 How We Drive Marketing Efficiencies Attract More Customers Retain Customers Longer Convert More Customers Create More Advocates 22

23 Our Value Proposition Total Credit Solution Technology- Powered Simplicity Tremendous Service Trusted SMB Lending Platform 23

24 Multi-Channel Marketing Strategy Source: OnDeck customer survey conducted in April

25 Marriage of Marketing and Data Science 5 th Generation proprietary risk scoring model 100+ external data sources 10 Million+ small businesses in proprietary database 2,000+ data points per prospect Transactional Data Credit Data Proprietary Data Accounting Data Public Records Social Data Data Analysis Platform Probabilistic record linkage Dimensionality reduction Ensemble learning Exhaustive cross validation Feature engineering Adaptive learning Quality Score Demand Score Efficient Frontier Marketing Optimizer Proprietary Marketing Analytics 25

26 Robust Marketing Infrastructure Multiple Data Sources Proprietary Analytics & Models Proprietary Customer Database DR Production Marketing Automation A/B Testing Prospect Response Data Proprietary Campaign Management System 26

27 Decreasing Credit Quality Significant Marketing Optimizations Marketing Efficient Frontier Direct Mail Volumes vs Cost 1 Decreasing Response Quality Mail Volume Cost / Piece 1. Costs include a 1.5% postage increase in 14 and 2.0% postage increase in 15 27

28 Loan Size Lead Approval Rate Cost per Click Benefits of OnDeck Analytics Cost per Click Almost Identical Between States Facebook: Cost per Approved Customer State V State W State X State Y State Z Some States Have Higher Approval Rates than Others -90% State V State W State X State Y State Z Some States Have Larger Loan Sizes Facebook Standard SMB Targeting Facebook Targeting with Proprietary Data Modeling State V State W State X State Y State Z 28

29 Building Awareness % Aware of Forms of Financing OnDeck Brand Awareness +40% +46% Business Credit Card Business Line of Credit Small Business Administration (SBA) Loan Bank Term Loan Equipment Leasing Providers Crowdfunding Online or Alternative Loans Factoring OnDeck Excluding 2014 Repeats Source: Applied Marketing Science study conducted during November Results published in Dec

30 Building Our Brand New Customers Acquired through Brand Channels Cost per Radio Application -25% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Pre-Brand Enhancement Post-Brand Enhancement 30

31 Building for the Future Commitment to Value Creation + Relentless Focus + Activation of on Customer Customer Experience Advocacy = Growth for SMBs and Improving Fundamentals for OnDeck 31

32 Commitment to Value Creation 2014 Vintage Cohort of 3+ loans 54% 29% Loyalty Benefits: Performance based rate and fee reductions Bank Balance Revenues Dedicated loan advisors Mobile application 2015 vs 2014 Multi-Product Customers 5X Bureau reporting Credit consultation/sos advisory 1. Customers with first loan in Includes customers Bank balance and revenue of customers which had taken 3 or more loans from first loan through 3/31/ Aggregate increase in customers which have held a term loan and line of credit. 32

33 Relentless Focus On Customer Experience 100% Q1 NPS by Business Owner s FICO Score Q1 NPS % 60% 60 40% 40 20% 0% [ ) [ ) [ ) [ ) [ ) [ ) Not available 1. Represents blended Net Promoter Score for Direct, Strategic Partner and Funding Advisor channels. 33

34 Our Customer Advocates 34

35 Customer Acquisition Dynamics Intensified in 2015 Total SMB Lending Direct Mail Pieces Search Term Cost +35% Source: Mintel Group 35

36 OnDeck Driving Customer Acquisition Efficiencies in 2016 Direct Channel New Originations: Cost per Dollar Funded Direct Channel New + Renewal Originations: Cost per Dollar Funded Q1 141 Q Q Q Q Q Q Q Q1 169 Q Q Q Q4 144 Q Q Q Q Q

37 On the Horizon: Move to Mainstream Gen Y and Millennials enter the target pipeline SMBs increasingly adopt online lending technology % Consider Using an Online Lender I would consider using an online lender because I believe that it can help speed up the processing time, as well as help to avoid having to meet multiple times with individuals at different levels at a lender, as could occur at a local branch. This also keeps me from having to travel to the bank, which can be a somewhat bland / distracting / pressuring environment. Business between 1yr and 5yrs old, $100K-$1M annual revenue Yes No Don't Know/Unsure Source: Survey by Applied Marketing Science conducted in November 2015 and published in December

38 Key Takeaways Utilizing a sophisticated marketing model to drive highly targeted customer acquisition strategies Driving marketing efficiencies with a focus on optimizing for marginal CAC and building customer lifetime value Investing in brand awareness, which will benefit from industry and generational shift tailwinds Powering the growth of small business customers while driving improvement in our financial fundamentals over the longer term 38

39 Data & Analytics Krishna Venkatraman, SVP

40 Introduction Joined in 2013 Prior experiences at Calmsea, Intuit, HP and DemandTec PhD Stanford Krishna Venkatraman Senior Vice President of Analytics and data Holds 20+ Patents; Winner of the Franz Edelman Award 2009 for Achievement in the Management Sciences and Operations Research 65 Data Professionals on Team 35 Graduate Degrees 23 Different Academic Majors 40

41 Small Business Share of Commercial Loan Balance (%) Commercial Loan Balance ($Billions) There Is a Large Underserved Market for Small Business Financing % of Small Businesses Applying for Credit 1 % of Small Businesses Receiving Credit 1 18% 37% 43% 57% 45% Applied Did Not Apply Discouraged All or Most of Capital Requested Some or None of Capital Requested 30% 25% 20% 15% 10% 5% 0% 23% 27% 21% 18% 17% ,000 1,800 1,600 1,400 1,200 1, * Small Business Share of Commercial Loans Commercial Loan Balance 1. The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game, Karen Gordon Mills Brayden McCarthy, Working Paper, Harvard 41

42 But Small Businesses Remain Invisible Information Asymmetry Drives Market Inefficiency Search Costs Product Mismatch 42

43 Closing the Information Gap Starts With a Deep Understanding of Customer Need and Customer Quality Customer Need Customer Quality OnDeck s Analytics 43

44 Data and Analytics Drive Our Understanding of Customer Need and Customer Quality Prediction & Scoring Feature Generation Customer Quality Integration & Transformation Thousands of data points 3 rd party sources Proprietary performance data Customer Need 10M small businesses 44

45 Data and Analytics at OnDeck Data and Analytics helps OnDeck build long-term and sustainable lending relationships with small businesses 45

46 OnDeck s GROVER Data Platform Provides Intelligent Decisioning Throughout the Customer Funnel 46

47 GROVER: OnDeck s Data and Learning Platform Uniform platform that enables, scalable and real-time data aggregation and modeling, with a flexible front end for product delivery, real-time prediction and reporting Replicated Across 10 M + Small Businesses Business 1 Business 2 Data Strategy Data & Learning Platform Analytical Services Identify and acquire information and data from external sources Business Snapshot Uniform learning platform enabling scalable feature engineering & learning Time Series Data Flexible front end for real-time prediction and reporting Model Library Credit Data Bank Data Firmographic Utilization New Trades # of Deposits NSFs / Neg Days Business s Age Industry Direct Mail Targeting Outbound Dialing Offer Optimization Credit Scoring Underwriting Loss Rate Forecasting Collections Marketing & Sales Credit & Risk Management Social Public Data Prior Loans Yelp Reviews OSHA Violations ODC Performance Cross Sell Line Management Long Term Survival Revenue Estimates Customer Management Small Business IP Barriers to Entry Record linkage Third party relationships 8+ years of lending Barriers to Entry Feature engineering Machine learning Computational scale Barriers to Entry Consistent treatment of customers through all their interactions Single source of truth Software efficiency in model governance and deployment 47

48 GROVER: OnDeck s Data and Learning Platform at Work 48

49 GROVER: Example of a Small Business Profile 49

50 The Marketing Efficient Frontier Aligns Marketing Spend With Acquisition Goals Decreasing Credit Quality Decreasing Response Quality 50

51 Marketing Analytics Has Continued to Improve At An Accelerating Pace Percentage Improvement Percentage Improvement 300% Response Rate of Top Quartile Up 250% Over Baseline 250% Conversion Rate of Top Quartile Up 150% Over Baseline 250% 200% 200% 150% 150% 150% 100% 100% 50% 50% 50% 0% 1/21/14 Q1 14 5/1/14 Q2 14 8/9/14 Q /17/14 Q4 14 2/25/15 Q1 15 6/5/15 Q2 15 9/13/15 Q /22/15 Q4 15 3/31/16 Q1 16 0% 0% 1/21/14 Q1 14 5/1/14 Q2 14 8/9/14 Q /17/14 Q4 14 2/25/15 Q1 15 6/5/15 Q2 15 9/13/15 Q /22/15 Q4 15 3/31/16 Q1 16 Response Lift Top Quartile Compared with Baseline Closed Won Lift Top Quartile Compared with Baseline Poly. (Response Lift Rate Top Quartile of Top Compared Quartile with Compared Baseline) to Baseline Booking Rate of Top Quartile Compared to Baseline Poly. (Closed Won Lift Top Quartile Compared with Baseline) 51

52 The OnDeck Score : Proprietary and Purpose Built for Small Business 5 th Generation proprietary credit scoring model Transactional Data A 100+ external data sources 10 Million+ small businesses in proprietary database Credit Data Proprietary Data Public Records GROVER Data Analysis Platform Probabilistic record linkage Dimensionality reduction Ensemble learning Exhaustive cross validation Feature engineering Adaptive learning B C D E Risk Grading 2,000+ data points per prospect Accounting Data Social Data Score 52

53 The OnDeck Score Optimizes the Single Most Important Decision in The Customer Journey The top ODS decile has half the loss rate of the top FICO decile 12% Performance of Top ODS Deciles vs. Top FICO Deciles 1 10% 8% Top FICO Decile 6% 4% Top ODS Decile 2% 0% Q _1 2013_1 Q _1 Q1 14 Q _1 1. Analysis on OnDeck Score v5 using actual OnDeck loan performance data. 53

54 The OnDeck Score Optimizes the Single Most Important Decision in The Customer Journey LUM have increased significantly faster than write-offs over the past 5 years Loans Under Management vs. Write-offs , Normalized to % 4000% Term Poly. (TL Loans AUM, Under 3m Moving Management Avg.) Write-offs Poly. (TL Write-offs, 3m Moving Avg.) 3000% 2000% 1000% 0% Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4' % 1. Polynomial order 2 trend line fit to underlying data. For illustrative purposes only. 54

55 Fraud Analytics at OnDeck Fraud detection combines network analysis, fraud scoring and expert judgment 166 Data Signals Links to past apps Credit Bureau Fraud Network Analysis and Scoring Good Score: 0.01 Fraud Analyst.. Decision Identity Data Fraud Name consistency Score:

56 Fraud Analytics at OnDeck Fraud-related losses continue to decline as early fraud detection continues to improve Fraud Analytics Performance Averted Loss vs. Actual Loss $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 6/1/15 7/1/15 8/1/15 9/1/15 10/1/15 11/1/15 12/1/15 1/1/16 2/1/16 3/1/16 Averted Loss 56

57 The Future: We Are Just Getting Started Continue to focus on customer need and customer quality OnDeck Score v6* Every product, customer and touchpoint in the funnel New model architectures and techniques that scale with the expanded scope New Data and Technology Deeper investment in granular business transactions Wider active monitoring of business performance Marketing Application Origination Term Loan Line of Credit Customer Mgmt Renewals * In development 57

58 Data and Analytics at OnDeck Data and Analytics helps OnDeck build long-term and sustainable lending relationships with small businesses, while also achieving strong risk-adjusted returns over time 58

59 Key Takeaways Proprietary SMB database powers highly targeted marketing strategies, fraud detection capabilities and portfolio risk management The OnDeck Score yields superior results to FICO in underwriting SMBs and is being improved continually Analytics capabilities drive originations growth and operating efficiencies while reducing blended loss rates for the portfolio over time Data-driven approach builds long-term and sustainable lending relationships with small businesses and provides strong risk-adjusted returns to OnDeck over time 59

60 Technology Pamela Rice, SVP

61 Introduction Joined in 2014 PAMELA RICE Senior Vice President of Technology Prior experiences at Bill Me Later and PayPal MS Johns Hopkins, MBA from Loyola 150 Engineers 520,000 Lines of Code 94 seconds Shortest app to fund time 61

62 Technology Focus People Technology Organization Built for Scale Breadth & Specialization Platform Maximize Strategic Value of Our Technology and Smart Data Extend Current Platform for Business Transformation Process Fuel Increased Productivity, Collaboration and Innovation Sharpened, Mature Processes 62

63 Highlights OnDeck: Organization and Capabilities Investments: Scale & Operational Leverage Protect OnDeck: Securing Our House Customer Experience: Simple, Seamless, Secure Engineering: Enabling Innovation 63

64 OnDeck: Scope and Organization Cross- Functional Teams Customer / Partner Facing OnDeck Web Mobile ODAAS APIs Partner Portal / API ODaaS Internal Systems Cust. Service & Collections Loan Origination & Servicing Merchant Profile & Events Fraud Decision Services International Shared Services / Infrastructure Quality Assurance Security Architecture Continuous Delivery Program & Release Management Production Support Corporate IT Data Management 64

65 OnDeck: Phases of Investment, Delivery and Scale Build 2014 through 2015 One-time scale up of teams to support public company operations, security, partnerships, and new products and markets Support 2016 into 2017 Scale enabling greater capacity for product expansion and enhanced automation Investment in Technology Extract Scale driving greater productivity and operating efficiencies

66 Scaling the Platform Is Key A C Q U I S I T I O N S E R V I C I N G e M O N I T O R I N G R E P O R T I N G Vertically Integrated Stack Complete Solution Always in the Cloud 66

67 Operational Leverage: Scale for Re-Use Across Regions We leverage our existing credit model, platform and database to drive operational efficiencies in existing markets, and US CA AU to expand into new markets with compelling risk/reward trade-offs TERM LOANS LINE OF CREDIT 67

68 Operational Leverage: Scale for Re-Use With Partners We have invested in our platform to enable integrations that allow our partners to leverage OnDeck s functionality while providing a seamless, efficient and secure customer experience US CA AU TERM LOANS LINE OF CREDIT 68

69 Operational Leverage: Scale for Process Automation and Productivity As our investments transition from Building and Supporting OnDeck s growth, enhanced automation and efficiencies will enable greater productivity and drive operating leverage SERVICING MARKETING SALES CAPITAL MARKETS 69

70 Protect OnDeck: Securing Our House OnDeck Security Program Network & Systems Security Endpoint Security Data Security Application Security Compliance Vendor Risk Management Security Operations Security Governance Comprehensive security program encompassing internal and external security Security team works cross functionally to develop policies and standards to protect OnDeck assets Enhanced SOX/SOC compliance control environment 70

71 Protect OnDeck: 3 Year Cyber Security Program Establish Foundation 2016 Adoption and Utilization Adapt and Evolve Establish security risk management Reduce exposure to critical gaps Establish attack prevention and detection capabilities Train end users Build centralized incident management Enhance SOX IT Controls Integrate security into engineering continuous delivery Increase business security practices and auditing and practices Decrease time to detect anomalous behavior across enterprise Enhance security detection Mitigate third party risks Complete SOC Reports 71

72 Customer Experience: Simple, Seamless, Secure Simplicity is FinTech s Calling Card Customers expect companies to anticipate their needs and make it easy and convenient to interact with them across any channel they choose Top Reasons Consumers Adopt FinTech Solutions Easy to set up an account More attractive rates/fees 12.4% 15.4% Access to different products and services 43.4% Reference: EY FinTech Adoption 2016 Source: Ernst & Young December 2015 The Financial Brand. Better online experience and functionality 5.5% 1.8% 11.2% Better quality of service 10.3% More innovative products than available from traditional bank Greater level of trust than the traditional institutions 72

73 Customer Experience: Simple, Seamless, Secure OnDeck Experience Customer experience can be fully online, fully offline, or multi-channel Sophisticated fraud detection runs in parallel to application process OnDeck as a Service customer experience can be as fast as a few clicks OnDeck Agent(s) OnDeck Customer OnDeck Platforms) 73

74 Customer Intimacy 74

75 Our Priority 75

76 Engineering Processes and Culture: Enabling Innovation + MVP = Low Engineering Process Overhead Agile teams / 2 week sprints Continuous delivery (daily) Common engineering standards Innovation Pipeline Biannual Hackathons Innovation oriented teams North Star architecture Innovative Products Low cost idea POC A/B and throttle on capability 76

77 Key Takeaways IT infrastructure enables both front-end and back-end automation, providing a simple and secure customer experience Scalable technology platform facilitates seamless customer experiences and ongoing innovation Investments in data security, compliance, and IT power our core business and enable deep integrations with platform partners Automation and scale drive productivity in loan sales and servicing while also enabling further innovation 77

78 Product & Channels James Hobson, COO

79 Introduction Joined in 2011 James Hobson Chief Operating Officer Prior experiences at iqor, BuyYourFriendADrink.com, and McKinsey Bachelor s degree from Hamilton College and an MBA from Harvard Business School 200+ Customer Facing Employees 700+ Industries Served 7,000 Conversations Everyday with SMBs 79

80 Our Product Strategy Deliver an unmatched range of credit solutions through a simple experience with great service Build the leading SMB Credit Solution Attract customers at all stages of the SMB lifecycle for all of their needs Retain customers longer as their needs grow and change Drive Simplicity into the customer experience Technology does the heavy lifting so customers don t have to Simple processes increase conversion and promoter scores Enable frictionless customer access to credit Deliver astonishingly good Service and reward loyal customers SMBs value great service and will pay a premium for it Credit building, loyalty terms / pricing, concierge services, and personalized interactions win customers for the long term 80

81 Uniquely Positioned to Meet Broad Range of Small Business Capital Needs while Building Long-Term Relationships Manage Grow Invest Powered by OnDeck Gives me the most flexibility for my ongoing working capital needs Enables me to finance projects that have an immediate return Enables me to finance larger projects that have a longer payback Enables me to access financing through a brand I trust and an experience I know Line of Credit Short-term Loan Long-term Loan OnDeck As A Service 6 Month Term $100,000 Max Size 6-12 Month Term $500,000 Max Size Month Term $500,000 Max Size Intuit data + Integrated experience + OnDeck funding Chase data + Integrated experience + Chase funding 81

82 OnDeck Loan Portfolio Maps the SMB Industry Footprint Risk mitigation through geography and industry diversity Loan Volume Distribution by Industry Other Retail Manufacturing Construction & Property Improvement/Care Professional, Scientific, and Technical Services Other Services Wholesale Trade Accommodation & Food Services Health Care 82

83 Building Economically Sustainable, Long-Term Relationships Increasing customer retention with engagement across a broad range of products % of Repeat Customers on 3 rd + Loan % of Businesses Cross Sold 1 55% 11% 8% 42% 6% 6% 4% 1% Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 1. Number of businesses implied by graph may not map exactly onto unique customers served 83

84 Product Breadth is Driving Diverse and Stable Growth OnDeck continues to grow while effectively managing credit losses 15+ Day Delinquency Ratio Business Owner s FICO > 700 % of Loan Balance 38% 7.6% 7.3% 6.6% 5.7% 32% 12/31/13 12/31/14 12/31/15 3/31/

85 OnDeck Mobile App Demo 85

86 Diversified & Growing Customer Acquisition Channels 2015 YOY Originations Growth 2015 Avg Cents on Dollar 1 Loans per Customer 2 Acquisition Breakeven 2,3 NPS 4 Direct Direct Mail Online Marketing 91% $ <2 quarters 78 Radio/TV Strategic Partners SMB Service Providers (Accounting/Payment/POS) 125% $ <1 quarter 78 Banks Funding Advisors Loan Brokers ISOs 9% $ <2 quarters 76 Equipment Leasing Firms 1. New term loan customers only 2. Q Cohort, through January Approximate time until interest collected from cohort exceeds Marketing costs, Internal, and External Commissions for the cohort 4. NPS as of Q

87 International: Target Scaled Execution Cumulative Volume Since Launch Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 OnDeck Tech & Analytics Platform + Strategic partners with strong SMB brands = Accelerated scale Canada Australia 87

88 Platform Partnership Strategy Proprietary distribution channels with industry-leading customer satisfaction Lead Creation API Instant Decision API Full Integration Data-driven multichannel marketing OnDeck branded OnDeck earns interest income Data-driven multichannel marketing Powered by OnDeck OnDeck earns interest income Data-driven multichannel marketing White-labeled OnDeck earns tech + servicing income 88

89 ODaaS Partner Spotlight: OnDeck & Chase Back-End: Integration Front-End: Funding in a Few Clicks OnDeck tech platform and OnDeck Score Chase s Business Banking deposit and lending platform Customized offers based on bank data Real-time approvals Same or next-day funding 89

90 OnDeck Bank Strategy: Full Platform-as-a-Service Bank Bank Integration Points SSO API Loan Docs ACH File API or Batch Technology Online Application Data Aggregation Credit Scoring Origination Funding Servicing Platform & Reporting People Funding Reps / RM s Underwriter Closing Specialist Cust. Service / Collections Bank Ready Data Security / Compliance Platform 90

91 OnDeck s Competitive Advantages with Banks Why banks are catching on now Large banks (e.g. Chase) have taken a leadership position Acceptance that small business lending preference is shifting to digital channels Why they are likely to partner Less tech resources and execution risk Faster time to market Leverage platform specifically built for small business lending Why we are uniquely positioned to win Bank integration-capable platform (data security, compliance) Proven ability to execute and scale integrated partnership Credit innovation with 10 years of performance data 91

92 Near-Term Growth Drivers OnDeck s diversified origination channels to drive future LUM growth Loans Under Management $MM $572 $890 $982 Key Drivers Increased industry adoption and awareness Direct and Strategic Platform channel growth Repeat loan and Line of Credit cross-sell growth $233 New channels (accountants, small banks, etc.) Analytics and technology-driven product enhancements 12/31/13 12/31/14 12/31/15 3/31/16 92

93 Long-Term Growth Drivers ODaaS Partnerships Targeted Opportunities Top 20 Banks Merchant Processors Key Considerations Source of differentiation given SMB expertise and considerable IT, security and compliance investments Products Credit Card Invoice Factoring Equipment Leasing Measured approach focused on financial products that are still underwritten using FICO International Developed markets Strong data footprint Developed financial infrastructure 1-2 new markets, driven by ability to export model & platform compelling risk/reward trade-off 93

94 Key Takeaways Providing the widest range of offerings in the online lending industry Utilizing a robust, multi-channel distribution strategy to acquire and retain SMB customers Leveraging a multi-prong approach to serving SMB customers, which should facilitate progressive penetration of addressable market Growing responsibly with focus on driving customer lifetime value and return on investment 94

95 External Affairs / Regulation Daniel Gorfine, VP

96 Introduction Joined in 2014 DANIEL GORFINE Vice President, External Affairs Associate General Counsel Prior Experience at the Milken Institute and Covington & Burling LLP Bachelor s degree from Brown University, JD from The George Washington University Law School, and MA from Johns Hopkins SAIS 4Trade Associations 20+ Publications focused on law & public policy 4x Congressional or Federal Agency Testimony & Comment Letters 96

97 External Affairs at OnDeck OnDeck solves a key global public policy challenge: efficient SMB access to capital OnDeck is committed to demonstrating leadership in helping frame a 21st century policy framework for lending innovation External Affairs portfolio includes government & regulatory affairs, public policy, and industry and community relations 97

98 Presentation Roadmap 1. Existing Legal and Regulatory Landscape 2. External Affairs Policy Engagement 3. Incorporating and Benefitting from a 21st Century Framework 98

99 Existing Legal and Regulatory Landscape 99

100 Current Regulatory Framework Federal Federal and State laws related to commercial lending OnDeck exclusive focus on commercial not consumer lending Representative Federal Laws Covering Non-Bank Commercial Lenders Include: Securities Laws for Public Companies Fair Lending Laws Laws Governing Use of Credit Reports Economic Sanction Requirements Laws Governing Fair Trade Practices Laws Governing Identity Theft 100

101 Current Regulatory Framework State Exportation of State Law Use of an Issuing Bank Partner Licensure OnDeck exports Virginia state law Contractual choice of law provisions between commercial parties upheld Originate loans in Virginia OnDeck partners with an issuing bank partner where state law cannot be exported This is a common method for online lenders OnDeck partners with Celtic Bank, a Utah industrial bank OnDeck could increase use of issuing bank partner model Pursuing state licensure is an option Strategy driven by efficiency considerations 101

102 Current Regulatory Framework National National Framework Potential regulatory harmonization and streamlining efforts We welcome efforts focused on creating a thoughtful national framework whether through state harmonization or a rationalized federal regime 102

103 Current Regulatory Framework Summary A Resilient / Durable Model Use Issuing Bank Partner to Originate Originate under Vriginia Law (recently affirmed in NY) Change in State Law Comply with State Law / Obtain License Loan Stop Origination in Applicable State Originate using Issuing Bank Partner Problem with Issuing Bank Partner or Partnership Structure Utilize Back-up Bank Partner or Restructure Partnership Comply with State Law / Obtain Licenses 103

104 Current Regulatory Framework Compliance OnDeck has a compliance framework that includes: Focus on tone from the top to instill an ethical culture Policies, procedures and other controls focused on compliance and the fair treatment of customers Training of employees on compliance requirements and transparency around pricing and other key aspects of its products Early warning on new regulations and other legal risks 104

105 External Affairs Policy Engagement 105

106 Public Policy The Case For Cooperation Solving a Key Challenge TRADITIONAL BANKS 106

107 Public Policy The Case For Cooperation Economic Impact and powering community lending 107

108 Public Policy The Case For Cooperation Self-Regulation In May we launched an industry-first transparency initiative: the SMART (Straightforward Metrics Around Rate and Total Cost) Box model disclosure The initiative solves the major market/policy challenge: common verbiage and standardization to enable comparison Well-received by policymakers 108

109 Public Policy The Case For Cooperation Congress Innovation/FinTech initiative Recognizes the value/benefit of fintech innovation Key will be to support innovation at banks and fintech firms, and to promote partnerships between them 109

110 Incorporating and Benefitting from a 21st Century Framework 110

111 Current State Activity Illinois California New York Proposed legislation held through legislative term (ended May 31) Broad opposition coalition Stated focus on transparency DBO (Department of Business Oversight) informationgathering On-going discussion around proper scope and approach of existing regulatory framework OnDeck currently works with an issuing bank partner A few recently proposed bills focused on DFS (Department of Finance Services) research into online lending and borrower education Legislative term ends June 16 Recent broad inquiry by DFS into online lending models 111

112 Treasury White Paper May 2016 Clear recognition of innovative models expanding access to capital Enthusiasm for partnerships that expand financial opportunity Call for increased transparency and disclosure standardization Suggestion for expanding coverage of consumer lending laws 112

113 Consumer Financial Protection Bureau CFPB s primary mandate is around consumer lending, and not commercial To the extent CFPB will become involved in the near-to-medium-term with SMB it will be around data collection Dodd-Frank 1071 rule-making specifically focused on bank and non-bank small business loan data collection likely to begin next year 113

114 Federal Trade Commission The FTC is convening a series of workshops around fintech innovation, including Marketplace Lending and the role of big data The FTC published a paper on the use of data, including for credit underwriting We are subject to fair lending and fair business practices laws and requirements: We have compliance programs in place that recognize important distinctions between proper and improper uses of data in the context of underwriting We have careful oversight and compliance programs in place to support sound business practices 114

115 Bank Partnerships & Regulators OCC White Paper on FinTech Innovation and partnerships with banks struck a constructive/positive tone Banks are encouraged to incorporate innovation into core model As the leader in the space with a mature culture and compliance processes, we are best situated to benefit from focus on partnership 115

116 Concluding Thoughts on the Future of Lending 116

117 Key Takeaways Regulated at the state and federal level Resilient and durable model that can adapt to the evolving regulatory landscape Ongoing engagement focused on creating future regulatory framework that permits continued responsible innovation and captures industryleading best practices Proud to be leading the charge for self-regulation and heightened disclosure 117

118 Financial Model & Capital Markets Howard Katzenberg, CFO

119 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements include statements about scalability, growing distribution channels, credit predictability, acquisition cost and information concerning our future financial performance, business plans and objectives, potential growth opportunities, financing plans, competitive position, industry environment and potential market opportunities. Forward-looking statements can also be identified by words such as "will," "enables," "expects," "allows," "continues," "believes," "anticipates," "estimates" or similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. Moreover, we do not assume responsibility for the accuracy and completeness of forward-looking statements. As such, they are subject to inherent uncertainties, changes in circumstances, known and unknown risks and other factors that are difficult to predict and in many cases outside our control. As a result, you should not rely on any forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations. Important factors that could cause actual results to differ from our forward-looking statements are the risks that we may not be able to manage our anticipated or actual growth effectively, that our credit models do not adequately identify potential risks, and other risks, including those under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other documents that we file with the SEC from time to time which are available on the SEC website at We undertake no obligation to publicly update any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations, except as required by law. In addition to the U.S. GAAP financial information, this presentation includes certain non-gaap financial measures. We believe that non-gaap measures can provide useful supplemental information for period-to-period comparisons of our core business and is useful to investors and others in understanding and evaluating our operating results. These non-gaap measures have not been calculated in accordance with U.S. GAAP. You should not consider them in isolation or as a substitute for an analysis of our results under U.S. GAAP. There are a number of limitations related to the use of these non-gaap measures versus their nearest GAAP equivalents, as detailed in the Non-GAAP Reconciliations at the end of this presentation. In addition, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. Net Interest Margin After Credit Losses is the rate of net return we achieve on our Average Interest Earning Assets outstanding during a period. It does not reflect the return from loans sold through OnDeck Marketplace, specifically our gain on sale revenue. Similarly, Average Interest Earning Assets does not include the unpaid principal balance of loans sold through Marketplace. Further, Net Interest Margin After Credit Losses does not include servicing revenue related to loans previously sold, fair value adjustments to servicing rights, monthly fees charged to customers for our line of credit, and marketing fees earned from our issuing bank partners, which are recognized as the related services are provided. Net Interest Margin After Credit Losses reflects net charge-offs in the period rather than provision for loan losses. In addition, Adjusted Expense Ratio does not reflect the potentially dilutive impact of equity-based compensation and is based on the unpaid principal balance of loans outstanding, regardless of funding source, and does not take into account the revenue earned in the period. Adjusted Operating Yield represents our Net Interest Margin After Credit Losses less the Adjusted Expense Ratio. Net Interest Margin After Credit Losses uses Average Interest Earning Assets in the denominator of the calculation whereas Adjusted Expense Ratio uses Average Loans Under Management in the denominator. Subtracting one metric from the other is purely illustrative and does not reflect the operating performance of the business. Also, neither Adjusted EBITDA nor Adjusted Net (Loss) Income is a substitute for Net (Loss) Income and Operating Expense (nor any of its components) net of stock-based compensation is not a substitute for Operating Expense (nor any of its components) presented under GAAP. Adjusted EBITDA excludes some recurring costs, including interest expense associated with debt used for corporate purposes, non-cash stock-based compensation, depreciation and amortization expense and fair value adjustment for our warrant liability. Therefore Adjusted EBITDA does not reflect interest expense, the non-cash impact of stock-based compensation or working capital needs that will continue for the foreseeable future. Adjusted Net (Loss) Income excludes stock-based compensation expense and warrant liability fair value adjustment which will continue for the foreseeable future and therefore will generally be more favorable than Net (Loss) Income determined in accordance with GAAP. Please refer to the Non-GAAP Reconciliations at the end of this presentation for a description of these non-gaap measures and a reconciliation to the corresponding GAAP measure. 119

120 Introduction Joined in 2008 HOWARD KATZENBERG Chief Financial Officer Prior experiences at American Express OPEN and Swift Capital Bachelor s degree from Cornell and an MBA from The Wharton School 34 Finance Professionals on Team $1.5B Equity and Funding Debt Raised to Date 259 Internal Controls Established for SOX 120

121 Today s Topics 1 Resilient Model Product designed with unique safety features Flexible funding model. Attractive asset class for investors 2 Path to Profitability Cumulative net return from recent vintages exceeding operating expenses Natural operating leverage as Loans Under Management grows 3 Steady-State Operating Targets $3 Billion Loans Under Management 16-18% NIM After Credit Losses 10-12% Adjusted Expense Ratio 5-7% Adjusted Operating Yield Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 121

122 Resilient Model Topics Managing credit performance in a downturn Funding future balance sheet growth Access to capital in a downturn 122

123 Credit Performance OnDeck continues to grow while effectively managing credit losses Loans Under Management $MM $890 $982 Net Cumulative Lifetime Charge-off Ratios All Loans 1 8% 6% 4% Q1'15 2% Q2'15 Q3'15 Q4'15 $572 0% Months of Seasoning 15+ Day Delinquency Ratio $ % 7.3% 6.6% 5.7% 12/31/13 12/31/14 12/31/15 3/31/16 12/31/13 12/31/14 12/31/15 3/31/16 1. As of March 31, net cumulative charge-off as a percentage of original loan amount for all term loan originations, regardless of funding source, including loans sold through OnDeck Marketplace or held for sale on our balance sheet. Given our loans are typically charged off after 90 days of nonpayment, all cohorts reflect approximately 0% for the first three months in this chart. 123

124 Product Features = Risk Management We have designed our loans to have unique structural protections Traditional Business Loan Underwriting FICO/Business Credit OnDeck Score Loan Size $250,000+ ~$50,000 Average Term 3-10 Years ~12 Months Payment Frequency Monthly Daily or Weekly Collections Method Merchant-Initiated Automated ACH Security Collateralized Personal Guarantee & All-Asset Lien 1 Pricing 5-13% APR ~40% APR 1. No specific collateral or minimum collateral is required. 124

125 Early Warning Signals We capture and analyze a significant amount of granular, customer-level data Early Warning Metrics: Application-level data Utilization of line of credit product Time series analyses on renewals Use of proceeds Credit performance data Cohort performance Missed ACH reasons Paying status 125

126 Portfolio Management Capabilities Product and portfolio capabilities allow us to nimbly adjust to market conditions Portfolio Management Tools: Tracking to 1 day past due Transition matrices (cure / roll rates) Customer monitoring and credit line management Stress testing Model ranking validation in different economic scenarios 126

127 Playbook for a Downturn We utilize multiple product levers to quickly respond to adverse credit conditions $28K Average Loan Amount 1 $26K Net Charge-off Ratios by Cohort 2 9.0% Average Term Length 1 11 months 9 months 6.4% Average Annualized Interest Rate 1 55% 39% Based on new customer originations. 2. Represents net lifetime charge-offs of the unpaid principal balances charged off less recoveries of loans previously charged off. A given cohort s net lifetime charge-off ratio equals the cohort s net lifetime chargeoffs through March 31, 2016 divided by the cohort s total original loan volume. Repeat loans in both the numerator and denominator include the full renewal loan principal amount. The chart includes all term loan originations, regardless of funding source, including loans sold through our OnDeck Marketplace or held for sale on our balance sheet. 127

128 Resilient Model Topics Managing credit performance in a downturn Funding future balance sheet growth Access to capital in a downturn 128

129 Cash Position and Liquidity GAAP equity has increased since our IPO, despite lower cash balances Stockholders' Equity $MM Cash & Cash Equivalents $MM $316 $220 $311 $137 12/31/14 3/31/16 12/31/14 3/31/16 129

130 Impact of Deleveraging Decision to use excess cash to fund loans is primary driver of change in cash position % of Net Loans From 100% Equity Funded Loans 1 12% 18% Net Loans From 100% Equity Funded Loans 1 $55 $MM $108 12/31/14 3/31/16 Implied Advance Rate on Funding Debt 2 90% 88% 12/31/14 3/31/16 Residual Value of Loans Secured by Funding Debt 3 $43 $MM $61 12/31/14 3/31/16 12/31/14 3/31/16 1. Net Loans is calculated as outstanding principal balance plus net deferred origination costs less allowance for loan losses and includes loans held for investment and held for sale. 100% Equity Funded Loans is defined as net loans held for investment and held for sale that are not funded in asset-backed revolving debt and asset-backed securitization facilities. 2. Implied Advance Rate on Funding Debt is defined as funding debt divided by Net Loans plus restricted cash for loans funded in asset-backed revolving debt and asset-backed securitization facilities. Restricted cash includes funds held in accounts as reserves on outstanding debt facilities. Does not include restricted cash held as collateral for issuing bank partner transactions. Funding debt includes partner synthetic participations and is reduced by the deferred debt issuance costs. 3. Residual Value of Loans Secured by Funding Debt is calculated as Net Loans plus restricted cash, as defined above, for loans funded in asset-backed revolving debt and asset-backed securitization facilities less funding debt. 130

131 Liquidity Strategy Current equity position and leverage potential enables significant runway to fund loan growth Strategies to Increase Leverage: Reduce 100% equity-funded mix Execute warehouse B-Notes Securitize more frequently Other Levers to Enhance Liquidity: Increase Marketplace mix Draw on corporate debt Slow OpEx growth 131

132 Resilient Model Topics Managing credit performance in a downturn Funding future balance sheet growth Access to capital in a downturn 132

133 Hybrid Funding Model Focus on diversity and stability allows us to navigate a variety of market conditions Loans Under Management By Funding Source $MM $982 $890 Broadening Investor Breadth Warehouses $572 $233 12/31/13 12/31/14 12/31/15 3/31/16 Warehouse Securitization 100% Equity Funded Marketplace Marketplace Model Balance Sheet Model Securitization Insurance companies Credit funds OnDeck Marketplace Hedge Funds BDCs Note: We refer to credit ratings because they can impact our availability and cost of funds. Credit ratings are opinions of the relevant rating agency, are not recommendations to buy, sell or hold any securities and can be changed or withdrawn at any time. 133

134 On-Balance Sheet Capacity Investor depth and diversity provides sufficient capacity to fund growth Principal Paid Down in Period $MM Total Funding Debt Borrowing Capacity 2 $MM $1,134 $1,286 $645 $791 $100 Additional Capacity Since Q1 $706 $488 $ Q1'16 (Annualized) 1 12/31/14 12/31/15 3/31/16 Funding Debt Outstanding Excess Capacity 1. Annualization is based on business days assuming 252 business days per year, which is weekdays per year less U.S. Federal Reserve Bank holidays. 2. Subject to borrowing conditions. 134

135 Financial Covenants for Funding Debt Each of OnDeck s credit facilities has various financial and portfolio performance covenants The most restrictive financial covenants, measured on the last day of each fiscal quarter, are as follows: Covenant Description Test Value 1 Q1 16 Value 3 Tangible Net Worth Generally, total stockholders equity, convertible indebtedness and warranty liability less intangible assets and amounts due to OnDeck from affiliates. $100MM minimum 2 $316MM Leverage Ratio Generally, a ratio of (1) consolidated total debt, excluding subordinated and convertible indebtedness; to (2) total stockholders equity, subordinated and convertible indebtedness, and warranty liability. 6 : 1 maximum 1.5 : 1 Consolidated Liquidity Unrestricted Cash Generally, the sum of unrestricted cash and cash equivalents, aggregate amount of unused and available credit commitments under credit facilities, and the amount in credit facility reserve account. $30MM minimum $202MM 4 Generally, a measure of the unrestricted cash and cash equivalents. $20MM minimum $137MM Portfolio performance covenants vary, but generally include requirements that applicable pools not exceed certain delinquency rates 1. Financial covenants determined on a consolidated basis for OnDeck and its subsidiaries. 2. Tangible Net Worth shall not be less than (i) until June 30, 2016, $100M; (ii) from September 30, 2016 until (and including) December 31, 2016, $100M + (.25*2015 consolidated net income); and (iii) for March 31, 2017, $100M + (.25*2015 consolidated net income) + (.25*2016 consolidated net income) 3. Rounded to nearest million, where applicable. 4. For purposes of this summary, the Q1 16 consolidated liquidity value does not include the amount in the reserve account for any credit facility. 135

136 OnDeck s Recent Securitization Recent $250MM securitization executed at attractive terms despite difficult market conditions Issuer Closed Amount OnDeck Asset Securitization Trust II LLC May-16 $250MM Series Notes Securitization Execution: Well received, attractive pricing Duration 2 Years 1 Avg. Advance Rate 91% 2 Numerous repeat investors Broadened loan eligibility criteria Rating Agencies 3 S&P / DBRS Avg. Coupon 4.8% Avg. Minimum Yield 38% (from 45% in prior securitization) We expect to securitize more frequently going forward 1. Two year revolving period (until April 30, 2018), followed by a two year amortization period with final maturity occurring in May. 2. Calculated to take into account required overcollateralization and, if applicable, subordination, for the Series Notes. 3. We refer to credit ratings because they can impact our availability and cost of funds. Credit ratings are opinions of the relevant rating agency, are not recommendations to buy, sell or hold any securities and can be changed or withdrawn at any time. 136

137 Access to Securitization Market Despite reduced volumes, markets remained open for select asset classes in 2008 and beyond Securitization Issuance 1 $B $240 $238 Securitization issuance declined, but funding was still available $124 $130 $90 $106 $174 $ Equipment Credit Card Student Loan Auto 1. Includes Auto, Student Loan, Credit Card and Equipment Securitizations. Source: Thomson Reuters, Bloomberg Finance LP, Deutsche Bank. 137

138 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 Unique Funding Advantages 50% OnDeck Excess Spreads vs Credit Cards 1 Excess spreads relative to certain other asset classes Short asset duration lowers capital requirements 45% 40% 35% 30% 25% 20% 15% 10% OnDeck (3 Months Rolling) Private Label Credit Card Bank Credit Card 5% 0% 1. Source: S&P and company data. Excess spread defined as interest income less charge-offs, net of recoveries, less fees as a percent of average Unpaid Principal Balance, then annualized. Data for OnDeck is based upon performance of OnDeck Asset Securitization Trust LLC in connection with its Series transaction, OnDeck s first asset-backed securitization transaction. During May 2016, OnDeck optionally prepaid in full the Series Notes and terminated such asset-backed securitization facility and issued Series Notes through a new asset-backed securitization facility. 138

139 OnDeck Marketplace Marketplace still an important element of our funding strategy Strategic benefits include: Greater diversification of investor base Flexibility over risk levels and capital deployed 2016 Strategy: Leverage resiliency of funding model and fund more loans on balance sheet Likely to be on lower end of 15-25% range in near term 139

140 Resilient Model Summary Numerous early warning indicators Multiple levers to manage risk given real-time monitoring abilities Diversified and durable funding model with considerable portfolio spreads Additional available liquidity to fund future loan growth 140

141 Today s Topics 1 Resilient Model Product designed with unique safety features Flexible funding model. Attractive asset class for investors 2 Path to Profitability Cumulative net return from recent vintages exceeding operating expenses Natural operating leverage as Loans Under Management grows 3 Steady-State Operating Targets $3 Billion Loans Under Management 16-18% NIM After Credit Losses 10-12% Adjusted Expense Ratio 5-7% Adjusted Operating Yield Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 141

142 Financial Priorities Driving Improved Operating Performance by: Quality LUM Growth Disciplined Risk- Adjusted Pricing Responsibly growing loans under management Optimizing risk-adjusted spreads Operating Leverage Driving operating leverage through disciplined investment 142

143 Refresh: How We Make Money Gross Revenues Cost of Revenues Operating Expenses Sales & Marketing Primarily Interest Income Losses Funding Costs Technology & Analytics Processing & Servicing = Operating Income General & Administrative GAAP P&L results impacted by: Growing provision expense as on-balance sheet portfolio grows Timing of marketing and processing expenses relative to recognition of income Marketplace mix dynamics 143

144 Positive Returns on Recent Loan Vintages Recent cohort returns pacing above breakeven despite increased OpEx investment Total Operating Expense (Ex. SBC) $MM $150 Cumulative Net Return 1 Relative to Operating Expense (Ex. SBC) 137% 106% $78 100% Breakeven 73% $ % of Initial UPB Outstanding % 2% 27% 1. Cumulative Net Return defined as interest collected net of write-offs, recoveries, funding costs and net deferred origination costs through March 31, Cumulative Net Return for each cohort reflects all term loan and line of credit originations, regardless of funding source, including loans sold through OnDeck Marketplace or held for sale on our balance sheet. 144

145 Additional Metrics for Evaluating Performance Why? Provide investors with additional metrics to evaluate performance, independent of funding strategy Provide more visibility into key metrics management uses to operate business Improve comparability vs. other lending companies What these metrics are: Supplemental non-gaap metrics (NOT replacements for existing GAAP and non-gaap metrics) Yield-based metrics, based on outstandings, that describe key drivers of scale and operating leverage Key assumptions: 100% of loans are balance sheet funded (no Marketplace) Net Charge-offs used to risk-adjust net interest margin (not provision expense) Caveats: We still intend to run a Marketplace business (in a rational way) We will continue to prioritize and guide on Gross Revenue and Adjusted EBITDA financial targets Please read appendix for important information and limitations regarding these non-gaap metrics 145

146 Additional Metrics for Evaluating Performance Net Interest Margin After Credit Losses Adjusted Expense Ratio = Adjusted Operating Yield Interest Income Funding Cost Operating Expense Net Charge-offs Stock-based Comp. (SBC) Net Interest Income After Credit Losses Average Interest Earning Assets 1 Operating Expense (Ex. SBC) Average LUM Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Note: Net Interest Margin After Credit Losses, Adjusted Expense Ratio and Adjusted Operating Yield are annualized metrics. Annualization is based on business days assuming 252 business days per year, which is weekdays per year less U.S. Federal Reserve Bank holidays. 1. Average Interest Earning Assets includes the amount of principal outstanding of loans held for investment and held for sale. Average calculated based on the beginning of the period and as of the end of each month in the period. 146

147 Benefits of Metrics Net Interest Margin After Credit Losses Adjusted Expense Ratio = Adjusted Operating Yield Describes earnings potential (spread) of loan book Comparable to reported metrics of other finance companies Describes efficiency of operating expense base relative to LUM Should correlate with a more traditional efficiency ratio when funding mix stabilizes Describes potential operating income of LUM at scale and with no Marketplace Proxy for Return on Assets (ROA) of LUM Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. 147

148 Historical Performance: Maintaining Attractive Yields Net Interest Margin After Credit Losses Adjusted Expense Ratio Adjusted Operating Yield 30% 26% 23% 19% 20% 20% 21% 18% 6% 2% (1%) Q1' Q1'16 (7%) Q1'16 Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. 148

149 Today s Topics 1 Resilient Model Product designed with unique safety features Flexible funding model. Attractive asset class for investors 2 Path to Profitability Cumulative net return from recent vintages exceeding operating expenses Natural operating leverage as Loans Under Management grows 3 Steady-State Operating Targets $3 Billion Loans Under Management 16-18% NIM After Credit Losses 10-12% Adjusted Expense Ratio 5-7% Adjusted Operating Yield Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 149

150 Steady-State Operating Targets Q1 16 Steady-State Loans Under Management $0.6 Billion $0.9 Billion $1.0 Billion $3 Billion NIM After Credit Losses 26% 19% 20% 16 18% Adjusted Expense Ratio 20% 21% 18% 10 12% Adjusted Operating Yield 6% (1%) 2% 5 7% Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 150

151 Loans Under Management Growth Drivers OnDeck s diversified origination channels to drive future LUM growth Loans Under Management $MM $572 $890 $982 Key Drivers Increased industry adoption and awareness Direct and Strategic Platform channel growth Repeat loan and Line of Credit cross-sell growth New channels (accountants, small banks, etc.) $233 Analytics and technology-driven product enhancements 12/31/13 12/31/14 12/31/15 3/31/16 151

152 Net Interest Margin After Credit Losses Focus on stable pricing and improved losses to drive steady-state outlook Net Interest Margin After Credit Losses 43% 40% 35% Key Drivers Channel and product mix stabilization Pricing engine optimization 23% 26% 19% 16 18% Enhancements in OnDeck Score and other models Investment in collections and recovery capabilities More seasoned securitization track record Steady-State Net Interest Margin After Credit Losses Effective Interest Yield 1 Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 1. Effective Interest Yield, or EIY, uses Average Loans, which includes net deferred origination costs, in the denominator of the calculation. Net Interest Margin After Credit Losses uses Average Interest Earning Assets, which does not include net deferred origination costs, in the denominator. 152

153 Operating Expense Summary Economies of scale in G&A and T&A complement S&M and P&S efficiencies to drive leverage Adjusted Expense Ratio Key Drivers 30.4% 2015 growth costs mostly behind us (builds for ODaaS, International, public company costs, etc.) 19.8% 20.7% Natural economies of scale in T&A and G&A as LUM grows 10 12% Originations growth from repeat customers and increased brand awareness over time Data-driven decisions on CAC and operational efficiency Steady-State Continued investments in automation and productivity Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 153

154 Sales & Marketing CAC optimization and increasing repeat originations to drive marketing efficiencies Sales & Marketing (Ex. SBC) / Average LUM 12.4% Key Drivers Marketing efficiencies driven by: 8.3% 7.9% Continued optimization of acquisition models Increased repeat usage and cross-sell % Increased industry and company awareness (leverage brand) Continuing productivity increases per salesperson Economies of scale in marketing team Steady-State Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 154

155 Technology & Analytics Scaled Technology & Analytics team create leverage across the company Technology & Analytics (Ex. SBC) / Average LUM Key Drivers Natural economies of scale as LUM grows 6.0% 4.3% 5.6% Many 2015 investments transitioning from Build to Support/Extract phase (ODaaS, International, Security, etc.) % Team depth and breadth mostly scaled now to support growth Extensible platform for new products and new ODaaS partners Steady-State Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 155

156 Processing & Servicing Improvements in automation and productivity to further enhance operating leverage Processing & Servicing (Ex. SBC) / Average LUM 3.8% Key Drivers Productivity gains from increased automation to underwriting process 2.1% 1.7% Enhanced productivity tools for P&S employees More self-service functionality for customers Lower data costs as volumes scale % Steady-State Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 156

157 General & Administrative G&A function largely scaled to meet steady-state company needs General & Administrative (Ex. SBC) / Average LUM 8.3% Key Drivers Significant economies of scale as LUM grows 5.1% 5.5% Finance, People Operations, and Legal teams largely scaled Absorption of public company costs largely complete % Steady-State Productivity gains to internal processes driven by technology investments Expect reduced provisions for unfunded LOC commitments as we scale Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 157

158 OnDeck as a Service: Illustrative Long-Term Opportunity 1 Key Assumptions: Assumes multiple bank partners at scale Numbers represent long-term revenue potential. Revenue contribution in 2016 expected to be immaterial ODaaS Originations 2 $B ODaaS Gross Revenue at 3.5% Take-Rate 3 $MM $3.0 $105 $2.0 $70 $1.0 $35 20,000 40,000 60,000 ODaaS Units Originated Per Year $1.0B $2.0B $3.0B Annual ODaaS Originations 1. The foregoing tables are for illustrative purposes only. Actual performance may vary and those variations may be material. 2. Assumes $50,000 average funded amount per unit. 3. Assumes 3.5% Take-Rate. Take-Rate represents gross revenue (origination and servicing fees) as a percent of originations and is for illustrative purposes only. Actual Take-Rate may vary, and those variations may be material, with direct corresponding impacts on our gross revenue opportunity. 158

159 Illustrative Steady-State P&L at $3B LUM and no Marketplace Key Assumptions: $3B of Loans Under Management 100% balance sheet-funded (no Marketplace) Provision expense equals net charge-offs Other Revenue excluded Steady-state Targets 1 Illustrative Midpoint ($MM) Percent of Gross Revenue Marketplace Impact Interest Income 29-31% EIY 2 $900 93% Gain on Sale $ - 0% ODaaS Revenue $2B Annual Originations $70 7% No impact Gross Revenue $ % Net Revenues 16-18% LUM + ODaaS $580 60% Depends 3 OpEx, net of SBC 10-12% LUM $330 34% No impact Operating Income 5-7% LUM + ODaaS $250 26% Depends 3 1. Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 2. Analysis based on outstanding principal balance. Effective Interest Yield, or EIY, uses Average Loans, which includes net deferred origination costs, in the denominator of the calculation. Net Interest Margin After Credit Losses uses Average Interest Earning Assets, which does not include net deferred origination costs, in the denominator. 3. Impact is a function of the Marketplace Gain on Sale Rate and relative economics to retaining loans as well as in-period changes to the Marketplace mix. In a steady state with a stable Marketplace mix, Marketplace sales executed near the economic indifference point will result in slightly lower net revenues and operating income than the 100% balance sheet-funded model in a steady-state. 159

160 2016 and 2017 Financial Objectives Reiterating 2Q16 and FY 2016 guidance Pricing to stabilize through 2017, but with higher funding costs 4Q17 Financial Targets NIM After Credit Losses 15 17% Adjusted Operating Yield improvement to be driven by increased operating leverage Managing to positive Adjusted EBITDA in 2017 Adjusted Expense Ratio Adjusted Operating Yield 13 15% 1 3% Note: See appendix for definitions of non-gaap measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics. 160

161 Key Takeaways Structural product protections, dynamic portfolio management, and hybrid funding strategy provide resiliency through uncertain conditions Well-capitalized with additional available capacity to fund growth Growing responsibly, prioritizing credit performance and operating efficiencies Future operating expense growth won t look like Build phase primarily complete, enabling significant economies of scale Poised for growth and profitability as LUM scales, spreads stabilize, and operating leverage is realized 161

162 Conclusion Noah Breslow, CEO

163 What We Covered Today Topic Sales & Marketing OnDeck Advantage Increased brand awareness and data-driven acquisition / retention strategies will enhance customer lifetime value while increasing marketing efficiency Data, Analytics and Credit Scoring Proprietary database and models yield accretive insights as our learning advantage compounds, resulting in high-quality growth and improved credit decisions Technology Scaled, enterprise-grade lending platform will drive operating leverage, while enabling OnDeck as a Service business with major institutions Products & Channels Wide product suite and sophisticated multi-channel distribution is hard to replicate, and gives OnDeck superior access to the fragmented SMB market Regulation Multi-pronged, adaptable regulatory strategy with a pure SMB focus provides optionality and stability as industry regulations coalesce Finance & Capital Markets Resilient, scalable funding model and near-term operating leverage provide a path to profitability with attractive returns on equity 163

164 Business Strategy Recap 100% focused on leadership in Small Business lending Lifetime SMB relationship Widest range of offerings Diverse distribution Total Credit Solution Technology- Powered Simplicity Tremendous Service Data / technology leadership Trusted SMB Lending Platform Platform partnerships 164

165 Financial Strategy Recap Build operating leverage and resiliency as the scale player in Small Business lending Grow LUM responsibly Optimize spreads Attractive Product Economics & Structure Resilient Hybrid Funding Model Operating Scale Show OpEx leverage Add/diversify funding Stable Credit Performance Real-time portfolio mgmt 165

166 Path to $3B of Loans Under Management Grow the core business responsibly, while pursuing close adjacencies that leverage our platform Brand and direct marketing Product expansion Strategic partnerships Lifetime customer relationships Credit scoring and analytics International markets 166

167 OnDeck Competitive Advantages Reinforce With Scale There is a learning loop in our business that is expensive and time-consuming to replicate Collect performance data Build / improve small business dataset Over $4B deployed, with outcomes known quickly relative to others Only player tracking universe of SMBs Make more loans Better target and retain customers Scoring increasingly driven by internal data Partnerships accelerate learning Expand capital access Improve credit models Newer entrants operate far from the efficient frontier, limiting effectiveness 167