Hadoop and Crowd-based Lending: What We've Learned from Last Week's Tech IPOs

Phil Haslett
Nov 17th, 2014
Last week was an active one for Tech IPOs:
The IPOs shed some light on two tech sectors that we should be seeing some continuing activity in: Hadoop vendors, and web-based lending businesses.

Hadoop-related Big Data
HortonWorks is the first of three large tech companies, which use Hadoop. to go public. The other two are MapR Technologies and Cloudera. Cloudera has the benefit of receiving a $700 million investment from Intel, and can probably wait longer to IPO. Additionally, they claim to have the most paying clients (600), compared to only 300 clients for HortonWorks. MapR previously shared their intentions to go public by 2015.

I got a little ahead of myself. A lot of you are probably asking what Hadoop is. Apache Hadoop (its full name), is an open-source software (meaning that it's free to use) used for big data storage and analysis. MapR, Cloudera and HortonWorks all offer software layered on top of Hadoop that makes it easy to use and apply for the end-user. The end-users are typically large enterprises that are struggling to store and make sense of their massive amounts of data. How massive? Apparently,Yahoo! has 455 petabytes stored in Hadoop.

Web-based Lenders
OnDeck is paving the way for a number of other web-based lenders, though it's not the first to file for an IPO: Peer-to-peer (P2P) lending platform LendingClub will trade under the ticker symbol LC on the NYSE by the end of the year. Others in the pipeline include P2P platform Prosper and Social Finance (known as SoFi), which focuses on student debt refinancing. Earlier stage lenders are focusing on more niche verticals, such as Kabbage (short-term small business loans) and Common Bond (graduate student loans).

So why have online debt platforms like OnDeck grown so much faster than the equity crowdfunding platforms? It comes down to three things: product understanding, investment duration, and market size. Most investors, either retail or institution, are familiar with debt in some form; a mortgage, a credit card, and a student loan are all debt products that the average person has encountered. Additionally, debt is a financial instrument that returns capital much faster than equity in most cases. For instance, lenders on LendingClub likely receive their first interest payments within months of committing capital. Compare that to the typical angel investment, which takes an average of nine years to reach maturity. And lastly, there's a lot more debt out there than equity:

Worldwide stock market capitalization: $54 trillion
Worldwide debt outstanding: $158 trillion

What to watch for
On the heels of these three IPOs, here's what investors can expect to see in the coming months:
With the exception of TubeMogul, publicly traded AdTech stocks are down over 30% in 2014. (Source: Google Finance)

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