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Industry Profile – Val Katayev

ValK-profile-square

Managing Partner, Prime Meridian Capital Management

A serial entrepreneur, Val Katayev started his first tech company while in high school in Queens, NY. Since then, Katayev has founded and sold several successful startups, mainly around the ad-tech and digital media space, generating over $100M through profits and exits. Katayev parlayed his success building companies into now mainly investing in them — both as an equity investor in platforms such as SoFi, but more so as a large buyer of loans across an increasing number of platforms in his role as Managing Partner of Prime Meridian.

In 2006, at the ripe young age of 24 but years of operating a very profitable company, Katayev found himself sitting on a large sum of money in the bank and wanting to put it to work. Around the same time, he had learned about a new lending platform called Prosper — then a sort of “Ebay for loans.” When Prosper began, it utilized a variable rate auction-style model, where the rate a borrower would receive was determined by the corresponding demand to fund that loan. “It was revolutionary,” says Katayev, whose interest was piqued by the notion that he could act as a bank and lend borrowers money while the platform would take care of the operational and servicing components. “Prosper 1.0 was like the wild wild west,” he says. “There wasn’t any automation — basically, people would write these short stories about why they needed the money,” he says. Nonetheless, Katayev instantly saw the platform’s potential and wired over $150,000, not realizing until later that he was one of Prosper’s first lenders (he still has the account to prove it).  Less than two years after Katayev funded his first loan on Prosper, the financial crisis reared its ugly head putting the platform, and others like it, to the test rather quickly. Katayev notes that while origination wasn’t nearly as strong as it is today, he didn’t lose any money during that time period and even came out slightly ahead — an experience he recently described in detail in a TechCrunch article titled P2P Lending Is Profitable, Even In A Recession. “I’m one of the few people in the industry that has actually seen a full credit cycle in marketplace lending,” he says.

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[Funding one of the first marketplace loans in US history, on Prosper]

After emerging from the financial crisis unscathed, Katayev was convinced not only that marketplace lending was the future, but also that it was worthy of substantial investment. “After selling my company, I called up Prosper wanting to put a large amount of money on the platform. However, they said that they couldn’t handle that type of volume directly at that time and suggested that I go through a fund manager instead,” he says.  At the recommendation of several leading platforms, he reached out to Don Davis, an experienced investment manager who had recently launched one of the first funds dedicated to marketplace lending — Prime Meridian Capital Management. Katayev placed an investment with the Prime Meridian Income Fund, an unlevered consumer strategy. Shortly thereafter, he began allocating additional capital to Davis as he continued to produce consistent returns and expanded his offering to include a small business fund. “As opposed to investing on a platform directly, a fund offers a much superior structure — better liquidity, a dedicated management team, and a lot more diversity,” says Katayev. Eventually, his relationship with Davis became so entrenched and effective that in a joint venture they decided to launch Poise Lending Fund, a levered strategy designed to produce higher returns. It would soon be prudent to merge their respective funds and for Katayev to take a more active role in managing the overall firm going forward. Speaking broadly about Prime Meridian and their vision for the future, Katayev says their goal is to “build a full service financial firm around this asset class, using these new lending technologies and making sure we have a number of different categories covered.”  To that point, they recently privately launched a real estate lending fund, another first of its kind.

Across the four funds, Prime Meridian now manages over $100M with an additional $200M in commitments. “The most important thing to us is not returns, but stability. We treat the money in our fund like it’s our money – because a lot of it is,” says Katayev.  Few investors, if any, have witnessed the industry grow up in the way that Katayev has over the past 10 years granting him a truly unique perspective. From the early days when “p2p lending was this funky startup thing” to present day where we’re seeing increasing adoption amongst institutional investors and a permanent generational shift in the approach to finance, Katayev has experienced it — and he has the track record to prove it.