#364: Nelson Chu on Digitizing Private Credit Markets

— Nelson Chu founded Cadence, a digital securitization platform that brings transparency and data infrastructure to the fragmented private credit market.

— Private credit encompasses small business lending, consumer loans, and receivable financing—a massive, opaque market growing at ~20% annually with $400 billion in uninvested capital waiting for deal sourcing and due diligence solutions.

— Cadence launched as a retail alternative investment marketplace (1–6 month notes, 8.5–15% yields, low minimums), then evolved into a SaaS platform providing lenders with daily surveillance reporting and data packaging for institutional capital access.

— The Fat Brands deal—a $40 million whole-business securitization—demonstrated Cadence's ability to fill the gap between bank-sized deals ($100M+) and crowdfunding platforms, ranking them 25th among U.S. ABS structuring agents in H1 2020.

— Real-time transaction data access (via Plaid, Stripe, Dwolla integration) enables daily portfolio monitoring, compliance verification, and rapid repricing—critical during COVID when yields shifted from 12% to 16% and back as performance stabilized.

— Default rate of ~2% (lowest in industry) reflects short-duration products, institutional-grade structuring, and founder co-investment; longer-dated competitors (3–5 years) face 15–30% defaults due to inability to detect deterioration.

— If you are an investor seeking diversification from equities, private credit via platforms like Cadence offers uncorrelated returns (8.5–15% yields) backed by daily performance data; short-duration notes (1–6 months) provide liquidity and repricing flexibility absent in traditional private markets.

— For small business owners or fintech lenders needing capital at competitive rates, the availability of institutional-grade capital sourcing through data-driven platforms eliminates the friction of fragmented markets and reduces borrowing costs as you scale.

— Monitor platforms offering real-time transaction-level transparency (bank balances, POS data, location-by-location revenue) as a due diligence edge; data latency in private credit has historically allowed deterioration to go undetected for quarters, whereas near-real-time reporting enables proactive risk management.