Getting started: Resources for Goldfinch due diligence and underwriting
What Borrowers on Goldfinch provide for due diligence documentation, and how to access materials for your underwriting
There are four key ways to conduct due diligence on Borrower Pool opportunities:
- Conducting research on the Borrower using both public resources and Goldfinch Borrower profiles
- Reviewing the in-depth dataroom provided by Borrowers, accessible through the Goldfinch dapp
- Joining the Borrower’s private two-way messaging channel and asking questions of the Borrower directly, or asking questions of other community members
- Post-investment, joining the Borrower Communications channels to access regular reporting, investor relations, private two-way communication channels with other investors, and to continue engaging with the Borrower
Launching a Borrower Pool on Goldfinch is like proposing a “term sheet” to the network’s Backers, who evaluate individual deals and determine whether or not to supply USDC to them. The amount a Borrower can borrow is a combination of how much Backers choose to supply after conducting due diligence, combined with the correlated amount of senior tranche capital the Senior Pool then allocates.
This means that when a Borrower proposes a Borrower Pool to the protocol it does not guarantee the deal’s terms will be accepted; Borrowers need to convince potential Backers to supply junior tranche capital to the Pool. Senior Pool Liquidity Providers may conduct Borrower Pool-specific analysis as well to evaluate the health of their overall Senior Pool exposure. So, what resources are available to conduct this due diligence?
Flight Academy: getting started with credit analysis
If you want to begin learning more in-depth about the basics of credit deal evaluation, including the core concepts behind how to evaluate collateral and covenants (part of the “4 C’s” of credit analysis), you can follow the Goldfinch Flight Academy series to get started. Of course, every participant must make their own participation decisions based on their expertise, personal research, goals, and risk appetite.
Researching Goldfinch’s Borrowers
Currently, Goldfinch’s Borrowers are established credit funds and fintechs with proven track records in emerging markets. Goldfinch Investors can begin researching a Borrower via public sources when they launch a new pool, or even when they’re first added to the Goldfinch Borrower Pool Pipeline. Anyone can sign up for Backer Update emails to get alerts when Pools are launching, along with links to access the due diligence resources covered in this article.
All of this early research can contribute to a first evaluation of capacity and character, along with informing other factors of your risk evaluation.
Before proposing a Pool to the protocol all Goldfinch Borrowers publish a Borrower profile in the Goldfinch governance forum.
Goldfinch Borrower profiles are public resources that provide key information to begin due diligence evaluation, including:
- A summary of the Borrower’s fund, goals, and business model
- Key highlights of the Borrower’s operation, such as the regions they operate in, metrics on their past deals and portfolio evaluation traction, successes of their portfolio companies, large partnerships, and other notable value propositions
- An overview of the leadership team and their experience
- What the Borrower’s focus area is (“What we do”)
- An overview of the Borrower’s traction and accomplishments (“What we’ve done”)
- An overview of the Borrower’s key strategy (“How we do it”)
Borrower profiles provide condensed, essential information for kicking off informed due diligence. While not specific to any one of a Borrower’s Pools, these resources help to evaluate the Borrower’s legitimacy, its business model, and its track record.
Once a Borrower Pool has been launched for Backer participation, anyone can access the Pool’s core terms such as interest rate, repayment time, Senior Pool leverage ratio, and more, in the Goldfinch dapp.
Dataroom for robust due diligence
Borrowers are required to launch a dataroom for due diligence when proposing a Borrower Pool to the network. Most datarooms require Investors to sign an NDA for access, given the sensitivity of the information contained.
At a minimum, a Borrower’s dataroom should include:
- An overview speaking to the Borrower’s historical performance
- Material speaking to the performance of their portfolio/end borrowers
- Transaction structure for the Borrower Pool, and a security overview document explaining how security will work in the instance of a default
- Agreements the Borrower has in place with their portfolio/end borrowers
- Deal-specific documentation for the proposed Pool, including term sheets, loan agreements, security agreements, and any other transaction documentation deemed necessary.
Examples of common documentation found in a Borrower’s dataroom include full overviews of portfolio company performance — including investment strategies, financial overviews, projections, and historical performance — underwriting and servicing overviews, offering documents, LLC agreements, investor presentations, FAQs, and more.
The information included in Borrowers’ datarooms is intended to be cohesive and robust enough to meet stringent Investor underwriting standards. If you have feedback on additional types of information for future datarooms, please let the community know in the Goldfinch Discord.
Discuss with the Borrower and other Investors
In tandem with the Pool’s dataroom Borrowers also launch a two-way messaging channel for potential Investors who have signed the dataroom NDA — generally hosted on Telegram or Discord.
- In the communication channel, potential Investors can ask questions of the Borrower, find clarification on the diligence information provided, or request additional information from the Borrower.
- Importantly, potential Investors can also communicate with each other via these channels. Negotiations can take place between the Investors and the Borrower, and Borrowers can review the questions asked by others in order to help continue their own due diligence.
Some Borrowers also choose to host an AMA with the community to allow for an open discussion around their performance and plans, choose to engage in marketing the Pool, or take other measures to reach an Investor audience as they please. However, these are not considered requirements for proposing a Pool.
With in-depth public information condensed into easily accessible resources, channels accessible for disseminating protected investor diligence documentation, and avenues for Borrowers and Investors to communicate directly while the Pool is open for participation, Backers and other Investors can access the information they need to conduct adequate due diligence.
Post-investment Borrower Communication tooling
Standardized channels for more efficient communication between active Investors and Borrowers on the protocol were launched to enable Borrowers to share critical continued performance reporting, updates on their pools, and to communicate directly with Investors.
This new Borrower Communications tooling, first of its kind to use web3 solutions for investor reporting, provides increased transparency for active Goldfinch Investors by providing access to:
- Trusted, secure, real-time communication channels between Borrowers and Investors
- Accessible way for Borrowers to fulfill any and all obligatory Investor Reporting requirements, creating easier inroads to access the reporting that exists in their off-chain documents and agreements
- More effective channels for Investors to securely communicate with one another, unlocking enhanced collective bargaining power
Dual information channels were launched for this new tooling:
- A token-gated Discord channel managed by the Goldfinch community, where the Borrower can communicate with Investors (both Backers and Senior Pool LPs) to provide updates
- A password-gated Dataroom, managed by the Borrower in line with what their existing real-world agreements require, to post all necessary documents that Borrowers are obliged to provide as part of their off-chain legal agreements with Investors for continued compliance, reporting, and evaluation.
Backers who are actively involved in a Borrower’s Pool, or Senior Pool Liquidity Providers who hold more than 10k FIDU (minimum Senior Pool exposure to ensure adequate ‘skin in the game’ to protect Borrowers’ proprietary strategic information — see documentation for more information) can access these new post-deal channels in three easy steps.
You can learn more about these channels and how to access them in the launch announcement, or follow the step-by-step guide to access them in the Goldfinch documentation.
Ready to get started as an Investor on the protocol? Peruse open Pools on the app, follow the step-by-step guide in the documentation, and begin by registering your Unique Identity NFT for verification (UID).
Still looking to learn more about Goldfinch first? Read the protocol overview to explore how Goldfinch works, subscribe to the weekly Community Updates for the latest on the Goldfinch network, and join the community on Discord to continue learning.