Building ethical alternative financing in a big bank world

Nuno Brito Jorge is the founder & CEO of GoParity, an online peer to peer (P2P) lending platform that simplifies investment by offering the opportunity to get competitive returns in sustainable projects, from a very low initial investment. They want to drive the transition towards a more sustainable and inclusive economic system and make investments in sustainable solutions accessible to all.

We had such an interesting conversation about their mission to become an ethical bank, on how the platform actually works and on how they’re building a sustainable business.

This Impact Shakers Talk is part of a joint effort with Maze X, to promote the impact ecosystem and its entrepreneurs.

What is the change you want to realise with GoParity?

When I lived abroad, I learned about ethical banking and became a customer of Triodos. On my return to Portugal in 2009, there was no ethical alternative and the world was at peak banking crisis, clearly showing the flaws of our regular banking system. I had no choice but to open an account at a regular bank which means you have no idea what they do with your money, you have no control whatsoever over the investments they make with it, and you have no idea if they are creating any value with the money you put at their disposal.

The goal or the principle of a bank should be to keep your money safe and lend it to people that have a good need for it. Banks keep a share of the profit and pay you back with interest. I believe we should go back to this basic principle of banking and make sure that you can choose to use it for good and that is the opportunity we want to provide with GoParity.

At this point, I had some savings and wanted to make them work for good. I talked to some friends and we found a place to start a first solar power project. It was just over 35 000 euros, but we didn’t have enough money to start, so we asked family and friends if anybody wanted to join in and lend us some money to get the company off the ground. It was actually easier than expected to get the money together. We offered a 4–5% interest rate and that’s the first time we thought, okay, there might be a business model here and this idea continued to develop.

Since there was no crowdfunding framework in Portugal, we decided to start Copernicus, a cooperative which is still a successful independent electricity supplier. When the crowdfunding framework finally arrived, I asked those same friends to launch a business multiplying our idea. They preferred to continue with the original solar power company, bought me out and I found new co-founders to start GoParity!

You’re working on changing both sides of financing, on the one hand, you’re changing how sustainable projects can fundraise and on the other hand, you’re changing who can invest in sustainable projects.

Our core idea is to be accessible for everyone, that’s why our minimum investment is 20 euro. We chose GoParity as our name because the goal is to provide parity of access to investment opportunities, to financial inclusion, and at the same time parity is a term used in energy, meaning the moment when you can generate your own electricity as cheaply as you can purchase it from an external provider.

I actually don’t think that having the minimum as low as 20 euros, works entirely in our favor. It gives people with bigger budgets the idea that this might not be for them, but our mission is to democratize the opportunity of investment and that’s why we are sticking to this minimum.

Our core idea is to be accessible for everyone, that’s why our minimum investment is 20 euro.

Our community of investors is very diversified. We have a lot of people between 25 and 35 years old that invest smaller amounts in almost every project. Regarding gender diversity, around 20% are women, we have been trying to understand why and we dedicated our first impact bulletin to women in finance, we invited targeted women investors but it’s only slowly improving. You’d expect a higher number in the impact, non-profit, social entrepreneurship but I guess in the financial world we are still not there.

In order to select great sustainable projects, we subject all of them to triple due diligence:

• Financial due diligence
• Technical due diligence
• Impact evaluation

We even created our own impact framework based on three different monitoring/impact reporting methods. All projects need to be in line with sustainable development goals to be eligible for our platform. With each project we also calculate the number of trees and co2 that will be saved, which is actually the easiest part. Furthermore, we use a set of other impact kpi’s ranging from gender equality to liters of water saved, and of course the number of qualitative jobs it generates.

One of our most recent projects is in Eswatini (former Swaziland). It’s a project that tackles a lot of different issues because the main goal of the project is to provide renewable energy for a hospital. In Eswatini, they have to deal with huge electricity stability issues and they need to use back up generators all the time. With this project we’ll create solar power and biomass to generate electricity and hot water for the hospital and provide them with stability and cheaper energy. The production facilities will be run by a cooperative of 10 women who are being trained and will get steady employment. In this project we can definitely measure the number of local jobs created, gender diversity and CO2 clean electricity equivalent planted trees.

What is your vision for the future?

The dream is still the same it was when we started: to become an ethical bank. In our road map, every user in GoParity will soon get their proper bank account number, your own IBAN linked to your GoParity account, we already launched an automated investment feature and later in the fall different saving features will follow. Next, we’ll focus on free money transfers between users and eventually integrate this with payment systems.

The dream is still the same it was when we started: to become an ethical bank.

I’m personally very excited to provide an innovative risk-sharing scheme where you get a return depending on the performance of the project itself. Let’s say you lend money to a vegan shoe factory, you will receive more money back, the more shoes they sell. If for some reason they sell less than expected, you’re not gonna make that much money, but you’re helping the company survive or go through any specific struggle.

About the platform

How much regulation do you need to deal with?

That’s the beauty of fintech, we can actually provide you the same basic services a bank can without being a bank. There are a lot of open banking platforms and open banking startups that will provide you with their license to operate with and they deal with the necessary compliance. We are currently regulated by the Portuguese Securities Exchange Commission and we have a crowdlending license that allows us to operate EU wide with regard to investors as well as to projects. What it doesn’t allow us to do is advertise investments outside of Portugal. In 2021 there will be a new framework in Europe that will finally harmonize crowdfunding which will give us more freedom to operate.

That’s the beauty of Fintech, we can actually provide you the same basic services a bank can without being a bank.

How do you manage risks?

We don’t take projects that are considered to be moderate to high risk, and we always keep the assets as collateral for the loan, so if you lend money through GoParity and the company eventually we lend it to ends up bankrupt, whatever money is made by selling the assets can only be used to pay you.

We also collect the monthly payments directly from the project owner’s bank account and we always keep one month as a pre-payment, so let’s say you ask for 1000 euros, GoParity will give you 900. In the first month, you have to pay 100 to your investors. This means that the first time you fail a payment, we still have 30 days of the reserve to work with you on solving that issue and make sure you don’t fail your investors. Out of 38 companies and 45 projects, we haven’t had any bankruptcy yet, we only had one company that failed a payment and this was because of the coronavirus crisis.

Did COVID 19 impact your investments?

Covid has had some impact but it was actually quite exciting because even before the emergency state was declared, we were one of the first startups in Portugal to have our team work remotely the minute we realised there was something serious coming. We talked to other startups and 25 of us implemented mandatory remote and sent out a press release inviting other startups and other SMEs to do the same. From that, the ‘Tech4Covid movement’ started and we launched the first fundraising campaign in Portugal for hospital equipment. For three weeks seven out of ten people were only working on that, we designed a new platform, created new integrated user experience payment methods and we raised 218 000 euro in three weeks in donations and only closed the fundraising because we realised the big players were stepping in (TVs and large utilities) and realised our role was played.

Our regular business in the meantime, took a bit of a hit until the end of April, mid-May and then more people started investing again and June ended up as our best month ever.

Regarding our projects, we were also quite proactive, because the moment we realised the economy was going to freeze, we talked to every project owner on the platform and we designed this common framework for everybody to operate in. We proposed a six month grace period, meaning they would only pay interest for 6 months instead of interest + capital and we added a six-month extension of the loan. We also contacted the investors because even though we are authorised to act on behalf of them according to our terms and conditions, we decided to ask for permission and the beautiful part is that we got over 95 percent of acceptance and people actually replied back with beautiful messages like “of course, we’re all in this together”.

This also revealed the potential of the B2B market, because we realise we also want to offer corporates the opportunity to decide how to manage their money. I believe we can be a tool for companies to materialise their CSR and sustainability policies by investing in projects that are in line with the sdg’s they formally want to address.

About the company

What would you do differently starting over?

You make a lot of mistakes along the way. Maybe our biggest mistake is not to have listened to people that made big mistakes before. You always think you know better, that you’re not going to make the same mistakes but actually you do. One of them was to take too long to start.

Something that I learned by being an entrepreneur is you just start by starting, with or without the framework. Start what you want to start and then you deal with it.

Since we’re operating in such a regulated area, we decided not to start, which I still regret, because we lost a lot of first movers advantage this way.

Another important point of attention is choosing the right type of investors, as in your actual shareholders. Sometimes you share the same goal, but you don’t share the same values and that makes a huge difference in the long term. We’ve been talking mostly to impact investors, but we’ve already had a couple of discussions in which we realised that talking about impact as a regular VC is somewhat contradictory. You want to invest in impact but you’re mostly committed to do whatever it takes to multiply your company’s worth from one to one hundred in three years which is crazy because sustainability doesn’t work like that. So you need to choose very carefully and it’s hard to find patient capital in the market.

What does your team look like? Do you have a lot of financial profiles?

We have engineers, we have psychologists, we have an actress, we have people that have changed careers completely, and of course, we have the founders, two engineers and one financial guy but we are the boring part of the team :)

An important learning was that it’s not really about the skills, but more about motivation, what you like to do and who you are. Our people should be completely aligned on values and mission, always willing to learn more and to go the extra mile. We have a lot of young people in our team, everyone is highly resourceful, in a way that even when they don’t know something, you’ll get this answer ‘just give me one or two days and I will learn how to do that’ or ‘let me test and fail a couple of times and then we’ll get there’, it’s been really interesting.

What is your business model?

We make money in two ways. We have a success fee, we take a fee from the money that you have raised. It ranges from 2.5 to 5% depending on the size of the project. On top of this, we have a management fee that is lower, typically 1%, and applies throughout the duration of the loan and only on the outstanding debt. This means that if you are borrowing money at five percent a year, you’ll actually be paying six percent: five percent to the lenders and one percent to the platform. We do this because it’s long term revenue and it’s more sustainable for our business instead of charging higher upfront fees. We decided to spread it over the duration of the loans and to finance our operations: we are state of the art when it comes to all the integrations and features that we have with the financial authorities and contracting and all the back-end operations that we have so that’s what the management fee is used for.

GoParity offers a special discount code of 10 euro to Impact Shakers (SHAKERS10) to start with impact investing.

Want to learn about alternative financing for your business? Join the Impact Shakers ‘Alternative Fundraising’ course which kicks off Nov 9th!