Beta Test: Exploring an Improved Allocation Process

Enhancing Your Investment Experience with a Focus on Transparency and Fair Access

At Percent, we’re constantly innovating to provide the best possible experience for our investors. We’re excited to announce that we’re beta testing a new allocation process designed to better align investment allocations with investor demand and capital availability. This experimental process will be implemented exclusively in our upcoming Wall Street Funding (WSF) deal, WSF SMB Financing Sr. 2024-7, one of our most popular offerings.

By conducting this beta test, we aim to:

1. Evaluate the effectiveness of a new allocation method in a real-world scenario.
2. Gather valuable feedback from our investors on the proposed changes.
3. Explore ways to potentially improve the fairness and efficiency of our investment process.

Why Wall Street Funding?

We’ve chosen to beta test this new process with WSF for several reasons:

• WSF has a strong track record on our platform, with 39 previous deals raising over $169M and a weighted average APY of 16.62%.
• The popularity of WSF deals (with more than 10,000 orders placed) provides us with a robust data set to evaluate the effectiveness of this new process.

How the New Allocation Process Works

Please note that this allocation process is currently being tested only for WSF SMB Financing Sr. 2024-7. The process for other deals on the platform remains unchanged at this time.

To help you understand these changes, here’s a comparison between our current process and the new beta process:

The new allocation tiers are:

• Below Clearing Rate: Investors who bid below the clearing rate will receive their full requested allocation at the clearing rate, unless the clearing rate is set at the lowest bid. In that case, all orders at this rate will be prorated, with the exception of orders from PBNs and BBNs.
• At Clearing Rate: Investors who bid at the clearing rate will be allocated proportionally based on the remaining available capital.
• Above Clearing Rate: Investors who bid above the clearing rate will not receive an allocation.

*Please note that Percent Blended Notes (PBNs) and Bespoke Blended Notes (BBNs) will continue to receive priority allocation into deals, including during this beta test. This priority remains unchanged from the current allocation process.

Example: From Order Book to Individual Allocations

Let’s walk through a detailed example to illustrate how this new process works. Imagine a $500,000 deal with the following order book:

After the deal’s syndication period, the clearing rate is set at 16%. Here’s how the allocation would work:

1. All bids at 14% and 15% ($300,000 total) receive full allocation and will receive the clearing rate of 16%.
2. The remaining $200,000 is prorated among the $400,000 in bids at 16%.
3. Bids at 17% receive no allocation.

Here’s a breakdown of allocations:

Now, let’s take a look at how this affects individual investors:

This example demonstrates how the new allocation process benefits investors who bid at lower rates while still allowing for proportional allocation at the clearing rate.

Note: All investors who receive an allocation will earn the clearing rate APY, regardless of their initial bid. This ensures fairness and transparency in the allocation process.

Benefits for Investors

This new allocation process offers several advantages for you as an investor:

• Rewards Strategic Bidding:  While you won’t know the exact clearing rate in advance, this process encourages strategic bidding within the given APY range. By carefully considering your desired return and the potential demand for the deal, you can position yourself for a higher likelihood of receiving a full allocation.
• Fairer Access to High-Demand Deals: The proportional allocation at the clearing rate ensures that even in highly competitive deals, investors have a chance to participate, promoting broader access to investment opportunities.
• More Transparent Price Discovery: This process fosters a more transparent price discovery mechanism, allowing the market to determine the most accurate interest rate based on investor demand and borrower needs.
• Potential for Improved Deal Quality: By encouraging more competitive bidding, this system may incentivize originators to bring higher-quality deals to the platform, potentially leading to better investment opportunities for you in the long term.

What’s Next?

We believe this experimental allocation process has the potential to lead to a more efficient and equitable investment experience. However, we want to hear from you! Your feedback during this beta test is crucial and will help us determine whether to implement these changes for future deals across the platform.

We encourage you to:

• Participate in the upcoming Wall Street Funding deal to experience the new process firsthand.
• Pay attention to how the new allocation method affects your investment strategy and results.
• Share your thoughts, experiences, and suggestions with us at support@percent.com.

Remember, this is currently a test limited to WSF SMB Financing Sr. 2024-7. Your input will play a significant role in shaping the future of our allocation process at Percent.

Frequently Asked Questions

How does this new allocation process affect my chances of getting into a deal? 

The new process may increase your chances of getting a full allocation if you bid competitively (i.e., at lower APYs). However, if you consistently bid at higher APYs, you might find it more challenging to receive allocations. We encourage you to consider bidding strategies that balance your desired returns with the likelihood of receiving an allocation.

WIll this new process result in lower overall returns for investors? 

Not necessarily. While the process might encourage more competitive bidding, it’s designed to find a fair market rate that balances investor returns with borrower needs. The potential for full allocations at lower APYs could result in more consistent returns over time, even if individual deal APYs might be slightly lower in some cases.

What happens if I always bid at the highest APY in the range? 

If you consistently bid at the highest APY, you may find yourself receiving fewer allocations under this new system. The process is designed to reward more competitive bidding, so you might want to consider adjusting your strategy to bid at lower APYs for deals you’re particularly interested in.

How does this new process benefit me as an investor? 

This process aims to provide several benefits, including fairer access to popular deals, more transparent price discovery, and the potential for improved deal quality over time. It also rewards strategic bidding, which could lead to more consistent participation in deals.

Will this new allocation process be implemented for all future deals on Percent? 

Currently, this is a beta test limited to the upcoming Wall Street Funding deal. We’ll be carefully evaluating the results and gathering investor feedback before making any decisions about wider implementation. Your input during this test phase will be crucial in shaping our future allocation processes.

How can I provide feedback on my experience with this new allocation process? 

We welcome your feedback! After participating in the Wall Street Funding deal, please send your thoughts, experiences, and suggestions to support@percent.com. Your input will play a significant role in our evaluation of this new process.

Does this new process change anything about the risk profile of the investments? 

The new allocation process doesn’t directly affect the risk profile of the investments. All deals on Percent, including this Wall Street Funding opportunity, should be evaluated based on their individual merits and risk factors. As always, we encourage investors to conduct their own due diligence and consider their risk tolerance before investing.

Disclaimer: Alternative investments are speculative and possess a high level of risk. No assurance can be given that investors will receive a return of their capital. Those investors who cannot afford to lose their entire investment should not invest. Investments in private placements are highly illiquid and those investors who cannot hold an investment for an indefinite term should not invest. Private credit investments may be complex investments and they are subject to default risk.