There are at least two reasons why online lender Elevate Credit delayed its IPO.
The first is obvious: No company will risk going public in a tanking stock market.
But for Elevate there's an added challenge. The company provides financial services to "nonprime consumers," a segment of the market seen as particularly vulnerable in an economic downturn.
Elevate, spun out of Think Finance and backed by Sequoia Capital, had filed to raise up to $79 million in an offering slated for this week. With the Nasdaq Composite down 11 percent in January and headed for its worst month since 2008, delaying any IPO in this market is considered a no-brainer.
"Although the response to the marketing of our planned IPO has been very favorable, we recognize that the current market volatility makes it very difficult to price our offering at present," said CEO Ken Rees in a statement.
Data storage vendor Nutanix is on file to go public in what would be a much bigger and more high-profile offering. Venture capitalist Charles Moldow of Foundation Capital said in an interview with CNBC that there's no way Nutanix (or any company) would try to tap the market at this point.
"I think they wait for the market to stabilize," said Moldow, whose firm is not an investor in Elevate or Nutanix. "Right now I don't think anyone would be thinking about going on a roadshow to try and sell stock."
But at least Nutanix is selling products to help companies deal with the deluge of heavy-duty data entering their data centers. Elevate, by contrast, is selling into the teeth of the credit market.
Elevate's core product is an online alternative to a payday loan. By using technology to power underwriting, Elevate is able to perform better due diligence than traditional offline lenders and offer cheaper credit than what's otherwise available to its customer base.
Still, these are consumers who are, for the most part, one missed paycheck away from potential default. Short-term loans in the U.S. range from $500 to $5,000.
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Net charge-offs represent about 50 percent of Elevate's revenue, meaning for every $1 it generates in revenue, almost 50 cents of it goes to cover loans gone bad.
In the first nine months of 2015, revenue jumped 67 percent from the prior year to $300.3 million. Elevate recorded charge-offs of $143.2 million and an additional provision for loan losses of $17.9 million. That all resulted in a net loss of $20.2 million.
The company has a built-in margin of error, but it's tight. As stated in the risk factors section of its prospectus:
"Because of the nonprime nature of our customers, we have historically experienced a high rate of net charge-offs as a percentage of revenues, and our ability to price appropriately in response to this and other factors is essential."
It's been a tough ride for other newly public online lenders.
As of Wednesday's close, LendingClub was trading 47 percent below its IPO price from Dec. 2014, even though it's serving prime borrowers. OnDeck, which provides Web-based business loans, has plunged 61 percent from its debut price the same month.
LendingClub and OnDeck shares
Furthermore, Elevate faces regulatory risk as the Consumer Financial Protection Bureau (CFPB) seeks to cap interest rates charged to borrowers. Elevate's two U.S. products carry average annualized interest rates of 88 percent and 176 percent, according to the prospectus.
The CFPB is currently considering rules that would restrict the use of loans with rates exceeding 36 percent. State regulators have the authority to actually cap the rates.
"If these laws are widely adapted, they would undercut revenues significantly," according to a recent report from the Website Seeking Alpha.
Clarification: This story has been updated to say that states have the authority to cap rates on consumer loans.