On Deck Adds $17M From Google Ventures And Peter Thiel To Help Small Businesses Connect With Capital

Posted: May 7, 2013 in eCommerce, Finance, Funding & Exits, Startup, Technology
Tags: , , , ,

20130507-230630.jpg Because there are so many small businesses out
there on Main Street that don’t have access to the
same juicy venture capital rounds that seem pervade
today’s tech industry, On Deck set out in 2007 to
provide mom-and-pop business owners with an easy
way to secure the capital they need to grow their businesses. Using data aggregation and electronic
payment technology, On Deck aims to simplify the
borrowing process for small businesses by offering
them a fast, online alternative to the traditional old
bank loan. The startup’s alternative approach to lending and
evaluating the creditworthiness of SMBs has seen it
deploy over $450 million in loans and allowed it to
raise $100 million in credit facility from Goldman
Sachs and others in 2012. After declining offers from
British online lender Wonga that were reportedly as high as $250 million, On Deck raised $42 million in
series D financing in February, led by IVP, with
contributions from its existing investors, SAP
Ventures, RRE Ventures and First Round Capital. As a result of the round, IVP General Partner Sandy
Miller joined the startup’s board. Miller has been
involved in over 100 tech IPOs over his career, which
we surmised at the time could well be a signal of On
Deck’s future intentions. This, combined with its
growing credit line and traction, appears to have investors lining up at the startup’s door. Today, On Deck announced that it will be expanding
its Series D financing with $17 million in new capital,
raised from a lineup of familiar names. The round was
led by Google Ventures, with participation from
PayPal co-founder, education contrarian and prolific
investor, Peter Thiel and Industry Ventures. This brings the startup’s total Series D to $59 million and
brings its total capital raised to date to $100 million. The company says that the new infusion of capital
will be used to support its growth, particularly by
allowing it to ramp up hiring and product development.
In the big picture, says CEO Noah Breslow, On Deck
wants to power every U.S. small business loan and
help make on-demand capital a reality for the five million businesses with 25 employees or less in the
U.S. — a segment of the economy relied on for 40
percent of its jobs. However, as we wrote in February, On Deck’s road
forward (to IPO) isn’t necessarily going to be a walk in
the park, thanks to competition from startups like
Kabbage, which are looking to make it easier for
online merchants to raise loans, and big players like
Amazon have been moving into the lending game as well. Not to mention that companies like Capital Access
Network have been bringing loans to small
businesses since 1998 and have deployed nearly $3
billion to SMBs thus far. It also has raised big money,
$30 million from Accel for example, and has secured
even heftier credit lines from Goldman Sachs and Wells Fargo — nearly $300 million. So, On Deck isn’t without competition in the SMB
lending space; but, that being said, the market
opportunity and the demand for capital is significant
enough that there seems to be plenty of room for
more than one sizable lender. As mentioned above,
there are millions of small businesses in the U.S., most of which will look to borrow at some point in
their development and, all told, are pretty underserved
when it comes to access to secure, short-term
lending. Main Street businesses are used to turning to banks
when looking for business loans, but traditionally,
banks have relied on personal credit scores to
evaluate the creditworthiness of their business. While
business owners may have perfectly legitimate, high-
growth businesses in the making, they don’t always have the kind of personal credit scores that make
them attractive borrowers for banks. By providing banks with infrastructure that allows
them to evaluate electronic performance data and pull
up a credit score for the businesses rather than the
owner, On Deck’s model aims to streamline the
application and negotiation processes, adding value
to both sides of the equation. Or at least that’s the idea. To add some credence to this proposition, Breslow
tells us that it is this streamlining of the application
process (which takes about 15 minutes, he says) is a
large part of the reason that On Deck was able to
increase its “repeat customer base” by 34 percent in
2012. Making on-demand, short-term lending a reality for the
millions of small businesses in the U.S. is a tall order,
but having Google Ventures and Peter Thiel on board
certainly doesn’t hurt.


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