Archive for the ‘Finance’ Category

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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20130507-230405.jpg Building new infrastructure for digital payments may
not sound sexy, but it’s an area that’s ripe for
innovation. The legacy payments networks in
existence today are bogged down with outdated
technology, slowing progress. Des Moines-based
Dwolla decided that the way to innovate in payments was to essentially blow up the
outdated infrastructure entirely and start over by
building out a new network from scratch. Today, that
work has scored the company $16.5 million in new
funding, in a Series C led by Andreessen Horowitz.
The company’s previous investors, Village Ventures, Thrive Capital, and Union Square Ventures also
participated in the round. Dwolla is sometimes confused as an alternative to
PayPal – and though it may compete with PayPal
more directly on some initiatives, like MassPay which
undercuts PayPal’s fees on a service business’ use
in lieu of writing checks – that’s only a result of the
new payments infrastructure the company has built, not the entire vision in and of itself. Last year, for instance, Dwolla launched a number of
new products that are helping propel the business to
the next level, including not only its own mass
payments service, but also FiSync, a real-time
alternative to ACH payments, plus a partnership with
the state of Iowa to process an initial $130 million in taxes, and a partnership with mobile banking and
payments service provider mFoundry, which put the
service in front of that company’s more than 800 bank
and credit union partners interested in offering real-
time, peer-to-peer payments to their own customers. Today, Dwolla’s annual transaction processing run
rate has topped a billion dollars; the company has
grown at 15 percent month-over-month to reach a
quarter-million account holders up from 80,000 in
early 2012, and it has brought on more than 100 large
customers, including both enterprise and government. But getting to this point was not easy. Explains CEO Ben Milne, the company found that
some things it tried worked better than others. For
example, trying to disrupt payments with a consumer-
facing product has been tough. “We found that retail is a really hard place to convert
users in terms of getting them to pay with another
payment form,” Milne admits. Along these lines, the
company had launched various efforts both online and
offline to encourage consumers to pay using Dwolla
instead of traditional means like cash, checks or credit cards. While Dwolla’s efforts here continue
today, they haven’t been the areas of growth which
led to this new investment. “A lot of the volume we’ve seen is in one-to-many
relationships, and basically those are more check
replacements than credit card or debit card
payments,” says Milne. On this front, the company
doesn’t have new relationships or partnerships to
announce today, but hints that there are several in the works as the additional funding has been earmarked
in particular to grow out the startup’s business
development and relationship teams to service larger
customers. “These deals take a long time, and they require a lot
of attention…they don’t work at the speed of small
startup companies. They’re big, established
companies,” Milne explains. “This round is about not
screwing up the opportunity that we have. It doesn’t
really matter if we were first to market with a lot of this new technology – it matters that we have the
opportunity to be the first to market and the first to
scale.” The startup is now working with payroll companies
and governments, among others — the latter initially
in its home state, where Iowa Governor Terry
Branstad announced in early 2013 that government
officials would explore ways to use the service to
collect property taxes, issue refunds, pay contractors, and renew vehicle registrations. But while Dwolla’s
system works well for these large customers, it also
works for smaller ones, too, including manufacturers
who need to pay vendors, an ad agency paying
consultants, or a micro-
consulting platform paying thousands of people, for example. “A16z makes bets on companies that change the
underlying fabric of their markets and, like Facebook,
Twitter, and GitHub, we think Dwolla is going to do it
in the banking world,” said Scott Weiss, Partner at
Andreessen Horowitz and new Dwolla board member,
in a statement about the investment. “The fact that Dwolla’s network can simultaneously meet the needs
of a complex enterprise or government, while allowing
a parent to pay the babysitter with her phone, reflects
just how simple and strikingly different this solution is
in the marketplace.” In addition to growing the engineering team, as well
as those needed to support its larger customers,
Dwolla is also expanding to its fifth office location,
San Francisco, where it has already been interviewing
and hiring ahead of the opening in June. (The
company already has staff in Des Moines, New York, Omaha, and Kansas City.) In the Bay Area, the team
will be led by Dwolla’s Chief Operating Officer,
Charise Flynn, and will be mainly focused on product
and business development and marketing. Milne says that there is still much that needs to be
done before Dwolla could really compete with a
legacy payments provider. For instance, while its
network supports payments now, a legacy provider
like Visa supports two other types of transactions, as
well: authorizations, which guarantee funds are there; and captures, which take the funds following an
authorization. Over time, Dwolla will build up support
for these types of transactions, which are still in
demand in the market. The company will also update
its mobile apps and do more to educate the
marketplace, too. But that “marketplace” may not mean consumers. “The reality is that our fundamental business is
allowing anybody with an Internet connection get
access to their money and exchange it with anybody
else they want to receive it,” Milne says. “A lot of that
adoption is going to come instead from third-party
platforms and products,” he adds. “I don’t see people going to Dwolla.com more and more – I see them
doing that less and less, while our software is
just facilitating the payments.”