Benjamin Lichtman is co-founder of Lendvo.
What is Lendvo and where did you get the inspiration to start it from?
We got our first introduction into the digital business and finance worlds roughly 10 years ago when we started buying and selling domain names as a very profitable hobby. As our careers progressed, we gained more specialized experience in structured lending and internet traffic.
Over time, we developed a better understanding of both of these arenas from the perspectives of both lenders and borrowers. Like most businesses, the idea for Lendvo was birthed from a combination of need, experience, and situational awareness. We saw a digital business ecosystem, which was rapidly expanding but which was, and is still is, largely shut out of the commercial credit markets. We realized that with our own expertise in finance and online traffic, there was an opportunity in helping digital companies grow by providing specialized credit products.
Basically banks and other lenders won’t work with our typical clients because they can’t understand their business models nor value their digital assets.
Who’s your typical borrower?
Since the online business world is so diverse we don’t have any one ‘typical borrower.’ Our customers run the gamut from investors looking to buy a premium domain name to existing web businesses looking for working capital to finance advertising and inventory buys. At the most fundamental level, we look to work with any digital business that needs capital and has trouble getting it. Lendvo sees customers with different and unusual goals each day, so we pride ourselves on staying flexible with the types of customers we can work with and how to best accommodate their financing needs.
These are some of the most common ways Lendvo is currently working with digital businesses:
- The Business That Needs a Domain Name: Premium domain names are super important because customers remember them, they help bring in traffic, and indicate category relevancy and professionalism. It’s a big deal in a digital world to be associated with a premium domain name. In fact, we’ve worked with several tech startups who thought they needed a one-word brandable .com just to be able to raise venture funding.
A conventional brick and mortar businesses might look to purchase a commercial property on Park Avenue because the premium location adds a lot of value to their business model. 9 out of 10 times this kind of business would look to incorporate some level of financing, the availability of which wouldn’t be a question. For the digital business looking to operate on the Internet’s equivalent, it’s a different story entirely.
Currently, we see a lot of small and medium sized businesses (not just tech startups) looking to upgrade their domain name to a class A or B premium name. These are usually single dictionary word .com’s, or two-word combinations that are brandable and/or category defining for the customer’s business. Since premium domains commonly run anywhere from 4 to 7 figures, financing is often needed but few lenders have the underwriting confidence to provide the necessary capital.
- The Business That Needs Working Capital: Like any brick and mortar business, for online businesses, growth isn’t free. These guys require capital to scale their business or to work through periodic slowdowns. We commonly see the need for web design, app development, coding work, ad buys and search engine optimization. As with domain names, traditional financial institutions just don’t have the bandwidth and expertise to work with this client base. While the typical business lender may understand the financials, they are largely blind to the unique risks and underwriting procedures needed in the online world. These lenders are aware of their own inability to price risk and either refuse to lend to digital businesses or offer significantly inferior terms to what we can offer.
- The Investor/Webmaster: This is your classic ‘Webprenuer’ who does deals all the time. Usually this is a unique one-off deal type that helps the professional close one or several deals pending. These deals can involve, but are not limited to, both digital collateral as well as future receivables financing.
- The Web-Business Acquisition: Small web-businesses are a hot commodity and currently sell for between 1 and 5 times earnings (from a few thousand to several million dollars). Generally, these businesses are best purchased through curated brokerages like FE International or via marketplaces like Flippa. Lendvo has a good working relationship with both but also sees walk-in customers looking to conduct a private sale.
Unfortunately for both buyers and sellers, the same underwriting problems that exist for working capital loans naturally extend to purchase finance. With our understanding of financial and digital underwriting, and our added ability to collateralize digital IP, we find that we’re usually the only lender willing to work with these customers.
How do you come up with the value of a website?
First off, coming up with a value for a website and coming up with what we think is a good LTV (Loan to Value Ratio) for a website are two different things but require a similar philosophy – we’ll try to address both.
It’s worth mentioning that we don’t believe in full automation when it comes to valuation or underwriting, like some other lenders do. There are simply too many black swans in the online oceans that slip past computers for this approach. We aim for a ‘cockpit’ underwriting and valuation approach. When you get into a modern airplane, you implicitly trust a number of automated systems — specialized gauges and talented pilots — all working in conjunction to produce safe and efficient transportation. We leverage custom and third party systems that can internally score and grade digital assets, cash flows, as well as people on a number of interesting fronts. We combine that information with human analysis and end up with what we think is a pretty solid and scalable process. Essentially, we automate the aggregation and scoring of data, and couple that with a layer of human investigation and decision making. Just like modern airplanes, we combine digital tools with talented people.
How do you collateralize the assets you’re lending against?
We have the ability to actually hold, copy, and secure digital intellectual property. This, in itself, is an area of expertise that is practically impossible for most lenders to execute well on.
What’s next up in 2016 for you guys?
2016 is looking to be a hot year for us in terms of loan origination growth and business development. Our main goals are 1) to develop more B2B relationships, which can help us to grow our new customer base and, 2) to refine our product offerings so that customers can maximize value from our capital.