The Startups: Who’s shaking things up (Week ending February 7, 2016)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming newsletters.[/alert]

Startups raising/Investors investing

TradeRocket inks deal with Hitachi Capital America to fund $2 billion for mid-market financial supply chain (PRNewswire)
Hitachi Capital intends to supply $2 billion this year for TradeRocket’s supply chain financing platform which allows buyers to attain up to $5m of funding.

Credibly secures $70 million credit facility led by SunTrust Bank (VentureBeat)
An online lending platform that delivers a broad range of short- and long-term capital to satisfy the SMB credit spectrum, Credibly has provided access to capital for more than 4,500 businesses.

Rocket Internet’s Spotcap raises €31.5m to lend to small businesses (TechCrunch)
Spotcap intends to use the funds to expand its operations globally and to finance its online business lending activities in Spain, the Netherlands, and Australia.

Simplex raises $7m for credit card Bitcoin buying service (CoinDesk)
Simplex CEO Nimrod Lehavi said that the company enables faster purchases of bitcoin via credit card, while at the same time reducing the consequences of fraud for businesses, such as exchanges or brokerages, that offer the service.

Revolut passes $200m in transactions; closes $4.8m seed round (Finextra)
Revolut, the MasterCard-connected Global Money App, today announces it has closed its seed round adding Index Ventures as an investor.

Dopay, payroll for the unbanked, raises $2.5 million in pre-Series A round (PEHub)
From the PR: dopay is committed to transforming the lives of the unbanked and their employers by breaking the cash cycle through a payroll and cash management platform for companies, and by offering a full mobile banking experience for consumers

The Startups: Who’s shaking things up

How a Snapchat roboadvisor could rock the industry (Wealth Management Today)
Social media messaging service Snapchat is rumored to be building a roboadvisor service of its own. Could this be a serious option for 100 million active users?

How Payoff is shifting the conversation about consumer debt to financial wellness (Tradestreaming)
Payoff seems to be genuinely interested in helping its clients find their way out of debt and start saving. Pretty weird for a company that extends credit.

Opportunities in the risk business abound as insurance ready for disruption (TechCrunch)
From TechCrunch: “At a time when nearly every product category has been reimagined by a higher quality digital successor — the insurance industry and customer have been left in the dust.”

Navigating the fintech investment landscape (Wharton Fintech)
Nikhil Srivastava interviews Atul Joshi, a Wharton alumnus and managing partner of the family office Raga Partners, about fintech investment.

Ten reasons why fintech startups fail (CB Insights)
Pascal Bouvier, venture partner with Santander InnoVentures, lays down the law and explains who will win and who won’t.

BlackRock’s FutureAdvisor collaborating with RBC Wealth Management (Finovate)
The U.S. branch of RBC Wealth Management is launching a pilot program called RBC Investor Gateway that offers clients a digital advice option powered by FutureAdvisor

Blockstream partners with PwC for blockchain push (American Banker)
PricewaterhouseCoopers has partnered with blockchain technology company Blockstream to bring distributed-ledger and smart-contract technology to its clients

The most interesting challenger bank you’ve never heard of (Huy Nguyen Trieu)
From zero to 200,000 accounts in less than 2 years, this startup bank is trying to do what Easyjet and Ryanair did to airlines…

Lendvo’s Benjamin Lichtman wants to lend you money based on the value of your website

online lending

Benjamin Lichtman is co-founder of Lendvo.

What is Lendvo and where did you get the inspiration to start it from?

Benjamin LIchtman, Lendvo
Benjamin Lichtman, Lendvo

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 CapitalLike 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 AcquisitionSmall 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.

The future of online lending: 13 top business lenders

list of the best online lenders

When JP Morgan announced it would begin offering loans to its small business clients via a partnership with a fintech startup, the market took notice. Instead of building its own online lending offering, the biggest US bank chose to partner with OnDeck, whose stock price spiked almost 30% upon the announcement. Those following what’s happening in online lending have witnessed billions of dollars of debt and equity that’s poured into the space over the past couple of years.

In the wake of the financial crisis of 2008, banks have tightened lending criteria and that’s provided an opportunity for technology and service startups to step in. In the aggregate, though these firms have enabled billions of dollars of lending to small businesses over the past few years, they’re merely a speck on the entire map of lending, paling in comparison to their offline competitors.

These startups have generally taken 2 different approaches:

  1. marketplace lending: Popularized in the consumer space, companies like Lending Club have created vast marketplaces of lenders and borrowers. While Lending Club has entered into the SMB lending space, there are other pureplays like Lending Circle that have made SMB lending their bread and butter.
  2. balance sheet lenders: these companies aren’t acting as brokers but actually underwrite their own loans to SMB borrowers. It gets a little more complicated as institutional lenders like Victory Park provide lending facilities to these online lenders. Whether they’re lending out their own equity or someone else’s cash, balance sheet lenders are assuming the underwriting risk.

Here’s a good breakdown of the space by Orchard Platform, which built and services some of the underlying marketplace lending technology for the platforms and the institutional lenders participating in this form of credit.

 

Orchard Platform's map of online lending

As we’ve seen in the robo-advisory space, the online lending marketplace appears to be splitting into two:

  1. pureplay startups that are taking incumbent banks head on competitively
  2. companies that provide enabling technology to the existing banking infrastructure to work with banks to develop their own online lending offerings

Most of the lending that’s happening online is unsecured. There is a growing focus on invoice financing and there’s been a lot of interest on creative solutions that provide more security than plain vanilla credit.

Companies like PayPal and Amazon are lending to merchants on their platforms as all payments run through their shopping charts. As startups and incumbents invest more in the online lending space, ecommerce companies have an interesting role to play in the industry. In this market, everyone can be an online lender.

The market opportunity is vast and growing quickly. Online SMB lending was about $9B in 2015 and expected to rise to over $80B by 2020, according to Intuit. New technology promises to make capital more inclusive, streamline to process for assessing creditworthiness, and to cutdown on the paperwork and waiting time typical of traditional lending.

Here are the top online small and medium business lenders that should be on your radar.

[podcast] Funding Circle’s Sam Hodges on scaling growth by navigating globally

funding circle on podcast talking about global growth

Online lending is enjoying its moment. New platforms are launching monthly and raising hundreds of millions of dollars in debt and equity in a race to redefine how we borrow and from whom. And it’s not just a US phenomenon — it’s happening globally.

Sam Hedges, co-founder Funding Circle USA
Sam Hodges, Funding Circle

Starting 5 years ago, Funding Circle was an early player in this marketplace lending space and has emerged as a leader servicing SMBs. The firm is originating $100 million in SMB loans every month and since inception has lent $1.7 billion to 12,000 businesses. The company was quick to expand internationally — with strong footholds in Western Europe and the US. The company is exclusively focused on providing finance to small business owners worldwide. Institutional lenders are looking to deploy capital across markets and Funding Circle is enjoying scale advantages from this exposure.

Sam Hodges, the co-founder of Funding Circle USA, joins us on the Tradestreaming Podcast to discuss the challenges he and his company successfully navigated in growing the business globally and how he’s planning to continue growing out into the next year.

Listen to the FULL episode


What you’ll hear on this podcast:

  • How Funding Circle is leveraging its sole focus on lending to SMBs
  • The challenges of taking a fintech company global early on and why, for Funding Circle, it makes all the difference
  • How Sam and the rest of the Funding Circle team overcame these challenges
  • How institutional lenders turn to firms like Funding Circle to help deploy capital across markets
  • How Funding Circle prioritizes entering new markets and how the company sizes up these opportunities

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