Sramana: What did you do after VerticalOne?
Marc Gorlin: I went back to the recruiting firm I had, and I also helped a bunch of startups in the interim. I also looked at deals in Atlanta for some investors as well. It was a good time to focus on family and real estate and do some consulting. When it comes to a deal, I think it is important to find something that is world changing with the right timing.
Sramana: What is the genesis of Kabbage?
Marc Gorlin: There are three of us who co-founded Kabbage.com: Rob Frohwein, Kathryn Petralia, and me. When I got together with Rob, he was kicking around an idea for what ultimately became Kabbage. I thought it was a great idea, and even more important, it was the right idea for the time. Everyone was running for the exits and there was nobody left to finance small businesses and help them grow. There was also an emergence of data on the web about these businesses.
eBay had just bought Bill Me Later, which provided credit for consumers. They were providing credit for people buying depreciating assets and you could see into the data to understand how their businesses were run. It was much stronger than being a bank that has to wait 90 days for a quarter to end to determine what the financials are.
Sramana: This particular aspect of financing is tremendously interesting to us, particularly given what we do. We have done some stories on debt capital. We also work with Silicon Valley Bank. Let’s go granular about the start of Kabbage.
Marc Gorlin: We started talking in the fall of 2008. We decided to press forward with the company in December 2008. We put together the business plan and figured out what we had to do to get the company funded and running.
Sramana: Was your intention to finance small businesses that had visibility into their pipelines?
Marc Gorlin: We are not a lender, we provide merchant cash advances or working capital to small businesses that had been seen only as a credit score by big banks. Banks didn’t bother taking the time to understand the businesses and we were able to use all of the data that was out there to work with online small businesses. Over time, we have been able to move into offline businesses as well.
Sramana: What was the structure of the working capital funding?
Marc Gorlin: Merchant cash advance is like forward factoring. You see merchant cash advance in the offline world when working with restaurants and dry cleaners. If you know that someone is doing $25,000 a month on their credit card processing fees, then you will go ahead and give them $40,000 for a new roof and will take the payments from those credit card processing fees. We do similar things with PayPal and their bank accounts. We look at their volume and then automatically take payments out. It is not a loan product.
Sramana: What does a small business need to do to apply for your service?
Marc Gorlin: The great thing about the process that I am about to describe is that you can go to our site, go through the process and have cash in as little as 7 minutes. You can’t cash a check at the bank that fast.
You land on our site and you pick channels in which you might sell like eBay or Amazon. We do that for anyone who sells on Yahoo Stores, takes payments with PayPal, uses Etsy or Shopify. We let people come to the site and enter their information and credentials for their eBay account and for their payment account. We verify the status through the technology that eBay provides to allow folks to use that data. We then ask for their business and personal information. We pull a credit report and combine it with the other data, and within 7 minutes we tell you how much cash we are willing to offer you.
If you decide to take the cash, then there are a few more clicks to go through. You decide how much cash you want to take and you sign up for the billing agreement. Within seconds, you have the money in your PayPal account.