Sramana: What has been the financing structure of your business? Where does the capital come from, and how did you put the pieces together to create this business?
Marc Gorlin: It has been different at different times. In many ways it was harder to raise our first $25,000 than it was to raise our last $30 million. You have to go out there and make your story one that people can understand. People in the venture community are used to seeing slide decks, and they all start to look the same. You have to sell a story.
Our first slide deck was full of bullet points and looked like every other deck out there. Our next one had pictures and told the story from the perspective of our customers. You can immediately see the differences in their faces. Yes, you need a short elevator pitch, but you must make sure it is tight. We made ours very simple. Small businesses need cash and nobody is out there helping them get access to it. There is a lot of data about those small businesses that other people ignore, and we know how to use it.
Our first two million dollars we did as a convertible note, which converted into a Series A led by BlueRun Ventures. Our Series B was for $17 million and was led by Mohr Davidow Ventures. Our most recent round was for $30 million led by Thomvest Ventures.
We started out with a convertible note. You don’t know what your company is worth when you are starting out. You want to make sure early friends and family investors get a good deal, and one of the best ways to do that is to not set a price until you get a deal. That makes a convertible note the ideal strategy.
Sramana: Is the money you loan out based on the equity that you have on your balance sheet?
Marc Gorlin: No. We raise both equity and debt. Some of the money we advance is from our equity, but that is a very expensive way to finance the advance money. We raise debt rounds for that purpose. We started with a small debt round from Silicon Valley Bank and we moved on from that. We currently have a line from WTI. You will probably see us adding larger lines on the debt line in the future.
Sramana: What level of debt are you qualified to raise?
Marc Gorlin: Currently we have debt from WTI and UPS Capital. WTI is a venture debt firm, so they are not a standard bank with criteria. We have met whatever criteria they have. Our portfolios have performed quite well.
Sramana: How much money do you have in play at the moment?
Marc Gorlin: We have advances in the multiple tens of millions of dollars at the moment.
Sramana: What does the competitive landscape look like? Legislation has not kicked in yet for crowd financing, but we have seen a lot of donor funding. As an industry observer who does online financing for small business, what interesting trends do you see?
Marc Gorlin: The biggest one is the one that you are pointing to. There are more options out there. Most people go to banks and get turned down and then turned to family or credit cards. Over time, people have used those, but when you do that on your business you bring your credit score down, which makes it harder to get true business financing. All the crowd funding and lending club models are good for the consumer side. If you are going to see it for small businesses, then you are going to see new and improved business data models.
Everybody talks about big data. We are actually giving people more cash if they link in their Facebook and Twitter accounts. The biggest trend of peer-to-peer funding is going to have to revolve around data. You need to get more data and interpret it faster. Banks are going to get with it as well. They need someone to come in with an instant underwriting process. When banks figure that out, they can reach out with a new product to all the small businesses all over the country and make money off that product.