Posted on Wednesday, Dec 6th 2017
According to FT Partners, the FinTech market saw a record 412 financial deals during the third quarter of 2017. One of the largest deals in the quarter involved a $250 million investment by Softbank in Billion Dollar Unicorn Kabbage.
Atlanta-based Kabbage was founded in 2008 by Kathryn Petralia, Rob Frohweins, and Marc Gorlin whom I had interviewed a few years ago. They pioneered the financial services data and technology platform to provide funding to small businesses almost instantly. Unlike traditional banks and moneylenders that rely on detailed financial business models, credit scores, and paperwork, Kabbage uses machine learning algorithms and takes into account data generated through business activity including seller channels, social media, and shipping data to analyze business performance. Kabbage does not call itself a lender, but a provider of merchant cash and working capital advances.
Based on these parameters, businesses can secure approved credit lines ranging from $2000 to $150,000 within 10 minutes of the application process. Businesses can then borrow any amount once a day and pay interest on these borrowed amounts at borrowing fees that range from 1.5%-10% per month. Loans are instantly available for periods up to 6 months and 1 year with no penalty for early repayment. Kabbage also offers iOS- and Android-based apps that let users borrow funds on the go. It employs about 380 people.
Till now, Kabbage has lent $3.5 billion in funding to over 125,000 small businesses in the US. It recently expanded its credit facility or its funds for loans to $750 million with the help of a new $200 million revolving credit facility from Credit Suisse. Its competitors include On Deck and Capital Access Network.
Kabbage generates revenue from the fees on the loans. It expects revenue of over $200 million in 2017, roughly double the revenue in 2015. It claims to have a loss rate lower than the rest of the industry and that its direct lending business had turned profitable in the fourth quarter of 2016. It expected the whole business to be profitable in the second half of this year.
Kabbage has so far raised $490 million in equity funding from BlueRun Ventures, H. Barton Asset Management, Intelligent Systems, Lumia Capital, Mellon Group, Mohr Davidow Ventures, SoftBank Group, SV Angel, TCW/Craton, Thomvest Ventures, TriplePoint Capital, UPS Strategic Enterprise Fund, Victory Park Capital, and Western Technology Investment. Softbank invested $250 million in Kabbage in August this year at an estimated valuation of about $1.3 billion. In an earlier round in October 2015, it had raised $135 million at a reported valuation of $1 billion.
Kabbage plans to use the funds for expansion into Asia and build new products like insurance and payroll services. It will also be positioning the company for a possible IPO.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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