Small businesses in general – and small online sellers in particular – have a difficult time obtaining loans from traditional sources. Now online services – and even online marketplace Amazon.com – are getting into the business themselves to help merchants fund and grow their operations.
Kabbage was founded in 2009 to provide working capital advances with a twist – it uses automated data sources to underwrite its business customers. And today, the company announced $30 million in Series C financing, bringing the equity it has received to $56 million.
Kabbage uses marketplace transaction history (eBay, Amazon, Yahoo Stores, Etsy, Magento and Shopify) as well as PayPal history (including merchants who host their own ecommerce website), UPS shipping information, customer traffic and reviews, seller ratings and even social networking data to determine merchants’ real-time business performance.
Kabbage co-founder and Chairman Marc Gorlin said merchants generally use the funding for one of a few things:
- Buying more inventory or driving better pricing, volume or terms on inventory;
- Hiring seasonal help;
- Upgrading technology and equipment;
- Marketing and advertising.
Gorlin said Kabbage has over 60,000 accounts and are growing at a rate of nearly 20% a month. The company has extended over 30,000 advances and says it now fuels over $800 million in annual sales for its small-business customers.
How successful is the model?
Gorlin said small businesses are highly capital constrained. “Once a business starts using Kabbage, we see a big jump in their annual revenues where on average their annual revenues increase 266% from one year before to one year after they started using Kabbage. So it is very exciting to see that by providing working capital to these small businesses, we are directly impacting their ability to grow.”
Kabbage competes with other services, such as Capital Access Network, which itself raised $30 million in February. And Amazon has also gotten into the merchant-funding game through “Amazon Lending by Amazon Capital Services, Inc.”
Amazon did not respond to our requests for more information about its program, but Gorlin said Amazon lending is only available to its own Amazon.com merchants.
“Kabbage is platform agnostic – we support sellers and small businesses anywhere,” Kabbage’s Gorlin said. “Amazon’s solution is deeply tied in to only their own marketplace – they consider your account in default if you stop selling on Amazon.” He also said Amazon Lending is not available in all 50 states and said it is pursuing a state licensing program so it would take them some time to have broad coverage. “Kabbage provides fast and easy access to funding that is available in your account within 7 minutes of applying, whereas Amazon takes 5 days,” according to Gorlin.
Kabbage will use its funding to “further advance its powerful technology and data platform, expand partnerships, and continue to position Kabbage as the fastest growing small business finance company.”
The financing was led by Thomvest Ventures, the venture capital arm of Peter Thomson, Founder and Managing Director of Thomvest Ventures and a director of Thomson Reuters. All major existing investors, including UPS Strategic Enterprise Fund, Mohr Davidow Ventures, BlueRun Ventures, Warren Stephens and David Bonderman participated in the round. In addition, Ron Conway’s SV Angel also recently invested in the company.
