The word ” innovation” and “lending” are not words that we typically think of as belonging together. Other than finally offering SBA guaranteed loans, if even that, major lending institutions have pretty much symbolized the antithesis of innovative business practices despite requiring that their customers do to lend to them.
Founded in late 2008, Kabbage is capitalizing on the fact that traditional financing sources cannot easily determine risk and deploy capital to small businesses and don’t have the motivation to do so. Kabbage is changing the way online sellers, who use name brand online platforms to sell on, obtain working capital to grow their businesses. In 2009, online merchants sold more than $70 billion of merchandise on eBay, Amazon and other online marketplaces, and they are expected to sell nearly $100 billion annually by 2014. Goldman Sachs projects that within a decade, online sales will grow tenfold and more sales will be conducted online than offline (currently about six percent of all retail sales occur online).
Kabbage lends to small businesses in search of capital to invest in inventory, expand their office space, improve their online sites, and develop marketing programs to grow their business. They make lending decisions leveraging a variety of data such as UPS shipping data, ecommerce activity on Ebay, Amazon, PayPal activity, and social media sites as part of its automated risk assessment algorithm to determine working capital assignments and associated costs. Great innovation in small business lending as long as you use the service providers of their data sources as part of your business practice. Loan amounts (and related fees and interest) are determined through analyzing online sellers’ sales and credit history, customer traffic and reviews, and prices and inventory compared to competitors.
Kabbage currently supports merchants operating on eBay®, Amazon®, Yahoo!®, Shopify® and Etsy®, platforms. If you have an online business that uses one of these platforms then Kabbage may be for you. If not, your likely SOL. All the same, Robert Frohwein (Founder & CEO) does a pretty good job of explaining Kabbage’s approach to lending at FinovateSpring 2011 if you would like to know more. (Finovate is a two-day showcase of financial and banking technology innovations from established companies and startups.)
In August 2011 Kabbage secured 17 million dollars from venture funders Mohr Davidow Ventures and BlueRun. Mohr Davidow is an early stage venture capital firm investing in people and technologies that redefine or create large markets. BlueRun Ventures is also an early stage venture capital firm focused on Internet, Mobile and Media opportunities having built Pay Pal ( EBAY) and others. Additional Kabbage investors include: David Bonderman, founder of TPG Capital, Warren Stephens, CEO of Stephens Inc., the UPS Strategic Enterprise Fund, and TriplePoint Ventures.