Square Co-Founder And Others Put $17M In Online Merchant Lender Kabbage

Atlanta-based startup Kabbage, which provides working capital to online merchants, has raised $17 million in Series B funding led by Mohr Davidow Ventures with BlueRun Ventures, David Bonderman, founder of TPG Capital; Warren Stephens, CEO of Stephens; the UPS Strategic Enterprise Fund, Jim McKelvey, co-founder of Square; and others participating in the round. This brings Kabbage’s total funding to $24 million.

Kabbage, which was founded by Marc Gorlin, Rob Frohwein and Kathryn Petralia, is essentially a way for online merchants and sellers on marketplaces like eBay and Amaxon to get capital they otherwise wouldn’t qualify for at a bank. Kabbage uses technology to analyze online merchants’ sales and credit history; customer traffic and reviews; and prices and inventory compared to competitors. And merchants can proactively add information to their Kabbage account to immediately increase their access to capital.

Via PayPal’s Adaptive Payments API, Kabbage will make cash advances available to eBay and other online marketplace sellers fairly quickly (Kabbage says that many transactions take as little has ten minutes).

Gorlin tells me that many small businesses and online merchants can’t receive financing from traditional banks, and Kabbage is aiming to disrupt this space by providing a painless way to help these sellers access cash.

Kabbage makes money off of fees charged to merchants for the working capital. Fees depend on how long the online merchant keeps the capital (6 month maximum) and the customer’s repayment risk. Rates range from 6 percent to 16 percent of the original advance amount. Kabbage currently supports merchants operating on eBay, Amazon and Yahoo’s platform and plans to add support for sellers on Facebook, Etsy, Shopify, and Sears. Currently, there are ‘thousands’ of merchants using Kabbage and Gorlin expects for the total merchandise volume of Kabbage sellers to reach $3 billion in the next year.

In conjunction with the funding, Kabbage is also announcing that it has been granted U.S. Patent No. 7,983,951 entitled “Apparatus to provide liquid funds in the online auction and marketplace environment.” It basically covers a system by which a provider of capital utilizes information
regarding a merchant’s sales history on an e-commerce website to make a determination about providing funds. For a company which only launched a few years ago, snagging a patent is impressive.

Gorlin says the new funding will be used to add additional marketplaces, distribution relationships, new financial products and for international expansion. He explains that there is huge potential for growth in international markets and the startup is constantly being contacted by sellers outside of the U.S. who are interested in Kabbage’s services.

Similar to the way that Square brought credit card mobile access to small businesses and that Greendot brought pre-paid credit cards the unbanked, Kabbage is bringing working capital and small loans to online merchants who may not qualify for a cash infusion from a traditional bank. Like the companies mentioned above, the startup has the definite potential to disrupt the marketplace industry.