Back in June, I wrote about a startup called FastPay, which offers credit lines to digital media companies. At the time, CEO and founder Jed Simon pitched the service as an alternative to venture capital. Well, a couple of months later I asked: Are there really companies that used FastPay instead of raising venture funding?
In response, the FastPay team put me in touch with two customers — Moguldom Media Group and Giant Media. Since I only talked to two out of what Simon said is about 100 total customers, Moguldom and Giant’s probably aren’t entirely representative of the FastPay experience. But they did answer my question. So yes, there at least two startups that used FastPay as a VC alternative.
In the case of Moguldom, which runs six sites aimed at an African-American audience (including Bossip), CEO Jamarlin Martin didn’t point to a single do-or-die moment when he chose between venture funding and FastPay. Instead, he noted that since it was founded in 2005, Moguldom has grown to an organization with more than 45 full-time employees and four offices nationwide, all without raising venture capital.
And FastPay played a key role in that growth, because (as both Simon and Martin have said), cash flow can be particularly challenging for digital media companies. There’s usually a significant lag before those companies get paid by advertisers. It’s tough for a startup to get a traditional loan, so VCs are usually the main option for dealing with the issue — and while there are certainly startups happy to raise money that way, it does mean giving up some equity and control.
In fact, Martin argued that VCs are overvalued, and that too many entrepreneurs are raising funding without “probing the alternatives.” Martin said that by avoiding venture funding, he avoided being forced to grow the company at a certain pace, and he didn’t have to deal with the “friction” of VC oversight. At the same time, with financial support from FastPay, he was able to expand Moguldom quickly when he wanted to.
David Segura, CEO of social video distribution platform Giant Media, told a similar story. Segura had experience with venture-backed companies before, and he said that with Giant, “We were determined to just bootstrap it ourselves.” However, as the company started to land some big customers, Segura had “a sinking feeling” as he came up against that same cash flow problem — Giant needed to pay its publishers in 30 days, while the advertisers were going to pay in 60.
At that point, Segura said Giant could have been forced to raise VC money. Instead, however, Segura talked to Simon and signed up for FastPay.
Both Moguldom and Giant have had ongoing relationships with FastPay for the past couple of years. Both companies say they’re profitable, but Segura told me that as his company grows, FastPay’s value only increases.
“If you’re growing and things are awesome, the media problem at hand is actually getting worse from the cash flow standpoint,” he said, adding that Fast Pay is doing “in a lot of ways what the banks should be doing.”