CAN Capital, a company that gives small businesses access to credit and working capital and helps solve this problem, has raised $33 million in funding co-led by Meritech Capital Partners and existing investor Accel Partners, with participation from Ribbit and QED Investors.
Accel previously led a $30 million round in CAN Capital in 2012.
CAN Capital constitutes the largest, non-bank alternative capital provider to small businesses in the U.S. The company uses its own real-time platform and risk-scoring models to provide capital to small and medium-sized businesses in the U.S. and Latin America. To date, CAN Capital has provided access to $3.6 billion in capital to SMBs, representing roughly 123,000 distinct small-business finance transactions.
CAN uses a variety of data points to deem a business worthy of credit or capital apart from the traditional criteria. CAN’s proprietary underwriting algorithms will churn through its data stacks of historical merchant demographic, firmographic, psychographic and social and behavioral profiles seeking and seasoning new behavioral and synthetic risk indicators and recombining those indicators into new risk scorecards.
For example, CAN will look at frequency of sales (not just how much), inventory access, eBay seller rating, tax returns and other information. In terms of interest, the company uses a more unorthodox, merchant-friendly way of collecting money on top of a loan. If an online violin store needs $30,000 in working capital to purchase inventory, CAN will loan the money, but the borrower will need to pay back $35,000 to CAN over 12 months.
Typically, CAN will give merchants and businesses anywhere from $2,500 to $250,000 in working capital. Customers range from medical practices to shoe stores to auto repair shops to clothing, accessory and home product online retailers. CAN has maintained in the past that its charges are less than any interest rate from a bank. And 75 percent of customers renew their funding. In some cases, repayment can be fairly simple, and can also cater to the merchant’s specific cash-flow needs. So an online merchant could choose to forward a small percentage of sales from its payment processor directly to CAN to repay the loan every month. If sales were lower than usual that month, CAN would potentially provide the option to lower the amount required to pay.
Over the past four years, CAN Capital has doubled its revenue and is on pace to double again in the next two years. Accel Partner and board member Kevin Efrusy, who calls CAN Capital “the best-kept secret in the emerging financial innovation boom,” tells us the company is profitable and actually doesn’t need the money. This round was about VCs wanting to put more money into a fast-growing company that could potentially IPO.
The disruption of various sectors of the financial-services industry is an ongoing trend that will likely accelerate in 2014. There are a few other players in this space who are trying to provide small businesses with access to capital, including Kabbage, OnDeck Capital, and well-funded competitor Lending Club, which recently moved into providing small businesses with loans, in addition to individuals. Prosper is also playing in this space. But Efrusy says that this is a market that has room for many large players, because the opportunity is so large, and because of the value provided to SMBs.
“This is not a winner-take-all scenario,” he told me. We believe CAN Capital can do the same for lending to SMBs as what Capital One did for consumer credit cards.”