So it seems reasonable that there should be some more approaches, right? Well, this is what Jed Simon believes. Back in 2010, he started FastPay, which allows digital companies to finance their growth from receivables.
Recently I met up with Jed to learn more about his business. Here’s what he had to say:
Q: How does FastPay work?
A: Clients that work with us are able to access a scalable amount of capital, up to several million dollars, within a matter of days. Companies apply with an easy online application. Our platform is then able to apply a proprietary underwriting algorithm that assesses credit risk and quickly moves them from underwriting to approval. After that, businesses can fund as much as they need, as often as needed – no strings attached like what comes with bank loans or even traditional venture debt deals.
Q: Why would a startup use it?
A: Why wouldn’t a start-up use it? Financing against accounts receivables is an overlooked way of accessing capital using the strength of your balance sheet. The prevailing form of capital historically available to startups has been equity, especially for digital-based businesses. Ultimately, this means entrepreneurs are forced to sacrifice ownership and control in exchange for access to capital they need to operate and grow their businesses. FastPay provides a debt solution that is not equity-dilutive while also being highly flexible and non-restrictive. In simple terms, our clients can access funds as needed and don’t have to deal with loss of ownership, and covenants and restrictions like what you’d find with traditional banking options. They can also terminate the line at any time at no cost, and we work hand-in-hand with other solutions like venture capital.
Q: What are some of the common mistakes entrepreneurs make with financing?
A: Entrepreneurs don’t explore their options enough and often rely on blind recommendations from friends and colleagues. We hear VC’s lament this all the time – many entrepreneurs are not as educated as they should be on financial strategy. They tend to be intensely focused on product, engineering and sales, often to the detriment of financing. More entrepreneurs need to explore additional options beyond the standard venture equity raise. Also, cash flow is a serious lurking problem for start-ups but often it’s not discussed until it’s too late as they find themselves in a desperate situation which gives them little room to negotiate. This is often when they’re forced to dilute equity. We’re an alternative that can help even out those peaks and valleys.
Q: You just announced you’ve financed $100 million since 2010. Any interesting trends along the way?
A: There’s definitely been an uptick in alternative lending solutions because of the lack of options available to start-ups, especially digital businesses. We’ve experienced tremendous growth in the past couple years as have companies like OnDeck, which focuses on helping brick and mortar shops, and Kabbage which helps eBay sellers. We’ve also seen the types of companies that use us cross over into a number of other verticals. What started with a few Web publishers and creative agencies clients has expanded to include game developers, app makers, eBook authors, Facebook Preferred Marketing Developers, ad tech companies, and many more. It’s very reflective of the current climate and the desire by these entrepreneurs to have alternatives to what’s been historically offered.