[isaacdstern]

http://www.forbes.com/sites/alexknap...iness-funding/

[JayBallentine]

"Software is eating the world" - Marc Andreesen.

Another example of products coming out where "speed to funding" will win the day. Kabbage went from shipping an minimum viable product a couple of years ago to what looks like implementing a scaleable customer acquisition strategy. "Move fast and break things"; Mark Zuckerberg.

They just instantly shrunk the pool of customers for MCA even more... Any merchant using Square will eventually see notifications on their screens; "CLICK HERE TO GET A BUSINESS LOAN FROM OUR PARTNER; KABBAGE."

Kabbage will exit in 2018 or so for well over a billion. OnDeck will be billionaires by then because I am willing to bet it all, that Google buys them for billions, not for their deals, they don't make any money lending money, but for their data.

[Capital Stack]

Isaac, great find. Kabbage is truly a cutting edge competitor.

While reading this, popped up in Forbes Article about Amazon and Google about to muscle banking as well.

[isaacdstern]

I heard rumblings about this through the rumor mill over the last month but Sean posted the article about an hour ago on FB......

I still do not believe that an algorithm can replace human underwriting....it can assist but the up and down decision should still be made by an actual person...just my opinion though

[Capital Stack]

I heard rumblings about this through the rumor mill over the last month but Sean posted the article about an hour ago on FB......

I still do not believe that an algorithm can replace human underwriting....it can assist but the up and down decision should still be made by an actual person...just my opinion though

We shall see, I still think a machine can be smarter than a person though.

[JayBallentine]

We shall see, I still think a machine can be smarter than a person though.

Yes and it's going to be awesome!

[Sean Cash]

How about this: Lending Club funded more than $234 million in loans last month. A funder that's much bigger than CAN entering the small business loan space is guaranteed to cause some shockwaves. https://www.lendingclub.com/info/statistics.action

They are supposedly on pace to go public next year as well. Expect an impact my friends.

[jbrown]

All this stuff happening, is anyone seeing their business decline this year? How many are seeing double digit or more growth? I would bet that the small business funding universe continues to expand dramatically and there is room for many different ways to get to the customer.

[JayBallentine]

All this stuff happening, is anyone seeing their business decline this year? How many are seeing double digit or more growth? I would bet that the small business funding universe continues to expand dramatically and there is room for many different ways to get to the customer.

Ease of access will surely open the market. Speed to access is going to starve out players who can't get merchants wired faster than the next guy.

"No one is going to buy a $500 phone unsubsidized." Steve Ballmer; CEO Microsoft in reference to iPhone in 2007.

"I think there is world market for maybe 5 computers." Thomas B. Watson, Chairman IBM 1943

"This telelphone has too many shortcomings to be considered as a means of communication. The device has inherently no value to us." Western Union Internal Memo; 1876

"There is no reason why anyone would want a computer in their home." Ken Olsen, Founder; Digital Equip Corp, 1977

[Capital Stack]

You must really be doing something wrong for decline in Biz this year. We have been gearing internally for next year.

Expect a huge 2014! Monster volume, capital in-flows, acquisition and consolidations.

[MCNetwork]

Kabbage is going to really disrupt this industry even though they'll probably never turn a profit from their MCA programs. Think of the Amazon.com and Netflix business model. Unprofitable companies that changed the game with super low costs and superior technologies that created monopolies and crushed the competition. They have long term views and don't mind running in the red for many years until they dominate their respective industries. With many millions of dollars in their venture capital war chests, the sky is the limit. Kabbage will become the Netflix of MCA. Approval and funding within minutes? Check. Super low rates? Check.

Absolute game changer.

[JayBallentine]

Kabbage is going to really disrupt this industry even though they'll probably never turn a profit from their MCA programs. Think of the Amazon.com and Netflix business model. Unprofitable companies that changed the game with super low costs and superior technologies that created monopolies and crushed the competition. They have long term views and don't mind running in the red for many years until they dominate their respective industries. With many millions of dollars in their venture capital war chests, the sky is the limit. Kabbage will become the Netflix of MCA. Approval and funding within minutes? Check. Super low rates? Check.

Absolute game changer.

You nailed it MCN. It's the long term view. Technology companies don't start hoping to make a "few bucks." Everyone wants a billion dollar exit. They all know, billion dollar exits do not come fast. So, they focus on two things; product and the "hockey stick." They don't want to see incremental growth year over year, that's bad, it's more "what do we have to do to get to the fastest rate of growth possible, so that we can exit in 7 years."

Did you see what Travis Kalanick of Uber just did in a few short years? He took on governments, shipped, got sanctioned, kept going, 4.5 years later - $1BN in revenue. He has been quoted as saying; "I want to make money every single time any human gets in a cab." That's what you're up against, that type of ruthless aggression. They don't want to leave crumbs on the table, they want you working in their mailroom.


These folks have VC's to answer to, and a lot of them sit on their boards. A lot of these board members know exactly how to get to "hockey stick" growth.

True story: Ten minutes ago I got off the phone with the Zazma guys. THESE GUYS ARE CHARGING 3% TO THE MERCHANT AND 3% TO THE SUPPLIER FOR THEIR MONEY.

Quote; "we're only concerned with scaling customer acquisition at this point." That was a gentlemanly way of saying; "we're going for the jugglar. We don't want to participate in, rather, we want to own purchase order financing." How do you compete against guys who raise money to pay themselves six figure salaries, with huge warchests to wear you down?

Here's the kicker. They are focused on scaling and getting to that hockey stick by activating a viral co-efficient. In other words, when they get a supplier, that supplier is simply going to send in more deals. They're giving him the easiest sell in the world, so that motivates him to go get more deals. Then, they reach out to the CUSTOMER and say; "tell your OTHER suppliers about us too."

So here's how it works, suppliers bring in customers, and customers bring in suppliers who bring in customers, who bring in suppliers... see where I am going here?

That doesn't exist in MCA, but it can. ISO's hate chasing pieces of paper, so if you eliminate the paper, they'll chase more deals instead. Not only that, they'll bring in others, friends, family, schoolmates, etc to chase with them.

These pieces of paper simply must go if this industry has a shot in hell.

[jbrown]

The only thing I disagree with this thead is the assumption that OnDeck, Kabbage and the like are technology companies. Talk to the PE world and everyone will tell you at the end of the day they are in the specialty finance space. Cash flow, Ebitda, and profitability drives valuations and exit. CAN is not only the 800lb gorilla but reportedly highly profitable. CAN will monetize their business. OnDeck and others ultimately need to show a profit. There is no way that the value of their data competes with the value of the data that a CapitalOne or Visa or Experian or D&B has on small business with millions of small businesses in their dataset and years and years of history.

[MCNetwork]

Kabbage is all about capturing data and market share. Once you have the book of business, you'll be in a great position to cross sell other merchant services and ancillary products. 2014 will be a very interesting year for MCA

[JayBallentine]

The only thing I disagree with this thead is the assumption that OnDeck, Kabbage and the like are technology companies. Talk to the PE world and everyone will tell you at the end of the day they are in the specialty finance space. Cash flow, Ebitda, and profitability drives valuations and exit. CAN is not only the 800lb gorilla but reportedly highly profitable. CAN will monetize their business. OnDeck and others ultimately need to show a profit. There is no way that the value of their data competes with the value of the data that a CapitalOne or Visa or Experian or D&B has on small business with millions of small businesses in their dataset and years and years of history.

You may be right about OnDeck, I don't know 0.00000001% of what you know about finance, and running financial institutions. But, I personally see some things that make me really curious about where the money is really going to be made.

1. They've hired an "army of data scientists."

2. These data scientists are struggling to figure out how to make OnDeck money - whereas OnDecks competitors - the premium guys, are doing just that, making money. What if they weren't hired to make OnDeck any money on funded deals. I mean Yellowstone employs no data scientists and they make money...

3. They raised two Series D rounds. Usually Series D is like bridge financing until you exit. What was more interesting was who was in on those rounds. Google Ventures and Peter Thiel. Peter Thiel is a math / data guy, and I just have this hunch that he's up to something else...

[Sean Cash]

"Money has no grey areas. You either make it or you lose it."
- Kevin O'Leary

[isaacdstern]

As most of you know Yellowstone has a massive marketing budget...I look at Google somewhat like an auction where you bid on clicks and the highest bidder wins the top spot. When we started marketing 5 years ago the cost for the top spot on Google was maybe $5 per click, as of about 2 months ago the cost has tripled to close to $15 per click. As the cost continued to grow we would raise our bids by $.50 per click...out of left field one of the companies mentioned in this thread jumped from $15.50 a click to $20.00 per click. How can someone like me who is simply here to make money compete with someone who's entire model is designed to lose money.

[MCNetwork]

I totally agree. A small shop like me has been pushed out of the Google PPC market because of the On Decks and Yellowstones of the world. Now the Kabbage's will disrupt the top funders in the industry. I think the next 2 years will be very difficult for the old guard funders. We'll see the A and B merchant paper going to Kabbage, IOU, AMEX and other low cost providers. The current top funders will all compete for the C and D paper at 1.30+ factors and we'll be seeing higher default rates because the quality of merchants has decreased. Funders that have too much operating overhead will go out of business. ISOs will be scrambling over each other and cutting their commissions to the bone to compete for business. I see consolidation in 2014 and retrenchment of the current funders, not expansion for the industry. Over the past 2 years, every Tom, Dick and Harry has opened a funding shop or ISO so you know this bubble is about to burst. It's truly gonna be a dog eat dog world and I'm wearing Milk Bone underwear lol.

[JayBallentine]

As most of you know Yellowstone has a massive marketing budget...I look at Google somewhat like an auction where you bid on clicks and the highest bidder wins the top spot. When we started marketing 5 years ago the cost for the top spot on Google was maybe $5 per click, as of about 2 months ago the cost has tripled to close to $15 per click. As the cost continued to grow we would raise our bids by $.50 per click...out of left field one of the companies mentioned in this thread jumped from $15.50 a click to $20.00 per click. How can someone like me who is simply here to make money compete with someone who's entire model is designed to lose money.

I think the answer to this lies in balancing spending money on what makes you leads right now, vs. experimenting with some stuff. I would strongly encourage you to try direct mail. Starting with 300 pieces at a time until you perfect things is a great way to get going. Your position is "unique" in the sense that you will take a look at any deal. A lot of other guys are confined to a certain set of SIC codes which diminish the response rate.

Also, one thing that is certainly going on is that folks are landing on your sites, going to the next, and then doing business with the third guy. You just paid for a click to "warm them up" to do business with the next guy. Everyone is experiencing this in PPC, though no one knows to what extent. Only 2% of people buy from the first Google ad they click on. In this industry I wouldn't be surprised if it is more because these merchant shop, shop, shop.

In my humble opinion, incorporating marketing automation, tools that exist now, will take you to the next level. In fact, this is not even my opinion, this is fact. There's math / studies to back this up.

There's only ONE big dog lender that I know of who ensures all leads are contacted within 5 minutes no matter what, and they're winning. BIG.

[Chambo]

The only thing I disagree with this thead is the assumption that OnDeck, Kabbage and the like are technology companies. Talk to the PE world and everyone will tell you at the end of the day they are in the specialty finance space. Cash flow, Ebitda, and profitability drives valuations and exit. CAN is not only the 800lb gorilla but reportedly highly profitable. CAN will monetize their business. OnDeck and others ultimately need to show a profit. There is no way that the value of their data competes with the value of the data that a CapitalOne or Visa or Experian or D&B has on small business with millions of small businesses in their dataset and years and years of history.

On Deck hasn't shown a profit since inception

[Chambo]

You may be right about OnDeck, I don't know 0.00000001% of what you know about finance, and running financial institutions. But, I personally see some things that make me really curious about where the money is really going to be made.

1. They've hired an "army of data scientists."

2. These data scientists are struggling to figure out how to make OnDeck money - whereas OnDecks competitors - the premium guys, are doing just that, making money. What if they weren't hired to make OnDeck any money on funded deals. I mean Yellowstone employs no data scientists and they make money...

3. They raised two Series D rounds. Usually Series D is like bridge financing until you exit. What was more interesting was who was in on those rounds. Google Ventures and Peter Thiel. Peter Thiel is a math / data guy, and I just have this hunch that he's up to something else...

"those who do not learn from history are doomed to repeat it."

This all sounds eerily familiar to the dot coms in the late 90's who all swore they were revolutionizing the business world and threw caution to the wind when it came to profitability.

Anyone over 15 years old knows what happened there

[Chambo]

I think the answer to this lies in balancing spending money on what makes you leads right now, vs. experimenting with some stuff. I would strongly encourage you to try direct mail. Starting with 300 pieces at a time until you perfect things is a great way to get going. Your position is "unique" in the sense that you will take a look at any deal. A lot of other guys are confined to a certain set of SIC codes which diminish the response rate.

Also, one thing that is certainly going on is that folks are landing on your sites, going to the next, and then doing business with the third guy. You just paid for a click to "warm them up" to do business with the next guy. Everyone is experiencing this in PPC, though no one knows to what extent. Only 2% of people buy from the first Google ad they click on. In this industry I wouldn't be surprised if it is more because these merchant shop, shop, shop.

In my humble opinion, incorporating marketing automation, tools that exist now, will take you to the next level. In fact, this is not even my opinion, this is fact. There's math / studies to back this up.

There's only ONE big dog lender that I know of who ensures all leads are contacted within 5 minutes no matter what, and they're winning. BIG.

Second Source tried direct mail back in 2007. Worked for about 5-6 months, then the return on investment was nil

[muhammadp1]

Good evening I need some fund raise ing tips?

[JayBallentine]

Second Source tried direct mail back in 2007. Worked for about 5-6 months, then the return on investment was nil

There is a guy who is selling MCA leads via direct mail to a lot of users of this forum. He's retaining his customers who are more than happy to continue to pay him $45 per exclusive live inbound lead - for which he generates for $20 - $25 or so.

I laugh to myself because his customers rather continue to pay $45, than to test, experiment and figure things out on their own.

If they were smart, they'd take the first phone call generated and pay the guy to FedEx the exact piece of mail they received and start from there.

Matt Stone is still on the 4th floor. His Uncle was in finance, though not MCA, and built a great life for himself 100% around direct mail.

[Christina]

On Deck does alot of business How do they not show profit