Bonderman, Stephens Invest in EBay Merchant-Lender Kabbage
Stephens Inc. CEO and Owner Warren Stephens
Chris Dean/Bloomberg
Warren Stephens, the CEO and owner of Stephens Inc., said he invested because retailers and merchants need more access to capital.
Warren Stephens, the CEO and owner of Stephens Inc., said he invested because retailers and merchants need more access to capital. Photographer: Chris Dean/Bloomberg
Merchant-lending startup Kabbage Inc., which advances as much as $12,000 to EBay Inc. sellers to buy inventory, raised $6.7 million in venture funding from investors including TPG Capital’s David Bonderman and Warren Stephens of Stephens Inc.
The round of capital, led by BlueRun Ventures with money from United Parcel Service Inc., will be used to expand Atlanta- based Kabbage into marketplaces such as Amazon.com Inc. and Overstock.com Inc., develop software and hire more people, founder and Chief Executive Officer Rob Frohwein said.
Kabbage, which takes its name from a slang expression for money, targets sellers with annual sales of $15,000 to $3 million who are overlooked or rejected by traditional lenders because of their credit scores or lack of collateral.
Stephens, the CEO and owner of Little Rock, Arkansas-based Stephens Inc., said he invested because retailers and merchants need more access to capital.
Kabbage “doesn’t have to dominate a big segment of the market to make the company really successful,” Stephens said in a telephone interview. “It’s very targeted and there’s tons of people in it and if they get just a meaningful share of the market, the company will do very well.”
Stephens was connected to Kabbage through co-founder and Chairman Marc Gorlin, whom he’s known for several years. Stephens also was an investor in a previous company Gorlin co- founded called VerticalOne.
Bonderman, the billionaire who runs Fort Worth, Texas-based TPG Capital, has known Gorlin for years through family connections and past business deals, Gorlin said. Kabbage approached him about a possible investment and he agreed, Gorlin said.
Bonderman declined to comment, said Owen Blicksilver, a spokesman.
‘Beyond Credit Score’
BlueRun Ventures, the Menlo Park, California-based venture fund that was an early investor in PayPal Inc., contributed about half of what Kabbage raised in this round, said Jonathan Ebinger, a general partner.
“What we’re looking for with Kabbage is something additional beyond your credit score to give confidence that this person can be in business for a long time,” Ebinger said. “There is a real hole for a power seller who might not have perfect credit, and Kabbage looks at their business through a different prism and extends capital to someone who maybe couldn’t get it anywhere else.”
Access to capital is one of the biggest needs of small businesses after banks tightened lending standards during the recession, according to the National Federation of Independent Business, a Washington-based trade group.
‘Banks Don’t Understand’
Kabbage uses data on a merchant’s selling history, buyer feedback ratings and business-owner credit scores to approve unsecured advances online in 10 minutes. The money is put in the merchant’s PayPal account, and repayments are automatically deducted monthly. Traditional lenders such as banks can’t approve a loan as quickly, and typically require collateral.
“Banks don’t understand the online merchant market and they can’t economically underwrite a $10,000 loan and automate that process” to get approval in minutes, said Frohwein, 42, a Villanova Law School alumnus and former CEO of LAVA Group Inc., an intellectual property investment bank.
As repayments are made, customers may request more cash and treat Kabbage funding as a revolving line of credit. Most Kabbage customers use the money to purchase inventory, Frohwein said.
To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.
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