On Deck Capital Inc., the Internet-loan provider that recently ended talks to be acquired by Wonga.com Ltd., raised $42 million in a private financing round led by Institutional Venture Partners.
The funds will be used to bolster product development, increase marketing and provide more lending for businesses in 2013 than the previous five years combined, the New York-based company said today in a statement. Existing investors RRE Ventures, First Round Capital and the venture unit of SAP AG participated in the funding.
On Deck had been in talks to be purchased by London-based Wonga for just less than $250 million late last year, people familiar with the matter said in November. The two sides failed to agree on a price and negotiations ended, people with knowledge of the talks said in January. On Deck Chief Executive Officer Noah Breslow declined to provide the valuation of the company based on today’s financing.
Started in 2006, On Deck developed technology enabling it to underwrite small business loans that are often considered too small or risky for traditional banks. The company has loaned $400 million to thousands of small businesses and last year secured a credit line of almost $100 million, mostly from Goldman Sachs Group Inc. and Fortress Investment Group LLC.
“A bank would much prefer to make a $2 million loan than a $20,000 loan,” Breslow said in an interview. “At the $20,000-loan level, all the work it takes to understand a business has to be compressed into a much more efficient process, and that’s what we do.”
On Deck is part of a growing crop of online lenders to attract venture financing. BillFloat Inc. and Prosper Marketplace Inc. have recently raised money, while LendingClub Corp. last announced a funding round in June.
Loans made by On Deck range from $5,000 to $150,000, with duration spanning three months to 18 months. The company serves businesses in 700 industries, with restaurants as the largest market, Breslow said. Revenue in 2012 more than doubled from the previous year to $37 million, and On Deck will generate $100 million in annual sales by the end of 2013, he said.
The company has about 160 employees, with 100 of them at the New York headquarters.
With the investment, Sandy Miller of Menlo Park, California-based Institutional Venture Partners is joining On Deck’s board of directors. Miller’s previous investments include Internet game company Zynga Inc., online retailer One Kings Lane and mobile game developer Ngmoco, which was acquired by Japan’s DeNA Co.