Thomvest Ventures Inc., continuing its backing of alternative finance companies, led a $30 million investment round this month in Kabbage Inc., which uses non- traditional credit analysis to provide cash advances to small businesses.
This marks the third investment in unconventional funders in less than two years by Thomvest, founded by Thomson Reuters Inc. director Peter Thomson. Kabbage’s largest previous investors, including Stephens Inc. Chief Executive Officer Warren Stephens and TPG Capital’s David Bonderman participated in this round, as did UPS Strategic Enterprise Fund, the private equity investment arm of Atlanta-based United Parcel Service (UPS:US) Inc.
Thomvest also has backed Lending Club, a five-year-old San Francisco-based company that pairs investors with borrowers. Lending Club’s board of directors includes John Mack, former chairman of Morgan Stanley, and Mary Meeker, a partner with Kleiner Perkins Caulfield & Byers, according to the company’s website.
“What we’re seeing with companies like Lending Club and Kabbage is that the availability of capital for both individuals and small to medium sized businesses is being transformed,” said Don Butler, managing director of Thomvest, based in Redwood City, California.
Alternative online funding “will revolutionize both markets,” he said. Thomvest also has an investment in San Francisco-based LendUp, an online financial service company targeting consumers.
The new capital more than doubles the amount Kabbage has raised since its launch two years ago, according to the Atlanta- based company, which has 70 employees and has yet to turn a profit.
Kabbage analyzes a variety of alternative metrics such as a company’s sales history on EBay Inc. (EBAY:US) and other online sites, as well as monthly transaction volume, revenue patterns, and engagement with customers on social media sites such as Twitter and Facebook. Based on this information, customers receive a “Kabbage score” that the company believes provides a more complete financial picture than a traditional FICO credit score.
Thomvest was impressed with the speed of the Kabbage application process, which averages about seven minutes, Butler said. If approved for an advance a company can immediately transfer funds into its Paypal account. The average advance is about $8,000, according to Kabbage.
Kabbage plans to use part of the new funding to expand internationally and to offer cash advances to brick-and-mortar businesses.
“Even your dry cleaner has a Facebook page,” said Kabbage Chairman Marc Gorlin. “To the extent there is data out there on offline businesses, we’re going to look at ways to do that.”
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