Thoughts on OnDeck Capital IPO

ondeck

New York City based OnDeck Capital filed for their IPO.

This is how they describe themselves “OnDeck powers the growth of small business through lending and technology innovation”.

I’m excited about this upcoming IPO for several reasons.  First, this is going to be a positive event for the NYC tech scene, including several NYC based VCs who invested early and many of the employees (216 based in NYC per LinkedIn). Secondly, I’ve been in the financial services sector for over 15 years and haven’t seen many financial related IPOs, so that is nice to see and it is a trend.  Lastly, since the market downturn of 2008, majority of banks have lost their appetite to lend to small business, so this is a much needed product, which is one of the main drivers of their growth.

Some highlights:

  • They have choose the NYSE and will be traded under the symbol ONDK
  • Company started in 2007
  • Major investors are RRE (15.4%), IVP (14.4%), Village Ventures (10.8%), SAP Ventures (10.1%), First Round Capital (6.5%), Google Ventures (6.3%), and Tiger (6%)
  • Top line revenue has grown over 2.5x over the last year.  $107.6M (2014) vs $42M (2013).  Both figures are for 9 months.
  • They are at a $143.4M annual revenue run rate
  • Net loss has shrunk in the last year, which is great news considering revenue has grown over 2.5x.  $14.4M (2014) vs $18.8M (2013).   Both figures are for 9 months.
  • While sales/marketing expense has gone up, it is going up at a slower rate of 1.6x compared to revenue which has grown at 2.5x:  $21.8M (2014) vs $13.6M (2013).  Both figures are for 9 months.
  • Loans originated: $788.3M (2014) vs $290.9M (2013).  Both figures are for 9 months.
  • They are originating more loans (both number and dollars) directly vs indirectly.  43% (2014) vs 19.4% (2012).  This is % of total dollar volume loans.
  • 15+ day delinquency ratio has gone down from 8.9% (2012) to 5.4% (2014).

Better Health

Got my physical results last week, without getting into specifics, the doctor says I need to take better care of myself. So I set out to five goals for myself for the next 30 days:

1. No booze. I do a lot of entertaining/networking for my job and also watch a lot of ball games, so I tend to consume a fair amount of alcohol, this is going to be challenging but I’m mentally prepared.

2. No caffeine. I hardly drink any sodas but I do drink at least two cups of coffee a day, sometimes three, so this is going to be the most challenging part for me.

3. Participate in Movember. Will raise awareness for men’s health issues such as prostate cancer, testicular cancer and mental health. Will be raising money (see link) and also growing out a mustache (see pic below).

4. Trying to reduce the consumption of red meat and sweets.

5.  Lastly, doing a 3 day liquid cleanse during the 1st week of this new diet (see pic below)

20141103_085504B1rd7ojIMAE0p1C

Global Smartphone Market Share

smartphones

IDC recently published a report on global smartphone market share.   A few highlights from my perspective.

  • Apple market share as a % has gone down from 12.9% to 12.0%.
  • Xiaomi has more than doubled their market share
  • The majority of the devices are running Android, so it puts into perspective how large an opportunity Android is for developers that are thinking about a global audience

smartphones

The $600B Opportunity

Four years ago, I wrote a post about how there is $240B on the balance sheet of some of the biggest technology companies (10 of them) in the world, which is a great sign for startups who are looking to get acquired.  Almost all of the companies in 2011 have added significant cash to their balance sheet over the past four years. I pulled up the cash on hand for an expanded list (21 companies) and now there is $600B available to make acquisitions of startups.

I included cash and short-term investments only for this and previous post.  So in reality there is much more than $600B available via long-term accounts / offshore accounts.

cash 2cash

active VC firms in NYC who invest in seed stage startups (2014)

VC Firms who do at least four seed deals per year AND are based in NYC. In addition, seed investing has to be a core strategy of the firm. I used CB Insights primarily to get data on arriving to this list. Please let me know if I’m missing any firms

Advancit Capital
Armory Square Ventures
Avenue A Ventures
Basset Investment Group
BDMI
Betaworks
Bloomberg Beta
BoldStart
Bowery
Box Group
Brand Foundry
Brooklyn Bridge Ventures
Collaborative Fund
Contour Ventures
Deep Fork
Eniac
ffVC
Flybridge
First Round Capital
Founder Collective
General Catalyst
Google Ventures
Gotham
Great Oaks
Greycroft
High Peaks
IA Ventures
Lerer Hippeau Ventures
Mesa+
Metamorphic Ventures
Neu Venture Capital
Quotidian
Red Swan
Red Sea
Rothenberg Ventures
RRE
RSE Ventures
Scout Ventures
Softbank Capital
Tribeca

Pivoting

After a great experience at 500 Startups, I’m pivoting :) (i.e. my last day is Dec 30th)

Over the last 15 months, I’ve had the opportunity to work on several parts of the venture business.  I helped raise the $44M Fund II (sourced our largest LP), launched the NYC coworking office, led four investments, worked on 20+ other investments, helped with portfolio management, assisted in finding/screening startups for the accelerator, organized community events and also covered several geographies (NYC/Boston/Israel).

The #500strong family is a special one, truly unique, happy to say that I was part of it and hope to stay involved in some capacity.  Thanks Dave for the opportunity.

Will be taking a little bit of time off and also explore several opportunities within the startup ecosystem and will let you know in February as to which company I end up choosing to work with.  If you want to get in touch, you can find me on Twitter or LinkedIn.

Building Trust With Your Investors

As you may know, there is tension between investors and entrepreneurs in general.  There is a long history of bad blood and poor actions on both sides that I won’t get into right now.

During my time as an investor, I have found that the easiest way for an entrepreneur who has raised money from me to build trust, is to over communicate the health/status of their company.

As a very active seed investor, we typically don’t have a lot history with the founder(s) and usually invest after a few meetings, so while there is some trust built during the investment process, you still don’t really know each other that well.   So trust (on both sides) is built over time.

If you have taken money from investors, I encourage you send monthly updates to them.  I have created an easy template to follow.  The information that I ask for (and that investors want) is something that you should be tracking and sharing within your respective organizations in any case, so it is not onerous.

The side benefit to the entrepreneur to send monthly updates is that your investors/angels will bug you less often as they already know how things are going, so it allows you more time to focus on your business and less time doing coffee meetings with all your investors.

The other benefit is that when you need to raise that bridge/extension round (which is highly likely), you have built trust with your investor(s), so you have a better shot of raising that inside round.  I have seen several situations where I don’t receive any information from an entrepreneur for six months (or more) and then they come to me saying things aren’t going well, please invest more money, that is not a good situation to be in as an entrepreneur.