Disrupting the lending universe

OnDeck CEO Noah Breslow talks about taking his company public and making small business loans.

On Deck Shares Surge in NYSE Trading Debut

By Features FOXBusiness

On Deck Capital (ONDK) saw its shares jump 34% in its public debut Wednesday on the New York Stock Exchange. The company, which provides loans for small businesses, priced at $20, raising $200 million in its offering.

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On Deck lost $14.4 million in the first nine months of 2014, down from its loss of $18.7 million in the same period of the year before. Revenue was $99.9 million for the first three quarters of 2014, up from $41 million in 2013.

On Deck’s IPO comes on the heels of LendingClub (LC), a lending platform which went public last week. The lending space is ripe with competition, as consumers and businesses are looking beyond banks for access to loans.

“We’re now the clear leader in online small business lending in the U.S.,” CEO Noah Breslow told FOX Business in a televised interview. “There are real advantages to the scaled player. Our marketing channels are more established, our cost of capital is lower.”

Some of the lending startups, grew out of the financial crisis, when it became harder to get bank loans.

Rob Frohwein, CEO of Kabbage, says that the crisis created a “dearth of opportunity for a period of time,” but that “small businesses have always been challenged to get capital." 

Eric Liaw, who invested in On Deck through Institutional Venture Partners, said lending startups have a competitive advantage.

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"Traditional banks are slow moving and even if they wanted to innovate, coming out of the financial crisis, they face regulatory obstacles," he said.

Sam Hodges, co-founder at Funding Circle, says that some of the lending startups will struggle to make it for the long haul. 

“Initial barriers to entry are pretty low, but the barriers to scale are pretty high,” Hodges said. “A lot of small players will die slowly because they don’t have the flywheel working yet.”

RRE Ventures which owned a 15% stake prior to the offering, will be reducing its stake to 12.8%. Institutional Venture Partners held a 14.1% stake before the IPO and will have a 12% position going forward. Other stockholders with greater than 5% ownership include Village Ventures, Sapphire Ventures, First Round Capital, Google Ventures and Tiger Global.  

Underwriters include Morgan Stanley (MS), Bank of America Merrill Lynch (BAC), J.P. Morgan (JPM), Deutsche Bank (DB), Jefferies, Raymond James, Stifel and Needham and Company.

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