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Trends Watch: Fintech

Jun 24, 2021

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Billy Libby, CEO & Co-Founder, Upper90.

What is your outlook for VC?

It's hard for anyone to time markets. While valuations are at all-time highs, I think there is a lot of opportunity for fintech and e-commerce to still expand.  I also think as some of the leading startups go public, they will buy traditional companies that look cheap on a relative basis, especially in fintech, where regulatory burden and expertise are critical components to long-term success. 

Fintech will become a horizontal category vs. a vertical one. Every platform with data and customers will begin offering financing services as well. Finco as a service, or FAAS as we call it, should create a new set of companies across industries and regions that are focused on data-driven lending. 

We’re very early in embedded fintech, but eventually I predict it will be part of every business rather than its own category. 

Where do you see the greatest opportunities and why?

Founders are learning that fundraising is not “one size fits all.” Data is everywhere, which creates new asset classes, allowing for creative ways to finance healthier areas of a business with more predictable revenue vs. equity for everything. Upper90’s hybrid model allows startups to raise less equity without sacrificing growth or control by utilizing credit earlier on. 

I’m excited about the emergence of the small business owner online. So many barriers to starting a business have been removed by the infrastructure developed by Amazon, Shopify and Facebook: not needing to own a store-front, having access to a larger number of customers, being able to get inventory on demand, etc. However, the financing options for online small-to-medium-sized businesses (SMBs) haven’t kept up with the technology, so there aren’t easy ways to obtain growth capital. This is the gap that Upper90 has identified as a white space to provide creative liquidity options.  

Small Business Administration (SBA) loans aren’t the only option and these businesses often aren’t the unicorns that VCs want to fund. As this e-commerce ecosystem evolves, new small business owners will be able to get specialized capital (e.g., inventory financing from Payability, marketing financing from Clearbanc, or growth capital from Upper90). 

What are the greatest challenges you face and why?

Education. Founders are accustomed to raising VC equity capital, and then thinking about credit afterwards. We believe that there should be a balance earlier on, where equity is used to finance the riskier parts of a business (e.g., technology development), and credit is used for areas with greater revenue predictability or collateral. 

Standardization. We built Upper90 around 300 business builders, who provide a unique sourcing advantage and greater flexibility to solve key growth challenges for founders. As a result, each deal ends up being slightly different which takes time, and we are thinking of ways to create more scale and efficiency ourselves. 

The best thing for a founder is a yes or a quick no. As we see more deals, our goal is to better define our criteria to follow this standard. We are selective about the opportunities in which we choose to invest: ones where we can provide a mix of credit and equity, plus add value beyond capital. We speak with a number of interesting companies and founders, but it’s really about finding the right opportunity where we can get involved early, and work with the company through our hybrid model.

What keeps you up at night?

Overall market correction. This is why we don’t use leverage in our facilities, and have raised as much assets under management (AUM) as we have so as not to have the pressure to deploy everywhere.

Competition. Right now, we are a direct threat to venture capital and growth equity, which have overfunded the types of businesses that we work with. We look at the data, price in the risk, and are able to isolate parts of the business to bring founders less dilutive capital. But what happens if larger VCs get into credit as well?

We aren’t active in crypto or cannabis where there’s more volatility, but those seem like pure equity investments at this time. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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