FastPay is a finance platform that provides lines of credit to growing digital businesses. Based in Beverly Hills, CA, the startup raised $25m in financing in 2012 (read here) and has already provided working capital to several companies.
Mike McGlade, the Chief revenue officer, who previously worked at BetterWorks and Tellabs (NASDAQ: TLAB), answered our questions about the company, its product, and future plans.
FinSMEs: Hello Mike, thank you for joining us. First, can you tell us a little bit more about you?
Mike: I’m the Chief Revenue Officer of FastPay. Since graduating from Harvard Business School in 2009, I’ve spent the past several years advising entrepreneurs on building sales & marketing teams for exciting new ventures. I decided to join FastPay full time a little over a year ago – I’m very passionate about entrepreneurship and FastPay offers me a unique opportunity to both build a new business while also giving back to the entrepreneurial community.
FinSMEs: Let’s speak about FastPay. Which problem do you intend to solve?
Mike: We help entrepreneurs gain access to working capital to grow their business. Prior to FastPay, it was very challenging for an entrepreneur to secure a line of credit. And if they weren’t backed by a tier 1 equity investor, forget it – bootstrapping with a mixture of debt & revenue was not an option for most. FastPay makes it possible for these businesses to reinvest their working capital to fuel their growth.
FinSMEs: Tell me something more. How does it work?
Mike: Specifically, we lend against our clients’ accounts receivables. We will advance 70% to 80% against approved invoices so that an entrepreneur can reinvest that capital in growth. There are a couple of examples which highlight the need and how we work:
1. A web publisher has to invest in creating content to drive page views on their site which they then monetize through advertisements. Payroll is due every 15 days – but the web publisher may not get paid for 120+ days. We help close that gap for them
2. Social marketing firms often have to buy media to secure fans, likes and the sort. In the case of Facebook PMDs, they have to pay Facebook 30 days after buying media. They may not get paid by their customers for 60 to 90 days. FastPay can cover that gap.
3. Ad-tech businesses often pay their customers when they get paid. In some cases, ad networks or ad exchanges may choose to pay their customers faster to create an advantage over their competition. In these cases, they need to pay their publishers or downstream partners before they get paid by their customers – another great example where FastPay can help.
4. Creative agencies often have multiple projects going on at once. They will occasionally win a big new project which requires them to staff up. Even with a big down payment from their customers, they’re sometimes still in need of cash to cover the difference. FastPay can advance capital from some of their completed projects so they can staff up new projects faster.
5. App developers may find success buying media to drive downloads of their apps. If they put $1 into advertising, they may realize $1.99 in sales to new customers – but they’re often forced to wait 45+ days to realize the revenue associated with that $1.99 download. FastPay makes it possible for them to receive that payment within 24 hours so that they can turn around and buy more media, secure more downloads, etc.
FinSMEs: What’s your business model?
Mike: Very straightforward – we charge interest on our loans. But more specifically, we’re very transparent with our costs – unlike banks and factoring businesses, we do not offer a low teaser rate on a loan and then layer on lots of hidden fees… closing costs, termination fees, etc. etc. You apply, you’re given an interest rate, you’re ready to go.
FinSMEs: who are the other team members?
Mike: We have an amazing team. Our CEO (Jed Simon) comes from DreamWorks and is very well known throughout the LA community. Our technology, credit & operations teams are all top tier. They are laser focused on building an organization that is going to have a major impact on the way we see debt in the world of entrepreneurship. And our sales & marketing teams are full of entrepreneurs – folks who have a natural curiosity and a desire to help entrepreneurs succeed.
FinSMEs: Do you think FastPay represents an alternative to VC?
Mike: We’re a great partner with equity providers. In some cases, we can be used as an alternative to VC – but that’s only because some entrepreneurs were going to equity investors for something they should have been funding through debt in the first place. In many cases, our clients raise venture to invest in growth initiatives like new product development while they use FastPay to extend and fuel their existing customer segments.
Mike: Crowd funding is really more of an alternative to equity investments. With crowd funding, you’re often getting your customers to pay you in advance to invest in new product development. Once those initial customers are delivered their products, a scalable debt option like FastPay is still the way to go to fuel working capital needs.
FinSMEs: The company raised a massive vc round in 2012…what can you tell us? Do you plan to raise a new round?
Mike: I wouldn’t say we raised a massive VC round – we actually haven’t taken any venture capital. All of our equity investments come from ultrahigh net worth individuals. We used that capital to lever up with debt to begin making investments in entrepreneurs. In other words, we take our own advice – our cap table is a healthy mix of debt & equity.
Mike: We’re always evaluating new options to continue to grow the business. Our core values are to help entrepreneurs succeed. Our existing product is a great fit for many businesses. There are definitely opportunities to expand into other product offerings. The great thing about capital is that it’s the most scalable widget there is – as we learn more about the challenges entrepreneurs face, we’ll absolutely continue to leverage technology to help.