As online lending platforms gain momentum in the financial world, new startup ApplePie Capital Inc. told Venture Capital Dispatch it raised $6 million in Series A funds for its service. It also received $28 million as a pool of debt capital to use for issuing loans.
The San Francisco-based company offers an alternative source of loans for a particular type of small business, franchisees, which represents around $500 billion of U.S. gross domestic product annually.
Borrowers can come to its website and get loans quickly and on good terms, while lenders can find good returns, according to Denise Thomas, ApplePie’s co-founder and chief executive.
Signia Venture Partners led the Series A round, and was joined by Freestyle Capital and QED Investors, which is a backer of several online lending platforms, such as Prosper Marketplace Inc. and LendUp. These investors provided ApplePie’s $3.7 million seed round in July. Ron Suber, president of consumer-lending marketplace Prosper, invested in the A round, as well.
ApplePie, which began issuing loans in January, is joining a growing list of alternative lenders. Companies like LendingClub Corp. and Prosper Marketplace started this trend late last decade, with a focus on consumer loans, especially credit-card consolidation. Since then categories such as small-business loans, mortgages, and college debt have been addressed by online platforms.
Goldman Sachs said in a March research report that such services could eat up to $10.9 billion of traditional bank profits over time. In small-business lending, for example, Goldman estimated that $178 billion that is now in the traditional lending arena could be funneled through alternative providers, which represents roughly $1.6 billion of bank profits.
The appeal to ApplePie borrowers, Ms. Thomas said, is similar to those in other categories; it is an alternative to banks’ high rate of rejection, high required collateral, high costs and slow timing. “We fund in under 30 days,” she said, compared with weeks or months with traditional lenders.
ApplePie issued four loans totaling about $1 million, Ms. Thomas said, since starting the service in January. Family offices, high-net-worth individuals and hedge funds provided a $28 million pool to fund further loans, she said. The company began working with brands such as Einstein Bros. Bagels and Sola Salon Studios, which send interested franchisees to ApplePie for financing.
Ms. Thomas, previously chief marketing officer at SharesPost Inc., a platform for investing in private companies, incorporated ApplePie Capital in January 2014 with co-founder and chief operating officer, Steve Pelletier, formerly an executive at Ask.com, Indiegogo, and Sun Microsystems.
It made a lot of sense to focus on franchisees, Ms. Thomas said, because there is a lot of vetting that goes into them even before they request financing. “The brands themselves really provide the basis of our underwriting,” she said.
Banks often require large collateral and the franchise owner can only use it for one location, Ms. Thomas said. But many operators want to open several locations over a period, which ApplePie is amenable to without requiring more collateral, she said.
The quick turnaround for its loans also matters greatly for this business, where people need to secure a lease for a particular location on a tight timeline.
The company offers single-digit interest rates and loans that are up to seven years. ApplePie loans range from $100,000 to $1 million, which Ms. Thomas said is a high end of the spectrum in the alternative-lending space.
For investors, Ms. Thomas said, the appeal lies with the diversity of the industries, such as restaurant, insurance, health care and education, and geographies where the franchisee locations appear. Many are regional brands, she said.
As a young startup, ApplePie has much to prove. LendingClub and Prosper, for example, already have years of data on losses, which makes investors more comfortable. By focusing on well-known brands, “we started with the low end of the risk profile,” Ms. Thomas said.
ApplePie’s business will also require significant capital, as it involves regulatory compliance and other work.