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Forum Brands secures $100M in debt financing to acquire more e-commerce brands
Forum Brands, an e-commerce acquisition platform, announced today that it has secured $100 million in debt funding from TriplePoint Capital.
The financing comes just over two months after the startup raised $27 million in an equity funding round led by Norwest Venture Partners.
Brenton Howland, Ruben Amar and Alex Kopco founded New York-based Forum Brands in the summer of 2020, during the height of the COVID-19 pandemic.
“We’re buying what we think are A+ high-growth e-commerce businesses that sell predominantly on Amazon and are looking to build a portfolio of standalone businesses that are category leaders, on and off Amazon,” Howland told me at the time of the company’s last raise. “A source of inspiration for us is that we saw how consumer goods and services changed fundamentally for what we think is going to be for decades and decades to come, accelerating the shift toward digital.”
Since we covered the company in June, Forum Brands says it has acquired several new brands, including Bonza, a seller of pet products, and Simka Rose, a baby-focused brand specializing in eco-friendly products. Simka sells in the U.S. and the EU and is an example of how Forum is expanding globally, Amar said.
Howland and Amar emphasize that the Forum team continues to focus on quality over quantity when evaluating potential acquisitions. Although they meet with 15-20 founders a week, they are selective in which companies they choose to acquire.
“We continue to be a quality-first buyer, and not quantity-driven,” Amar said, noting that the company will still help a company build its brand even if it does not yet meet Forum’s quality threshold or if the founders are just not ready to sell.
The new funds will be used to, naturally, acquire more e-commerce companies. As part of the debt financing, Sajal Srivastava, co-CEO and co-founder of TriplePoint Capital, will be joining Forum’s board of directors.
“We are impressed not only by Forum’s long-term strategy and ability to leverage technology and deep collective e-commerce and M&A experience but also by how Forum cultivates relationships with their sellers both before and after partnering with them,” he said in a written statement.
At the time of its June raise, Forum had about 20 employees. As of today, it has about 40.
Forum’s technology employs “advanced” algorithms and over 100 million data points to populate brand information into a central platform in real time, instantly scoring brands and generating accurate financial metrics.
On August 31, we covered the news that on the heels of Heroes announcing a $200 million raise to double down on buying and scaling third-party Amazon Marketplace sellers, another startup out of London aiming to do the same announced some significant funding of its own. Olsam, a roll-up play that is buying up both consumer and B2B merchants selling on Amazon by way of Amazon’s FBA fulfillment program, closed on $165 million — a combination of equity and debt that it will be using to fuel its M&A strategy, as well as continue building out its tech platform and to hire more talent.
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Getaround tops up $25M debt financing to its $140M Series E
Silicon Valley peer-to-peer car rental startup Getaround has secured a $25 million loan from Horizon Technology Finance Corporation. The financing announcement comes one month after Getaround raised $140 million from investors, including SoftBank Vision Fund, Menlo Ventures, Reid Hoffman and Mark Pincus’ Reinvent Capital.
Getaround’s raise signals that the company is looking for new ways to secure cash without further diluting executives or investors.
A Getaround spokesperson said “Horizon presented an opportunity that provides us with additional capital to accelerate our plans in the same way as our recent Series E fundraise.”
Dan Devorsetz, Horizon’s chief investment officer, told TechCrunch that venture debt has been a part of Getaround’s financing strategy for 2020.
“It diversifies funding sources and lowers their overall cost of capital, while also mitigating the dilution impact of incremental equity,” he said. While he wouldn’t clarify on where the debt capital was going, he said that the debt is allowing Getaround to accomplish both “working capital needs and long-term strategic growth initiatives.”
Getaround, like many travel-related startups, struggled in the beginning of the pandemic as governments issued stay-at-home orders in an effort to keep the disease caused by coronavirus from spreading. Bookings dropped 75% in March, forcing Getaround to lay off 100 employees. The company also applied and received approval for a Paycheck Protection Program loan to help retain workers. Getaround previously told TechCrunch that the program “helped reduce the otherwise severe impact on the health of our organization,” due to lockdowns and coronavirus restrictions.
Demand returned in May as travelers turned to cars instead of flights for short-distance trips. Getaround CEO Sam Zaid last told TechCrunch that worldwide revenue has more than doubled from pre-COVID baselines.
By July, Getaround said it had rehired all of its furloughed employees.
There have been scattered signs of a comeback throughout the mobility industry. This week, Uber had its highest close since IPO, and Lyft saw its ride revenues recover enough to give investors some calm.
The upshot: The green shoots have sprouted. But will another wave of COVID-19 nip those buds before they can establish roots?
Getaround’s decision to pursue debt financing so soon after raising a six-figure venture capital round could signal the company’s anticipation of another lockdown, and subsequent drop in bookings. Unlike other mobility companies, Getaround doesn’t own the cars, trucks and SUVs on its rental platform, a benefit that could help the company weather a short downturn.
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Reset Button is approaching student debt from a new angle
Student loan debt in the U.S. totals $1.5 trillion, and more than 44 million Americans have outstanding student loan debt.
According to research by Villanova law professor Jason Iuliano, a million student loan debtors have filed for bankruptcy in the past five years. However, 99.9% of them did not include their student loan debt in their bankruptcy filing.
This research was the seed of what would become Reset Button, a new startup founded by Iuliano and Rob Hunter looking to help student loan debtors who have gone through bankruptcy find a new way to include those debts in their filing.
The only way you can include student loan debt in a bankruptcy filing is through litigation. Those cases have been historically less likely to settle out of court than other types of civil cases.
This means that the cost of including student loan debt in bankruptcy filings is, at the very least, around $10,000. Now, if there was some guarantee that you could trade hundreds of thousands of dollars of student loan debt for $10,000-$15,000, you’d obviously do it. But most folks who are already in the process of filing for bankruptcy don’t have a spare $10,000 minimum to spend on a litigator. And even if they did, there is no guarantee they’d win in court, resulting in even more debt and no relief.
This is what Reset Button is trying to change.
To be clear, Reset Button is targeted directly at folks who have already filed for bankruptcy but were told they couldn’t include their student loan debt in those filings, and so they didn’t.
Here’s how it works:
Reset Button has built a network of litigation lawyers who have experience in seeking student loan discharges. When a new user fires up Reset Button, the startup sends them through an evaluation process that collects financial information, etc. to assess whether or not one of those lawyers could litigate the discharge of that user’s student loan debt. That evaluation factors in a number of signals, including past legal cases that are comparable to the user’s situation.
That process also does a lot of the heavy lifting that makes hiring a litigator so expensive. These lawyers often have to do tons of research, tracking down statements and bills and other paperwork, before they can truly get started with the litigation.
Reset Button, as the connective tissue between debtor and lawyer, is able to automate a lot of that process for the lawyers, delivering a package of information on the case and connecting the user with the right lawyer for them.
Reset is also looking to bring down the cost for debtors. The company charges either 12% of the total debt discharged, or $10,000 (whichever is lowest). Reset also allows users to pay that sum over time, in $300 monthly installments. This is in stark contrast to people who hire their own lawyer, who would be responsible for the costs upfront.
Reset Button is able to do this through a payment process called factoring. In short, Reset buys the receivables from the attorney’s fees, and charges the debtor with their own payment plan. Reset makes money from lawyers who pay for the lead generation, the technology services and the marketing apparatus.
Factoring has come under fire from some who say that service providers sometimes raise prices to account for their fee, but Reset Button co-founders Hunter and Iuliano say their lawyers are actually charging less because of the workflow optimization provided by Reset Button.
The company also provides a Knowledge Base for debtors seeking financial guidance and resources, but the only revenue stream comes from the actual litigation of student loan debt in bankruptcy filings. Other services like refinancing, debt consolidation or income-based payments are not provided by Reset Button, and the company has no official partnerships with those types of service providers.
However, Hunter said that it may be an avenue the company explores as it grows.
Perhaps most importantly, Reset Button offers a Fresh Start guarantee. In short, if the lawyer doesn’t manage to get your debt wiped, Reset will pay your legal bills.
There has been movement in the landscape of student loan discharges with bankruptcy.
Essentially, debtors must prove in court that they pass the test of “undue hardship,” which is a notably vague framework. Though there is a bit of variability among the various court circuits, the general idea is that a debtor must prove that they can’t currently pay back the loan, that there will not be a change down the line that will allow them to pay the loan in the future and that they have made every effort to pay the loans in the past.
Historically, that’s been a difficult threshold to cross for the fraction of people who take steps to litigate their student loan debt. However, in small ways, courts seem to be opening up the interpretation of undue hardship.
“There’s a phrase that gets used in these cases that I think perpetuates this myth, and that is to call it a ‘certainty of hopelessness’,” said John Rao, attorney with the National Consumer Law Center. “And it’s almost like, as long as you’re still alive and breathing, something could improve for you. That’s just an impossible burden. It’s basically saying you could win the lottery or something. That’s just not the standard I think Congress had in mind.”
In 2015, in a case between Robert E. Murphy and the DOE/ECMC, Rao wrote to the courts arguing that they should reassess the test for undue hardship:
Rather than adopt one existing test over another, we urge this Court to provide a formulation of the undue hardship standard in simple terms, that restricts consideration of extraneous and inappropriate factors not consistent with the statutory language. A finding about whether a debtor’s hardship is likely to persist should be based on hard facts, not conjecture and unsubstantiated optimism.
More recently, a judge in the Southern District of New York ruled in favor of a debtor, wiping more than $200,000 in Kevin Rosenberg’s student debt. Of course, the lenders will be appealing the case.
However, Judge Morris, who presided over the case, wrote in her decision that “most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans,” and that her “Court will not participate in perpetuating these myths.”
Reset Button has raised money from investors Craft Ventures, Slow Ventures and Jeff Morris Jr. of Lambda School, among others. The company declined to share its total amount of investment.
“Society has been led to believe something for decades that is not true, which is probably the biggest initial challenge,” said founder and CEO Rob Hunter . “One of the unfortunate things is the reason that many consumers believe incorrect information is because a lawyer told them that. So, that is a bit of an uphill battle to swim against.”
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The don’ts of debt for fast-growing startups
Roger Hurwitz is a founding partner at Volition Capital. He focuses primarily on investments in software and technology-enabled business services.
I work every day with company founders who are grappling with the challenges of driving business growth while keeping their finances on an even keel. One topic we often discuss is how to take advantage of debt to drive business growth — without it turning into a problem.
In my experience, debt can serve as a valuable piece of a company’s capital structure. The key is to use debt for the right purposes and to understand the implications of doing so. For example, short-term loans (one to two-year terms) are useful for financing receivables and inventory to help manage cash flow. These working capital facilities have attractive interest rates (often in the 5% range) and are well understood by the lending community.
By contrast, mezzanine loans (usually three to five-year terms) are better suited to provide the flexibility and runway needed to prove out certain initiatives prior to securing an equity investment or a liquidity event. These loans tend to have limited covenants, are not secured by specific working capital assets and are junior to the working capital loans. Given their higher-risk profile, they are more expensive than short-term loans, with lenders typically targeting a return of 15% to 20%, split between a current pay interest rate of 10%+ and expected stock appreciation from the receipt of warrant coverage.
Regardless of the type of debt a company takes on, there are certain principles to consider to keep the debt from threatening the success of the business. Should you decide to take on debt, understand the implications and consider the following five rules:
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Upstart banking company Dave is now worth $1 billion, as Norwest puts in $50 million
Two years after the Los Angeles-based fintech startup Dave launched with a suite of money management tools to save consumers from overdraft fees, the company is now worth $1 billion thanks to a nascent banking practice that had investors lining up.
The company used its overdraft protection service and money management display to shift customers’ focus away from the total balance that their account would show by giving them a sense of how much was actually left in their accounts once debits were included in their statements.
“What was cool about our financial management product was that we were trying to use Dave as a replacement for their current bank,” says Jason Wilk, Dave’s co-founder and chief executive.
Dave now counts over 4 million users for its financial management app and has roughly 800,000 people on the waiting list to use its banking services, Wilk says.
The company has taken a methodical approach to opening its doors as a digital bank, in part because it wants to have the necessary support infrastructure in place to service the demand that Wilk expects to see for its service.
“It’s one thing to help people with budgeting. It’s another to actually manage their money,” says Wilk.
Dave will use the $50 million raised from Norwest to significantly expand its product and engineering team within the next 12 months, in order to double down on the core business and ensure the success of the banking product.
“We can prove that Dave can be helpful by showing how we can help you manage your current account, and then Dave banking is the marketing lever from there,” says Wilk.
For now, customers need to have the financial management app installed to be able to access the company’s banking service.
Dave charges $1 per month for access to its financial management tools and that also gives customers the ability to use a cushion of between $50 to $75 to avoid being hit with overdraft fees from their current bank account. Dave asks for a tip every time a customer uses that cushion to cover expenses — something that Wilk says is still cheaper than having to worry about overdraft fees.
And, to add a bit of environmental spin, for every tip that Dave receives, the company plants a tree. “We plant millions and millions of trees,” says Wilk.
The company is FDIC insured through a partner bank, the Memphis-based Evolve Bank and Trust, which acts as a backstop for the company’s financial management activities.
“We already had a relationship with them for some payment processing stuff,” says Wilk. “We liked the team and liked the terms and went with them.”
Terms between financial services firms can vary, and, Wilk says, Evolve Bank was willing to give the company a good deal on splitting the interchange fee, which is a big source of revenue for upstart banks.
It’s possible that Dave could have received a bigger check at a potentially higher valuation, but Wilk says the startup is trying to stay lean.
“The company is growing so quickly, we didn’t want to get too diluted on this round,” he says. “We think the company is quite a bit more valuable than [$1 billion]. You don’t want to raise too much money too quickly if you really think the valuation is going to climb… Since we signed the term sheet the company has already grown another 40%.”
It was only four months ago that Dave was announcing a $110 million credit financing with Victory Park Capital and the launch of its banking product.
Dave’s products and services have a few advantages for customers that are just getting started on the path to financial security. The company monitors everyday monthly payments and reports them to credit agencies to improve customers’ credit ratings. The company also provides up to $100, interest-free, overdraft protection.
“Banks have failed their customers by building products that put their own interests ahead of the humans who use them. People don’t need predatory fees, they need tools that actually solve their challenges around credit building, finding work and getting access to their own money to cover immediate expenses. Dave is the banking product that works with its customers, not against them,” said Wilk, in a June statement announcing the funding and banking product launch.
While Dave is getting some hefty firepower and a generous valuation from Norwest, it’s also operating in a market where its core services that were a point of differentiation are quickly becoming table stakes.
Earlier in September, the new startup banking company Chime announced that it had hit 5 million banking customers and was offering its own overdraft protection service.
The San Francisco-based bank has also raised a lot more capital for a potential piggy bank to raid if it needs to acquire or spend on engineering talent to build out new products and services. Earlier this year, the company announced a $200 million round and said it had hit roughly 3 million customers. Clearly Chime is adding new banking customers at a torrid pace.
And they’re facing global competition as well. N26, the European startup bank with a $3.6 billion valuation and hundreds of millions in financing launched in the U.S. a few months ago as well.
The company sees a global opportunity to create new digital banking services in a world where large amounts of capital and an elite set of consumers move easily between international markets.
“We have an opportunity that we build a bank that has more than 50 million users around the globe. Today, we only have 3.5 million users but we’re accelerating,” said N26 chief executive, Valentin Self, in an interview with TechCrunch. “From a country perspective, we have agreed already that we go to Brazil. There’s no plan after Brazil yet. Now let’s focus on the U.S., then on Brazil, then next year we’ll find out what’s the feedback from these two markets.”
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Which type of funding is actually best for your business?
Jared Hecht is the co-founder and CEO of Fundera, an online marketplace for small business financial solutions including small business loans. Prior to Fundera, Hecht co-founded group messaging app, GroupMe.
When starting a tech company, there seems to be a playbook that most entrepreneurs follow. While some may start with a bit of bootstrapping, most will dive straight into raising seed money through investors. In many cases, this is a great path. It’s a path I’ve taken twice myself, first with GroupMe, and then again with Fundera.
Ironically, though, my second venture-backed company is a business focused on helping entrepreneurs find debt financing—a process I’ve gone through only once myself. But after five years of building and scaling this business, it’s made me take a step back and consider the question of when and where debt financing might be a better option for a business than equity financing, and vice versa.
I view these financing vehicles differently now than I did half a decade ago, and think it’s time we start to think a bit wider and diversely about how we finance our growing endeavors.
After all, when entrepreneurs take venture capital, they usually sign up to provide a 10x return on an investor’s capital. This expectation ultimately influences how they operate their business in the short-term. Maybe they’re not always ready for that expectation.
Or maybe they know they need to focus on building a good business before a great one. In this case, debt may be the better vehicle, where the only expectation is to pay it back.
Whether it’s money to get your business off the ground, capital to fuel additional growth, or cash to cover a gap, and whether you’re guiding the growth of a burgeoning startup, a smaller business, or even consulting firm helping other entrepreneurs, you should think critically about how you finance your business.
Here’s what to consider.
The power of debt
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New reports confirm $1.15B leveraged loan raised by Uber at 5%
Two weeks ago, we reported that Uber was in talks to raise $1-2 billion in leveraged loans. The Wall Street Journal is circulating new information that the company has closed a $1.15 billion leveraged loan, with a 5 percent yield. This number comes in on the low side of our previous estimates. Last month, sources confirmed to TechCrunch that Uber had plans to raise $1-2 billion in… Read More
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