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April 18, 2016 Issue

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Lender providing Working Capital for Digital Businesses using Non-traditional Methods for determining Credit Worthiness such as Digital Presence and Website Traffic Metrics

 

 

Interview with: Patrick Izzo & Benjamin Lichtman - Co-Founders, Lendvo

 

Lendvo Working Capital

  

CEOCFO: Mr. Izzo, what is the concept behind Lenvo?

Mr. Izzo: The concept behind Lendvo is that finance is kind of a slow business and digital and tech are fast businesses. The ability for most lenders, whether they are banks or other small business lenders, to effectively underwrite small-to-medium sized business loans and price risk is very templated and doesn’t always work for digital businesses. It is based on a brick and mortar underwriting process that cares about things like landlord references, credit references, site inspections, or more traditional forms of cash flow analysis. The traditional underwriting process does not contemplate all the digital metrics that we look at and these are part-and-parcel of identifying risk and credit worthiness in digital businesses. We combine the financial metrics that a lender might look at for a normal business, with digital metrics and digital tools to come up with a secret sauce that allows us to price business credit risk better than other lenders.

 

Interview conducted by:

Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – April 18, 2016

 

CEOCFO: What are some things that you might look at to help you gauge whether someone is creditworthy?

Mr. Lichtmman: We try to understand a website’s traffic pattern to see where visitors are coming from, as there may be fraudulent traffic, what kind of visitors they are, how they are behaving once they get to a website. A second thing might be a digital presence and reviews of businesses throughout the internet and different communities and forums. A third might be understanding their digital marketing pipeline where their propagating themselves, how people are finding them, what those costs of attaining customers are relative to what they are actually making from them, and what kind of lifetime value that sort of marketing mechanism is creating for them.

 

CEOCFO: Is there a base level where people need to be?

Mr. Izzo: We generally need to see at least a year of track-record, although we can make exceptions when we see a real high flyer that is taking off and doing really well. Sometimes there are businesses that may not have a year but they have some digital collateral like websites or domain names that are really valuable, which we can understand and collateralize.

 

CEOCFO: How do your previous experiences allow you to work in this situation where a fair amount of judgment is involved along with the metrics?

Mr. Lichtman: I think that our experience plays a big role in how we underwrite loan files now. My experience is primarily in the arena of domain name monetization and internet traffic monetization as well as fraud detection for internet traffic. Patrick has a lot of experience on the finance side, working at specialty finance companies. Together, where there is overlap, we are applying both traditional financial underwriting methods as well as techniques on the digital side to marry the two together to build a cohesive picture about the potential borrower. We are doing things like leveraging our past experience from cash flow underwriting, also leveraging out past experience from SEO and internet marketing optimization to understand what the profile of the borrower is and in cases of default, how we can monetize these digital assets of the borrower.

 

CEOCFO: How are potential clients finding Lendvo?

Mr. Lichtman: We are deploying a few different strategies. We have classic inbound strategies where we are working on our own SEO and creating publicity as well as developing different pieces of content that people read and use to their benefit and draws them to our website. We also work with different loan brokers in the industry who are already seeing loan applicant files and we are working with them to filter out the digital businesses and having them send them to us. We are also working on strategic partnerships with venues online where we think we can add a lot of value.

 

CEOCFO: How long has Lendvo been around?

Mr. Izzo: It depends on when you start the clock. We started trying to raise money in, I think about November or December of 2014. We closed our debt and equity rounds with investors, with hedge funds and some VCs in June of 2015 and then we had a bunch of compliance stuff to do and set up time, which means we started originating loans in September of 2015. We have been around for that time depending on when you start the clock and we have been originating loans since last September [2015].


CEOCFO: What are one or two things you have realized as you have started to actually put into effect your plan and work with businesses?

Mr. Izzo: I think a couple things we have seen is there is a tremendous amount of interest that is coming in on the equity side as far as investing in online businesses. It is being seen as a more stable thing, a more understandable thing, and there are many people who are trying to buy online businesses right now. One of our products is purchase finance for web businesses. We are seeing many new people coming into this space, pushing up valuations there and trying to get involved in pre-existing web businesses. Not just starting something themselves, but buying something from someone who has been running a site for two or three years and has provable cash flow. There is a lot of interest in that and I did not expect to see the growth just in the short period of time we have been around - but we have. The next thing is how little other lenders understand really important things about online businesses. We talked to some other lenders about deals that we have that they want to participate on, in a syndicated loan format, or sometimes other lenders come to us with loans for digital businesses and they just do not understand them. Therefore, they want our take and to offer us participation or just give them to us for a fee and not just how to look for risks but also the general business model. We knew from the start there was this competency gap but I guess we did not realize how big it was.

 

CEOCFO: Are you surprised that nobody else has figured it out yet?

Mr. Izzo: There are some other people doing stuff like PayPal, they have PayPal Working Capital, and they are doing stuff for their own merchants. There is Kabbage, who can fund some similar merchants and they understand digital businesses to some extent. I am not so surprised though because finance is a pretty conservative business I think and it moves much slower than technology does. What makes us unique is that our team has manpower, capability and experience. People in the internet understand internet businesses and how to look at an internet business for risk, but they do not know how to run a lending business. People on the lending side understand how to run a good lending business but they do not understand how to look at an internet business. I think it is probably rare that those two skill sets coincide. I think that is why debt finance has been slow to get into these businesses.

 

CEOCFO: How is the partnership working out? What are some of the challenges you have found as a team?

Mr. Izzo: It is sort of a double-edged sword. Ben and I are very different people and we think about things very differently and we would not be here if that was not the case. We will argue all the time but those arguments are usually really good. They are productive arguments that end up finding the right answers only because of those arguments. It is tough working with anyone when you have to be in the same room on the same phone call six and a half days a week, that is more time together than a married couple! It’s figuring out how to work with another individual because everyone is different and has their rough spots. You have to learn what your problems as a person are, how to ameliorate those and then how to work best with the other person.

 

CEOCFO: What do you see over the next year?

Mr. Izzo: I think we will be building up strategic partnerships with the right companies, looking for where we can add value to their processes and where they can add really good deal flow to our pipeline. Then refining our core products, tweaking them, maybe adding some new ones. We are just getting a sense now for what the market really wants and how we can improve on our products. I think we will be good and maybe adding some new ones, trying to grow our strategic partnerships. We are also going to be adding a sales team internally to originate more business that way.

 

CEOCFO: Why pay attention to Lendvo today?

Mr. Izzo: You should not pay attention to Lendvo because if you pay attention to Lendvo, you might decide to do the same thing and make money. No one should pay attention to us.



 

“The ability for most lenders, whether they are banks or other small business lenders, to effectively underwrite small-to-medium sized business loans and price risk is very templated and doesn’t always work for digital businesses… We combine the financial metrics that a lender might look at for a normal business, with digital metrics and digital tools to come up with a secret sauce that allows us to price business credit risk better than other lenders.”- Patrick Izzo


 

Lendvo

Lendvo Working Capital

 

Contact:

Patrick Izzo & Ben Lichtman

571-388-2870

support@lendvo.com



 


 

 



 

 


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