Revisiting SaaS Securitization

Plus Ten Other Boston Companies that Raised $115M+

Hope you all had a wonderful labor day weekend. If you’re looking for some motivation to get outside and enjoy the last weeks of warm weather, just remember that September is already 25% over.

If you’re new here, welcome! My name is Nick Stuart and I’ve been writing a weekly newsletter about Boston-area technology companies that have raised capital for about a year now. The goal is to provide more consistent coverage of a geography that many think is criminally under-reported given its historical outcomes. I don’t think I’m single-handedly solving the problem, but this newsletter helps me learn more about these quiet companies and hopefully teaches you something as well.

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Fintech Spotlight: Capchase 💸

A month ago, I wrote about why the securitization of SaaS revenue might be the next big thing in non-dilutive financing for startups. Startups like Pipe are helping software companies with strong revenue securitize and sell their accounts receivable on an investor marketplace in exchange for working capital. The central idea is that recurring revenue companies shouldn’t be selling equity for cash to cover highly predictable expenses, such as customer acquisition.

In that post, I had also mentioned a similar Cambridge-based company called Capchase, which went on to raise a $4.6M seed round last week led by Caffeinated Capital, Bling Capital, SciFi VC, BoxGroup, and ONEVC. It’s a pretty interesting bunch of non-New England investors that have collectively backed well-known fintechs including Stripe, Ramp, Brex, Plaid, Coinbase, and Square.

From TechCrunch:

Startups upload key details of their customer contracts and financial history to Capchase, and the company uses its underwriting algorithms to quickly assess the quality of those contracts and extend a debt line. The startup calls itself part of the “non-dilutive revolution,” and it’s headquartered in Boston.

Unlike Pipe, Capchase doesn’t appear to be selling Accounts Receivable contracts on a marketplace to investors. They seem to be more of a vertically-specific lending solution offering something similar to AR lines of credit only. They’re betting that a speedy and algorithmic approach to lending debt will make them more attractive to startups than traditional debt.

How They Make Money:

When startups get their annual AR amount up front from Capchase, they're really getting slightly less than the total amount, and Capchase is skimming small percentage off of it to collect from the startup’s customers. It apparently ends up being a bit more expensive than regular venture debt, with the benefit being a much faster time to close and no warrants.

Aside from working at a company that issues a product that Capchase hopes to disrupt, I’m pretty interested in this space for a few reasons:

  • Building a competitive moat probably won’t come from the pricing of these contracts, because capital is mostly is a commodity. The best VCs and debt lenders already know this. So, where will the moat come from? More efficient pricing of debt? The speed of execution from intro to cash in account? (Capchase claims they can underwrite this debt in hours, and will soon be able to in minutes). But how long can speed remain a moat?

  • I’ve heard bankers talk about the idea that these companies might end up being more of an API play that banks use as underwriting software for lending to SaaS companies. I doubt that a Pipe or Capchase could be competitive in lending deals against technology banks (for now) — but maybe they’d have better luck selling to them? Although, you’d think if SaaS lending could be done 100% by an algorithm that banks would be doing this by now. They’d have much more data to create the algorithm too.

  • With that said, it’s easy to doubt companies that are “unbundling” banks at first. Why would a vertical banking product perform better than a company with dozens of identical and well-performing products? I’m sure that back in 2017, industry insiders doubted that a little company called Brex would gain any traction. As a16z puts it, Fintech Scales Vertical SaaS.

  • I’m all about exploring new and interesting ways to finance companies outside of the traditional debt/equity combo, and this method is certainly interesting. Definitely hit me up if you’d like to chat more about it.

More:

Pipe’s CEO Harry Hurst and angel investor Jason Calacanis had an interesting and informative beef on Twitter recently about how Pipe works.


Stuff I’m Reading:


Other VC Financing Deals:

Nebulous 🌎

Last month, Axios reported that one of the most highly-anticipated decentralized storage platforms was caught in an investor revolt from a $200M+ fundraise held three years ago. The kicker? They haven’t even fully launched yet. Meanwhile…

Per a Form D, Boston-based Nebulous just raised $6.2M in equity. Nebulous is the parent company of decentralized storage platform Sia and ASIC mining hardware company Obelisk. Back in July of 2019, they raised $3.5M led by Bain Capital Ventures. Other previous investors include SV Angel, Collaborative Fund, and Bessemer Venture Partners. Early seed investors included Boston-based Raptor Group and First Star Ventures.

They’re building a completely decentralized file sharing platform for the open internet. Much like bitcoin transactions being confirmed on the ledger by thousands of others on the network, files stored on Sia’s network are securely distributed across nodes around the globe. Unlike traditional cloud computing, there’s no central point of failure that could lead to network downtime.

More:

Nebulous’ COO recently branched off to start a Boston-based crypto cold storage wallet company called Foundation Devices. They focus on providing a truly open-source Bitcoin storage experience — something that other big names in the space like Ledger have failed to provide.


ecoText 📚

Over a year ago, my close friends and classmates at UNH began building an EdTech company called ecoText to decrease the pricing and environmental impact of the traditional college textbook. This past week, they successfully crowdfunded $166K+ on the NetCapital platform at a $2.5M valuation! The NH-based company is a web and mobile application that helps students view and interact with their course materials. For now, they’re focusing on being the one-stop-shop for Open Education Resource (OER) licensed textbooks, but will continue to build out relationships with other big-name book publishers. Bram Berkowitz from The Buzz put together a great summary about them back in May.


Biofourmis 😮‍💨

Softbank’s Vision Fund and Sequoia made their latest foray into the Boston tech scene with a $100M Series C investment into Biofourmis. Founded in 2015, the company has created a wearable hardware product and accompanying software platform for detecting various vital signs for better-personalized drug delivery. More recently, they’ve focused on COVID detection.

I recently purchased an Oura Ring wearable and I couldn’t be more bullish on the future of biofeedback and personalized insights on physical health. I think we still have a few years to go before these things are perfect, but we are getting really close. Also worth checking out consumer wearable Levels.

More:

Amazon launches Whoop clone, and the data might be sold to insurers


Unytalk 🎥

According to Crunchbase, Sharon-MA based Unytalk just raised an undisclosed seed round. Founded by Mahendra Penumathsa, they’re building a back-end solution for hosting remote events. Why? My guess:

This is true in my opinion. Zoom’s meteoric growth was part of a short-term solution to a bigger problem. The real goldmine is building a platform for customized back-end solutions for anyone to build a video conference system. I would place my bets on companies like Daily, Mux, and Agora who are building APIs for on-demand video.


Immuto 💻

Two-year-old Immuto is building a platform to help others build digital health applications that deal with sensitive data. It kind of sounds like a HIPAA-compliant Retool. They went through Techstars and MassChallenge and recently raised $120K from Techstars, according to Crunchbase.


Slang 🎤

Slang is a seven-year-old EdTech company helping non-English speakers become fluent in English while studying career-specific courses. They just raised a $2.5M convertible note from LatAm-focused ALLVP and several other South American VCs. The company was spun out of MIT and is led by Diego Villegas.


Humanity 👵

I wrote about Humanity back in March when they raised $2.38M to help users find out how they can live longer. According to Crunchbase, they’ve now raised $2.5M from Boston-based One Way Ventures, Esther Dyson, and Serge Chiaramonte. The company is on a mission to create a subscription-based app to help users monitor key biomarkers associated with aging and ideally take action to improve those markers. Founded in 2017, Humanity is led by Peter Ward and Michael Geer (both of whom are actually UK-based).


Preddio Technologies 📡

Pre-launch industrial IoT startup Preddio Technologies just raised $1M. According to Linkedin, They’re a “provider of industrial instruments for measurement, control processes, and cloud services” being led by Aaron Gannick.


Some Boston Companies That Raised from YC:

These three companies New England-based came out of YC’s summer batch the other week (I covered my favorites here). They each raised $125K from the accelerator, so they’re definitely worth profiling:

Biocogniv 🏥

Biocogniv is a Burlington, VT-based company that launched specifically in response to COVID-19. It’s led by ex-Twitter and Magic Leap engineer Artur Adib.

From their website:

We are developing artificial intelligence models (patent-pending) that can screen and predict outcomes for COVID-19 within the first hour of presentation to emergency departments using only routine blood tests.


Acho 💽

Acho is a Boston-based company building a no-code data warehouse tool for building projects with disparate data sources. It eliminates the complexity of running SQL queries for big data projects and integrates as many apps as you need. There’s also a separate Exchange component where you can use other compiled datasets.


Arist 📱

Arist is another startup fresh out of YC that’s based out of Wellesley, MA. Co-founded by Michael Loffe, Ryan Laverty, and Joe Passante, the company is building an education platform that helps enterprises text employees entire educational courses, question-by-question. They’re betting on the increasingly popular idea that text messages have the highest rate of engagement and accessibility among messaging mediums, so we should deliver educational content through them.

Also: I recently wrote about Boston-based Tone, which has a similar hunch about SMS engagement, but for decreasing eCommerce churn.


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That’s all from me until next week — If you’d like to connect with me, you can find me on Linkedin and Twitter or check out my website at nickstu.art.

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