CAN Capital (previously Capital Access Network) is an innovative business with a revolutionary financing model that has been flying under the radar since 1998. Over that time, the company has provided small and medium-sized businesses with access to $3.6 billion in funding and access to much needed capital they would otherwise never get from traditional banks.
“It all started with us pioneering a technique called ‘daily remittance’ and also known as ‘daily cycle.’ And not everybody gets this, but it’s the ability to remit payments every single day. Traditional lenders or traditional working capital providers will typically only take a payment once a month,” says CAN CEO Dan DeMeo.
Data is the key to the company’s success.
CAN has funded over 120,000 different merchants and collected across that period of time more than 100 million data points that form the basis for how the company learned to function well in this space and become disruptive and create a new market.
“We’re taking payments every day, and the strength for our company is that we have the visibility to that asset every day, and we’re collecting that information every day, so our models are being strengthened on actual results. We’re able to use that to successfully manage our customers’ relationship with us.Three out of four of our customers renew and repeat business with us.,” continues DeMeo.
Originally started by the company’s non-executive chairman’s wife Barbara Johnson. She had opened up a Gymboree franchise and realized quickly that it had peaks and valleys of revenue. There were times, especially in the summer when Gymborees aren’t as crowded that she needed some working capital to even out the business for the peak times in their business. So she was looking for working capital and had a lot of difficulty in approaching the banks who put up huge roadblocks for her. Like many entrepreneurs, she wound up developing her own solution to her financing problem and the original idea behind Capital Access Network was born.
“We provide an alternative in gaining access to capital for small and medium-sized businesses,” says DeMeo. Fifteen years later the company continues to evolve and innovate around its core and build out the daily remittance model, bolstered with the experience being able to mine that data and use it to make better decisions and create new products and services.
Why aren’t the traditional banks following CAN’s model? DeMeo feels the banks haven’t been able to dedicate the innovation and the development attention to this category just because there’s a lot of legislative, regulatory pressures, and with that come a lot of distractions. “I’m often asked, um, are you competing with the banks? Do you worry about the banks? Uh, from our perspective, it’s just where the banks haven’t focused and to the extent that we could help banks and partner with banks that’s a consideration for us too,” says DeMeo.
Banks also see small and mid-sized business financing differently. Banks typically only look at personal credit profiles for small business merchants. CAN’s techniques are primarily based on looking at the business history: the health of the businesses, the consistency of the business, and the financial wherewithal of the business. That perspective allows CAN to have a very significant approval rate for those that apply. “We have a very high yes rate. We say yes almost 70 percent of the time for those that fill out the application. And the other thing is the speed to funding in our business is on average days versus at least months for alternative traditional lenders in this space,” continues DeMeo.
Where does the business grow and expand from here? “Last year we provided more than $800 million of working capital to small and mid-sized business. We grew it pretty significantly versus the prior year and the financial fundamentals of this company are very strong. We’re continuing to strengthen our user experience. We were formally known up until November of this year as Capital Access Network, so we re-branded the company and, and about 3 years ago we launched a direct loan product. We’re really one of the very few companies that provide access to working capital that have a two product solution. And those two products are best described to the merchant as one that has a floating payment option and one that has a fixed payment option,” says DeMeo.
The company is private and just recently raised an equity round led by a Silicon Valley private equity firm, Meritech. Accel, who had invested at the end of 2010 –increased their investment in the company. QED, who is led by Nigel Morris, who is the founder of Capital One upped his investment. He already had a small investment in the company, and he’s a Vice Chairman on the Board of Directors. This also includes another private equity firm, Ribbit Capital, led by Mickey Malka, who is a serial entrepreneur in the technology, financial technology space.
When might the company tap the public markets? “It’s a consideration within the entire strategic set of what we’re trying to accomplish. We have a very strong balance sheet, so we’re not forced into any transaction. And as we study the market, the decision to go public is about company readiness and it’s market readiness – we continue to build out the capabilities in the company so that the company can realize its full value and measure that readiness juxtaposed to the market dynamics. However, there is no specific date, but we’re really energized, tremendously excited to keep recognizing the capabilities of what we can accomplish in the market,” says DeMeo.
If CAN Capital is not your typical financing organization, Dan DeMeo is not your typically banker CEO. Born and raised in Atlantic City, Dan spent much of his career in money center banks. He grew up in the credit card business at Citi Bank, then GE Capital, and later J.P. Morgan Chase. “My career has evolved to many functions. I started in finance and accounting as a young man out of school but oftentimes in financial services or unsecured lending, it’s very quantitative and behavioral. And, in my case, that evolved into a lot of general marketing experience, and that’s how I came up through the ranks. I was a Vice President of Marketing at Citi Bank. I left there and went to GE Capital and was the head of marketing for one of their consumer finance business and business development. So, at least half of my career is in growth and marketing, and then when I went over to J.P. Morgan Chase, I became the CFO of on its business units, says DeMeo. Dan bring this rare combination of financial discipline, balance sheet management in conjunction with this very strong appetite and capabilities around growing a business.
What does the future hold for CAN Capital? “We’re right in the middle of Silicon Alley. We’re we’ve got great engineers and a technology mindset. We’re creating electronic access points that supports our distribution and our products. I feel CAN Capital can continue to dominate in the space and it’s my intention to maintain that position for a long time,” says DeMeo. But he also sees the potential to securitize his portfolio going forward. “We’d be the first in the in the asset class,” concludes DeMeo.
Bruce H. Rogers is the co-author of the recently published book Profitable Brilliance: How Professional Service Firms Become Thought Leaders now available on Amazon http://amzn.to/OETmMz
This article was written by Bruce Rogers and Bruce Rogers from Forbes and was legally licensed through the NewsCred publisher network.