OnDeck (previously On Deck Capital) is a technology-enabled financial platform that provides loan financing to small and medium-sized businesses in the United States. Founded in 2006 and headquartered in New York City, the company uses proprietary software to aggregate data about a business’ operations, which is processed by an algorithm that determines loan eligibility. As of 2014, OnDeck had funded more than $1.7 billion in loans.
After its IPO on December 17, 2014, OnDeck was valued at approximately $1.3 billion. During the IPO, the company’s stocks rose 38% and closed at $27.98.
OnDeck’s founder Mitch Jacobs is a financial software engineer and entrepreneur who founded an off-campus merchant payment system at Dartmouth College in 1993. In 2010 he received the Ernst & Young "Entrepreneur of the Year" award.
Jacobs came up with the concept for OnDeck—and built its loan evaluation software—after he noticed that financial institutions were unwilling to spend the time and money on performing due diligence for small businesses seeking loans smaller than $100,000.
He hired the company’s first employee, Noah Breslow, at the firm's founding in 2006. Born in Brookline, Massachusetts, Breslow received a computer science degree from MIT and an MBA from Harvard Business School. Prior to joining OnDeck Breslow worked at two satellite startups, including Bill Gates’ Teledesic. In early 2006, the company raised its first venture financing in a round led by First Round Capital. In January 2007, OnDeck received $15 million in funding from Sapphire Ventures, a corporate information technology investor. Through the investment, Sapphire Ventures Managing Director David Hartwig was appointed to OnDeck’s board of directors. In August 2011, the company raised $19 million in Series C funding.
Noah Breslow became OnDeck's CEO in early 2012, when Jacobs left the company to "work with nonprofit microlenders". In August 2012, the company secured a $100 million credit facility from Goldman Sachs and Fortress Investment Group. In December 2012 Breslow was in acquisition talks with Wonga.com, a London-based payday loan startup, but negotiations ultimately fell through in January 2013 because "the deal would have valued OnDeck at less than $250 million", which Breslow and his investors saw as too low.
In February 2013 Institutional Venture Partners led a funding round with RRE Ventures and First Round Capital that raised $42 million in Series D financing, and by May 2013 the company reported that loan volume was up 100 percent over the previous year and that it had funded more than $450 million in loans and had raised approximately $100 million in credit facility funding.
In May 2013 Google Ventures, along with Peter Thiel and Industry Ventures, invested $17 million in OnDeck in an expansion to the Series D round, bringing the company’s total Series D funding round to $59 million. In September 2013 OnDeck announced $130 million in increased credit facility commitments with assistance from Deutsche Bank, Key Bank and Square 1 Bank.
In March 2014 OnDeck raised a $77 million growth investment round that was led by Tiger Global Management, which would help "accelerate new product development, geographic expansion, marketing and hiring".
On November 10, 2014, OnDeck filed a prospectus for an initial public offering (IPO) that valued the organization at around $1.5 billion. The IPO, which took place on December 17, 2014, was underwritten by Morgan Stanley, JPMorgan Chase, and Deutsche Bank, among others.
According to Forbes Magazine, the day before the IPO took place, OnDeck had raised $200 million in its IPO, resulting in a price of $20 per share for the organization’s 10 million shares. When the stock opened, it was priced at $26.50 per share, which was 32% higher than its pricing.
OnDeck stock climbed almost 40% during its market debut, and at the close of its first day of trading, the organization’s shares closed up at $27.98.
OnDeck provides short-term loans ranging from $5,000 to $250,000 to small and medium-sized enterprises. The company charges a percentage based on loan amount and terms; Bloomberg Businessweek reported that according to "a document it sent to investors in the spring [of 2014]", OnDeck’s interest rates averaged 54%.
Competitors include Wonga.com, Kabbage, CAN Capital, as well as giants like Amazon.com that are looking to expand into lending.
OnDeck makes loans to a range of industries, including restaurants, retailers and other service providers. The company currently provides loans to more than 700 industries based in all 50 U.S. states. As of June 2015, it has provided loans to over 30,000 businesses in the U.S. and Canada. Its average loan size is $45,000.
Criteria for loan approval include having a business checking account, being in business for at least one year, and processing at least $3,000 in credit card transactions every month. Companies that don’t accept credit cards are required to have been open at least two years and must possess an average monthly bank account balance of $3,000.
The OnDeck Score® is OnDeck's "proprietary assessment of creditworthiness that pulls in more and better data than banks do". OnDeck takes a big data approach, analyzing "thousands of variables" such as cash flow, credit profiles, social networking data, and public records. OnDeck's software only takes between ten minutes and four hours to process a loan request, unlike traditional lenders, which can take several weeks. After approval, funds flow into the borrower’s bank account the next day. During repayment, the company takes a small credit from the borrower’s checking account each day.
The company’s CEO commented that the scoring system is “the Main Street equivalent of the FICO”. The OnDeck Score is hosted by consumer credit reporting agency Equifax and is available to all lenders.
In a November 2014 article about OnDeck's impending IPO, Bloomberg Businessweek described OnDeck as having two modes of operation. One mode, reported the article, involves building partnerships with organizations like Google Ventures and Goldman Sachs, while the other mode involves paying independent brokers a commission for bringing customers to the platform. The article compared OnDeck to a merchant cash advance for businesses, but noted that "Although OnDeck pushed loans costing double or triple the rate of a credit card, they were still more affordable than most cash advances."
The article went on to report that OnDeck's independent brokers were responsible for bringing in 39% of total loans in Q3 of 2014 and that they "brought $349 million of loans to OnDeck so far [in 2014]". Another article described OnDeck's brokers as being "ruthlessly effective at signing up customers", and at they were partly responsible for the company's growth of 1,233% between 2008 and 2011.
In response to the Bloomberg Businessweek analysis, OnDeck's CEO Noah Breslow said, "We audit the brokers through the customer feedback… We terminate brokers all the time. I think cleaning up this industry will be a good thing."