Non-dilutive capital a growing fintech option

I80 Group meets an essential but largely unmet need in fintech — scalable, non-dilutive capital, its founder and CIO Marc Helwani said.

Their goal is in the name i80, which is the highway connecting San Francisco and New York, Silicon Valley, to Wall Street. For years before starting i80, Helwani kept hearing from founders about the challenge of finding growth capital that did not involve an equity stake. This was especially true for capital-intensive firms.

“I think it was much more function that historically, to take credit in venture capital was a four-letter word,” Helwani said.

Credit pandemic-influenced behavior shifts for opening investors’ minds to new possibilities, Helwani said. Historically they saw fintech as riskier, but the shutdown highlighted its importance as an enabler.

“Fintech historically had a risky connotation to it,” Helwani said. “They’re just riskier. But I think that flipped on its head post-COVID. And I think we, along with many others, were a beneficiary of that as the tech was no longer a risk. Tech was an asset. We saw a big inflection point around July 2020 in our business, and I think it has to do with COVID.”

Helwani believes most of those pandemic-influenced behavior changes will last to some degree. Sure, folks will occasionally still go to the grocery store or bank, just not as often after seeing the convenience of online options.

Why credit will become increasingly important in tech

Venture investors have accepted that fintech is here to stay, Helwani said. Roughly 20% of VC money is devoted to the area, making it the largest category. That would have been laughed at five years ago.

And why shouldn’t the venture ecosystem offer equity and debt just as other areas do? Helwani traces it back to negative connotations for startups seeking debt. With equity deals so prevalent, why would such companies consider debt? Did equity investors shun them?

Credit can be empowering if used appropriately, he said. Their stake won’t be further diluted for the founders and any VCs already aboard.

That is increasingly important as capital-intensive tech companies become more common, Helwani said. Consider proptech firms that buy homes to either flip or rent. Gains in technology have opened all possibilities, but those company owners need cash to purchase properties. If a mortgage has existed for so long, why aren’t there more options for proptechs?

“I think the proliferation of those types of companies has created a greater demand for firms like us,” Helwani said.

ICONIQ Capital partnership to increase deal flow

In February, i80 inked a multi-year partnership with ICONIQ Capital that will allow i80 to pursue new opportunities. ICONIQ manages investments for the founders of Twitter, Facebook, and LinkedIn, and being associated with such a brand is essential in attracting quality deal flow, Helwani said. Every startup founder wants to be as successful, and an association with the elite through their money managers is essential validation.

“We have a similar view of the next growth phase for credit in the venture ecosystem,” Helwani said. “It’s been 14 months now, and it’s allowed us to source a lot more important to us. It’s allowed us to win more deals and be recognized as a leader in the space.”

Real estate innovation leads list of trends to watch

Real estate provides plenty of opportunities for innovation, which is reflected in i80’s company roster, including PeerStreet, Loftium, OpenDoor, and Properly. Loftium allows home buyers to move into a house while saving money for the down payment by renting a private suite. Properly lets people buy a new home before selling the old one.

The availability of data combined with the ability to interpret it is a significant growth area, Helwani said. Brightflow.ai gathers data from across a company’s channels into one platform, which leads to better forecasting and financial modeling. Capchase lets companies turn recurring revenue into growth financing. 

“I think you’re going to continue to see that trend, companies that generate data or can somehow consume data to sell a service,” Helwani said. “I think you’ll continue to see much growth there.”

DeFi’s promising, but it’s early innings

Helwani spends much of his downtime learning about decentralized finance and believes fractional real estate will be huge. Don’t expect it within the next few years, as there are many issues, such as ensuring only qualified investors are allowed to participate.

“There are many things that need to play out for a firm like ours (first). I’m a little bit more bullish on it as an individual instead of exactly where it plays into the i80 ecosystem. And given that we don’t write equity checks, it’s not like we’re placing little bets and waiting to see how they all play out. As a lender, you know, our fiduciary is still to structure the right transactions, and I think the role of Defi will take a little bit of time. Not to be negative, it’s just not on the cusp for us.”

Where many startups go wrong

Helwani said he remains bullish on e-commerce’s post-pandemic future, but i80 is selective when it shakes hands with a platform. Of the 75 companies they’ve met with, they’ve signed two deals (a third is in the works).

The overall market is gigantic, with roughly $15 billion raised. An impressive number, but it’s just scratching the surface.

Still, startup founders see significant investments and make mistakes. They become undisciplined.

“You think it’s a winner take, and sometimes those companies get into trouble,” Helwani said. “In the venture market, which is all these founders see every day, this company raised $100 million, or that company raised $70 million. It’s a very sensational market. Sometimes that’s good. 

“Sometimes that makes people feel like they’re missing out. As a result, they start moving faster, and by moving faster, they end up being less disciplined, and things start to fray. You quickly figure out what type of person someone is when they’re sitting across from you in negotiating and those looking for maximum leverage, maximum debt, really to stretch low, really push you to a place you know. Without a doubt, you have seen this for over 21 years. They’re typically the ones that get too close to the sun and get burnt.” 

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