Our Investment in LendingFront

We are excited to announce our investment in LendingFront, a digital platform for Small Medium Business (SMB) lending operations. Led by co-founders Jorge Sun (CEO) and Dario Vergara (CTO), the LendingFront platform gives banks and other small business lenders access to the most sophisticated technology in the market for originating, underwriting and servicing small business credit, a category Jorge and Dario know well.  Before founding LendingFront in 2015, Jorge and Dario were among the earliest employees at OnDeck Capital (NYSE: ONDK), a company founded in 2007 that pioneered direct-to-business digital lending for SMBs. Jorge as a member of the founding team (employee number 3) and Chief Credit Officer; Dario as the first technical hire and SVP Technology. After departing OnDeck, Jorge joined Capital One as Head of Small Business Credit and Dario was VP Technology at Bonobos (acquired by Walmart) before reuniting to start LendingFront.

We believe the legacy lending infrastructure of traditional lenders and other financial services organizations are ripe for digitization and modernization in a cloud era. The mostly manual processes that are engineered around these legacy systems result in loans that take weeks or even months to adjudicate and fund. The higher non-interest expense associated with this legacy process compress lender margins, which require higher interest revenue or larger loan size to make the lending economics work. It should then be no surprise that these processes are ill-suited for SMBs (and increasingly other larger organizations) where required loan sizes are lower, business growth is dynamic, and thus decision timeframes of weeks/months are not acceptable.

Jorge and Dario recognized this problem and built LendingFront, an end-to-end modular lending technology solution. We believe LendingFront’s innovative technology is best-in-class, helping to fill a gap in the market for financial institutions of all sizes to offer useful SMB lending products finally. SMBs are a major economic driver of the global economy. In the U.S., SMBs constitute 99.9% of all U.S. businesses, nearly half (47.5%) of all U.S. employment, yet only around 13% of loans from deposit-taking institutions[1]. OnDeck and other direct lending models have proven there is sufficient demand from small businesses. In addition, we also believe LendingFront’s lending technology is also well-suited to service medium and large corporate borrowers, as financial institutions increasingly shift systems from on-premise into the cloud. Its modular approach allows for customers (incumbents or new lenders) to license the whole product or only specific areas such as originations, underwriting, servicing/collections and syndications.

We had met Jorge through an introduction from a seed investor and personal contact at the fund. In 2017 we met Jorge in New York to learn more about him as well as LendingFront. We were impressed by the co-founders’ domain expertise, background and FinTech startup experience in lending. We saw Jorge as a pioneer in SMB direct lending. The knowledge he gained at OnDeck coupled with his passion for online lending led us to believe that he could be the right founder to succeed in this emerging category. LendingFront had some early traction with various financial institutions however at the time the company was too early for us to invest in, so we left with the promise to keep in touch and to circle back in 2018.

Both parties kept that promise. When we re-engaged in 2018, the whole team was impressed by Jorge’s success. His existing customers were thriving, and he had acquired an impressive roster of new customers. The platform we saw was very flexible and provided end to end use.

“After working with legacy lending technology in previous positions, the investment team knew firsthand how cumbersome it can be. These legacy platforms are also focused on larger sized clients and are built on stale technology that doesn’t provide the flexibility needed to meet the needs of the current market,” says Dave Unsworth, Co-Founder and General Partner, and Alex Tong, Associate of Information Venture Partners. “There is a significant demand for cloud-based SMB lending products. We believe that the SMB segment is an attractive market for incumbents to leverage and is currently underserved by financial institutions. We think that by leveraging new technology, incumbents can be more agile and easily experiment relative to other products and business units with more inertia and established processes.”

When discussing its Series A round, Jorge states “We are delighted to have our Series A round led by Information Venture Partners. There is a tremendous opportunity in front of us, and we felt Information Venture Partners understood our vision for transforming the world of lending technology and small business finance. Their background and deep domain expertise in B2B FinTech stood out to us. We are excited to work with them, and we look forward to building this company together.”

The future for LendingFront looks bright, with their initial focus on SMB lending. We have watched Jorge, Dario and team grow their business, developing a self-serve orientation that SMBs are accustomed to using. With this Series A funding, LendingFront has plans to expand their team hiring for sales, marketing and engineering roles. We are excited to watch LendingFront grow, and to see how they will directly impact the future of lending.

[1] U.S. Small Business Administration (2015,2018). ~13% indicates loans as a percentage of total assets.