In March Purpose Financial acquired Thinking Capital, adding it to its portfolio of companies which also includes Purpose Invest, Purpose Advisor Solutions and Purpose Innovation Labs. A combination of cash and securities were exchanged.
“The combination of Thinking Capital and Purpose Financial will create a business with significant balance sheet strength, strong financial backing, and a diversified funding model,” the companies said in the release announcing the transaction. “This model will fuel Thinking Capital’s originations growth through improved access to capital at a reduced cost. In addition, the combination of direct originations with asset management offers the potential to create unique investment products.”
“Purpose Financial has an unrelenting focus on building innovative, technology-driven financial solutions,” Purpose Financial CEO Som Seif said. “Thinking Capital is a clear leader in the small- to medium-sized business lending space, with credit adjudication technology and presence that are unmatched in the Canadian market. This acquisition brings together leading origination, asset management, and technology platforms as a unified entity, and enables us to bolster our product capabilities and optimize the technology, distribution, and funding model of our combined business.”
Since the company’s inception in 2006, Thinking Capital has increased the size of the addressable market for SME credit by delivering more than $750 million in incremental funding to Main Street businesses.
“While 98 per cent of businesses in Canada are small businesses, many have limited access to capital to fund their growth. As an early innovator in this market, we have spent the last decade evolving the language of small businesses credit,” said Jeff Mitelman, CEO and co-founder of Thinking Capital. “Under the Purpose Financial umbrella our time to market on product innovation and funding capacity will be greatly amplified. We look forward to the new possibilities our union will bring to the small business community.”
Thinking Capital retains its Montreal headquarters and all employees will remain with the company. Mitelman will become a managing partner of Purpose Financial and will retain a meaningful equity position in Purpose Financial alongside existing investor TorQuest and Thinking Capital’s management.
Mitelman said Thinking Capital was an early entrant in Canada’s alternative finance scene and that provided it with a distinct advantage.
“Our approach to the market was we spent a few years aggregating unique data sources and developing primary relationships with large data sources.”
Instead of developing a public facing brand, Mitelman said they functioned underneath by enabling other brands to develop a more engaged relationship with their captive audiences, companies like Moneris, UPS and Staples. Those brands are trusted by their user bases, and the opportunity to provide a value added service without the developmental costs can deepen those roots with no added risk.
While thousands of banks compete for borrower attention in the United States, the top six Canadian banks control most of the market in a country with one-tenth the population of its southern neighbor.
The market for alternative finance in Canada is not as developed as it is in the United States. That makes it more challenging for some groups to access needed capital. That is one of the reasons Mitelman said is excited about the deal with Purpose Financial, as the well funded and diversified company can offer unique capital solutions to the Canadian marketplace.
Immediate access to established technology allows Purpose Financial to succeed in a rapidly moving finch space, Seif added. That technology is blended with a successful brand, accelerating its ability to grow and meet even more needs.
Canadian small businesses are not being as well served as single consumers are, Mitelman said. That leaves small business owners to seek consumer solutions to their business needs, such as home equity loans, personal credit cards and lines of credit. To make things worse, successful behaviors on the consumer side don’t help establish credit on the business end.
“Historically credit worthiness was a function of how well we repaid loans like our mortgage, credit card and auto loans,” Mitelman explained. Now with access to banking information, payment histories, and even social media behavior, those activities can be combined with traditional sources topping a more holistic picture.
“The opportunity we have is to use so much of the information that exists digitally and take the friction out of the process,” he added. “We can enable all customers to borrow in the manner they wish versus the way lenders sought to lend.”
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