A Canadian entrepreneur said his dual interests in disruptive technology and the need to help Canadians led to the creation of Canada’s first marketplace lender for small businesses.
Steven Uster said the idea for FundThrough began back in 2009 when he was an investment banker in New York. It was then that he returned to Toronto and talked to many people who had trouble getting loans from banks.
The problem was not that these businesses were yet to be established, Mr. Uster said. They had extensive clientele and stacks of purchase orders on their desks, but banks did not seemingly recognize that when assessing risk.
Mr. Uster was also interested in how technology could help startups disrupt existing sectors, so he partnered with two associates – his mentor Deepak Ramachandran and Graham McBride. Mr. Ramachandran had established several businesses in software, outsourcing, and electronics and was an active angel investor. He was working at hedge fund Bridgewater Associates. Mr. McBride was the Managing General Partner of VenGrowth Group and built MezzGrowth Group.
Mr. Uster said the initial idea was not to facilitate easier access to capital, but it soon became apparent there was a tremendous need in that sector. That is when FundThrough began investigating the feasibility of using technology to make small loans profitable.
“The stats say loans under $250,000 are not profitable,” Mr. Uster explained. “It also takes 30 person-hours to apply for one.”
[caption id="attachment_21819" align="alignleft" width="541"]“The first place a Canadian entrepreneur goes for access to capital is the bank,” Mr. Uster said. “If a bank turns them away, the next step can be hard.”
The Canadian financial system is also more conservative than its American counterpart, so Mr. Uster knows FundThrough has to work to gain borrower trust. That step is easier because FundThrough is backed by well-known venture capital firms and investors, he added.
Marketplace solutions are not as well known in Canada so sector awareness is lagging but once it catches up Mr. Uster believes they will be just as popular.
New companies test FundThrough by starting with small invoices and graduate once they see how simple and quick the process can be.
Another important difference between the two countries is the United States has a much more well defined peer-to-peer regulatory framework which allows retail investors to participate in fractional loan ownership.
“It does not impact FundThrough, but it would be nice if the average Canadian could earn greater returns this way.”
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