Pipe Aims $100M at Embedding Working Capital Into Software

The most valuable solution is the one that is there when you need it.

And for America’s millions of small and medium-sized businesses (SMBs), they mostly share one common problem: access to capital.

Karen Webster sat down with Luke Voiles, CEO at Pipe, and Thomas Welch, partner at Victory Park Capital, to take a closer look at how embedded capital-as-a-service offerings are disrupting the status quo for SMBs by enabling more frictionless access to capital for businesses traditionally overlooked and underserved by traditional financing options — using transaction data and artificial intelligence (AI) and machine learning to predict risk, and create financing offers. 

“The number one pain point for small businesses is access to capital,” Voiles said.

He explained that by embedding financing solutions into the point-of-sale (POS) systems and software platforms that business owners rely on to run their daily operations, FinTechs like Pipe can connect small businesses with innovative capital and lending products that would’ve otherwise remained unattainable.

That’s because embracing a vertically integrated, data-driven approach allows for better risk assessment and servicing, and it shows up exactly where the end-user needs it most — in their business software and POS systems.

Working capital solutions can be tailored to specific business circumstances by capturing the anonymized day-to-day transactional data that reflects the true ability of a business to pay back the borrowed funds, Voiles added.

On Tuesday (June 11), Victory Park Capital, which has extensive experience in private credit, announced it was extending Pipe’s capital-as-a-service solution a $100 million credit facility that includes the potential to upsize up to $200 million in the future.

“It’s a powerful thing to give someone that has never had access to capital, but has an amazing small business. … It can be a huge multiplier,” Voiles said, noting that 85% of small businesses use external capital to invest in and grow.

Future of Small Business Financing

Insufficient access to credit represents a key challenge for SMBs, and it leaves them unable to invest back into their own operations to compete with larger competitors.

As Welch explained, despite expectations, traditional banks struggle to underwrite small businesses due to rigid credit criteria and risk models that fail to accommodate the fluid nature of small business revenues. At the same time, SMBs encounter credit application frictions when asked to pull together the necessary business histories and put up personal guarantees to get a modest credit line.

“Business owners don’t go to the bank anymore to go cash a check or get cash,” Voiles said, noting that many small business credit card teams can only offer cards to businesses that have been operating for at least three years and come with a personal guarantee. “It’s FICO-based underwriting.”

“This brings the banking system into the software where the businesses are spending their time,” he added.

He explained that small business end-users “go into the software, manage their appointments, handle what’s going on, and all of a sudden there’s a Pipe preapproved or white-labeled offer showing up in an already a trusted brand.”

Bringing Banking Into Business Software

Pipe says that its competitive advantage is derived from using real-time data to predict business performance and manage risk.

Voiles, who before joining Pipe was the general manager of Square Banking, emphasized the superiority of transaction data over traditional metrics, noting that platforms like Square’s could predict economic trends based on transactional patterns.

“We are looking at six months of perfect data on every credit card swipe that comes into a coffee shop, for example, and we have simple machine learning models compared to some complicated ones that can predict very accurately what the next 12 months will be,” Voiles explained. “Then you advance against that cash flow stream and get paid back first in line from the same cash flow stream.”

He highlighted consistent, service-based small businesses as merchants where embedding capital within everyday business software can help spur growth.

As for Pipe, the company’s flagship product is fee-based, and Pipe manages growth against its own cost of capital. Violes said the company manages risks by only providing embedded solutions where Pipe understands the business dynamics well enough to serve the marketplace most effectively, and where businesses will be best able to use the tools and capture growth.

“When you have a portfolio of 10,000 or 50,000 SMBs, there’s going to be pockets where you get idiosyncratic events, something happened to that business, or there was a flood, but from a portfolio perspective, you’re underwriting the revenue and you’re advancing against that revenue from one source. It’s very narrow,” he added.

Embedded Lending’s Opportunity

While other, more horizontally oriented SMB platforms offer embedded financial services, Voiles said Pipe’s model is focused, at least for now, on winning the deeper, narrow battles within specific SMB verticals. Echoing that sentiment, Welch emphasized that the go-forward strategy for Pipe’s solution is less about “blue sky installment loans” and more about “owning a specific end market” and tailoring technology to specific pain points.

Still, when it comes to compliance, both Welch and Voiles stressed the need “to be a dang expert.”

“Life is too short not to do compliance the right way,” Voiles said, calling it a “competitive advantage.”

“If your business model works, and if you’re adding value to the underlying small businesses, and if you have the way to scale … if all that makes sense, it would be silly to try to push the edges on the compliance side,” he added.

It’s also not the end. Voiles said that Pipe is developing a broader suite of financial services, including a 30-day commercial charge card as well as spend management and bill pay features.

“What you can do is offer secondary features where capital becomes this security blanket for businesses that’s within the software they use every day,” he explained.


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