• A Duo Reunites Over a New, Online Lending Opportunity

    ApplePieDuring the go-go ‘90s, an innovative company called OffRoad Capital emerged on the scene, pairing accredited investors with startups seeking funding via its online platform. A kind of AngelList 1.0, even OffRoad itself was backed by $17 million from roughly 150 accredited investors.

    Alas, its timing was lousy. Just as OffRoad began gaining real momentum, the tech market nosedived, and in 2001, the company was quietly acquired for an undisclosed amount.

    Now the band is back together. A year ago, in fact, OffRoad founder Stephen Pelletier and former OffRoad executive VP Denise Thomas rejoined forces to create ApplePie Capital, a San Francisco-based online loan business focused on franchise financing. Now the pair, who say they’re chasing a roughly $42 billion market, are announcing $3.77 million in funding from Freestyle Capital, Signia Venture Partners, QED Investors, and Camp One Ventures. Yesterday, I caught up with Thomas, who has taken on the role of CEO, to learn more.

    Why the franchise industry?

    We saw an opportunity partly because there’s a lot of data that shows the franchise segment of the small business market is a heck of a lot less risky than small businesses at large.

    Where is the money coming from that you plan to loan out?

    We have [access] to capital aside from the capital we’ve raised to operate our business — money from institutional and individual investors that will allow us to fully fund the loans that come on the platform. We aren’t disclosing those specific sources; that’s precious information to us. But all sorts of interesting people are involved.

    Not many people realize this but on P2P lending platforms, just 25 percent of the capital comes from individuals at this point. The rest comes from institutions. They saw the performance data and realized they could base decisions on their own models to ensure they’d hit their target returns. Our model is attractive to many of those same investors, particularly double-bottom line investors with mandates to create jobs. One in 20 working Americans is employed in the franchise industry.

    What interest rates will you charge, and how much will you see versus these institutional investors whose money you’re using?

    Our interest rates will range rom 8 to 12 percent and could get even lower over time [as our risk falls]. We don’t make money on the spread; that goes to the investors, minus a 1 percent processing fee, and there’s no real margin there. We make money off the origination fee, which is 5 percent if the money comes entirely from our network and 3 percent if [our customers] raise money from their own network, which we also help facilitate, taking on the liability and handling processing, state registrations, loan servicing, and so forth.

    Why is what you’re offering better than SBA loans, which offer more competitive interest rates?

    I’ve interviewed more than 50 brands, and SBA loans have become very painful. First, they’re offering 20 percent fewer of them before the financial crash of 2008. It’s also very difficult for anyone to get a loan of less than $1 million. And though today’s rates are 5 to 6 percent, you’re not locked into those rates; they could change, unlike our rates. Not last, it can take up to four six months. We’re offering speed and flexibility. By the way, we’re compatible with SBA loans. Maybe someone can’t qualify for one today, but after they’ve owned two or three or four units, they might.

    Is there a penalty for paying off your loans early?


    I remember OffRoad creating an index of startups that investors could back. Is there a plan to package these loans together to minimize risk for ApplePie’s investors?

    Absolutely. We don’t have a fund today, but we’re already diversified across five industries, and for now, there will be two ways for investors to participate. They can either choose the brand they want to invest in, or they can talk with us about a vehicle that, let’s say, commits $10,000 across 10 deals. We can ensure that happens.

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