LA-based startup FastPay, a company with an innovative approach to providing financing and revenue options to digital media businesses, has announced an additional $25 million in new funding from a combination of debt and equity-based financing. FastPay will be using the money to expand its outreach in terms of marketing and sales, and also to give its clients additional access to funds upfront, making it possible for them to spend when they need to, instead of being stuck with the often lengthy payment cycles media companies have traditionally dealt with.
For media companies like web-based publications, financing can often be hard to come by. They’re often ignored by traditional financial organizations, and revenue generating strategies like advertising require lots of scale before they can become lucrative. Ask anyone trying to run a for-profit blog, even those that have steady income from subscription revenue: making money from media-based endeavors isn’t always the most straightforward process. Which is where FastPay saw an opportunity to serve an underserved community.
“One of the common themes I’d heard from a variety of businesses was that businesses were growing, they’re in perpetual fundraising mode, and there was a pain point being caused by the long terms created by brand advertisers,” FastPay CEO and founder Jed Simon said in an interview. “Businesses, whether they were ad networks, affiliate networks, publishers or production studios, they had their costs to contend with on a daily basis, but then they had to wait four months to get paid from their advertisers and these big brands.”
FastPay originally launched back in 2009, and has since provided about $45 million in financing to its clients. The company offers up to $5 million in credit lines to its clients, which include social media marketing firms, digital creative firms and advertising companies in addition to online publishers. Its entire business model is based around clients who typically take over 60 days to get invoices paid, so it makes sense that it would seek additional funds to help upgrade its outlay capacity in terms of providing financing for clients, many of whom are eager to dip back into the well for additional funds, according to Simon.
For those businesses, which have traditionally done most of their fundraising through VC investors, debt-based financing provides an opportunity to get a different kind of capital, which doesn’t come hand-in-hand with a loosening of entrepreneurial control. Simon told BetaKit that this provides startups with yet another option, one they can use with VC funding sources, in order to raise the right kind of money for different needs.
“[With venture funds,] there’s concerns, there’s liquidation preferences, there’s blocking rights on a sale, there’s a number of scenarios where entrepreneurs want to sell a company, but they’re not able to because it doesn’t make sense to their investors because they have certain hurdle rates for their returns,” he said. “Venture capital’s also got a lot of great characteristics, and it’s also fueled the entire digital economy. However, there are other forms and using a product like ours exclusively, or in combination with VC, it can be very powerful.”
For borrowers, it’s an alternative that’s attractive, with rates between one and 2.5 percent per month based on factors like assessed risk. For FastPay, Simon tells us that the risk is relatively low over all, even though traditional financing channels see exactly the opposite. That’s because big brands and advertisers always pay their clients’ invoices, albeit at a delayed rate, which means that clients will have funds to settle their debt with FastPay, even if it takes a little longer than usual.
In the end, FastPay’s biggest hurdle may not be getting the word out or contending with traditional funding routes like VC investment, but the burgeoning crowdfunding movement, which could get a lot busier in the near future once the U.S. opens equity-based crowdfunding to all early next year. Still, Simon is right in pointing out that a multi-faceted approach to funding, sourcing from different types of investment based on needs, is probably a better way for startups to finance, so even if crowdfunding takes off in a big way, it doesn’t mean debt-based financing will necessarily take a backseat.