Category Platforms

WePay: A growth story that leveraged on PayPal’s glitch

WePay, PayPal

Anything that heckles the fun of a bachelor party deserves to be mended. At least this is what Rich Aberman, one of the co-founders of WePay, thought when he saw an opportunity for WePay. Aberman’s knotty affair of raising money for a friend’s bachelor party ended when he was finally able receive money through a series of cash, checks, and PayPal money transfers [not without technical difficulties of course]. But, it left some important questions to answer and an opportunity to evaluate in starting a direct payments processor. In 2008, Aberman along with Bill Clerico founded WePay. The company is currently based in Palto Alto, California.

In the past one year, WePay has emerged as a leading online service provider that allows crowdfunding platforms to accept hassle free payments. With its donation tool, it processes up to $1.5 million per day in hundreds of campaigns. Utilizing its years of experience in underwriting business, WePay invested heavily in the development of its Application Programming Interface (API). At present, it offers a high merchant and payer conversion while also taking care of fraud detection and operations support. Unlike e-commerce, its scope is relatively less, but the payments start-up has done well. It is drawing on an average 648 percent more crowdfunding volume every month than in 2012­­ with daily transactions up to $1.5 million. People are paying much attention to Braintree and Stripe but WePay believes that it is no different from them in terms of size. WePay CEO and co-founder Bill Clerico believes that no one has realized the true potential of WePay from volume perspective.

There is huge difference between WePay and e-Bay-owned Braintree, which boast of processing more than $12 billion per annum. But, WePay exhibits strong growth in the crowdfunding market, with platforms like Fundly, Fundable, Honeyfund, YouCaring and GoFundMe, adorning its client list. Since Oct 2011 when WePay got its first crowdfunding API partner, it has attained an average monthly growth of 35 percent. Clerico further added that they’re getting more and more partners to help them grow. WePay boasts of powering six of the top 15 crowdfunding platforms, with a seventh major partnership underway. According to a Massolution research report, the market for crowdfunding is predicted to grow at 81% in 2013. At these figures, WePay is also upbeat about its growth story.

The company asserts that it understands crowdfunding. If a crowdfunding campaign rises from nil to a million dollars in a week then it’s nothing scary for them [as it looked with PayPal]. This year in August, PayPal refused to release $100,000 raised by Italian Google Glass competitor GlassUp. Although later on, PayPal reinstated the account and released the funds for GlassUp. In 2010, in an almost similar instance, PayPal froze the account of Flux Foundation and refused to release unless the group would attain the non-profit status. After a public outcry, Paypal went on to release the funds. All these events have impacted PayPal’s reputation in this market segment. A month ago, PayPal updated its policies to provide a fair opportunity for the crowdfunding players.

Fraud prevention and Expanding focus

WePay prevents fraud by verifying user’s real identity by social data connections. To be specific it is their Veda risk engine that handles the fraud detection.

When WePay started their traget customers were service groups & organizations. However, of late it has begun to target all types of small & informal merchants.

Kickstarter: Fuse-ing funding with Marketing

Crowdfunding is hitting the popularity charts with more and more people applying the thought in their projects. Latest in the list are Dr.Phil Windley and Stephen Fulling, serial entrepreneurs who launched an online campaign at Kickstarter for a project called Fuse. Fuse is a device with in-built GPS and cellular modem for channeling data from the vehicle to a personal cloud.  It may be applied to map the car route or to ping a rider if you are near to him. It manages fuel economy by alerting the fuel fill-in time and location. It also apprises the owner of the maintenance needs by accessing the engine code.

But, for Dr. Windley and Fulling, crowdfunding is not just about a funding the project. In fact, Kickstarter also turns out to be a medium for marketing and public relations to popularize company’s technology component. Although the funds raised through sites like Kickstarter are trivial, when compared with the traditional means, the attitude of the people regarding the product is exposed. It gives them a feel of the market they are trying to enter into.

According to Social Media Today, Kickstarter raised $786 million for different campaigns (September, 2013 figures). As of today, many entrepreneurs depend on crowdfunding without taking into account the risks involved.  To that effect, while 56% of the projects failed to get funded as they fail to attain the goals; another 10% did not receive even a single contribution pledge. But, what these campaigns still produced was some useful market research and insights from the general public about why these ideas didn’t click!

Kickstarter, Marketing, Public relations

A glimpse of the Fuse App for the iphone

What all should you take care of while facing the crowd? Below are some of the expert suggestions to muscle the marketing quotient in your crowdfunding campaign –

  • Keep the project description vivid, concise and affable
  • Highlight the potential success attained through market research study or by past sales
  • Offer compelling gifts to the investors and donors
  • Remember that some crowdfunding websites, do not allow you to retrieve funds unless you succeed in your goal
  • Note that if your ideas can be easily duplicated by others, then crowdfunding may not be a good idea. As a counter-measure, you may register a provisional patent for your product.
  • Know your target customer. If you target other businesses [i.e. a B2B product], then the likelihood is that the crowd may not be excited about your product. Crowdfunding may not work here as most products or ideas suited to mass interest are a hit.
  • Crowd prefers to fund relatively lesser complicated and low capital projects. Even for projects not requiring prolonged R&D, crowdfunding seems to hit off well.

[Do you too intend to or suggest use of crowdfunding as a part of the Marketing and PR campaign? Comments invited.]

Debt-based Crowdfunding inspires Financial Innovation: Securitization of Peer-to-Peer Lending

Post financial crisis, even if you’re a risk-taking investor, chances are you’d still play safe with the new financial products. Now consider this – a New York based hedge fund Eaglewood Capital acquired some of the loans of the Lending Club and then securitised them to sell them further. Lending Club is a leading online peer-to-peer lending company found in 2006. It provides a platform for investors to lend money to borrowers at an interest rate determined by the credit rating of the borrowers. Supporters of peer-to-peer lending believe that the platforms such as Lending Club fill the vacuum left by the banks. With stringent credit terms, it has become difficult to avail loan from US banks.

Eaglewood Capital established and run by Jonathan Barlow, as an investment adviser focuses on online lending strategies. On Sep 27, Eaglewood securitized and sold the $53 million peer-to-peer loans to investors including an unnamed insurance company. Securitization is a financial term in which the issuer creates a financial instrument (bond) by bundling together some other financial asset (loan). In this deal, the investors bought bonds backed by loans which Eaglewood chose from Lending Club. The cash flows from these loans would cover the principal and the interest on the bonds.

Securitization is an important development for peer-to-peer lending because it could enable a larger number of investors to buy such loans. In Eaglewood’s deal, a big insurance company took a maximum share of the Eaglewood deal. Apparently, the buyer was legally constrained to invest directly in Lending Club loans. Eaglewood did not disclose the insurance company’s name and the actual yield.

The securitization model in the peer-to-peer lending reminisces of the blunders committed by the banks in the sub-prime crisis, in which the banks burdened investors with bonds backed by bad home loans. Post crisis, the experts suggested that the firms doing securitization should also have some exposure in the loans. To that effect, Eaglewood has agreed to take losses up to $ 13 million (about 25% of the entire loan amount) before other investors incur losses. According to Barlow, in six years of loan history Lending Club’s credit losses have run slightly more than 3 percent of the total loans value. Additionally, most of the loans he bought are debt consolidation loan. Together, it implies a low overall debt servicing costs for the borrower. Eaglewood obviously gains out of this transaction as it gets the cash which it can invest in other loans and enhance its returns.

The securitization has opened a new avenue for peer-to-peer lending firms who can now sell the loans to big institutional investors, like Eaglewood, who then package the loans and sell them as marketable securities. At a time when financial assets are at historic lows, peer-to-peer lending has attracted investors. Recently, Prosper Marketplace Inc. – another peer-to-peer lending website, raised $25 million from Sequoia Capital and BlackRock to accelerate company’s growth.

Equity Crowdfunding versus Venture Capitalists: Musing over some key questions

With equity crowdfunding now legalised by the Jumpstart Our Business Startup (JOBS Act of 2012), there are fears that Venture Capital s (VCs) could be at the receiving end of creative destruction. Alternatively, it is also believed that equity crowdfunding won’t affect VCs and that the position of good VCs will remain unaffected regardless of equity crowdfunding. The bill will come into effect once U.S. Securities and Exchange Commission frames regulation for the equity crowdfunding industry. This article answers some key questions related to the Equity Crowdfunding-VC tussle and how Venture Capitalism may evolve with the coming up of equity crowdfunding.

Will the existing VC-backed business switch to equity crowdfunding?

Entrepreneurs cannot raise more $1 million through equity crowdfunding. And, even if an existing VC-backed business wants to tap close to less than $1 million, VC may still win over equity crowdfunding as it will be more manageable to handle a few investors than a large number of small ones.


What are the additional benefits that Venture Capitalist apart from providing capital?

Due to their prior experience of dealing with start-ups, the VCs have ties with prospective customers and suppliers which equity crowdfunding can never provide. VCs associations with investment bankers can come into play if the company wants to go public. In short, the VCs bring more than just the capital, they bring mentoring and experience. The online funding platforms are only limited to providing funds.


Can Venture Capitalists and Equity Crowdfunding mutually co-exist?

Yes, it is likely that they’ll share a complementary rather than a competitive relationship. Venture Capitalists can look for the good deals on the crowdfunding sites. In other words, the businesses with high growth potential may opt for funding from VCs whereas the companies with less growth potential can raise the money through equity crowdfunding. In a first of its kind event, a Venture Capitalist – Foundry group committed $2.5 million to AngelList investment platform an equity crowdfunding platform. In the coming days, we could witness more such deals in the crowdfunding space.


Which form of funding could is relatively less demanding and stable than the other?

Most of the VCs take more time than anticipated to provide initial funding. VCs in general will question more and spend more time before putting their money on a business idea. At times, a business may need more money to make the most out of an opportunity and a delay may not be a favourable situation. However, in a state where the entrepreneur and the Venture Capital share a good and trustworthy relationship, the Venture Capitalist would not hesitate to pump in more money to keep the business running.