RRE has always been an active investor in new, technology-enabled financial services platforms that are disrupting industry incumbents. The Firm’s efforts in this area have led to lead investments in category-defining companies such as WisdomTree (28.2x return via IPO through Q4 2013) and Revolution Money ($312 million acquisition by American Express). Consistent with this investment thesis, the Firm actively seeks out financial services industry entrepreneurs.
RRE’s Will Porteous identified serial entrepreneur Mitch Jacobs in 2007. Jacobs had previously founded two successful payments companies and was building a new approach to credit scoring. RRE recognized that traditional approaches to small business lending tended to underweight a business’s cash flow and overweight its assets. Yet many small businesses are cash flow rich and well positioned to service short-term loans; they are, in effect, more credit worthy than traditional banking practices would suggest. By integrating with a retail business’s credit card terminal, OnDeck can not only monitor daily cash flow, but also take a daily principal and interest payment against the loan. Such an approach was unheard of in traditional lending and highly disruptive to the approach of mainstream banks.
Ondeck's original logo.
RRE led OnDeck’s Series B with a $5.7 million investment in 2007 for 18.5% of the company. James D. Robinson III joined the company’s board. Throughout the credit crisis in 2008 and 2009, OnDeck struggled to attract buyers for its loan portfolios, in spite of the fact that they were producing extraordinary returns and considerably smaller losses than traditional models would predict. Ultimately, the company chose to continue to grow its own loan portfolio, which has led to year-on-year revenue growth of approximately 80% since RRE invested.
RRE has been deeply involved as a lead investor during each phase of OnDeck’s development. CEO Noah Breslow is a two-time RRE entrepreneur having previously served as VP, Marketing for RRE III’s Tacit Networks. Breslow was promoted from COO to CEO in mid-2012, succeeding founder Mitch Jacobs. Under the exceptional leadership of CEO Breslow, OnDeck has continued its outstanding performance through 2013. Recent innovations include completely automated, real-time underwriting of loans online, the launch of a line of credit product and the company’s first platform originations where loans are sold to third parties and not kept on the balance sheet.
The company achieved $41.9 million in GAAP revenue in the first nine months of 2013. As of October 2013, it had reached a $100 million revenue run-rate and was profitable on an Adjusted EBITDA basis. -10- RRE’s Tom Loverro introduced the company to IVP, who led a $57 million Series D round earlier this year, and was joined by Google Ventures, Thiel Capital, Industry Ventures and existing investors including RRE. OnDeck’s strong balance sheet could take the company through profitability following this financing. Today RRE is OnDeck’s largest shareholder, with a 14.3% stake that was valued at $63.2 million as of September 30, 2013.