Will lending to mobile apps beat lending to small businesses ?

Will lending to mobile apps beat lending to small businesses ?

The decision by Steve Jobs and Apple to allow 3rd party applications on its iconic devices has changed the entire ecosystem of web applications industry.   These staggering numbers are a testimony to the growing importance of apps in our lives. It also highlights the massive business opportunity behind these apps. But till today, mobile […]

Will lending to mobile apps beat lending to small businesses ?

The decision by Steve Jobs and Apple to allow 3rd party applications on its iconic devices has changed the entire ecosystem of web applications industry.

 

These staggering numbers are a testimony to the growing importance of apps in our lives. It also highlights the massive business opportunity behind these apps. But till today, mobile app developers face intense difficulties and competition to reach the marketplace. Only 2% of the app development companies are funded by VC firms, underlining the struggle behind making an app successful. Debt capital is even more difficult to come by because banks just do not have the domain expertise to understand the potential of a particular application. The cash flow mismatch is aggravated by the fact that it might take almost 60 days to get your money from the app store.  So an app developer which can grow on its own has to dilute its shareholding for getting permanent equity when this could be easily solved by working capital funding. To fill this gap, Aprenita was started in 2014 with a seed capital of $500,000. Its co-founder Mark Loranger was COO at Updater and was responsible for its rapid growth and several rounds of VC financing and before that he was VP at Square1 Bank. Sergei Kovalenko is the co- founder and is an avid investor and entrepreneur and has over 18 years of experience in IT and software development. The New York-based startup has a team of 5 in its HQ and also has a development team of 6 engineers based in Eastern Europe. The first half of 2015 was spent on Beta testing the platform and in September 2015 customer onboarding process was initiated.

In the mobile app market, most of the companies spend 60-80% of their monthly budget on the acquisition of paid users. But there is a lag between spending the money on customer acquisition and developer being able to monetize the relationship. This created a need for short term loans for developers. But the current financing system did not have enough tools or expertise to evaluate the risk of new digital businesses and was not able to understand the pain point of this 51 billion dollar a year business.

Aprenita has developed a powerful and innovative scoring model to help analyze risk and predict revenue in order to understand when and how companies will be able to pay back the loans. In order to get the loan, developers have to grant access to business data like number of downloads, the number of users etc. They use popular analytics platforms services like Flurry and Mixpanel and access to the developer’s app store account to perform analytics on past numbers and forecast future cashflows. It continues to monitor the developer’s progress during the loan period, to see whether they will be able to pay back the loan installment or not and also to keep improving the predictive algorithm based on real-world data.

Aprenita has two products:

  1. Aprenita Advance- It is a traditional product which speeds up payments from marketplaces and ad networks like Google and Apple. The time period of the advance is usually 45-60 days and it charges 2-4% of the amount advanced.
  2. Aprenita Accelerate- It provides quality companies (usually those between a turnover of $0.1 to 1 million) a term loan and additional working capital facilities at an average APR of 24%. Loan amount usually ranges from 50,000 to 500,000 for 6- 18 months.

Aprenita offers specialty financing and lending platform for developing mobile businesses and it has a massive first mover’s advantage. Direct integration of various analytics accounts and real-time analysis of various KPIs by using state of the art algorithm and software for predicting the sales and revenues of these companies is what makes Aprenita and its products stand out from the rest of the crowd. It uses innovative credit score mechanism and model in estimating the risk and underwriting the loans. Numbers achieved by the company proves its model is successful in real market conditions. Ever since it started its operations, around 80% of its customer base has shown a growth rate of a few hundred percent and one of the companies exploded by more than 1000% in a 6-7 months period.  Unlike another traditional lending, it does not require any collateral security or personal guarantees or for that matter, FICO scores to make a lending decision. This is a huge competitive advantage as founders would be hesitant to provide personal guarantees for a startup business

With its ability to analyze various KPI in real time, it helps them to predict the default rate. By keeping track of KPI over a period of time, it is able to figure if a certain loan is becoming riskier and can make adjustments accordingly, which is very different from other SME lenders. But if there is still any default, it uses revenue collateral from app stores and ad network. So basically it will own future revenue until Aprenita is fully compensated. Founders of the company initially invested their own money and have a network of friends and FIs funding the platform. But now the company is growing at an astounding 30-40% month over month and lending about $2 million/month and is looking for new partners and fresh capital. What will make the platform, even more, appealing is the fact that the company has not had a single default till date.

Aprenita has ventured into a completely different kind of lending and is creating a new cottage industry. It wants to build a digital mechanism which can be used by investors in finding new ventures and simplifying the process of lending to mobile and other digital businesses. Aprenita has a treasure trove of data to analyze: the number of subscription, renewal rate, the number of downloads, time spent on the app, which enables it to understand the pattern and can use this information for future revenue predictions. By accessing the ad account through integration with FB, it gets the cost of acquisition and lifetime value of users. This is a massive analytics moat which should allow it to aggressively grow its lending book without taking on significant risk.

Author:

Lauren Twardy

 

 

 

Lenders to mobile-app companies have access to more data than you think

Lenders to mobile-app companies have access to more data than you think

Has the Future Already Arrived? If it is possible for an algorithm to take a person’s cash flow, credit history, and Facebook account information and turn it into numerical creditworthiness score within a matter of seconds, then surely someone can create an algorithm that can take similar data from a small business and instantaneously determine […]

Lenders to mobile-app companies have access to more data than you think

Has the Future Already Arrived?

If it is possible for an algorithm to take a person’s cash flow, credit history, and Facebook account information and turn it into numerical creditworthiness score within a matter of seconds, then surely someone can create an algorithm that can take similar data from a small business and instantaneously determine how much it is going to be worth. Actually, that’s exactly what the team over at Aprenita has done.

Here is an example of a Fintech company that saw that in the mobile apps market one has direct access to data on :

  • customer engagement
  • sales
  • marketing conversion
  • outstanding invoices from the app store
  • customer feedback
  • and much more

Coming up with an algorithmic platform that would assess businesses in real time and completely is particularly easy in the mobile app market. What used to be a utopistic dream for lenders is actually becoming a reality with Aprenita’s innovative lending platform for mobile app designers.

Successfully Navigating the $120bil Mobile App Market

Aprenita is a New York-based lender that caters to a very specific but large market. They advertise themselves are “the only financing company in the world that is exclusively focused on providing innovative financing solutions for mobile app businesses.” According to Aprenita co-founder, Sergei Kovalenko, the mobile app market is worth $100-120billion. Since the launch of Aprenita’s first version of their platform in September 2015, they have secured a few dozen customers and are currently deploying approximately $1million a month in capital loans funded by a mixture of their own capital and a few investors.

Kovalenko came up with the idea for Aprenita in 2014 while he working as an angel investor for mobile app developer and recognized a certain disconnect between the digital start-up company and the existing sources of capital. He explains that while traditionally banks and other lenders base loan decisions solely off revenue, Aprenita understands that most mobile app companies need a large amount of paid user acquisition and growth capital, as well as time to grow before they can start showing any significant amount of revenue. Without the help of a traditional bank loan, most mobile app developers will either turn to the use of credit cards or search out venture capitalists, but Aprenita knows that often credit cards cannot and will not offer a line of credit large enough to make a difference, and most VC’s expect a larger portion of equity than the owners are prepared to lose.  With co-founder Mark Loranger, Kovalenko has tried to build a lending company that will use all the available information about a potential customer in order to accurately assess risk and provide the proper amount of capital to start-up companies that are best equipped to pay back their loans, without charging exorbitant fees or taking an ownership stake.

Using KPI’s to Make Real-Time Decisions

The team of entrepreneurs, developers, and engineers at Aprenita has designed a platform that uses key performance indicators such as analytics, revenue, and marketing in order to make highly educated loan decisions for their customers. As advertised on their website, the application process takes about 10 minutes and funding is normally received within 1-2 days. Kovalenko explains that their decisions are strictly data-based. They do no ask for a personal guarantee or physical collateral if the KPI’s add-up then Aprenita issues the loan.

Similar to other alternative data companies and lenders who have begun assessing consumers by integrating with their bank and social media accounts, Aprenita sources out their information on potential customers through direct integration with App Stores (GooglePlay and Apple) and analytics accounts (ie. Flurry, Localytics).  Using their algorithm, Aprenita can evaluate a company’s creditworthiness within a few minutes and issue funds with 24 hours. The co-founders stand behind the data and attest that it is proof the companies will be able to repay their loans. When asked about current default rates, Kovalenko said though they have expected and planned for a certain percentage of defaults they have no had any thus far. It would seem the data does not lie.

Is This a Window into the New Age of Lending?

There is no denying that there is a science to lending, but science is a constant evolution, and lending is no different. This is the Information Age after all, so it makes sense that lenders are taking full advantage of the amount of information at their disposal. By connecting with a company’s accounting system, POS, bank, analytics, and social media account, lenders will be able to calculate creditworthiness unlike they ever have before. Will full integration with other accounts and systems create a transparency in lending that will make for a healthier the financial environment? It seems that while the data is plentiful and available almost instantaneously, the world will still need to wait to see what the future of Fintech holds.

Author:

Lauren Twardy