Mercury, a three-year-old startup that offers a host of banking services to startups, is now offering venture debt to its customers.
Up to $1 billion will be lent out this year and up to $200 million next year to startups that have already raised $2 million in funding. Mercury offers between 25% to 50% of a startup's equity round in debt.
It puts the 250-person, San Francisco-based outfit on a collision course with Silicon Valley Bank, which it says already has 60,000 businesses on its platform. Immad Akhund says that's very much the idea.
Mercury, which is not a bank itself but a banking platform that offers FDIC-insured products through an Arkansas-based bank called Evolve Bank and Trust, says larger rivals like SVB are cumbersome.
The idea of going to a website, filling out a form and connecting to a program is not something any bank would normally think of. Everything is happening over the internet. There are a lot of calls back and forth.
While a growing number of startups have begun securing debt, many of them have yet to raise a round or extend their runway.
Akhund co-founded two earlier companies, including Heyzap, a mobile ad network that was acquired in 2016 He says he has written angel investor checks for hundreds of other startups, as well as having firsthand experience with Mercury, which is why it was founded.
It blew up traditional banking hurdles for entrepreneurs with services like checking and savings accounts, debit cards, check payments, and domestic and international wire transfers. Mercury's team expects venture debt to become a large part of its business.
Mercury currently derives revenue from products. Every time a Mercury customer uses their debit card, Mercury gets a small piece of the transaction. Mercury makes a little bit of money on float, meaning the lag between when a customer deposits a check into its Mercury account and when those funds become available.
The question is whether ease of use will eat into the market share of a brand with a $30 billion market cap. It is the only front in which Mercury is competing right now, because its lending terms aren't necessarily more beneficial or forgiving than those of rivals.
Mercury's head of capital and relationship management says they have comparative interest rates. He says Mercury takes a small warrant when it extends venture debt and charges origination fees. As a senior vice president, he was with the company.
It is doing enough to win over some converts. Mercury has extended venture debt to several Series A startups, including AirGarage and PreAct Technologies.
In a world where there is little loyalty to established banking brands, the company talks a good game.
There are a lot of people that have tried offering venture debt. There is a bank called JP Morgan. People know this is a good product.
One thing that Mercury does really, really well is that bankers have a hard time connecting with founders. We built it ourselves with the help of the founders, who are technologists themselves.