This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.
The metaphor is irresistible: if you want to fly on a plane, you visit Kayak. Using that service, you can find the best price; you can find the shortest flight; you can search for the best first-class amenities; and so on. By contrast, if you’ve founded a company and want funding, where do you go? A few CEOs will trek to Sand Hill Road where, if they are lucky enough to land meetings, they will be told that venture capital is their best bet—sometimes it is!—if only they will kindly over time surrender something like half of their business. But where does everyone else go, and how can they evaluate the pros and cons of various options?
Enter Hum Capital (the Kayak metaphor is theirs, I initially thought LendingTree but on reflection, theirs is better). Hum’s goal is to become an AI-driven, interactive broker between founders and funders. In an exclusive FIN interview, Hum founder Blair Silverberg (pictured below) described the pitfalls that fund-seeking founders face: “If you raise the wrong kind of capital for your company, you can have an overhang that keeps people from putting money in in the future; you can have secret terms you didn’t realize when you signed the deal and now you lose your company to your lender. It is like the absolute wild West you’re having to navigate.”
What Hum (which announced itself to the world this morning) offers is an investment hub that matches founders with funders. Superficially, this might resemble crowdfunding sites, but Hum promises a much deeper, more sophisticated relationship: A startup will agree to turn over data to Hum, which then uses artificial intelligence to match the company with different options for raising capital: venture capital, debt, private equity, term loans, etc. The startup can then choose the deal that meets its particular needs. Returning to the Kayak metaphor, sometimes the startup wants Delta but then 18 months later, JetBlue makes more sense; according to Silverberg: “We’re finding companies are raising capital consistently over time on the platform. So you come in and you might raise a term loan, and then you realize you want to raise a combination of equity and debt.”
Hum does not take equity in the investments it facilitates; instead, it charges a flat 2% of every successful transaction it enables. Hum’s own investors include Greycroft Ventures, legendary/infamous VC Steve Jurvetson, and Howard Morgan, chairman at B Capital Group.
Hum hits the scene as profound changes are occurring in the private capital financing world. Not only is there more cash sloshing about looking for deals, but the funding universe has become far more variegated and complicated. Indeed, many of the pension funds, universities and other institutions who are limited partners with traditional VC and PE firms have set up their own investment shops, in hopes of matching the returns they get from those investments without the high fees. (Not that it’s easy!) Silverberg is pitching Hum to those types of players, betting that the platform will provide them with investment targets they’d be hard-pressed to find on their own, as well as a bargain compared to the multiyear 2/20 carry commitment. “Sometimes a direct investment from a pension program is the best source of capital,” Silverberg explains. “It doesn’t pay extra fees other than a one-time access fee, basically to invest in the company, which we’re charging. But this is sort of a one-time fee versus recurring managed care, right?”
Over the last few months, FIN has interviewed a handful of companies aspiring to do something similar, but hasn’t published anything because none of them seem remotely close to the position that Hum has already reached. Operating in a kind of quiet beta for the last couple of years, Hum has facilitated $400 million in company fundraising; the company cites the high-end booze club Flaviar as a happy customer.
Not that first-mover advantage guarantees anything (I will butcher my former colleague James Fallows’ wonderful quip, something like “If there were such a thing as first-mover advantage, I’d be writing this sentence on a TRS-80 and you’d be reading it on a Kaypro.”) Still, Hum has not only a formidable head start, but a reasonable claim to a hard-to-duplicate AI/data moat advantage. FIN’s bet is that for the next 1-2 years you will be hearing about a lot of companies trying to build what Hum already has.
This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.