Despite years of efforts to improve diversity in venture capital and startups, 2.6% of venture capital dollars went to minorities; 2.2% went to women in 2021. Now with economic headwinds hovering over all business and investment activity, the dollars are even more scarce. Despite this, 40% of new businesses are founded by women. They need financing solutions and Bags is a small business loan discovery platform to connect with women and underrepresented founders to connect with lending opportunities at the most competitive rates. The platform has focused on streamlining the application process as well as providing education on various options so that businesses can truly understand the process from inception to origination to closing and servicing. The company will facilitate loans from $5K to $5M with flexible terms. Since its inception last year, Bags has facilitated $5M+ in loans through community lenders at no cost to the borrowers.
AlleyWatch caught up with Bags CEO and Cofounder Daniel Taylor to learn more about the business, the company’s strategic plans, latest round of funding, which brings the total funding raised to $4M, and much, much more…
Who were your investors and how much did you raise?
We raised an oversubscribed $3M Seed round, led by Slauson & Co and with participation from Connecticut Innovations and Schultz Family Foundation’s Entrepreneurs Equity Fund. Following on previous investments from Altrinsic Global Advisors and angel investors Tim Armstrong, Owen Van Natta, Edith Cooper and André Swanston, among others.
Tell us about the product or service that Bags offers.
Bags is a loan discovery and management platform, built by and for the culture. We connect diverse and women-owned businesses to equitable lenders at the lowest interest rates in the market, saving small business owners time and money so they can get to building. Our partners are impact-driven lenders who leverage our platform to increase loan origination and approval rates for underrepresented entrepreneurs, unlocking economic potential in diverse communities.
What inspired the start of Bags?
Bags is inspired by the lived experiences of our founding team and the knowledge that millions of businesses owned by women and minority entrepreneurs still lack access to critical capital for business sustainability and growth. While there are existing sources of capital for these entrepreneurs, many of them are unfamiliar with lenders in the CDFI category, and traditional search engines don’t consider business metrics that are critical to loan discovery.
How is Bags different?
While loan origination is not a new idea, we differentiate with our focus on diverse and women-owned businesses, our commitment to integrated products for loan management and data infrastructure, and our ability to help folks plan a long-term funding journey over multiple loan cycles.
What market does Bags target and how big is it?
There are 9.2M minority-owned small businesses and 11.7M women-owned small businesses in the US, and these segments are fast growing. Yet 99% of businesses will never raise venture capital, and, according to the Minority Business Development Agency, minority-owned businesses are less likely to be approved for
Our mission is to help diverse entrepreneurs get the working capital that they need, understand the implications of debt financing, and manage their repayment process, all in one platform and with lenders that have a vested interest in supporting the communities they serve.
What’s your business model?
Our lending partners pay an origination fee when referred entrepreneurs take a loan, and those fees don’t come out of the capital the entrepreneur receives. Additionally, we offer loan management software and lending infrastructure solutions in a SaaS model for entrepreneurs and lenders, respectively.
How are you preparing for a potential economic slowdown?
In the current rising rate environment, diverse and women-owned businesses need access to fair funding that is hard to find through existing channels and is unavailable from traditional institutions. An economic slowdown does not mean entrepreneurship stops, and we view changes in the macro environment as an opportunity to provide better opportunities for entrepreneurial success in an economic reality that makes our solution more important than ever.
What was the funding process like?
We reached out to over 200 investors and booked 80 calls, starting from before we began the raise process, through our first commitment, and ultimately through round close. The value of a pre-built network was hugely important in the later stages of fundraising.
What are the biggest challenges that you faced while raising capital?
The macro-environment created a bias against lending-related startups, and we ran into a lack of alignment with our mission to support underrepresented entrepreneurs specifically and a lack of understanding of the problem we aim to solve, which is very apparent for small businesses and community lenders but less clear to many institutional investors.
What factors about your business led your investors to write the check?
Ultimately, we chose to work with investors who have an equal commitment to solving a problem that prevents community development and wealth creation for historically marginalized groups of entrepreneurs. Our practical approach to business development, which focuses on revenue generation first, helped convince investors that we had the right team and approach. It also helps that we have a brilliantly smart group of people on the team.
Ultimately, we chose to work with investors who have an equal commitment to solving a problem that prevents community development and wealth creation for historically marginalized groups of entrepreneurs. Our practical approach to business development, which focuses on revenue generation first, helped convince investors that we had the right team and approach. It also helps that we have a brilliantly smart group of people on the team.
What are the milestones you plan to achieve in the next six months?
1000 small businesses funded and $1M in revenue.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Use Bags to find the best sources of non-dilutive funding to keep you working.
Where do you see the company going now over the near term?
We’re using this injection of capital to develop critical tools for debt discovery and management to ensure there is a clear path to sustainable growth for businesses led by women and minorities.
What’s your favorite restaurant in the city?
Miss Lily’s 7A for all-you-can-eat ribs and jerk on Mondays.
