Private credit historically has offered premium yields above the run-of-the-mill public market fixed incomes offerings for investors. As traditional credit markets pull back on lending in commercial markets, more and more companies, especially those that are private equity-backed, are turning to private credit for their financing needs. Non-bank lenders and financial institutions as well as investors are filling this need; just yesterday it was reported that Softbank is looking to enter the private credit market. Percent is a marketplace for private credit that brings public market-like attributes to the historically opaque private credit market. By leveraging technology and organizing a disparate market, the platform has been able to provide data-driven transparency along with enhanced speed and execution capabilities at a fraction of the cost. Percent handles transactions from inception to serving while handling structuring, syndication, and surveillance in between. Since its founding in 2018, the platform has handled in excess of $1.2B in transaction value, working with borrowers, investors, and underwriters.
AlleyWatch caught up with Percent CEO and Cofounder Nelson Chu to learn more about the business, the company’s strategic plans, latest round of funding, which brings the company’s total funding raised to $48.5M, and much, much more…
Who were your investors and how much did you raise?
Percent’s $29.7M Series B funding round led by White Star Capital with additional investment by B Capital Group, Susquehanna Private Equity Investments LLLP, BDMI, Forte Ventures, and Vectr Fintech. The round also included several strategics, including Evolution VC and Global Fintech Venture Partners.
Tell us about the product or service that Percent offers.
Percent has created the modern credit marketplace, empowering investors, borrowers, and underwriters with innovative technology to increase the speed and velocity of private credit transactions at a fraction of the cost.
The company’s core infrastructure delivers public market efficiencies to the analog private credit market by powering the sourcing, structuring, syndication, surveillance, and servicing of private credit transactions from beginning to end.
What inspired the start of Percent?
I founded Percent in 2018 rooted in my overall vision to modernize private credit by bringing investors, borrowers, and underwriters together in a technology-driven marketplace. I recognized a lack of automation, standardization, and risk management in this $7T segment of the alternatives market and wanted to tackle it.
The first iteration of Percent created a value-focused investor experience. It enabled accredited investors to find deals and participate in the historically exclusive private credit market at lower minimums. Now it includes borrowers and underwriters in addition to investors – bringing them all together.
The evolution of the platform resulted from learning what was broken by running the marketplace, building a team of public debt market professionals led by Prath Reddy, President of Percent, and ultimately applying proven public debt market concepts and standards to its marketplace. A vertical SaaS solution built on transparency specifically for the opaque private credit markets emerged from this.
Percent has become a platform powering the full transaction process. Borrowers can access growth capital, investors can find yield and underwriters gain more deal flow and efficient workflow. Percent remains focused on the growing private credit market and capturing the $4B in annual revenue opportunity foregone in its current analog state.
How is Percent different?
Historically, it has been very challenging for investors to access private credit, but Percent has been a game-changer, and its unique marketplace simplifies investment discovery, giving institutional and accredited investors access to a broad selection of higher yield, short duration, securitized investments. In addition to providing access to private credit investments, the Percent platform also offers an essential opportunity for corporate borrowers. Particularly in the current challenging and uncertain economic environment, it is more crucial than ever for companies to have access to capital and ways to raise capital when they need it, and Percent is filling that void – bringing investors, borrowers, and underwriters together in an unprecedented way, generating opportunities for all players within the private credit space.
Percent is the only platform created for all three audiences, or parties, of a private credit transaction.
What market does Percent target and how big is it?
Percent targets the multi-trillion dollar private credit segment of the alternatives market.
The private credit industry is growing at a rapid pace, with Preqin forecasting it will grow to $2.3T by 2027
What’s your business model?
We created a software suite for each member of the three-sided private credit market. Providing each group with necessary tools, workflows, and resources has expanded Percent’s revenue stream, from investors to borrowers and now underwriters. One-off transaction fees are becoming recurring software fees, enabling longer-range planning.
We created a software suite for each member of the three-sided private credit market. Providing each group with necessary tools, workflows, and resources has expanded Percent’s revenue stream, from investors to borrowers and now underwriters. One-off transaction fees are becoming recurring software fees, enabling longer-range planning.
How are you preparing for a potential economic slowdown?
Internally as a company we’ve always been cautious and conscientious about how we run the business. We don’t take unnecessary risks, there are no flashy expenditures, and we’re smart about how and where we allocate our resources. We are creating one of the generation-defining companies in fintech and the journey is going to require grit and determination. COVID, high rates, economic slowdowns, we’ve seen so much these past 5 years and we know that if we’re going to be able to make it in the next 5 years, we are going to need to keep pushing forward.
On the business front, the potential of an economic slowdown has actually proven to be good for us. Blackstone, Apollo, KKR, JPMorgan and Goldman Sachs are all touting the virtues of private credit in this inflationary and high-rate environment.
Also, with venture funding close to its lowest levels since 2017 and the collapse of SVB which has drawn more regulatory scrutiny, the challenge to secure financing is in the spotlight, creating a surge in demand for private credit and venture debt in particular. Venture debt is the asset class serving as a much-needed solution for some startups to increase runway with minimal equity dilution.
As a projected top-performing alternative investment over the next five years, these circumstances have acted as positive tailwinds for Percent and the industry at large. To continue this success, it is essential to expand understanding and access.
What was the funding process like?
Similar to other rounds in the market right now from other startups, this was not an easy round to close. Hundreds of conversations with VCs, lots of passes early on in the process especially as the venture equity market was locked up.
It took the market tailwinds of the bank collapses and the exponential increase in demand for private credit for VCs to realize the power and potential of what this asset class can bring.
We are the only vertical SaaS solution for this multi-trillion dollar market and it became abundantly clear in the last few weeks which allowed us to very quickly become oversubscribed
By the end, while we had anticipated to close the round at around $20-25M, interest from new investors far exceeded expectations and allowed us to close at nearly $30M.
Similar to other rounds in the market right now from other startups, this was not an easy round to close. Hundreds of conversations with VCs, lots of passes early on in the process especially as the venture equity market was locked up.
It took the market tailwinds of the bank collapses and the exponential increase in demand for private credit for VCs to realize the power and potential of what this asset class can bring.
We are the only vertical SaaS solution for this multi-trillion dollar market and it became abundantly clear in the last few weeks which allowed us to very quickly become oversubscribed
By the end, while we had anticipated to close the round at around $20-25M, interest from new investors far exceeded expectations and allowed us to close at nearly $30M
What are the biggest challenges that you faced while raising capital?
Initially, as a first-time VC-backed founder, raising capital was a challenge for me. I did not have the traditional pedigree and the market was perceived as saturated and private credit was misunderstood. This did not slow me. Instead, I bankrolled the firm using credit and took very little salary in the early years. Exiting angel investments at the right time enabled me to pay off the $80K in debt used to expand. Eventually, VC funding followed, and each successive round validated my conviction and hard work in the transformation of the market for the better.
The early challenges I faced have better equipped me in raising capital now – that coupled with tremendous investors who believe in what we are building with Percent have given me the confidence to push forward.
What factors about your business led your investors to write the check?
The global private debt market is massive and its growth is gaining momentum. Investors saw Percent’s unique end-to-end infrastructure solution that addresses a massive trillion-dollar market and believed in our approach to providing alternative investment sources throughout the startup ecosystem.
What are the milestones you plan to achieve in the next six months?
We anticipate that we will increase our number of full-time employees by as much as 14.5% by the end of the year.
We look forward to continuing to expand and improve our solutions, further acquiring proprietary technology to bolster transparency to all transaction participants, and exploring commercial collaborations.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Equity capital is hard to come by this year, do whatever you can to reduce costs and push yourself towards profitability as fast as you can. If you are going to seek venture debt, do it when you still have plenty of cash left in the bank to get better terms. Above all else, find a way to have the leverage in any of these fundraising conversations so you can raise on your terms. The best way to do so is to show it with numbers and metrics that make your narrative undeniable.
Where do you see the company going now over the near term?
Projecting a 2.5x+ increase in topline revenue and a 3x+ increase in ARR in 2023 from the prior year as a result of this transition to a pure-play software solution.
Over the course of two years, we run an 89% gross margin and a 42% net income margin from every customer.
With the pace of revenue growth and expenses being held relatively flat/consistent, we’re expecting to be able to turn profitable by mid-2024.
What is your favorite coffee shop or location in the city to hold a meeting?
The Lobby Lounge at the Park Hyatt on 57th Street as it’s right between my apartment and our office. It’s never very busy, the ambiance is quiet, and you only need to order one coffee or tea and you can stay as long as you like.
