Crypto-backed lending offers several advantages, including liquidity access without selling assets, potential tax benefits, trading leverage, and meeting short-term cash requirements. Arch specializes in providing loans secured by cryptocurrency. Borrowers can use Bitcoin, Ethereum, or Solana as collateral to obtain funding in USDC or USD, with no credit checks required. To minimize risk, all pledged collateral is held in custodial accounts and not rehypothecated. Arch generates revenue from the interest rate spread between what borrowers pay and what wholesale lenders and capital partners charge. The company aims to expand its services to include investment products for both retail and institutional clients.
AlleyWatch caught up with Arch Cofounders Himanshu Sahay and Dhruv Patel to learn more about the business, the company’s strategic plans, latest round of funding, which brings the company’s total equity funding raised to $7.8M, and much, much more…
Who were your investors and how much did you raise?
$75M total with $70M debt and $5M in Seed equity led by Mark Yusko’s Morgan Creek Digital and Castle Island Ventures with participation from Galaxy Ventures and BitGo Ventures, Humla Ventures, Kenetic, Perpetual Value Partners, Block0, Untamed Ventures and more.
Tell us about the product or service that Arch offers.
Secure crypto-backed loans are our flagship product. Individuals and businesses across the US can borrow USDC or USD fiat against Bitcoin, Ethereum, and Solana and get same-day funding. All loans are overcollateralized, we do not rehypothecate collateral (it sits untouched in qualified custody). Fixed-term loans are available for up to 12 months. Our clients are HNWIs, small business owners, institutions like exchanges, investment funds, hedge funds, and family offices across the US
We are one of very few offerings for individuals to get crypto-backed loans in the US.
Use cases for loans include business financing, buying more crypto, reinvesting into other asset classes such as real estate, debt consolidation, and tax mitigation strategies.
What inspired the start of Arch and how is Arch different?
- No rehypothecation of client collateral
- Hold customer collateral assets with regulated custodian, Anchorage, a federally chartered bank, with insurance
- Concierge customer service
- First class, easy to use user interface – get a loan with no credit check in 15 minutes
What market does Arch target and how big is it?
Arch’s target market is the entire blue chip crypto market cap – $1T+. The crypto lending market, particularly for individuals, has just started to recover since previous cycle blow ups. In the future, we also want to finance against other alternative assets such as fine art, classic cards, unicorn tech equity with investment products launching as well. Within the US market, HNWI individuals with alternative assets are underbanked.
What’s your business model?
Our revenue is from the spread on the interest rate that we pay to our capital partners and what we charge customers. The $70M debt facility from Galaxy finances these loans at the moment. Revenues are importantly not predicated on making money off of customer collateral.
How are you preparing for a potential economic slowdown?
We are well positioned with diversified loan and investment products in crypto live or coming soon and are going across asset classes. It is important to note that we are structurally set up for zero losses as all our loans are overcollateralized with a maximum of 60% loan to value.
What was the funding process like?
We worked with existing and new investors and closed in ~2 months, pitching warm intros and closing 2 co-leads before filling the round.
What are the biggest challenges that you faced while raising capital?
Investor skittishness for crypto-backed lending given prior market cycle blowups of large lenders, however, we assuaged that by showing how we are different and structured for zero losses. We also don’t take risks like rehypothecating customer collateral, which prior lenders were doing.
What factors about your business led your investors to write the check?
We have solid unit economics, regulatory compliance moat, risk-averse and long-term business model, path to profitability alongside scale, massive TAM, subject matter expertise, and ability to raise debt in a challenging market
What are the milestones you plan to achieve in the next six months?
- Scale current business line (crypto-backed loans)
- Launch new product lines to individuals and institutions (across investments and more loan products)
- Some more that we can’t speak publicly of yet
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Start raising earlier than you think (it can take time) and structure your pitch around fundamentals of your business that show a roadmap to cash flow positivity and making money. Zero interest rate days are over and investors expect good financial fundamentals alongside growth. Warm intros go a long way, don’t be afraid to tap your network!
Where do you see the company going in the near term?
Exhausting this loan financing facility and upsizing it soon, launching new investment products that provide more value to our growing customer base.
What’s your favorite summer destination in and around the city?
Office happy hours at our company Soho loft or at Fanneli’s, Rockefeller Park with Himanshu’s dog.
