DEAL SPOTLIGHT THE ANATOMY OF A DEAL
Innovative Factoring Solution Revitalizes NYC Software Firm BY MARTIN EFRON White Oak Commercial Finance supports worker management software company’s successful relaunch and rapid growth with a flexible factoring solution. In late-2023, White Oak Commercial Finance was approached by a prospective client facing a unique set of financial challenges. The New York City-based software company had been in business for over 12 years, but it was experiencing some growing pains. The firm had lost a significant amount of money in the previous two years, relied on a single customer for most of its revenue, and needed access to millions of dollars in working capital. These factors alone were enough to scare off traditional lenders. But we had reason to believe there was more to the story and that there could be an opportunity for us to support them. We sat down for a series of meetings to get to know the management team and better understand their business, including what was causing the recent financial losses and liquidity issues. We soon realized that this was not a typical 12-year-old company, but essentially a complex startup. Challenges The Y Combinator-backed company had a workforce management software solution that was being relaunched with an innovative new business model. Following a successful equity raise, they had been investing heavily in the buildout of their platform in 2022 and 2023. This had resulted in them burning through substantial amounts of cash, but it had been strategically spent to facilitate the company’s new business model and position it for future growth. They expected to start reaping the fruits of those efforts in the medium-term and needed access to working capital during this next phase.
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THE SECURED LENDER JULY/AUG 2024
Another challenge the company faced was customer concentration. They had one customer that represented about 40% of sales. This is higher than what we would typically like to see, although it is not that unusual for a startup, which is how we were now looking at this company in its current iteration. Additionally, this customer was a private company, so there was not a lot of information available about their ongoing ability to pay their bills. That risk would need to be mitigated. Solutions We conducted a thorough analysis and felt comfortable that the
company’s business plan and management team were solid and that that their financial performance would improve. We presented them with a couple of different financing structures to support their goals, including ABL and factoring. In the end, factoring was determined to be the best option for the client, offering greater flexibility for similar or better pricing. In December 2023, we closed MARTIN EFRON a $10 million factoring facility White Oak for the company. We also Commercial Finance advised them, for their own benefit, to explore credit insurance to get coverage for their biggest customer, which we helped them secure. This provided both them and us with peace of mind, knowing they would be at least partially protected against a major payment default. Over the following months, the company’s financial performance improved more quickly than expected and they needed more support from us to continue on their rapid growth trajectory. In June 2024, we expanded our factoring facility to $25 million. We have worked very closely with the company, from in-person meetings to weekly phone calls. This highly collaborative process has allowed us to support their growth with flexible financing solutions while also managing risk. The factoring structure provides many touchpoints to the collateral, so we can see our client’s invoices, collections and more, all in real time. This has made us feel very comfortable, even with a higher than originally anticipated customer concentration, because there are no surprises. We are working together as trusted partners. One of the best things about factoring is its flexibility. It has been providing companies with access to working capital for decades, although its roots go back hundreds of years. Now, here we are using factoring to help a cutting-edge company in the artificial intelligence space scale up their business to serve the 21st century workforce. It is pretty amazing that something so time-tested can still be so transformational for a business. It was a pleasure to support our client during this critical phase of growth and opportunity. We look forward to further expanding our partnership with them in the years ahead. Martin Efron is head of factoring for White Oak Commercial Finance, LLC, an affiliate of White Oak Global Advisors. More information can be found at https:// whiteoaksf.com/commercialfinance.