- Texas-based CollateralEdge works with smaller banks to offer loans to medium-sized companies.
- The startup raised a $3.5 million seed round from backers like Dallas venture firm Perot Jain.
- See the 10-slide pitch deck CollateralEdge used to raise the seed funding.
For large corporations with a track record of tapping the credit markets, taking out debt is a well-structured and clear process handled by the nation’s biggest investment banks and teams of accountants.
But smaller, middle-market companies — typically those with annual revenues ranging up to $1 billion — are typically served by regional and community banks that don’t always have the capacity to adequately measure the risk of loans or price them competitively. Per the National Center for the Middle Market, 200,000 companies fall into this range, accounting for roughly 33% of US private sector GDP and employment.
Dallas-based fintech CollateralEdge works with these banks — typically those with between $1 billion and $50 billion in assets — to help analyze and price slices of commercial and industrial loans that previously might have gone unserved by smaller lenders.
On Wednesday, CollateralEdge announced a $3.5 million seed round led by Dallas venture fund Perot Jain with participation from Kneeland Youngblood (a founder of the healthcare-focused private-equity firm Pharos Capital) and other individual investors.
“If you look at a lot of the fintech players that are out there today, a lot of people are going around the bank; they see that as kind of an arbitrage opportunity. We’re going through the bank,” CollateralEdge CEO and cofounder Joe Beard told Insider.
CollateralEdge gives banks more comfort when lending
CollateralEdge sits in the middle of a bank’s lending workflow. Credit officers can input a borrowing company’s data — from geographical info to its capital structure to financial-performance metrics — into CollateralEdge’s portal, and then the fintech’s algorithms provide an instant quote.
“That’s the situation that we’re solving for, those situations where a credit officer sees an attractive opportunity for a long-term customer, that’s going to be a great, fee-paying business, but in the short term needs a little bit of comfort to get over that hurdle, to be comfortable with the credit,” Beard said.
While CollateralEdge launched in 2020, Beard said the origins of the company began in a coffee shop seven years ago when he first met the startup’s other cofounder, Joel Radtke.
Both Beard and Radtke have a wide range of experience across investment banking, venture capital, and private equity.
Beard worked in corporate investment banking at Commerce Street Holdings, among other firms, and as a partner at Perot Jain. Radtke spent time at Credit Suisse and the private-equity firm Grotech Ventures, in addition to serving as the cofounder and CFO of United Orthopedic Group, a private company manufacturing medical products.
“We’ve seen debt transactions from every different perspective: large cap, small cap,” Beard said.
“You have two lenders with very different costs of capital and very different motivations. We’ve seen what happens when a small business or a middle-market company gets in a bad cap structure. It can be devastating for a founder,” he added.
Since launching last year, Beard said that CollateralEdge has brought on “multiple banks up to close to $20 billion” as clients. The fintech has also added industry veterans to serve as the startup’s head of product and risk and compliance, with plans to add one to two more employees this year.
Beard said the fintech hopes to branch out into revolving credit lines and commercial real estate credit in the future, with a revolver product expected to launch in the first quarter of next year.
See the pitch deck CollateralEdge used to raise a $3.5 million seed round.
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