For many entrepreneurs, the greatest challenge to building or growing a new venture is funding. Particularly for startups that are not in the more attractive sectors such as software and technology, raising capital almost always proves to be difficult for an early-stage company with no track record. According to Fundera, only 0.05% of startups raise venture capital; 77% of small businesses rely on personal savings to get started. A hybrid lender wants to finance your startup with jewelry equity.
Technology has helped open up new avenues of funding.
Technology has certainly helped open up new avenues of funding as well as online “side-hustles” (e.g., crowdfunding, social media, online marketplaces). For cash-strapped founders, especially those who may not be ideal candidates for venture capital investments or conventional bank loans, this is excellent news. However, the hustle for cash for early-stage companies continues. One firm, which calls itself a “hybrid lender,” has bet big on helping to fill the financial gap in the market for a broader range of borrowers.
A Previously Untapped Source of Startup Funding
Diamond Banc is a spin-off from a three-generation family jewelry business whose third-gen CEO is Mills Menser. He wanted to reinvent his business model to capture what he believes is a far more lucrative market than selling jewelry. Menser calls the firm a hybrid bank, as its primary focus is a concept he coined — called, jewelry equity lending. In short, Diamond Banc provides loans to borrowers ranging from those who do not qualify for conventional financing. They provide backing through the entire financial spectrum — all the way to high-net-worth individuals seeking short-term liquidity for an investment opportunity.
The loans are provided based on jewelry owned by the borrower and pledged as collateral.
The jewelry is collateral rather than relying on credit scores — traditional assets or income qualifications. Menser created the model in part to solve the gap in funding for two critical segments of entrepreneurs and founders.
- Those who struggle to qualify for traditional financing or to raise venture capital.
- Individuals who may qualify for more traditional financing, but don’t want to tie up their more critical asset portfolios — such as collateral (i.e., homes, stocks, bonds, etc.).
Empowering Founders in Unconventional Situations
Presently financial lending and equity environments that currently favors software and high tech startups — in select geographic markets. Diamond Banc’s mission was to create a new funding avenue for the under-funded. Specifically, the focus is on opening up access to capital for unconventional borrowers. These borrowers include high-risk borrowers and those who want credit card-style access to liquidity, but perhaps for more significant balances or without risking their personal credit.
The firm adopted a digital business model that allows them to appraise collateral and approve and fund loans entirely online.
The firm lends to founders anywhere in the US, helping to provide funding to those outside of the major tech hubs of Silicon Valley and New York. To be sure, the borrower does need to own jewelry that can justify the amount of the loan. However, for those who possess unused jewelry — perhaps inherited from family — jewelry equity lending may provide a channel for these special help requirements.
Entrepreneurs, startups, and businesses of all sizes don’t want to part with their jewelry equity in a sale — but the ability to unlock the value of that personal bonus for more productive purposes can open the needed financial path for them.
The Industry Challenges of Securing Startup Funding
According to the US Chamber of Commerce, launching a business comes with a lot of obstacles, but for those who have been through it, one challenge stands out in their mind: financing. They attribute this to three main factors:
- The disappearance of community banks – since the 2008 recession, these institutions are on the decline and take with them the opportunity for investment for business owners.
- The rise of service-based businesses with no collateral – most of the service funds won’t meet the underwriting criteria put in place by larger banks.
- Venture capital’s focus on “high growth potential” – everyone wants to be the “next big thing.” However, the Kauffman Foundation found that just 0.6% of businesses actually raise VC due to the industry’s focus on companies with the potential for “high growth.”
In addition to funding, as described in detail in this article on ReadWrite, one of the biggest mistakes made by new business owners is not to engage startup legal services to handle possible issues for their new venture. Lack of legal advice can potentially leave them vulnerable to lawsuits which undoubtedly makes potential investors extremely hesitant.
Once funding is secured, the monumental task of managing your startup finances begins.
In the article, Everything You Need to Know About Your Finances for Your Startup, numerous (and frequently overlooked) areas must be managed to ensure your funds are appropriately handled, and that you are well equipped for any situations that may arise. As stated in the article, manage your cash, or you’ll go out of business, period.
Geographics Play a Notable Role in Capital for Founders
According to CityLab, America’s startups remain highly concentrated in a small number of hubs. In 2016–17, the five leading hubs are San Francisco, San Jose or Silicon Valley, New York, Los Angeles, and Boston. These markets account for over half of all startup financings.
Meanwhile — the top 10 — those five, plus Seattle, Chicago, San Diego, Austin, and Washington, D.C. – account for nearly 70 percent of all startups.
Over the past few years, the geographic landscape for startups has changed dramatically. No longer limited to New York, Silicon Valley, and Boston — startups are dipping into talent that is located all over the country. As the shift towards remote work continues to grow, it’s likely to further fuel this trend. Countless tech companies are discovering how to thrive with a fully remote model.
As industries, business and all commerce continue to evolve — there’s little doubt that how startups are funded will also need to progress.
Startups will continue to seek out flexible lending solutions, and the industry must respond with alternative financing. Hybrid lenders will help grow these markets by empowering clients to unlock their capital confidently. Jewelry equity lending is at the forefront of this movement and continues to reshape the lending landscape.