Google Ventures, the $300 million venture capital fund designated specifically for investments in start-ups, led a $17 million expanded Series D financing round for On Deck Capital, a six-year-old online small-business lender that's growing rapidly.
Tech venture capitalist Peter Thiel, co-founder of eBay's (EBAY) PayPal and VC firm Industry Ventures, also participated in the expanded round, On Deck noted in a May 1 release.
Then, Internet search giant Google took a minority stake by investing $125 million in peer-to-peer lender, Lending Club. Google's investment was part of a secondary transaction in which the company acquired shares from existing investors, Lending Club announced in a May 2 release."Lending Club is using the Internet to reshape the financial system and profoundly transform the way people think of credit and investment," Google's vice president for corporate development David Lawee said in the release.
While spokeswomen from both Google units say the two operate as separate entities (even though Google is the sole limited partner in Google Ventures), it can't be a coincidence that both are eyeing investment opportunity in the alternative lending space. As traditional capital remains tough to come by, even with somewhat improved bank credit, alternative lenders such as On Deck and Lending Club are to be reckoned with. A large part of the Google AdWords business comes from small businesses, so it's in the company's interests to see small businesses grow and expand. The alternative lending market, which includes credit cards and receivables financing, hovers around $1 billion vs. SBA bank lending at about $35 billion. Rohit Arora, CEO of Biz2Credit.com, an online marketplace connecting small- and medium-sized businesses with lenders and other tools and resources, says, however, that as more banks start lending to small businesses again, higher credit-quality businesses will have more choices, meaning alternative lending to those businesses is likely to decline. "There is still a gap for loans for businesses less than 2 years old and those looking for loan amounts up to $25,000, and this might be the gap that Google is focusing on," Arora says.