Fundbox set up to Be PayPal for Small Businesses


Technology keeps making it easier to separate you from your money. PayPal enabled you to easily send money via the internet. Square allowed businesses to use a smartphone to accept your credit card. Apple Pay and Android Pay flipped this idea on its head and let you pay with your phone instead of a card.

Despite this innovation in how consumers can pay businesses, the way businesses pay each other hasn’t changed much. San Francisco startup Fundbox wants to give businesses another option.

The company already offers loans to small businesses, tapping into the businesses’ bank and accounting software to decide whether to lend. Its new service, Fundbox Pay, is essentially a combination of a credit card and a payment system like PayPal for small businesses.

The idea is simple, but it takes some explaining. Many small companies extend credit to other businesses. A wholesaler, for example, might ship flour to a bakery with the expectation of getting paid 30 or 60 days later. The wholesaler, likewise, buys from its own suppliers on credit. But what happens if a bill from a supplier comes due while the wholesaler is still waiting on payments from bakeries?

That’s not uncommon. The typical small business only has enough cash to pay 27 days of its usual bills, according to a study by JP Morgan Chase. As a result, many take out loans to cover these payments.

Fundbox is trying to solve this problem by playing the role of a typical credit-card provider. In our hypothetical example, the flour wholesaler would offer Fundbox Pay as a payment option. The baker would apply for credit from Fundbox. If it’s accepted, Fundbox would pay the wholesaler, minus a 2.9 percent fee. The wholesaler gets paid more quickly, and collecting from the baker becomes Fundbox’s problem.

Fundbox estimates that small and medium businesses-to-business payments are a $5 to $10 trillion market in the US.

Of course, small businesses can already take out loans and credit cards from banks from to pay suppliers—if they can get credit. There’s more demand than supply for small business credit right now, says Karen Mills, a senior fellow at Harvard Business School and former administrator of the US Small Business Administration, especially since the financial crisis of 2008. “During the great recession, a lot of banks pulled their lines of credit for small businesses as they tried reduce their exposure to risks” she says.

Alenka Grealish, an analyst at Celent, says banks are reluctant to lend amounts smaller than $100,000 because of the costs associated with underwriting loans. “The traditional system is human and paper based,” she says. “Businesses provide business plans and financial statements in PDF or on paper, and it all has to be entered into a system.” It ends up costing a bank hundreds of dollars just to decide whether or not to lend a business money, regardless of the size of the loan. So it makes sense for banks to focus on larger dollar amounts that generate more profit when they’re paid off.

Fundbox and other startups like Kabbage, on the other hand, simplify the process by extracting data directly from a business’s bank and accounting software and using machine learning algorithms to predict whether a business will pay up. Fundbox head of communications Tim Donovan says the company has a less than 1 percent loss rate on its existing loan products.

Fundbox COO Prashant Fuloria believes that Fundbox Pay could help its algorithms become more accurate, as the company is able to gain more insight into the relationships between different companies, creating a “small business graph” not unlike Facebook’s social graph.

Credit Check

  • Fundbox was among several online lenders that debuted earlier in this decade.
  • Electronic-payments company Square supports merchants selling online as well as offline.
  • Affirm aims to bring more transparency to business lending.

Probably Apple will become the world’s first trillion-dollar company this year

During the dot-com-crazed 1990s, Cisco Systems became the world’s most valuable company. By many it was expected to become the first company to hit a trillion-dollar market value, it made it barely halfway there. When the technology sector peaked in March 2000, Cisco had a capitalisation close to $US550 billion.

From those glory days, the entire technology sector imploded. Cisco fared even worse than the Nasdaq, losing 87 per cent from its zenith to its nadir. Today, some 18 years later, Cisco is worth about $US221 billion ($277.7 billion); its average annual compounded returns from those lofty heights is a negative minus 2.17 per cent per year, including reinvested dividends.

The world, it seems, would have to wait a while for its first true trillion-dollar market capitalisation company.

I was discussing this with a friend earlier this week. Apple is inching toward that trillion-dollar mark (its valuation hovers around $US900 billion). Prior to the recent 12 per cent market swoon, Apple had been trading at an all-time high of $US180.10 per share. As of this week, it eclipsed that, recovering all of that February drawdown.

The trend suggests that sometime this year, Apple will become America’s first trillion-dollar company. What will drive the move to a trillion dollars?

Consider these four factors as key to Apple’s continued upward momentum:

1. Share repurchases: Since 2012, when management first announced its intentions to do big share buybacks, Apple has shrunk its outstanding publicly traded shares considerably. As of 2013, there were 6.6 billion shares available to the public. Today, that count stands at a little over 5.07 billion shares – a 23.2 per cent reduction.

Apple’s board of directors had most recently authorised a $US210 billion share-repurchase program that is expected to be completed by March 2019, according to Apple investor relations. That was before the very corporate friendly 2017 tax reform bill was passed. One would expect that bill will encourage even more share repurchases. We should not be surprised to see a 10 or even 20 per cent share count reduction over the next five years.

What is the effect of reducing share count? It makes the earnings of each share greater proportionately. At the same price, higher earnings equal a lower price-to-earnings ratio, and the company appears cheaper. This could have the impact of enticing value buyers, including…

2. Warren Buffett: The famous value investor has been notoriously tech averse throughout his career. His recent announcement that he is out of IBM and into Apple in a big way surprised a few people.

SANTA MONICA, CA – SEPTEMBER 6: Amazon CEO Jeff Bezos unveils new Kindle reading devices at a press conference on September 6, 2012 in Santa Monica, California. Amazon unveiled the Kindle Paperwhite and the Kindle Fire HD in 7 and 8.9-inch sizes. (Photo by David McNew/Getty Images)

Buffett said Apple is now Berkshire Hathaway’s second biggest holding (after troubled serial fraudster Wells Fargo); Apple was the stock Buffett’s investment firm bought the most of in 2017. Although he claims he still has confidence in Wells Fargo, he cut his stake last year; don’t be surprised to see Berkshire’s Wells holdings get further reduced.

Buffett’s loyal devotees often follow his lead, and are likely to add Apple to their portfolio of value stocks.

3. Index buyers: The past decade has seen indexing go from a modest niche to one of the most popular styles of investing. The explosive gains in assets under management for Vanguard ($US5 trillion) and Blackrock ($US6 trillion) attest to the power of passive investing.

Apple is the biggest company in the Standard & Poor 500, the Nasdaq 100 and the Dow Jones Industrial average — three of the best-known, most-followed indices. As such it captures the flow into index holdings, whenever markets rise. Apple accounts for almost 4 per cent of the S&P 500 (its market cap is about $US23 trillion); 4.9 per cent of the price-weighted Dow; and over a whopping 11 per cent of the Nasdaq 100 ($US7.85 trillion).

4. New products: A slew of new and upgraded products are in the making. These usually direct the next cycle in Apple’s revenue, profits and ultimately price. New services, iPhones, AirPods, wireless chargers, over-the-ear headphones and home devices could be the spark that adds the next $US100 billion in market cap.

I know, there are skeptics. There has been lots of skepticism about Apple for literally decades. The Mac site Daring Fireball has kept a running list of “claim chowder” — all of the bad reviews of iPhones, iPads, Apple Watches, etc. that (incorrectly) forecasted disastrous sales. I see no reason this time is any different.

What factors could derail seeing a huge T in Apple’s market capitalisation? Two quickly to mind:

The market not falling in line: We tend to forget that the overall market and a company’s sector are responsible for about two-thirds of its gains. If tech falls out of favour, or if the overall market rolls over, it will put a trillion dollars out of reach for Apple.

Apple comes in second: The most likely challenger in the race to a trillion would be Jeff Bezos and It has a market cap of $US732 billion dollars — and an infinitely higher valuation — so it has a tougher road to travel. But I would not put anything past Bezos & Co., and it would not be the first time they saw a 35 per cent gain in a year.

Cisco jinx be damned, I predict a better than 40 per cent chance that Apple’s trillion-dollar valuation will occur this year.2018.


Henry Sapiecha