Based in Dallas CollateralEdge has emerged from stealth today with a fintech platform that could boost local economies across the United States by helping commercial banks increase the lending capacity of small and medium businesses nationwide.
The startup has already raised an oversubscribed $ 3.5 million from a “stellar group” of financial partners in Texas, including venture capital firm Perot Jain, Capital Factory CEO Josh Baer and Kneeland Youngblood, the founding partner. of Pharos Capital Group.
Innovative debt capital delivery
Co-founders Joe Beard and Joel Radtke are the driving forces behind the new fintech platform, which offers a credit risk mitigation tool for mid-sized and community-based commercial banks. CollateralEdge provides lenders with a convenient tool to extend credit to new and existing customers and overcome collateral gaps that would otherwise have derailed loan opportunities.
Until recently, the duo operated with discretion, creating their secure online portal and refining their algorithmic risk pricing tools. Their goal is to help banks improve credit risk management and build profitable, long-term customer relationships in a highly competitive middle market lending environment.
A new model: the partnership with the bank
Banks have for years faced challenges related to disruption caused by non-bank lenders and fintech players who “bypass the bank” to provide direct financing to businesses, often at much higher costs to the bank. borrower.
Beard and Radtke have taken a different approach in their direct banking partnership model.
“Our platform is simple: We enable community and regional banks to increase their lending capacity without compromising credit quality,” Beard said in an interview with Dallas Innovates.
“The net effect of our product directly benefits the bank’s bottom line and provides a great way for bankers and loan officers to find solutions for new loan applications rather than rejections,” Radtke added.
A powerful and united group of investors
CollateralEdge is emerging with a group of very supportive financial partners that includes leading Texas investors.
Young VC Perot Jain is one of them.
“We tend to invest in technology companies that transform the industry and are led by amazing entrepreneurs, and CollateralEdge has both of these attributes,” said Ross Perot, Jr.
Kneeland Youngblood, whose name is “the most interesting man in private equity“says the founders are” uniquely qualified to rise to the challenge “thanks to their extensive experience as advisers, operators and investors. CollateralEdge” solves a major problem for community banks that will positively impact thousands of entrepreneurs who work hard, ”says Youngblood.
Capital Factory founder Josh Baer says he’s thrilled to see Beard and Radtke “create the next fintech unicorn, right here in Texas.” The CEO and investor said CollateralEdge “embodies all the elements of an explosive growth opportunity: experienced founders, strong and in-depth investor support, a compelling customer value proposition and a truly huge addressable market.”
From West Point to Credit Suisse, two Ivy Leaguers join forces
Beard, who is CEO of CollateralEdge, and Radtke, who is president and chief operating officer, met eight years ago in a classic cafe convergence. It was an ideal match: The two had backgrounds in finance, and an informal conversation quickly turned into ideation. Two entrepreneurial minds, armed with caffeine and decades of first-hand experience, saw the way forward to transform a massive industry.
Beard, a West Point graduate and former U.S. Army captain, received an MBA from Columbia University and held investment banking positions with Bank of America, Bear Stearns, and Merrill Lynch. Later, as a venture capitalist at Perot Jain, Beard invested in over 45 deals over five years.
Radtke is a Harvard graduate who held investment banking positions at Credit Suisse and Alex Brown & Sons before moving to private equity. He then co-founded the healthcare company backed by PE United Orthopedic Group, where he served as CFO.
Financiers turned entrepreneurs are a rare breed. With backgrounds ranging from investment banking to private equity to venture capital, they have long sat at the negotiating table, exposing themselves directly to the structural issues they tackle with CollateralEdge.
Dallas fintech tackles big middle-market lending problem
Over their 40 years of combined experience, Beard and Radtke have seen firsthand the “structural inefficiencies” that affect lending to middle markets, making traditional bank debt financing difficult, inefficient and often frustrating for all parties.
“When Joe and I started talking about the debt market and our similar backgrounds and experiences, the problem we saw was a consistent pattern of good companies who should be great customers of banks not quite doing well. through a bank’s risk assessment process, ”Radtke said. .
In many cases, the basic credit metrics of a loan application may be strong and even conservative, but the risk of loss to the bank due to common characteristics of the middle market, such as customer concentration, customer base years of limited operation, limited comfort of the personal guarantor, and “asset-light” business models are difficult to overcome, say the co-founders.
“I think we’ve found a very unique way to solve this problem,” Beard said.
“What really struck us is that there is a plumbing problem,” Radtke said. “There is a missing pipe in the system. We provide that tip — we provide a way for banks to meet the needs of their customers in a way that the loan officer can feel comfortable with. And we do it in such a way that the bank remains in control of the whole process. “
The co-founders say their easy-to-use software portal fits seamlessly into a bank’s workflow, meaning no extra time is added to a transaction. By being “very smart” on the backend, CollateralEdge is able to minimize prices for banks, which in turn lowers their prices for the customer. The tool adds to a serious competitive advantage for banks trying to differentiate themselves in a crowded market.
“We make the banker the hero of the story for his borrower,” Radtke said.
Former FDIC regulator sees positive impact
Jim Watkins, who previously served as senior deputy director of supervisory reviews at the Federal Deposit Insurance Corporation (FDIC), is an early advisor and supporter of CollateralEdge. Now Senior Managing Director of the Isaac-Milstein Group, Watkins sees the positive impact of CollateralEdge on the financial industry and the economy.
With CollateralEdge, a bank can provide additional capital to the borrower while still being the company’s sole lender, Watkins told Dallas Innovates. “It is important to note that a bank can provide this additional capital without increasing the risk of loss for the bank,” he says.
Watkins views the CollateralEdge toolset as a benefit to banks and customers.
He says the solution resolves a key underwriting hurdle that is “most pronounced in fast-growing businesses, business acquisitions, and businesses with significant intangibles.”
Expanded access to credit fuels economic growth and jobs, according to Watkins. “Many of the businesses that benefit from obtaining their bank loan are prominent job creators in their local communities,” he says.
Next step: scaling up
Although Texas and Dallas are their home base, the co-founders have the right support and plan to get big, Beard says.
“We can help so many communities and so many small businesses, our impact can be huge,” says Beard. “Our focus right now is to prove that model, to work with great clients, and to help middle market companies.
“Then we figure out how to do this on a very, very large scale. “
David Seeley contributed to this report.
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