Background
Founded: 2014
Based: NYC
Upper90 Lead: Billy Libby
Company Stage: Series D
Amount Raised: $192 million in total equity funding as of August 2023
Octane Lending is an established point-of-sale platform that empowers powersports dealers to provide fully automated financing to previously underserved customers. Octane reaches millions and helps consumers buy their favorite products by pre-qualifying them on dealer and original equipment manufacturer websites.
Deal Background: Octane's execution, strong balance sheet, and compelling customer acquisition model through OEM partnerships caught our attention. We saw the company's use of proprietary data to underwrite risk and capture excess spreads to traditional Fintech platforms as a sustainable advantage in a large but highly fragmented segment of consumer finance. Leaning on his background from Capital One, Jason Guss saw an opportunity to consolidate the point of sale financing market in the $45B powersports industry with an end-to-end digital checkout experience.
Starting Point: In the first quarter of 2018, the company was meaningfully outpacing originations and either needed to slow down or raise more equity to manage haircut capital requirements from its warehouse lenders. The company had recently raised an equity round and wanted to get through another major powersport spring season before going back to the capital markets. In a matter of weeks, Upper90 provided a senior loan to help bridge the company for six months to continue to execute without throttling growth or taking unnecessary dilution.
Partnership Evolution: We started with a smaller initial amount to solve a short-term problem ahead of Octane’s busiest season in lieu of raising more equity. Upper90 built a deep relationship with Octane through subsequent financings, providing a $35.5M senior secured loan to fund loan originations over the course of the next few years. We have also invested in several equity rounds to align with a business and team we believe deeply in.
Founder Q&A
How did you first hear about and connect with Upper90?
I was first introduced to Billy Libby in June 2018 by Nick Huber at Ribbit Capital who said they are good at solving complex capital market problems. I reached out to discuss Octane’s short-term funding needs and things moved quickly from there.
Why Upper90?
Upper90 provided a novel structure that solved our capital needs at the time, allowing us to execute on our growth plans without relying on equity alone. The firm has quickly become a strategic asset to our business. They are an aligned partner by participating in the equity as well and add value beyond capital with members like Jason Finger which is rare in the credit space. Being over capitalized is critical for long term success in Fintech and is diversification in your capital base so a group can’t damage the overall business. We have always looked for sources of capital that can solve different needs and what Upper90 does is distinct.
What was the problem you were trying to solve at the time?
We had outpaced originations and would need additional haircut equity or to slow down in order to not breach any debt covenant from bank providers. If we raised more equity, we wouldn't get a step up from the last round which was done several months prior, and slowing down wasn’t best for the business and we were trying to secure new original equipment manufacturers (OEMs: a company that produces non-aftermarket parts and equipment that may be marketed by another manufacturer) for the big powersports season in the spring. Having Upper90 be able to provide a senior bridge loan for six months gave us massive optionality.
How should founders think about debt vs equity?
It depends on the business model. Certain business models, you can get away with very little equity and just raising debt capital. It works because the unit economics of whatever you're using to invest that debt capital, the ROI is very positive so it makes sense to finance that. Businesses that are using debt to fund OpEx need to be much more careful and need to have a strong footing of equity because otherwise, they could find themselves having a lot of issues. Instead of giving extra leverage, like debt is supposed to do, it might have the opposite effect if you're not capitalized appropriately.
What’s the nature of your relationship with Upper90 today?
When there are complex capital needs, we check with Upper90 first from product expansion on the financing side to core product securitizations or acquisitions. We also see a lot of interesting companies that call us first that we send to Upper90, whom we believe is the best partner for companies looking for an initial credit facility.
What would you want other entrepreneurs and founders to know about working with Upper90?
Upper90 has been a great partner for Octane, in both the short and long-term. When we came to the team with a problem, they immediately understood our business, and were willing to hustle to try to figure out how we could work together to solve it, which is something that was really valuable to us. We tend to have the view that if you find partners that you enjoy working with, that are high integrity, very smart, and also know how to work hard at trying to find things that work for both parties, you want to keep those relationships over the long run. Upper90 is one of those partners. We’ve appreciated their ongoing support and the integral part they’ve played in our success.
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