Fintech startup lender Arc announced the launch of Arc Treasury, a new banking platform developed in partnership with Stripe, on Tuesday morning. Arc helps other companies finance their business by offering them upfront capital repaid from future revenue streams that doesn’t require founders to part with any of their equity. Arc’s main service, Arc Advance, relies on machine learning to underwrite funding offers algorithmically, promises to deliver capital within 48 hours of a startup uploading its financials to Arc’s platform. With Silicon Valley powerhouses like Y Combinator Advising startups to “plan for the worst” amid tech’s bear market, Arc’s lending services should have no shortage of fresh loan applicants.
With the debut of Arc Treasury, clients will now have access to additional financial tools, including bank accounts and spending analytics. Stripe owns and manages the relationship with the host bank, Evolve, while Arc has built the user interface that startups can now use to access, deposit and spend Arc Advance funding.
Startups offering business to business financial services has grown significantly in the past year, boosted by the pandemic pushing more banking online and by a healthy stream of venture capital. Multiple startups offering banking services for other businesses appeared on Forbes’ Fintech 50 for the first time last week, including Novo, who specializes in providing checking accounts for small businesses, and Creative Juice, whose digital banking app is annual at content creators and which is now also offering funding repaid from revenue.
After going through Y Combinator and raising $11 million in equity and $150 million in debt financing, Arc launched in September 2021. Since then, the company has attracted more than 100 paying customers, according to CEO Don Muir, who hatched his startup plan while at the Stanford Graduate School of Business. Arc preeminent caters to business to business software startups, which makes up 95% of its customer base.
Arc’s first product, Arc Advance, offers an alternative for startups that would otherwise depend on venture capital or traditional private equity financing to raise funds. Arc fronts customers 20-80% of their estimated future revenue and demands full repayment, taking between 5% and 12% of those revenues as interest depending on the riskiness of the borrower as assessed by its algorithm.
Arc is entering an increasingly crowded field of fintech startups trying to banking services to other businesses. Brex and Mercury offer cloud-based financial platforms tailored to startups. ClearCo offers AI-assisted, non-dilutive capital; unlike Arc, though, it offers funding through debt financing. Pipe also offers startups non-dilutive capital, but does so by pairing them on a digital marketplace with investors who front the money.
“Verticalization is probably the largest differentiator of Arc relative to some of the other names,” Muir says, referring to Arc’s offering of both loans and a bank account to customers.
Despite the ongoing downturn in capital markets for fintech startups, Arc has experienced its highest growth rate to date over the past two months, said Muir. Startups may be tapping into this resource because they are hesitant or unable to fundraise in a flat or down round, which is becoming increasingly common in the current market.