Continuing what’s become an annual tradition, local startup West Creek Financial has capped off yet another big capital raise.
The Henrico-based company, which provides lease-to-own consumer financing for furniture, mattresses, appliances, tires and HVAC purchases, announced last week the completion of a $7 million haul of convertible debt led by Summit Action Fund, a venture capital firm in Goochland that’s making its first investment in a local company.
The raise brings West Creek Financial’s total capital raising activity to $50 million, including a $10 million equity raise in summer 2017 and $3.5 million in summer 2016.
CEO Rob Finnegan said the latest cash influx will help the company boost its salesforce, which was 13 at the end of 2017 and is expected to rise to 48 by yearend.
“As we hire salespeople and deploy them, they don’t pay back immediately,” Finnegan said. “We need to fund them until they are fully productive and producing profit.”
The addition of salespeople also will require new support staff, and Finnegan said the company expects its employee headcount firm-wide to hit 154 by year’s end. That’s up from 84 current employees and 40 a year ago.
Its employee growth coincides with the growth of its customer base. West Creek says it offers financing through more than 3,000 retailers in 44 states – more than double the retail outlets it worked with a year ago. Finnegan said revenue for the first quarter was three times what it was in the same period last year, without disclosing an amount.
As it continues to pitch its service to retailers – which include mom-and-pop stores and large chains like Ashley Furniture and Mattress Warehouse – Finnegan said the company’s competitive advantage is technology, which it uses to analyze the creditworthiness of borrowers in what’s considered a subprime segment.
“It’s a technological edge,” Finnegan said. “We have better machine-learning algorithms that enable us to do a better job underwriting consumers. We use more advanced mathematics to discover patterns in the data that our competitors cannot see.”
Finnegan said about 85 percent of its business comes from furniture and mattress purchases, while HVAC purchases are a new segment it jumped into this year.
Finnegan founded West Creek Financial in 2014 with fellow Capital One alums Boomer Muth and Scott Barton. Muth had been CEO until last year, when Finnegan took over. Muth is now president.
The company keeps its headquarters at 4951 Lake Brook Drive in Innsbrook.
For Summit Action Fund founding partner Brock Saunders, the investment in West Creek Financial gives him the firm’s first deal in his own back yard.
Saunders, who grew up in Goochland and graduated from UVA, started Summit Action with three co-founders in 2015 with a $25 million fund aimed at investing in eight to 10 companies.
The company has invested in eight companies thus far and deployed about 60 percent of its first fund. Other investments include construction tech company Katerra and health insurance startup Clover Health.
Like the company’s investments, Saunders said, its capital largely has come from outside Richmond, in larger markets like Chicago, New York and Miami.
The firm ultimately put $2 million into West Creek, which Saunders said he looked at initially with some reservations because of its presence in the subprime lending realm.
But once he got to know Finnegan and Muth and did due diligence, Saunders said he was sold.
“It was enough to open my eyes to say, ‘Oh my gosh, this is an incredible business using technology to disrupt the status quo,” he said. “It’s a startup growing incredibly quickly. To find one in my backyard was all the more fulfilling.”
Saunders said the biggest challenge for West Creek going forward is to continue hiring good talent and scaling retailers at its present pace.
“We are looking forward to converting our debt into equity and looking forward to being long-term shareholders,” Saunders said.
Saunders, 34, is the son of Paul Saunders, founder and CEO of Goochland-based investment firm James River Capital.
The younger Saunders spent stints at Citigroup in New York and hedge fund Pleasant Lake Partners before launching Summit Action with several of the founders of Summit Series, a company that puts on business and technology conferences and speakers series.