Why We Invested in Lendflow: The Future of Embedded Finance

“Small businesses are the backbone of the U.S. economy. They are the biggest job creators and offer a path to the American Dream.” -Karen G. Mills, Former U.S. Small Business Administration

Unfortunately, many SMBs struggle to get the capital they need to succeed. SMB owners often must submit multiple loan applications only to face a high likelihood of being declined, opaque reasons for declines, and frustratingly limited alternatives. The problem is particularly acute in underserved sectors like construction, transportation, and home services.

Lendflow is addressing these challenges by providing a low-code API platform that enables vertical SaaS companies to easily build, enhance, or embed financial products within their ecosystems and tailor them specifically for their customers.

Today, we’re thrilled to share that Underscore VC led Lendflow’s $10.8M Series A round, backing the team alongside Uncorrelated Ventures, 2048 Ventures, and Y Combinator.

Why Are We Excited to Partner with Lendflow?

Our decision to lead Lendflow’s Series A round came down to 3 things: 1) a founding team with unique market insights and exceptional early execution, 2) a large and growing market opportunity for embedded finance offerings in the U.S. and abroad, and 3) a product that is quickly gaining traction with their target customers.

Great Founder Market Fit

At Underscore VC, we spend a lot of time exploring investment opportunities in the financial infrastructure segment of the FinTech market. Naturally, Lendflow caught our eye as one of the most interesting financial infrastructure companies in Y Combinator’s WC21 cohort as well as being referred to us by our partners at 2048 Ventures.

When we met Jon Fry, CEO, and his co-founder and CTO, Matthew Watts, we were impressed by the leadership team they had built along with their early revenue and customer traction. Jon’s decade of experience in the SMB lending market had clearly led to unique customer insights about the challenges in acquiring and servicing SMB loan customers. His existing relationships with a network of 3rd party lenders, potential partners, and product vision brought Lendflow to life. Jon’s combination of domain expertise, unique insights, and “run through walls” passion and execution made it an easy decision to join the team on their journey.

Potential for Embedded Finance to Transform SMB Lending Across Verticals

As FinTech investors, we are particularly enthusiastic about companies providing software solutions that help small businesses thrive and we’re thrilled that the SMB segment no longer plays second fiddle to the large enterprise market. With the rise of SaaS companies serving SMB customers through vertical software solutions, SaaS software providers now face a unique opportunity to fill an unmet financial services need for their existing SMB customer base.

Until recently, traditional lenders have struggled to efficiently acquire SMB customers and underwrite loans. On the other hand, vertical SaaS software providers often have unique access to data such as revenue, payment flows, and customer history that creates a competitive advantage when underwriting a loan or offering any type of business financing. Industry leaders, such as Toast and Shopify, have figured this out and are embedding lending into their tech platforms. By doing so, they’re increasing revenue, improving customer retention through stickier product offerings, and improving loyalty by addressing a broader set of their customer pain points. Lendflow is enabling any vertical SaaS platform to do the same.

While we’re still in the early early days of embedded finance, we’re excited about the rapid expansion of use cases that include payments, lending, insurance, payroll, and much more. We believe Lendflow will be a leader in SMB embedded finance.

Strong Product Quickly Gaining Momentum

In venture capital, we’re fortunate to be able to connect with thousands of founders every year, and it is especially exciting to see an early-stage company meeting and exceeding aggressive milestones right out of the gate.

Since Lendflow’s launch, the team has quickly closed marquee customers, such as AtoB in the transportation vertical and LevelSet in the construction vertical, while also establishing numerous key lending relationships. Lendflow’s product is built to enable SaaS players to quickly stand up in-house lending programs within a matter of days – something that would have taken 1-2 years with existing solutions. Using Lendflow, a software provider can seamlessly embed a 3rd party lender or leverage the Lendflow platform to build a completely customized lending offering from scratch. The Lendflow platform also provides low-code API access to a host of data services, including loan application capture, KYB processing, credit history and reporting that enhance existing lending programs.

As Lendflow begins to scale its offerings and customer base, we couldn’t be more excited to support Jon, Matthew, and the rest of the Lendflow team through this stage of their journey.

What’s Next for Lendflow?

With this exciting opportunity to transform SMB lending across various industries, Lendflow is hiring to grow the team further. Check out open roles here!

If you’re a vertical SaaS company leader exploring new ways to expand revenue per user, increase engagement, improve retention, and better serve your customer, it’s time for you to meet with the Lendflow team here.