Last updated on August 22nd, 2016 at 11:06 am
Tabitha Creighton, CEO of Seattle-based InvestNextDoor, traces her tech roots all the way back to the heady days of Netscape Gold. It’s a history the Toronto-born professional not only survived—for those who recall the unpleasant way in which Dotcom 1.0 ended—but which she leveraged into a gig at Microsoft’s Canadian HQ and now a venture in fintech, the most modern of Internet trends.
Although she found herself in the tech world, it’s not the one from which she originally hailed. In fact, she began with a masters of philosophy and credits serendipity and opportunity to the road she ultimately traveled. “I had some friends that were building web sites and they wanted somebody that was good at talking and communicating,” she says. “They were more techy and it kind of started there. And as a grad student quickly the money that came with working in tech became far more lucrative than being a starving grad student.”
She left Microsoft at the end of 2006 and went on to other ventures before co-founding InvestNextDoor, which launched in the US in July 2014. The company operates in the marketplace lending space, which shares some similarities to crowdfunding, but shouldn’t be confused with the latter as invested funds are not donations. InvestNextDoor targets small business, allowing investors to loan a maximum of $250,000 (minimum of $500). The capital is comparable in risk profile to a high-yield security similar to a debenture (e.g. a bond backed by cash flows rather than a physical asset).
A small business interested in accessing this capital simply visits InvestNextDoor’s site, fills out all the paperwork online and then, if a series of checks are passed, is quoted a benchmark rate based on risk of default. The business can then issue the security at that rate or some other rate they think is appropriate. The issue then goes into InvestNextDoor’s marketplace where investors can review and either accept at that rate or counter-offer. Once enough offers are received for the requested loan amount, the transaction is processed and both sides can access a dashboard where they can track payment dates, outstanding balances, remaining duration and so on.
For small B2B concerns that have trouble getting the time of day from traditional banks because of a lack of collateral such as real estate or heavy machinery, InvestNextDoor may be an ideal solution. In keeping with the fact that small business creates the majority of jobs, Creighton estimates there are 1.5 million businesses in Canada that could take advantage of this kind of alternative funding.
The platform is launching in Canada in the “next few months” pending regulatory clearance from the Ontario Securities Commission. It will mark a return to their native Canada for both women (co-founder and COO Lisa Ohman is from Vancouver), one that arguably could have occurred sooner if the investor climate was a little more welcoming.
But Creighton takes it all in stride and says that while it’s true the market is more conservative in Canada, it’s not a bad thing in itself, just different.
“Think of the US when it comes to problems as being a river with rocks sitting in the middle of it and the water flows around the rocks,” she says by way of illustration. “That’s American innovation and the American desire to be entrepreneurial. Canada’s more like a dam. And I don’t mean that it never comes down. But we all wait and we wait for the dam to open and for the tides to rise and then we kind of all go together. So it’s not that you can’t be innovative—and Canadians are very innovative. But our approach to innovation is very different.”
She says that although she and Ohman didn’t know each other before they started InvestNextDoor, their skill sets complement each other. That will prove important given some of the challenges the business faces in its particular niche. While the idea of being able to borrow money in circumstances where none might be available might seem like a slam dunk offering, small businesses aren’t always the most sophisticated financially and InvestNextDoor has faced some resistance. Creighton admits the team was surprised when some owners expressed reluctance out of fears for the confidentiality of their business information and potential loss of competitive advantage.
The startup must also hurdle industry doubts from within and without because there’s no blueprint for the kind of service InvestNextDoor is offering. “Whether it’s the securities commission that we’re talking to or investors—even our own counsel in some cases—we’re constantly being confronted with ‘Well, there’s no pattern for this.’ It’s not daunting that we want to solve the problems, but it’s definitely the biggest challenge. Because we’re not just defining this for us, but for lots of people.”
Coming from a very top- and bottom-line-focused business in Microsoft, Creighton says the duo considered a number of business opportunities before settling on InvestNextDoor. She’s proud of the platform’s commitment to community engagement that includes encouraging borrowers to promote and express themselves socially as an added reason why investors should make the decision to deploy capital locally.
“[We had] a desire to be able create some social good along with some profitability. She and I both come out of very profit driven organizations and lifestyles where money is very, very important. So we thought, ‘Let’s find a model where we can be profitable but we can also do some good.’”