If you follow our investment strategy, you know we love internet-based marketplaces that enable direct transactions between interested parties. What is less well known is that our focus extends beyond consumer-facing marketplaces such as Etsy and Lending Club. Last week Fred blogged about our investments in companies that serve enterprises and today we are delighted to add Pollenware, a company based in Kansas City, to that list.
Pollenware has created a sophisticated marketplace for one of the largest but most overlooked areas of finance: working capital. To give you a sense of scale, the company estimates that global working capital flows between businesses and their suppliers total more than USD $200 trillion annually. These flows (and credit operations) operate constantly between buyers and sellers, usually in cycles of 30 to 90 days.
Historically, buyers have turned to third parties to invest excess cash, while sellers needing cash have had to borrow against the receivable or sell it at a discount to banks or factoring companies. These latter transactions generally involve legal paperwork, covenants, an analysis of the buyer's credit risk and costs to the seller.
With the Pollenware (C2FO) solution, no intermediaries are necessary and there is no incremental credit risk. Buyers and sellers come together in the (C2FO) market to negotiate the value of early payment. Buyers allocate cash to fund the sellers discount offers which are made in the live, bid/ask market environment. It's a strong value proposition for both parties. Buyers get a better financial return than almost any other available short-term investment and sellers get a smaller discount than they would have received from a third party.
Already there are thousands of buyers and sellers on the Pollenware platform, including a number of brand name Fortune 500 companies. In 2012, the company expects its marketplace to transact more than $3 billion of early payments.
While there is a lot of work to do, the company is off to a great start and we are excited to lead its Series B round. The founder is Sandy Kemper, who ran a bank earlier in his career and has a deep understanding of working capital finance. We look forward to helping Sandy and his team build a world class global business over the next few years.