Arc, a company that aims to give SaaS startups “a way to borrow, save and spend” in one place, has raised $20 million in a Series A round of funding.
The raise comes seven months after Arc emerged from stealth with $150 million in debt financing and $11 million in seed funding. The startup graduated from Y Combinator in March.
While it’s early days still, Arc says it has seen strong early interest in its offering, which offers both debt funding and digital banking services to SaaS startups. The company says that on average, its revenue has grown by 250% every month since the fourth quarter of 2021. It is partnered with Stripe, one of the world’s largest and most valuable private fintechs.
When Fintech first covered Arc in mid-January, the company noted that since it had launched its introductory product — Arc Advance — last summer, more than 100 startups had signed up for the Arc platform. That offering gives founders a way “to convert future revenue into upfront capital.” Fast forward to today and co-founder and CEO Don Muir told Fintech that Arc is deploying “tens of millions of dollars in volume” and now has more than 1,000 companies on its platform.
Further, he said that Arc has a backlog of over $3 billion of demand for its Arc Advance funding product from companies already signed up on its platform. Over the next 12 months, Muir projects that Arc will activate over $500 million of funding and deposits for its customers.
Muir, Nick Lombardo (president) and Raven Jiang (CTO) founded Arc in January of 2021 and incorporated the company in April of that year.
Left Lane led Arc’s Series A financing, which also included participation from NFX, Y Combinator, Bain Capital Ventures, Clocktower Technology Ventures, Torch Capital and Atalaya, as well as founders from Wayflyer, Plaid, Column, Chargebee, Vouch and Jeeves, among others.
“All of our existing investors with pro rata rights came into the round again, which we view as a point of validation,” Muir said.
There have been a flurry of startups emerging to offer financing alternatives outside of venture capital, especially to SaaS startups. Those companies are appealing to lend to because of their predictable recurring revenue.
Other players in the space include Founderpath, Pipe and Capchase, among others.
Muir said Arc is not deterred by the competition, viewing it as “a good thing.”
“The reality is that the market is currently dominated by the legacy offline banks who have entrenched relationships in the startup ecosystem,” he told Fintech. “Collectively, the fintech players still represent a low single-digit percentage of the annual deposit and funding volume in the market.”
The startup’s biggest differentiator, in Muir’s view, is that it goes beyond offering upfront revenue to also offer banking services.
“Arc is the first digital business bank that is purpose-built for high-growth startups,” he said. “So for the first time ever, startups can convert their future revenue into upfront capital, deposit those funds into a digital bank account with all the bells and whistles of a traditional bank account and leverage our insights and analytics to spend that capital, more efficiently, which is revolutionary for the startup ecosystem.”
In June, Arc announced the launch of its Arc Treasury offering, which it describes as a “digitally native and vertically integrated deposit account that enables startups to access all of the banking services they need including checking, card issuance, and FDIC insurance eligibility.” The product was built in partnership with Stripe.
Arc works with both bootstrapped and VC-backed “high-growth, premium” software startups — the majority of which are B2B. The evolving macro environment has led to a “meaningful increase in demand,” according to Muir.
“You’re seeing software valuations being cut in half in the public markets and that’s starting to trickle down, all the way down to Series A and even seed-stage valuations,” he told Fintech. “So equity becomes meaningfully more expensive, it makes alternative sources of financing that much more attractive.”
While the San Francisco-based company declined to reveal its valuation, Muir said it was “a meaningful step up.” Meanwhile, Arc has doubled the size of its team to 30 since January.
Dan Ahrens, partner and founder of Left Lane Capital, said he was drawn to the market opportunity when deciding to lead Arc’s round as a new investor.
“Given the way that equity markets have fundamentally shifted and meaningfully shifted over the last six months or so, we feel like availability for capital for founders is going to be a bigger issue now and more prominent issue in their minds now than it has been for several years prior to this when equity markets were a bit more forgiving,” Ahrens told Fintech in an interview.
“And then having a really broad vision for the future product roadmap of a much more holistic banking solution, where you tie in Treasury, you tie in the FDIC insured bank account and you have a much more complete solution that’s ultimately solving a lot of needs for the end customer,” he added.
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