3 Questions with Francis Shih of Arc Labs

FintekNews is pleased to offer our readers our "3 Questions With..." column, where we chat with a thought leader within a unique sector of fintech and ask them to answer just 3 questions for our audience in their vernacular. This week, we’d like to introduce you to Francis Shih of Arc Labs, which is an early-stage credit fund based in San Francisco focused on providing creative debt capital to innovative technology-enabled startups in North America, Latin America and Asia.

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What does your firm do/offer within the fintech sector?

Arc Labs provides debt capital to early-stage fintech startups, before traditional credit products like bank lines and venture debt are typically available. We offer credit facilities secured by cash-generating assets like loans, which provides extra safety for our investors and allows us to invest larger sums of capital in nascent software companies than they would otherwise be able to raise from venture capitalists alone.

Today’s venture capital round sizes are often tailored for funding capital-light software-driven business models. For capital-intensive business models, such as online lending, a fund like Arc is able to provide the additional funds a company needs to rapidly scale its businesses and with minimal dilution. We typically make $10M facility commitments to seed stage startups that have raised only $2-3M in equity, thus playing a valuable role in the ecosystem for startup capital.

How do you feel consumers (or if more relevant for your firm – businesses) are adapting to the facet of fintech that your company operates within?

Early-stage fintech lending startups have traditionally financed their early loan books with a combination of equity capital and individual family offices / high-networth investors. Companies have traditionally delayed their first institutional credit facility due to a) a lack of availability of commited institutional debt capital for smaller deal sizes (< $25M) and b) the complexity and large investment of time required to structure institutional deals with traditional credit funds.

Arc’s facilities provide a middle ground between family office capital and traditional institutional credit funds. We specialize in underwriting startups and structuring creative facilities to meet the needs of a young fast-growing company, allowing us to move faster than traditional credit funds. At the same time, we can offer institutional grade structures and make larger commitments than family offices. Because of the capital solutions we offer, startup founders are increasingly partnering with us at an early stage.

What area/s of fintech do you believe will grow the most in the coming 5 years?

While the United States is our core geography as a firm, we are extremely optimistic for the growth prospects for fintech firms in less developed markets, particuarly in Southeast Asia. Many of the market leaders in categories like online lending have already been established in developed markets and the incumbents will be relatively difficult to unseat unless a new entrant is doing something extremely differentiated. In less developed markets there is still ample room for new leaders to emerge.

Francis was the Director of Finance at ProducePay, a venture-backed financing platform focused on the fresh produce industry. His background is in institutional equity research including experience as a technology sector analyst at Bear Stearns and as a buy-side analyst for a long/short equity hedge fund in New York.