Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman (Part 7)

Sramana Mitra: Was that $1 million in the beginning the only capital infusion or have you had other capital infusions?

Peter Lehrman: Since then, we’ve raised another $20 million.

Sramana Mitra: Walk me through the chronology of those rounds of financing.

Peter Lehrman: The subsequent $20 million has been raised across three financing rounds. The first financing round was led by First Round Capital, which is a seed-stage venture capital firm that has offices both on the East Coast and the West Coast. That was a $2 million financing round. We started in 2009 and raised about $3 million. Then in 2012, we started to accelerate the customer growth of the business and we raised a Series A financing round of about $6 million at Red Point Ventures which is, in my opinion, one of the best investors in B2B marketplaces. In July 2014, Sam Landman from Comcast Ventures led our Series B investment, which in total was a little more than a $12 million round with all the existing investors participating alongside.

Sramana Mitra: What are the business metrics as you go from 2009 to 2015?

Peter Lehrman: We care a lot about the size of the network, the number of connections occurring on the network, and the types of connections – the depth and quality of the connections. Those are the things that matter a lot to us. They show whether or not the network is growing and whether or not the members of the network are experiencing a set of connections with one another that lead to valuable business outcomes. Those are the leading business metrics that we care a lot about.

At the beginning of this year, we built a digital signature product directly into the workflow on Axial. In addition to measuring connections and messages being sent, we now can measure the number of signatures that are being signed through Axial. We have also built out a deeper workflow solution for the seller. So now, we’re able to track the number of deals that are going into closing each month. The metrics have evolved as the platform has enabled more and more workflow tools for the users. We’ve gone from just pure high-level connections to the number of NDAs that are being signed and the number of deals that are going into closing every month.

Sramana Mitra: How many investors are on the platform today? Qualitatively, what do we know about these investors? How do you segment these investors?

Peter Lehrman: There are three general categories that they fit into. Sometimes, they overlap. They are providers of debt, providers of equity, and then buyers of companies. The buyers of companies consist both of the private equity buyers of companies as well as a pretty large and rapidly growing universe of corporate buyers that are making acquisitions. The equity investors on Axial are not angels. They’re very rarely individuals that are focused on making angel-sized investments in technology.

The equity investors on Axial are almost overwhelmingly institutional investment professionals that have either raised a pool of capital or are doing deals on a deal-by-deal basis. The median check size is about $2.5 million. The maximum median check price is about $50 million. Maybe that helps to characterize it a little bit. The lenders that are on Axial are a combination of unregulated alternative lenders as well as regulated banks that are originating prime loans from middle-market companies.

Sramana Mitra: What’s the minimum, median, maximum on the loans?

Peter Lehrman: Minimum is half a million up to $300 million. For a particular lender, minimum loan size is $20 million and they go up to $300 million. They’re one of the larger lenders on Axial.

Sramana Mitra: Revenue threshold of the companies that are raising money whether directly or through brokers is $5 million?

Peter Lehrman: The overwhelming majority of the businesses has north of $5 million in revenue, but there’s room below that. Typically, what we tell the entrepreneurs who are looking at different online platform to access capital is if their business has more than half a million of annual income or more than $5 million in annual revenues, Axial can be a very relevant platform for them to use in their fundraising or in their exit process. If the business has $3 million in sales and $1 million of pre-tax income, that business can generate a lot of traction on Axial. If the business has less than $2 million in revenue or it’s also losing money, then we recommend other platforms for them to pursue.

Sramana Mitra: What kind of revenue are you generating now?

Peter Lehrman: We don’t disclose our revenues. We were on the Inc 500 last year. We disclosed the calendar revenue of $6.8 million but on an ongoing basis throughout the year, we don’t disclose updates.

Sramana Mitra: So in 2014, you did $6.8 million?

Peter Lehrman: Yes, on a calendar business.

Sramana Mitra: How big is your team?

Peter Lehrman: We’re about 90 people now.

Sramana Mitra: All based in New York?

Peter Lehrman: Not entirely, but about 95% of the team is here. We have a few folks who have relocated. We love them so much that we make it work. We try to hire people here in New York so we can all be in one office, but we do have a handful of people who are in Texas and Iowa.

Sramana Mitra: You’re in Manhattan?

Peter Lehrman: Yes, we’re in Manhattan. Our office is in the Flatiron.

Sramana Mitra: Is there anything else you want to share before we close?

Peter Lehrman: I’m not sure if it’s perfectly into the narrative but we shipped a mobile application in September of this year. The mobile application is directed at anybody who’s providing capital. It allows anybody who’s an investor in the company to actually respond and engage with sellers and entrepreneurs from their mobile phones. As part of that release, we also ship mobile signatures. People are signing NDAs from their mobile phones as well. I’m not sure it’s a standalone item that is worth calling out but generally speaking, it just fits into our vision to create a highly-available and highly-accessible capital market for mid-sized businesses, and just using any and all technology, screens, and devices to make that happen.

Sramana Mitra: Great! Thank you for your time.

This segment is part 7 in the series : Building a Capital Marketplace for Mid-Market Businesses: Axial CEO Peter Lehrman
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