An interview with Howard Katzenberg, CFO, OnDeck Capital, Inc.

Q: Even before joining OnDeck in 2008, you already had a history of supporting small businesses. What draws you specifically to promoting this market?

I have such huge respect for small-business owners—their passion, know-how, and resilience. It’s often said that small businesses are the backbone of our economy, which is true and incredibly important, but they also play a critical role in building the character of our communities. I love this dynamic and, as such, have dedicated my career to helping small businesses grow.

Q: How is OnDeck filling a void left by the traditional way of banking and transforming the lending industry?

Traditional lenders are not equipped to meet the working capital needs of small businesses. It’s not an issue of credit or capital; it’s an issue of time and cost. They have processes designed to evaluate the business operations of a $20 million business getting a $1 million loan, not a $2 million business that needs a $50,000 loan. They defer to FICO to make lending decisions and require a lot of paperwork. A recent study by the Federal Reserve Bank of New York found that small-business owners spend 33 hours on average applying and searching for financing. OnDeck has built a proprietary technology and small-business credit scoring system, the OnDeck Score®, to make financing more accessible. A business owner can apply online in minutes and get a decision and funding in as little as 24 hours. And since 2007, we’ve delivered more than $3 billion to small businesses across 700 different industries.

Q: As CFO, what were the biggest lessons learned as you completed the IPO process? Where can a CFO add the most value when preparing to go public?

Preparing to go public was a huge undertaking, requiring significant preparation and a lot of coordination. Teamwork and collaboration were critical to ensuring a smooth and successful execution. I spent a lot of my time initially focused on recruiting not only the right finance personnel but also our bankers, accountants, lawyers, and other advisors. CFOs, given their intimate knowledge of their businesses, are uniquely qualified to evaluate advisors and manage the deal team.

Q: What was the biggest challenge or most rewarding experience in the IPO process?

OnDeck is a complex business, and the small-business lending market is vast and fragmented. From a numbers perspective, it can be difficult to understand our performance given some rules of accounting. For instance, our operating cash flow is vastly different from our operating income. That said, we were able to effectively tell our business and financial stories in the S-1. It was a long and cross-functional undertaking, but the end result was a comprehensive and direct business overview that investors have been able to easily understand.

Q: If you were giving advice to a company in the early stages of preparing for an IPO, what elements would you say are most important to ensuring success?

The best advice I can give is what was given to me: Start running your company like a public company now. The further in advance you can hire your key finance personnel, implement scalable financial and accounting systems, and enhance your internal control environment, the better prepared you’ll be for life as a public company. At OnDeck, we began scaling our accounting, planning, and internal control teams more than a year in advance. Also, we had prepared quarterly earnings releases and hosted mock earnings calls with our board and others on several occasions. This practice and preparation certainly paid off.

Q: Can you pinpoint a pivotal moment when you felt that everything was falling into place for your IPO?

We really had a great team working on the IPO, so everything always went smoothly. In addition to our lawyers and bankers, we utilized an IPO advisor and financial consultant who added great value due to their previous experiences. They were able to keep us well organized with a comprehensive project plan and helped us navigate typical IPO processes—with bankers, accountants, and the SEC—very effectively.

Q: What is the biggest misconception companies have about post-IPO life? After all of the buildup, excitement, and hard work, how does life differ after ringing the bell?

The analogy I use is that an IPO is like a wedding. It’s an amazing and very memorable day, but it’s just an event. Then you’re married and need to focus on the long term or, in our case, building a very strong, durable, and successful company. The good news is we’ve always taken a long-term view on why going public was important and how we’ll benefit as a public company for years to come. In terms of the transition, not much has actually changed. We now have more owners and compliance requirements, but the transition has been really smooth, primarily because we invested a lot to operate like a public company before the IPO.

Q: We’ve talked about OnDeck’s success story, but this is also a success story about your clients. What has been one of your proudest moments witnessing a client’s success thanks to backing from OnDeck?

I recently visited with three customers from San Francisco: a photography studio, a small business focused accounting firm, and a catering company. These companies and their owners were very diverse, yet the one thing they had in common was that they had a need for capital, were turned down or discouraged by their banks, and then found OnDeck. Our platform opened up capital access for them, and each of their businesses is bigger today as a result of taking their loans. Having been one of the early employees at OnDeck, I take great pride in the fact that our company is helping these businesses, their communities, and our economy. As a public company now, I am very excited about our ability to continue helping the millions of small businesses in this country grow.

About OnDeck

OnDeck (NYSE: ONDK), the leader in online lending for small business, is committed to powering Main Street’s growth through lending and technology innovation. Using advanced technology, analytics, and the OnDeck Score®—the company’s proprietary small business credit scoring system—OnDeck makes real-time lending decisions based on thousands of data points and a business’s individual needs. By combining its proven credit platform with outstanding customer service, OnDeck offers small businesses a complete financing solution, including a range of term loans and lines of credit as well as a streamlined process that respects a small business owner’s time. Since 2007, OnDeck has delivered more than $3 billion to more than 700 different industries in all 50 U.S. states and Canada.

Download the Q&A interview to hear the full story from OnDeck’s CFO on life before, during, and after an IPO.

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