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Lender to consumer startups fails, worrying customers| GuyWhoKnowsThings

A popular lender backed by venture capital firms is struggling financially, sending shockwaves through the small clothing and home furnishings companies it finances.

The lender, Ampla, spent years courting small direct-to-consumer brands with low rates and saying it understood their needs. In recent weeks, its top executives have been searching for a buyer, two people familiar with the company's finances said. Last week, New York-based Ampla said it would lay off half of its 62 workers.

Ampla has also restricted or frozen its clients' lines of credit and told many clients to look for other lenders, leaving them in the lurch, according to a half-dozen former and current clients. The lender has served online companies that emerged in the last decade to sell products such as silk knit sweaters, gluten-free cookies and 3D printers for toys, often directly to online buyers, relying heavily on retail sites. social networks for your marketing and expectation.

Their problems appear to be part of a broader reckoning for direct-to-consumer companies, some of which are no longer growing as quickly as they once did or are struggling financially. Investors who were eager to back those companies are now being much more cautious.

Ampla, founded in 2019, has reduced the number of its borrowers to between 100 and 150, said one of the people familiar with its finances. Some of those clients say they have not found anyone willing to lend them at rates as low as Ampla's. Many investors and banks became more cautious about working with smaller, relatively unproven companies over the past two years as the Federal Reserve raised interest rates.

Ampla has been under pressure from its own lenders, including one that stepped in to examine Ampla's loan portfolio after the company breached a condition of its borrowing, the two people said.

The problems began after Ampla tried unsuccessfully to raise more capital late last year and this year, the two people said. The company needed the money to meet conditions imposed by its lenders, such as having a certain amount of cash on hand, as well as to finance its business, the people said.

Ampla has previously said its lenders include Citigroup, Goldman Sachs and Waterfall Asset Management. Its investors include venture capital firms Forerunner Ventures and VMG Partners.

Anthony Santomo, chief executive of Ampla, and his co-founders, Jim Cummings and Jie Zhou, did not respond to requests for comment. VMG and Forerunner declined to comment.

Information and Meal You previously reported on Ampla's financial problems and its attempts to find a buyer.

Ampla has served companies with about $5 million to $50 million in annual revenue, according to one of the people familiar with its finances. Some of those direct-to-consumer brands weren't big enough or established enough to borrow from a bank or other traditional lender.

“Ampla fills the gap in the market,” said Forerunner Ventures in a 2021 blog post.

Ampla customers say the company offered them loans at favorable interest rates and that the money allowed them to purchase inventory and run marketing campaigns. On its website, the firm posted testimonials from current and former customers describing how Ampla loans allowed them to increase sales or secure distribution through large retailers.

Ben Perkins, founder of &Collar, a men's dress shirt company, became an Ampla customer in April 2022. The company offered him an annualized interest rate of 17 to 19 percent, almost half of what they were asking for. other lenders.

During key sales periods such as Father's Day and Black Friday, Ampla would increase his company's line of credit, allowing Mr. Perkins to stock more T-shirts. At one point, the line of credit increased from $1.4 million to $3 million.

But late last month, when Perkins held a quarterly call with his Ampla account representative, he was told that &Collar's line of credit had been frozen. The representative suggested that the company look for another lender.

“It took us by surprise,” Perkins said. “We didn't expect it.”

He has since contacted about 30 lenders, with some success. Perkins said he was lucky not to have suffered the kind of slowdown that other direct-to-consumer companies suffered. He credits Ampla with helping him double his company's revenue, which he expects to be about $15 million this year.

But Perkins worries that other direct-to-consumer companies will have a hard time finding another lender like Ampla. “I think it's one of the biggest moments of DTC,” he said. “I think there will be decent consequences.”

Ampla's origins are closely linked to the rise of the direct-to-consumer business.

Ampla CEO Santomo co-founded Ampla after being one of the first employees at Attentive, a startup that helps brands send personalized text messages to potential buyers. His time at Attentive gave him and his co-founders the idea to create Ampla because “they recognized the opportunity to lend working capital to brands that would not otherwise have access to the scale and cost of capital that Ampla could offer,” the Forerunner 2021 blog. said the post.

Since its founding five years ago, Ampla has raised $51 million in equity and $783 million in debt financing, according to PitchBook, which tracks startups and venture capital.

Ampla has used equity capital to lend money to its clients shortly after they request it, and then borrowed an equivalent amount from its lenders. As funds became tighter this year, Ampla took longer to disburse loans, said one of the people familiar with its finances.

The company publicly noted that many of its clients were led by people of color or women, who typically have less access to credit than whites and men. In 2021, Ampla said it had worked with more than 200 brands and planned to double its workforce.

Companies that worked with Ampla said the company moved fast and its employees were smart and friendly. He accepted collateral that other lenders would not accept. Many borrowers accepted the loan because Ampla offered relatively low rates, and kept them at those levels even when the Federal Reserve raised its benchmark rate.

Ampla made loans that, according to one of the people familiar with its finances, appeared not to meet the standards the company had set for itself. Some of those customers ended up not meeting the terms or falling behind on payments, the person said.

But as the Federal Reserve kept its benchmark rate high for months, Ampla's costs became onerous. It had to start raising interest rates on loans it made, undermining its appeal to smaller brands, the person said.

In at least one case, a client defaulted on an Ampla loan worth several million dollars. Last week, Ampla sued the client, Burke Decor, for breach of contract in federal court in Ohio, saying the furniture and home goods brand owed Ampla $6.4 million, plus interest. Ampla said Burke Decor had misrepresented its finances when applying for a loan. Erin Burke, founder of Burke Decor, did not respond to a request for comment.

Ampla had obtained large loans of its own just a few months ago. In September, he said he had raised a Credit warehouse of 258 million dollars (an agreement to borrow money) with Goldman Sachs and Atalaya Capital Management. And in December, Ampla said it had closed a similar deal. $275 million settlement with Citigroup and funds managed by Waterfall Asset Management.

Goldman Sachs, Atalaya, Citigroup and Waterfall Asset Management declined to comment.

One of the people familiar with Ampla's finances said Atalaya was the only one of those lenders still extending credit to Ampla.

Some direct-to-consumer business owners say the fallout from Ampla has shaken their confidence in the credit market. Many companies have refinanced with lenders such as Dwight Funding, Parker, Ramp and Settle, according to former Ampla clients.

Alek Koenig, CEO of Settle, which also started in 2019 and lends to smaller consumer goods brands, said that in the past four weeks its company had been fielding requests from brands that previously used Ampla. A Google search for Ampla now typically results in a sponsored ad that says, “Do you want to switch from Ampla?”

Erin Griffith contributed with reports.

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