Exclusive: Howard Schultz-backed Bags raises $3M seed round

Bags, a loan marketplace focused on underrepresented businesses, raised $3 million in seed funding led by Slauson & Co.

• Other investors include Connecticut Innovations and the Schultz Family Foundation’s Entrepreneurs Equity Fund (founded by Starbucks founder Howard Schultz).

Why it matters: Fintechs focused on small business lending have exploded in recent years, but the market remains fragmented. Bags aims to make it easier to find capital for the business owners that have the most trouble getting it.

Details: Founded in 2020, Bags connects small business owners, particularly women and minority entrepreneurs, with potential lenders.

• While small business loans often require at least three years of operating history, Bags aims to do so with at least one year of history. It also aims to serve businesses with lower revenues than what banks usually are willing to underwrite.
• Bags is also focused on companies in sectors such as consumer packaged goods, which typically do not get much venture capital attention.
• Bags currently takes an origination fee of about .5% to 2.5% on each loan. The company has routed about $5 million in loans so far. : Players like LendingTree, NerdWallet, and Credit Karma operate similar business models, though they serve a broader customer base.

What they're saying: "What we’ve found is that larger retail banks are not a good fit," says CEO Daniel Taylor, noting that the platform doesn't currently show lending options from many main street lenders such as Bank of America.

• Bags' clientele have "credit score that aren't necessarily great. And so they're getting denied by often traditional institutions," he says.