A lender to consumer startups falters, rattling its clients
A POPULAR lender backed by venture capital firms is struggling financially, sending shock waves through the small clothing and home furnishing companies that count on its financing.
The lender, Ampla, spent years courting small direct-to-consumer brands with low rates and a pitch that it understood their needs. In recent weeks, its top executives have been searching for a buyer, two people familiar with the firm’s finances said. Last week, Ampla, which is based in New York, said it would lay off half of its 62 workers.
Ampla has also tightened or frozen clients’ lines of credit and told many customers to find other lenders, leaving them in the lurch, according to half a dozen former and current clients. The lender has served online businesses that emerged in the past decade to sell wares like silk knit sweaters, gluten-free cookies and 3D printers for toys often directly to online shoppers, relying heavily on social media sites for marketing and buzz.
Its troubles appear to be part of a broader reckoning for direct-to-consumer businesses, some of which are no longer growing as rapidly as they once were or are struggling financially. Investors that were eager to back such firms are now being much more cautious.
Ampla, which was founded in 2019, has whittled the number of its borrowers down to around 100 to 150, one of the people familiar with its finances said. Some of those clients say they haven’t found anyone willing to lend to them at rates as low as Ampla’s. Many investors and banks became more wary of working with smaller and relatively untested businesses over the last two years as the Federal Reserve raised interest rates.
Ampla has been under pressure from its own lenders, including one that has stepped in to examine Ampla’s loan book after the firm breached a condition of its borrowing, the two people said.
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The troubles began after Ampla unsuccessfully tried to raise more capital late last year and this year, the two people said. The company needed the money to stay in compliance with conditions imposed by its lenders, such as having a certain amount of cash on hand, as well as to fund its business, the people said.
Ampla has previously said its lenders included Citigroup, Goldman Sachs and Waterfall Asset Management. Its investors include venture capital firms Forerunner Ventures and VMG Partners.
Anthony Santomo, Ampla’s chief executive officer, and his co-founders, Jim Cummings and Jie Zhou, did not respond to requests for comment. VMG and Forerunner declined to comment.
The Information and Nosh earlier reported on Ampla’s financial troubles and its attempts to find a buyer.
Ampla has catered to firms with around US$5 million to US$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 or established enough to borrow from a bank or another traditional lender.
“Ampla fills the gap in the market,” Forerunner Ventures said in a 2021 blog post.
Ampla customers say that the firm offered them loans at favorable interest rates and that the money allowed them to buy inventory and run marketing campaigns. On its website, the firm posted testimonials from current and former clients that described 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 client in April 2022. The firm offered him an annualized interest rate of 17 per cent to 19 per cent, nearly half what other lenders required.
During key selling periods like Father’s Day and Black Friday, Ampla would increase his company’s credit line, enabling Perkins to stock more shirts. At one point, the credit line increased to US$3 million, from US$1.4 million.
But at the end of last month when Perkins got on a quarterly call with his Ampla account representative, he was told that &Collar’s credit line had been frozen. The representative suggested that the company find another lender.
“It very much blindsided us,” Perkins said. “We were not expecting it.”
He has since reached out to about 30 lenders, with some success. Perkins said he was fortunate not to have suffered the kind of slowdown that other direct-to-consumer companies had. He credits Ampla for helping him double his company’s revenue, which he expects to be about US$15 million this year.
But Perkins worries that other direct-to-consumer companies may struggle to find another lender like Ampla. “I think it’s one of the bigger moments in DTC,” he said. “I think there’s going to be decent fallout.”
Some entrepreneurs in the direct-to-consumer category say the fallout from Ampla has shaken their confidence in the credit market. Many firms have refinanced with lenders like 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 his firm had been fielding requests from brands that previously used Ampla. A Google search for Ampla now often results in a sponsored ad that reads, “Looking to Switch From Ampla?” NYT
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