Honeycomb Credit Inc., a Pittsburgh-based online small business loan crowdfunding platform, is establishing its Wisconsin presence through a recent partnership with Fund Milwaukee and investment from American Family Insurance.
The platform connects individual investors and local entrepreneurs. It has a focus on main street businesses, including restaurants and breweries.
In March, Honeycomb Credit announced a $1.75 million seed round led by the Madison-based American Family Insurance Institute for Corporate and Social Impact. On May 10, Honeycomb Credit announced a partnership with Fund Milwaukee, a volunteer-run group of individual investors that have funded hometown entrepreneurs such as Purple Door Ice Cream and The Tandem.
Honeycomb Credit, which is led by CEO and co-founder George Cook, currently is vetting Milwaukee small businesses to add to its platform. The company does due diligence similar to what a bank would do before making a loan, said Honeycomb Credit director of growth Chip Homer. It also looks at businesses' social media presence, which is important to the crowdfunding model.
The partnership between Fund Milwaukee and Honeycomb Credit will be referral-based, serving as a pipeline for both organizations to identify potential investment opportunities that may not be a match for the other.
While the groups share similar missions, they have different investment models. Fund Milwaukee does both debt and equity investments, while Honeycomb Credit only issues loans. Honeycomb Credit has a $15,000 loan minimum while businesses can raise as little as $500 from Fund Milwaukee. Fund Milwaukee is known for its in-person (and now, virtual) live pitch events and analog-style investing through physical checks. Investing and fundraising through Honeycomb Credit is an online experience.
"It’s very complementary," said Fund Milwaukee board member Mike Maschek. "Ultimately each of us wants the businesses to get the best funding path."
In addition to getting referrals to local businesses from Fund Milwaukee, loan specialists from Honeycomb Credit are doing direct outreach to other local businesses that may be a fit for the platform, Homer said. Additionally, businesses that are interested in crowdfunding through Honeycomb can fill out a form on the company's website to get connected.
Once Milwaukee businesses are on the platform, local individuals will be able to invest here. The minimum individual investment is $100 and the average is $1,000, according to Honeycomb's website. Rates of return range from 5% to 12% paid back in principal and quarterly interest, assuming the loan is fully funded and the borrower pays it back, according to Honeycomb's website. The loans typically have terms of 2 to 5 years.
Homer said Honeycomb Credit identified Milwaukee as a strategic city for expansion because it shares characteristics of other "post-industrial" cities where Honeycomb operates, such as Pittsburgh and Cleveland.
"We have that Rust Belt DNA," Homer said. "The model of up-and-coming businesses and people who are really passionate about their cities is the best recipe for success."
Businesses that use Honeycomb Credit see an average revenue increase of 33% after running their crowdfunding campaign, according to Honeycomb's 2020 impact report.
Honeycomb launched in 2017 and has since connected small business owners with more than $3 million in crowdfunded loans, according to the report.
