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Written by Ingrid Lunden

SMB loans platform Kabbage to furlough a ‘significant’ number of staff, close office in Bangalore

Another tech unicorn is feeling the pinch of doing business during the coronavirus pandemic. Today, Kabbage, the Softbank-backed lending startup that uses machine learning to provide speedy and more accurate evaluations of loan applications for small and medium businesses, is furloughing a “significant number” of its US team of 500 employees, according to a memo sent to staff and seen by TechCrunch, in the wake of drastically changed business conditions for the company. It is also completely closing down its office in Bangalore, India, and executive staff is taking a “considerable” pay cut.

The announcement is effective immediately and was made to staff earlier today by way of a video conference call, as the whole company is currently remote working in the current conditions.

Kabbage is not disclosing the full number of staff that are being affected by the news (if you know, you can contact us anonymously). It’s also not putting a timeframe on how long the furlough will last, but it’s going to continue providing benefits to affected employees. The intention is to bring them back on when things shift again.

“We realize this is a shock to everyone. No business in the world could have prepared for what has transpired these past few weeks and everyone has been impacted,” co-founder and CEO Rob Frohwein wrote in the memo. “The economic fallout of this virus has rattled the small business community to which Kabbage is directly linked. It’s painful to say goodbye to our friends and colleagues in Bangalore and to furlough a number of U.S. team members. While the duration of the furlough remains uncertain, please bear in mind that the full intention of furloughing is temporary. We simply have no clear idea of how long quarantining or its reverberations in the economy will last.”

Kabbage’s predicament underscores the complicated and stressful calculus that tech companies built around providing services to SMBs, or fintech (or both, as in the case of Kabbage) are currently facing.

SMBs are struggling right now in the US: many operate on very short terms when it comes to finances and closing their businesses (or seeing a drastic reduction in custom) means they will not have the cash to last 10 days without revenue, “and we’re already well past that window,” Frohwein noted in his memo.

In Kabbage’s case, that means not only are SMBs not able to be evaluated and approved for normal loans at the moment, but SMBs that already have loans out are likely facing delinquencies.

The decision to furlough is hard but in relative terms it’s actually good news: it was made at the eleventh hour after a period when Kabbage was considering layoffs instead.

The company has raised hundreds of millions of dollars in equity and debt, and it was in a healthy state before the coronavirus outbreak. The memo notes that the “board and our top investors are aware of the challenges we are facing and have committed to helping us through this period,” although it doesn’t specify what that means in terms of financial support for the business, and whether that support would have been there for the business as-is.

The shift to furlough from layoffs came in the wake of announcement yesterday by Steven Mnuchin, the US Secretary of the Treasury, who clarified that “any FDIC bank, any credit union, any fintech lender will be authorized” to make loans to small businesses as a part of the US government’s CARE Act, the giant stimulus package that included nearly $350 billion in loan guarantees for small businesses.

While that provides much-needed relief for these businesses, the implementation of it — the Small Business Administration has already received nearly 1 million claims for disaster-relief loans since the crisis started — has been and is going to be a challenge.

That effectively opens up an opportunity for Kabbage and companies like it to revive and reorient some of its business. Kabbage said it is in “deep discussions” with the Treasury Department, the White House, and the Small Business Administration to help expedite applications for aid.

While loans still make up the majority of Kabbage’s business, the company has been making a move to diversify its services, and in recent times it has made acquisitions and launched new services around market intelligence insights and payments services. While there has certainly been a jump in e-commerce, overall the tightening economy will have a chilling effect on the wider market, and it will be worth seeing what happens with other companies that focus on loans, as well as adjacent financial services.

One.com acquires Hostnet as hosting providers continue consolidation in Europe

The coronavirus pandemic has all but halted a lot of business activity, but today comes news of a deal that underscores how M&A is still happening in some sectors despite (not because of) everything else going on. One.com — the big hosting provider in Europe with around 1.5 million customers, itself acquired just over a year ago by PE firm Cinven — has acquired Hostnet, a smaller Netherlands-based competitor with about 210,000 customers.

Financial terms of the deal are not being disclosed but a spokesperson for One.com said that it includes all of Hostnet’s existing business — which includes management of 810,000 domain names and 85,000 websites; domain registration, web hosting and SaaS applications services; and managed and virtual private services — and its existing employees.

The spokesperson added that the deal has been in the works for several weeks and closed in the last couple of weeks, with the teams “working through the coronavirus pandemic” to finalise it.

“We are pleased to announce the acquisition of Hostnet given its focus on operational excellence and high brand awareness,” said Stephan Wolfram, Group CEO of One.com, in a statement. “As a result of this transaction, we are now a leading operator in the Dutch hosting market that is core to the development of our business strategy. We look forward to working with the team at Hostnet and significantly enhancing our European presence and product range for our customers.”

You might wonder if Hostnet and One.com are being impacted by the pandemic — specifically, whether the fact that both count small businesses, which have been some of the hardest-hit in terms of operations, as a primary customer base, and whether that is impacting their own bottom line or leading to payment delinquency. The spokesperson said that this was not a factor in this deal or in the financial terms.

There is some data to support that: the consolidation of multiple smaller hosting providers has been a theme for a while now, with companies looking for more economies of scale.

“Hostnet is a highly regarded player in the hosting market with capabilities, awareness and products that will contribute to further accelerate the development of one.com’s business,” Harold Douwes, founder and CEO of Hostnet, said in a statement. “Within the consolidating hosting market, it was important for Hostnet to connect with a strong partner. We found it in one.com, an ambitious party with a lot of knowledge and experience. This offers plenty of possibilities and opportunities for the future.”

As we have pointed out before, web hosting and related services represent a significant, if not wildly evolving, part of the tech landscape. So, for as long as businesses and consumers continue to use the web — and, as everyone is staying at home, we have had even more web traffic of late than ever — there will be a need for companies who sell and host domain names and provide various cloud services around that.

But since there  is a lot of competition in this space, that means prices are competitive to customers, and that, in turn, also means that margins, particularly in the resale of SaaS tools, are low. In other words, we’re likely to see more consolidation in this area over time.

Now backed by Cinven, One.com itself has been pursuing that strategy over the last year. Its other acquisitions have included other regional leaders such as SYSE and Digital Garden in the nordics.

Yelp pauses GoFundMe Covid-19 fundraising after opt-out outcry

A fundraising program that Yelp and GoFundMe put in place this week to help local businesses impacted by the Covid-19 pandemic has been paused after public outcry over how it was rolled out — specifically, controversy over how the two provided no easy and quick way to opt out of the fundraising.

The fundraising campaigns started to appear automatically with company profiles on Yelp after the announcement, and to get out of running the campaigns, Yelp and GoFundMe required more identification from business owners (for example drivers’ licenses or business ID verifications). One estimate put the number of fundraisers that had been created through the program at 144,000.

After a lot of pushback on social media (and likely directly too), the two companies are now working together to create a “more seamless” way to opt out of the fundraising feature and to opt in to use it in the first place, Yelp said in a statement. (You can read the full statement at the bottom of the article below.)

The lesson here is that while the Covid-19 pandemic has undoubtedly had a major impact on local retailers and other businesses that have been forced to close, or have lost business, due to shelter-in-place and other social distancing measures, this incident highlights the fact that this doesn’t mean that every business want to fundraise to offset their own specific predicaments.

And if they do, ultimately it is their own choice which companies they will choose to work with if they do so.

The original fundraising feature was launched by Yelp earlier this week as part of a bigger effort from both companies to provide assistance to businesses and individuals impacted by the coronavirus pandemic. (Yelp has also committed $25 million in waived fees for those who usually pay it for premium listing services; while GoFundMe is also working with other companies like Intuit QuickBooks to build fundraisers for its business customers.)

At the time, the companies noted that the feature would “automatically” appear under a business profile on Yelp.

It was only yesterday, however, that outcry began to emerge over how that integration was actually put in place, and how hard it was to remove, both for small businesses and for those that are part of larger chains.

At a time when we are seeing a huge groundswell of good works and charity to help our communities get through what is not just a public health crisis, but a social and economic one, the resulting feature left a bad taste in everyone’s mouth, and felt more like opportunistic profiteering (both GoFundMe and Yelp are businesses, after all) than altruism.

We’re still waiting to hear back from GoFundMe, but Yelp’s statement is below:

On Tuesday, Yelp announced a partnership with GoFundMe to provide a fast and easy way for people to support their favorite local businesses by donating to a GoFundMe fundraiser directly on the Yelp pages of eligible businesses. In an effort to get businesses help quickly and easily, a GoFundMe fundraiser was automatically added to the Yelp pages of an initial group of eligible businesses, with information provided on how to claim it or opt out should a business choose to do so. However, it has come to our attention that some businesses did not receive a notification with opt-out instructions, and some would have preferred to actively opt-in to the program. As such, we have paused the automatic rollout of this feature, and are working with GoFundMe to provide a seamless way for businesses to opt into the program moving forward, as we have received a great deal of interest and support for the program from both consumers and businesses alike.