Kabbage founders launch startup to connect small businesses with gig workers
The founders of Kabbage, a fintech specializing in small business lending, announced Monday that they've formed a new startup focusing on helping small businesses connect with influencers and gig workers.
The new company, Drum, provides a marketplace for both sides to interact, with influencers and gig workers willing to endorse and sell for those businesses in return for commissions. Drum gets a piece of each commission paid on its platform.
The intent is to help small businesses grow and find new customers, provide part-time work, and eventually provide a pipeline of small businesses that Kabbage can lend to.
“The idea starts with, how do you help businesses connect with the customers they want?” said Kathryn Petralia, co-founder of Kabbage and Drum. “It's about access. How do you discover businesses and brands that you're going to be excited about? If you think about the influencer market that's happening online, we're basically taking the influencer and affiliate networks that exist in a digital world today and bringing them to the real world and creating the world's largest human affiliate network.”
Drum has received $11 million in seed money from investors including Propel Venture Partners, Felicis Ventures, BlueRun Ventures, American Express Ventures, GroTech Ventures, Wildcat Venture Partners, BoxGroup and SV Angel.
What Drum does
“Drummers,” who could also be called salespeople or influencers, will make money in three ways: by getting businesses to promote themselves on the platform by creating promotions that can be redeemed by buyers, by getting buyers to activate offers posted on the platform, and by getting other drummers to engage on the platform.
“Let’s say the drummer happens to know a local hair salon or spa and they get that spa or salon to create a promotion on the platform, that same drummer could then go to their friends and network and offer that promotion to them,” Petralia said. “They can do that in person, they can do it directly in the app, or they can promote it in social media. So there's the network that they already have of people they know. And then there are people they meet on the street and the app itself enables drummers to share those promotions and offers with people directly as they need to. They are acting like salespeople in a sense.”
The businesses will determine how much they want to spend on offers, promotions and commissions.
“What's really exciting about this for businesses is unlike almost any other advertising channel where they have to pay up front and they have no idea how it will perform and they're out of money whether it performs or not, these businesses only pay when customers activate a promotion,” Petralia said. “The business can determine how much they want to spend on a promotion.”
Drum will start in the same two cities Kabbage has offices, Atlanta and New York, and be promoted through local media outlets in the two cities.
Drum will make sure it doesn’t accept any businesses engaging in illegal activities, Petralia said. Customers, salespeople and small business owners will all have tools to rate their experiences.
“That allows the system to sort of cleanse itself of bad actors,” Petralia said.
Eventually, Kabbage may offer loans to the businesses on Drum. “It's not something we're doing out of the gate,” Petralia said.
What investors see in it
For Harshul Sanghi, managing partner at American Express Ventures, the pitch for Drum clicked immediately.
“My initial reaction was, it's so simple, why haven't we done this yet?” he said. “For small businesses, the biggest challenge is in customer acquisition. This makes perfect sense.”
American Express Ventures’ mission, he said, is to identify and invest in innovative startups that develop technology and capabilities that are relevant to American Express. This includes ecommerce, cybersecurity, and fraud prevention.
“What Drum is doing is providing the ability to create and activate an on-demand, network-based sales force,” Sanghi said.
Ryan Gilbert, general partner at Propel Venture Partners, the venture capital firm BBVA founded and spun off but still owns, said he’s known Petralia and co-founder Rob Frohwein since they started Kabbage.
“They've demonstrated tremendous leadership ability, very, very strong communication and management skills and they have recognized that to run a successful business, you've got to be focused on the right things,” Gilbert said.
Gilbert also said that Drum has a unique value proposition.
“It creates a very elegant three-way marketplace,” Gilbert said. “It fills an important hole in the gig economy where not everyone wants to sit in an Uber for 12 hours or deliver pizza. Some people have the gift of the gab and are good at selling and Drum puts salespeople to work.”
Gilbert envisions Drum becoming the a Google AdWords for in-person sales, but says it is ultimately all about opportunities in the payment space.
“What attracted me to Drum is the earnings and payments piece of the business,” Gilbert said. “If you are going to be central to driving up this business, you also have to build a very robust and trusted payment system. Being a trusted transaction processor will be key to what they are doing. And they also have to think about the various commission models and how they are going to be compensating the drummers. So it becomes what I would call a complex processing system.”