A Lender to Consumer Start-Ups 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 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 3-D 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.

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 the venture capital firms Forerunner Ventures and VMG Partners.

Anthony Santomo, Ampla’s chief executive, 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 $5 million to $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 to 19 percent, 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 Mr. Perkins to stock more shirts. At one point, the credit line increased to $3 million, from $1.4 million.

But at the end of last month when Mr. 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,” Mr. Perkins said. “We were not expecting it.”

He has since reached out to about 30 lenders, with some success. Mr. 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 $15 million this year.

But Mr. 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 D.T.C.,” he said. “I think there’s going to be decent fallout.”

Ampla’s origins are closely tied to the rise of the direct-to-consumer business.

Mr. Santomo, Ampla’s chief executive, co-founded Ampla after having been an early employee at Attentive, a start-up that helps brands send personalized texts to potential shoppers. His time at Attentive gave him and his co-founders the idea to create Ampla because they “recognized the opportunity to lend working capital to brands that otherwise would not have access to the scale and cost of capital Ampla could offer,” the 2021 Forerunner blog post said.

Since its founding five years ago, Ampla has raised $51 million in equity and $783 million in debt financing, according to PitchBook, which tracks start-ups and venture capital.

Ampla has used equity capital to lend money to its customers soon after they ask for it, later borrowing an equivalent amount from its lenders. As funds grew tighter this year, Ampla took more time to disburse loans, one of the people familiar with its finances said.

The company publicly highlighted that many of its clients were led by people of color or women, who typically have less access to credit than white people and men. In 2021, Ampla said it had worked with more than 200 brands and planned to double its work force.

Firms that worked with Ampla said that the company moved fast and that its employees were sharp and friendly. It accepted collateral that other lenders would not. Many borrowers signed on because Ampla offered relatively low rates — and kept them at those levels even as the Fed raised its benchmark rate.

Ampla made loans that one of the people familiar with its finances said appeared not to meet the standards the company had set for itself. Some of those customers ended up not abiding by the terms or fell behind on payments, the person said.

But as the Fed kept its benchmark rate high for months, Ampla’s costs became onerous. It had to start raising the interest rates of the loans it made, undercutting its appeal to smaller brands, the person said.

In at least one case, a customer defaulted on an Ampla loan worth several million dollars. Last week, Ampla sued the customer, Burke Decor, for breach of contract in federal court in Ohio, saying the furniture and home-goods brand owed Ampla $6.4 million, plus interest. Ampla said Burke Decor had misrepresented its finances when seeking a loan. Erin Burke, founder of Burke Decor, did not reply to a request for comment.

Ampla had secured big loans of its own as recently as a few months ago. In September, it said it had raised a $258 million credit warehouse — an arrangement to borrow money — with Goldman Sachs and Atalaya Capital Management. And in December, Ampla said it had closed on a similar $275 million arrangement with Citigroup and funds managed by Waterfall Asset Management.

Goldman Sachs, Atalaya, Citigroup and Waterfall Asset Management declined to comment.

One of the people familiar with Ampla’s finances said Atalaya was the only one of those lenders still extending credit to Ampla.

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, chief executive 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?”

Erin Griffith contributed reporting.

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