From Wall Street Journal Blog
May 7, 2010, 3:08 PM ET.
Taking Stock Of Being In Hock,
VCs Fawn Over Internet Pawn.Pawn shops may bring to mind images of rejected engagement rings, second-hand Stratocasters and giant neon cowboys directing the way to cash for gold and silver.
But pawnbroking, as a business, is essentially one of the world’s oldest and simplest forms of banking. Here’s how it works: An item of personal property is used as collateral to secure a loan. If that loan is defaulted, the pawnbroker can sell the property to recoup the loan value.
Todd Hills is a 25-year veteran pawnbroker who currently owns seven pawn shops in the Salt Lake City area. Hills, following in the footsteps of many other traditionally brick-and-mortar businesses, saw an opportunity to bring his expertise to the Web.
An Internet pawn shop. Why not?
Some venture capitalists had the same reaction, and Hills recently secured a $1.5 million Series A round of funding from Daylight Partners and Access Ventures to launch Internet Pawn Inc.
“I decided it was time to pull this off online,” said Hills, the start-up’s founder and chief executive. “There’s a whole customer base out there that has never had to deal with a pawn loan. With everything going on in the economy and the lack of credit, there are a lot of people who this is right for.”
With Internet Pawn, customers simply fill out an application form online and receive a provisional offer. If they accept the offer, they send their items to Internet Pawn and a loan is transferred upon arrival.
The minimum loan size is $250. While the APR varies based on the fees and loan size, a standard $500 six-month term loan, for example, would have a 72% APR. That compares with a 180% APR for a $500, 30-day loan at a traditional pawn shop, Internet Pawn’s Web site said.
Denver-based Internet Pawn will place a loan on anything of value, from diamonds, art, gold and jewelry, to automobiles and motorcycles.
Many forms of bricks-and-mortar commerce have made their way to the Internet, but pawnbrokering is a segment where a clear leader hasn’t emerged. Jay Campion, managing director at Access Venture Partners, said finding a business model that has worked for more than 3,000 years and having the opportunity to bring it online is one of the biggest factors that attracted him to the investment.
The pawnbroking business can carry with it some unsavory associations. In the popular imagination, pawn shops are seedy storefronts in the bad part of town that may support the fencing of stolen items or take advantage of people in desperate financial situations. It’s a stigma that investors had to consider before writing a check to Internet Pawn.
“The company is called Internet Pawn and it’s the best way to describe the company,” Campion said. “People have to get used to it. We have to tell a good story about how people who wouldn’t go to a bricks-and-mortar pawn shop have received loans with privacy through Internet Pawn.”
Privacy is one of the company’s advantages and could ultimately be the factor that makes the company a success. A person can obtain a loan through Internet Pawn without ever leaving their home.
“There’s a little bit of embarrassment when you have to take your Rolex down to your local pawn shop,” Hills said. “We remove that process.”
