Bill Me Later Co-Founders Launch Deep Lake Capital SPAC For FinTech Deals

Talk about credentials.

In the payments and commerce business, Mark Lavelle and Gary Marino certainly have earned theirs. Back in 2000, they were part of the team that founded Bill Me Later, a company that created a “buy now, pay later” (BNPL) business way before it grew to the force it is today. It was later sold to eBay in 2008 and was integrated into PayPal. Along the way, Lavelle and Marino made stops and collected experience at a who’s who of innovative companies. Marino spent 12 years at PayPal, eventually becoming its chief commercial officer. Lavelle served as CEO of Magento Commerce until 2018, and after it was bought by Adobe that year, he became senior vice president of its Commerce Cloud division.

So when two industry veterans announce that they’re getting the band back together and setting out on a new venture, it’s wise to pay attention. That new venture is called Deep Lake Capital, a special purpose acquisition company (SPAC) that will center on building its new company by targeting FinTechs in the $75 million to $150 million range.

Depending on where you stand on SPACs, they’re either fads (a four-letter word) or an efficient financing vehicle to help firms grow and thrive without the hassles and frictions of other funding options, including strategic acquisitions and traditional initial public offerings (IPOs). Lavelle and Marino will take the latter point of view, as the new venture joined the SPAC ranks and filed last month to raise $180 million in an oversubscribed IPO, and started trading on Jan. 13.

In an interview with Karen Webster, Lavelle and Marino said the SPAC model is indeed attractive — because it allows them to focus on building a business, specifically within the FinTech space. Deep Lake takes its place in a landscape where, as estimated by SPAC Insider, nearly 100 SPACs have gone public in 2021 alone. Critics might charge that SPACs — shell companies that go public with the express purpose of merging in the future with a targeted acquisition — are headed into bubble territory, due to the dizzying speed (and frequency) with which they are listing.

But Lavelle and Marino concurred that at some levels, the hype surrounding SPACs is high — and the barriers to entry are low. But both men have deep roots in the payments space, and are determined to stick to the proverbial knitting of eCommerce and payments modernization. At a high level, said Lavelle — looking out with the hindsight of two decades of building businesses with capital raised from a variety of private avenues, taking them from seed rounds to final rounds to spinouts —  “it’s become kind of obvious that this is the next evolution and disruption of funding for companies.”

As Marino explained to Webster, “after we left our [payments firm] gigs around the same time, we couldn’t retire completely. So we started consulting with some folks we would spend time with in the Valley. And we realized that a lot of the people we were talking to — some late-stage, some mid-stage, some pre-IPO — all had the same sort of issues with strategic direction.”

As Lavelle noted, high-growth firms gain access to markets (and funds) much sooner if they embrace the SPAC, or sponsored model. That takes away at least some of the day-to-day challenges of running a company. As he told Webster: “The exhaustion of always raising money distracts you.”

In the SPAC market, Lavelle added, hype quickly meets reality, shining a light on the firms that will succeed. The barriers to creating a quality company that performs well in the aftermarket are the same ones that would apply if the company went the traditional IPO route. Those firms, he said, have to hit earnings — and they have to be transparent and compliant.

Regardless of the vertical, said Lavelle, the SPAC construct lets executives come to their long-only investors and explain why a particular firm has potential, and what the positives and pitfalls ahead might be — which in turn allows for some real number-crunching and valuation work. That stands in contrast to the traditional IPO/roadshow efforts that are marked by long, quiet periods, where the valuation becomes a bit of a black-box undertaking.

The SPAC, said Lavelle and Marino, “opens the aperture” for companies to come to market. Standard IPOs may be ever-larger and glamorous, but there’s not much room for the smaller set — the $75 million to $150 million firms — to tap into the same capital access. As Lavelle pointed out, these smaller firms are becoming “en vogue” for public investors, who are willing to assign higher valuations than private investors.

The stage is set, then, for SPACs to take their place among traditional venture capital outlets, where funding goes to nurture teams, talent, compliance and general enterprise growth.

The Allure Of FinTechs

Against that backdrop, the addressable market for FinTechs is enormous — roughly $5 trillion, said Marino and Lavelle. The runway for a firm with $100 million in its top line, and still growing, is significant. And, they contended, the sole growth strategy need not be limited to simply being bought out by a larger firm via strategic deal-making.

Among the subsets — and the reasons — that FinTechs beckon: Payments are becoming ever-more horizontal in a connected economy. Lavelle pointed to B2B payments as a key growth area. “And obviously, we love B2C — we’d like anything that’s intertwined with commerce enablement, the shopping cart process, the funding of transactions and cross-border activity,” he added.

Marino pointed to the fact that there’s a real need for FinTechs and the products and services they provide. Many companies need to offer (or embed) payments as part of their customers’ end-to-end journey, but many of these firms are not “doing” payments all that well. And large enterprises are not best-in-class at the payments angle of operations.

The companies that would hypothetically make Deep Lake Capital’s list would be firms that have passed a certain level of growth and operational scale that would lead them to mull the next private-equity growth round, a strategic acquisition or an IPO. Those attributes should be attractive to public investors, who tend to want to see growth that is well-established and perhaps even predictable.

The urgency is there, said Marino, for smaller, tech-nimble companies (with strong operating backgrounds) with an eye on each market’s needs and nuances. “The shopping experience is under reinvention every day. Then if you add the globality of it … the acceptance and adoption of technology is not the same everywhere,” he noted.

With the funding in hand raised through the SPAC IPO, said Lavelle, the target acquisitions will be able to scale their firms and not have to go through round after round of new capital raises. Those routes, he said, “stop being productive for a company realizing its aspirations. I have a great love for venture capital and private equity, but we’ve realized this is innovation – and our businesses are always innovating. So, capital has now innovated.”

As Lavelle told Webster, “the sponsored IPO path is one of the biggest things we’ll be talking about for the next five years.”