Slideshow: Venture & PE Picks for a Double Dip

I’m still rooting for a recovery but can’t help noticing markets have been acting these past few weeks as if a double dip recession is increasingly likely. So, with that in mind, I thought it’d be timely to take a look at which venture and private equity-backed companies are poised to perform best should the economy take a turn for the worse.

The following slideshow features 10 companies with comparatively recession-resilient business models in sectors from pawn shop sales to payday lending to coffee and donuts. Got any other ideas? Add your comments to the list.


[slide title=”ZestCash”]

Business description: Makes loans of up to $800 to online applicants, who pay the money back through automatic checking account withdrawals.

Investors: Has raised $22 million in the past two years from Flybridge Capital Partners, GRP Partners and Lightspeed Venture Partners and Lighthouse Capital Partners, according to Thomson Reuters.

Why it’ll survive a double-dip: Demand for short-term loans tends to rise in tough economic times, particularly with fewer Americans using credit cards.

[slide title=”BillFloat”]

Business description: Provides a service that extends bill payment due dates by up to 30 days without late fees or overdrafts, charging 3% interest and a variable bill pay fee.

Investors: Has raised $7.6 million since last year from First Round Capital, Baseline Ventures, Venrock and SoftTech VC.

Why it’ll survive a double dip: It’s harder to pay the bills on time in a bad economy than a good one, thus making the service more attractive in a recession.

[slide title=”BillShrink”]

Business description: Provides offers aimed at saving people money by switching providers or plans for mobile service, credit cards, gas and other things.

Investors: Raised $8.85 million in 2007 and 2008 from Bessemer Venture Partners and Trinity Ventures.

Why it’ll survive a double dip: As people keep a tighter rein on budgets, they’ll be looking for ways to get the same services for less.

[slide title=”Home Value Protection”]

Business description: Provides a service for homebuyers and homeowners to hedge against potential future declines in property value.

Investors: Has raised $17.6 million from Kleiner Perkins Caufield & Byers.

Why it’ll survive a double dip: With housing still not out of the woods, homeowners continue to worry about negative equity and will seek ways to offset risk. Of course, in the long run, Home Value Protection would probably benefit from a recovery, so homeowners won’t have to make use of their hedging instruments.

[slide title=”Lending Club”]

Business description: Runs a platform for issuing and investing in consumer loans, typically with a 3-year duration.

Investors: Has raised $78.6 million to date, including a $25 million round announced this week, with backing from Canaan Partners, Foundation Capital, Bay Partners, Morgenthaler Ventures, Norwest Venture Partners and Union Square Ventures.

Why it’ll survive a double dip: With interest rates so low, savers aren’t getting much return putting their money in the bank. With Lending Club, they can make returns in the high single digits. Borrowers, meanwhile, can take out loans at a lower rate than they’d typically pay with a credit card.

[slide title=”Prosper Marketplace”]

Business description: Operates a marketplace that allows people to list and bid on loans.

Investors: Has raised $72 million in venture funding, including a $17 million round in June, with backing from Accel Partners, Fidelity Ventures, Benchmark Capital, Crosslink Capital, Omidyar Network, Volition Capital, TomorrowVentures and Meritech Capital Partners.

Why it’ll survive a double dip: The service can provide borrowers with lower rates than they’d likely get from a bank or credit card provider, while offering lenders higher returns compared to current bank interest rates for savings.

[slide title=”Five Below”]

Business description: Runs a chain of stores targeting young people with all merchandise selling for between $1 and $5.

Investors: Advent International purchased a stake in the company in September for a reported $194 million.

Why it’ll survive a double dip: People still like to shop, and cheap stuff is better than no stuff.

[slide title=”Pawngo (formerly Internet Pawn)”]

Business description: Runs an online service for selling valuables.

Investors: Has raised $4.4 million in the past two years from backers including Access Venture Partners and Daylight Partners.

Why it’ll survive a double dip: Pawn shops are sort of the definition of a recession-proof business.

[slide title=”On Deck Capital”]

Business description: Operates a technology platform that helps small businesses secure loans.

Investors: Has raised $34 million to date, including a $4 million follow-on Series C funding announced today from SF Capital Group. Other backers including SAP Ventures, Contour
Venture Partners, First Round Capital, Khosla Ventures, RRE Ventures and Village Ventures.

Why it’ll survive a double dip: Loan applications are up as business find it difficult to secure funding through traditional channels in the current economic environment.

[slide title=”Dunkin’ Brands”]

Business description: Sells coffee and donuts.

Investors: Went public last month, following a leveraged buyout by Bain Capital, Carlyle Group and Thomas H. Lee Partners. Current valuation around $1.75 billion.

Why it’ll survive a double dip: People still want caffeine, fat and sugar, and Dunkin’ is cheaper than Starbucks.