Stock forecast management, real estate investments, marketing campaigns … many expenses fuel the cash flow gap and can reduce business growth. To finance the working capital requirement (WCR), banks are privileged interlocutors. But the complexity of the bank lending process, reluctance towards the start-up model and the need for flexibility are all obstacles for companies whose main business is based on online sales.
Fintechs are providing a new financing solution: revenue-based financing. Among them, the Frenchman Silvr, Karmen o Unlimited, the Luxembourgish Valerian and the Spanish Rhythm. American e-commerce giants like Shopify and Stripe are also getting in on it. Their services, currently limited to the United States, are expected to arrive in Europe soon.
These companies have digitized and almost automated the process. The principle is more or less the same every time: fintech connects to the company’s audience measurement tools, its advertising management, its collection software and its CMS to collect as much data as possible on the potential of growth. It then grants a credit line whose repayment is staggered according to the turnover recorded.
Overcome the cash gap
These platforms are able to validate a funding request in less than 48 hours. A small revolution with respect to bank delays. “Unlike banks that rely on annual tax and administrative documents, we analyze the company’s performance in real time,” he explains. Gabriele Thierry, president and co-founder of Karmen. The Parisian fintech, created in July 2021, already has 18 employees. Its main focus is the markets and SaaS software in BtoB.
The nature of the financing – cash, factoring or virtual credit card – varies from platform to platform. Poiscaille, a start-up specializing in the delivery of baskets of wild fish, has experimented with revenue-based financing to respond to a problem of structural immobilization of funds, linked to the nature of its business. “We wanted to develop canning to take advantage of large peaches. But we needed funds to buy this large amount of fish and pay the fishermen within seven days, ”he summarizes Charles Guiriecco-founder of the startup that boasts a turnover of 7 million euros in 2021 and 65 employees.
Poiscaille obtained an initial loan of € 550,000 through fintech Silvr in the form of paying bills from its suppliers. “14.8% of our turnover is withdrawn every week and the commission has been set at 4.7%,” explains Charles Guirriec, who secured another € 500,000 loan to renew his packaging stock ahead of schedule. price increase and secure the purchase of a warehouse in Wissous (Essonne). “It’s a more expensive solution than a bank loan, of course, but it meets our short-term cash flow challenges.”
Calmly prepare a fundraiser
“This cash advance also gives us more time to negotiate with investors,” adds Charles Guirriec, who is considering an upcoming fundraiser. A situation experienced by the prêt-à-porter brand Stella and Susie. “In 2020 we only had € 70,000 in net profit with a substantial WCR threatening our double-digit growth,” he testifies Massimo Minguezco-founder of this digital brand with his partner Margaux Lahana, at the end of the first confinement in May 2020. It is not a question of diluting the capital from the launch with a fundraiser! “
Stella et Suzie then used revenue-based financing via the Spanish platform Ritmo, for a commission of around 5%. “We obtained a loan of € 260,000 in 2021 to balance our cash flow and turn on the green lights when we meet investors, recalls the entrepreneur. We leveled our cash flow to be in good financial health at the time of trading, which allowed us to welcome our favorite investor to the capital, ”says Maxime Minguez. Good choice as the 36-employee company raised 2, € 5 million in March 2022.
Revenue-based financing is emerging only among corporate financing tools. And if this market is still restricted to digital start-ups, it is opening up more and more to SMEs and ETIs. “Even offline businesses now use software: a beauty salon, for example, will outsource its bookings,” he judges. Nima Karimiwho founded Silvr in early 2020. “We cater primarily to digital-first gamers, but we are also interested in companies that are migrating an increasing portion of their business online,” adds the manager of this Ile-de- France which already employs 70 people.