Alternatives to traditional VC funding are all the rage. There are at least 18 revenue-based financing startups now operating in Europe, which enable startups to get access to capital without parting with equity — and now there’s a well-funded loans provider too.
Today, Swedish fintech Ark Kapital is announcing a €165m seed round (made up of €15m in equity and, fittingly, €150m in debt) led by LocalGlobe. Fellow VC firm Creandum and angel investors including Supercell CEO Ilkka Paananen and iZettle founder Jacob de Geer also participated.
Ark Kapital offers non-dilutive loans of €1m-10m to European startups. Unlike most loans providers, Ark’s loans can last up to seven years and are based on future revenue projections. Repayments also don’t start for two or three years.
While revenue-based financing (RBF) startups predominantly focus on SaaS and ecommerce companies, offering capital in return for a percentage of future sales, Ark plans to work with all kinds of early-stage tech companies that have high growth potential but aren’t yet profitable.
“We think RBF is fantastic but we also feel it's highly standardised and is made one-size-fits-all which makes it a little bit limited as a product,” says Axel Bruzelius, COO of Ark.
How does it work?
Ark, which launched last November, has developed an artificial intelligence platform, similar to EQT Ventures’ AI-driven investment platform which Ark’s cofounder Henrik Landgren developed when he was a partner at EQT. The AI platform at EQT uses internal and external data to help identify potential investments, and has helped the VC source companies like Peakon and Handshake.
For Ark, the AI is used to analyse potential borrowers, based on engagement data combined with relevant external market data. The platform then applies advanced modelling techniques to estimate when a customer will become profitable, when it will require a new capital injection and how quickly it can reasonably repay a loan. That data is used to decide whether a loan is possible.
Analytics and insights from the platform are also shared with customers to help them make good business decisions.
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So why would a fintech startup focused on helping startups steer away from venture capital?
“For our customers, we are financing the predictable parts of their growth. For Ark, we have very high belief in our tech platform and what we're building, but before we can show that it works we need a finance partner that can understand our lending and the metrics that go into that,” says Bruzelius.