Defacto has raised a €16m funding round as the French lending fintech seeks to increase its lending volume tenfold amid a sea change in the SME lending space.
Citi Ventures and La Maison Partners led the funding round, with participation from new investor Blast. Existing investors Headline, Northzone and Global Founders Capital also participated in the funding round.
Cofounder Morgan O’Hana tells Sifted the funding round increased the company’s valuation, but declined to share an exact figure. Before this financing, Defacto had raised over $30m in funding, according to Dealroom.
Founded in 2021 by O’hana, Marc-Henri Gires and Jordane Giuly, Defacto is a Paris-based fintech focused on the small and medium enterprise (SME) lending space, which has financed over €1bn for 17k businesses across France, Germany, Belgium, Spain and the Netherlands.
O’Hana says the fintech is looking to hit the €10bn mark in the next four years by serving more industrial companies, along with the tech companies and freelancers that make up its current customer base.
“We started with freelancers and the digital economy, which we’re still serving,” she says. “But lately we’ve seen more traction with more industrial SMEs as well.”
Changes ahead
Defacto has also raised funding at a time of wider change in the SME lending space. Increased competition in the private debt space and the application of AI to automate the lending process have brought down costs and enabled lending fintechs to remain lean. Defacto only has a team of 25 and plans to hire an additional 10 people with the capital from the funding round.
On top of that, EU regulation requiring businesses to digitise the sending and creation of invoices in a standardised digital format is also coming into force by next year, which will increase access to cash flow data. This has created what O’Hana terms a “perfect storm” that made it easier for Defacto to close its funding round in a subsector investors have typically been wary of.
“It’s something investors for a long time have been wary of,” she says. “You have a long story of balance sheet businesses not doing well.”
Partech-backed SME lending platform October, for instance, halted its lending activity last year following interest rate hikes.
Diversifying lending
Defacto has also made efforts to diversify its income streams. Along with direct financing, Defacto also licenses its technology to traditional banks that are looking to update their SME lending infrastructure. There are currently three top-name French banks on its books, which Defacto charges on a subscription basis to use its technology, as well as a commission on the loans they make.
O’Hana says it's this new business model, along with a focus on serving industrial players, that will enable the fintech to reach its four-year target. Defacto is also planning to acquire licences so it can expand further afield to serve all European markets and enter the UK in the next two years.
