Revenue-based financing provider Outfund has today announced the close of a $20m Series A round, led by existing investor Force Over Mass, and joined by three new investors — Switzerland’s PostFinance, Guernsey’s 1818 Venture Capital and US-based Pipe backers Tribe Capital.
At the same time, it's raised $120m in debt financing.
Armed with this fresh capital, it says it has big ambitions for “rapid” global growth, and is planning on doubling its team from 70 to 150 people by the end of 2022.
But it wants to do so cautiously. CEO and founder Dan Lipinski tells Sifted that Outfund is currently the P word, you see. Profitable.
No one quite knows what will happen to the fundraising environment in Europe as public markets slow down this year, but one thing’s for sure: alternatives to raising equity are super hot right now. European founders now have at least 18 revenue-based financing (RBF) providers to choose from if they need fast cash but don’t fancy diluting their company ownership — and Outfund has edged up the ranks of the best-funded with this latest raise.
More loans, not bigger loans
A bit of quiet caution is perhaps what kept Outfund under the radar in the RBF world. But behind the scenes, it had a very busy 2021.
It expanded into three countries — Spain, Australia and the US — and increased its revenue sixfold. Lipinski says the company has managed that by looking for volume of deals.
“A lot of competitors in the States are chasing higher numbers, and have one or two customers that they loan £10m to £20m at a time. But instead of focusing on a concentrated portfolio, our tactic is we want to support as many entrepreneurs as possible — we’re going for volume.”
Outfund deploys between £10k and £10m of funding to companies that take online payments, have a minimum £10k monthly turnover, and have been trading for at least six months.
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It then charges the companies it loans to a fixed repayment fee of between 2% and 7% of revenue — but Lipinski says there’s a little bit of leeway on those rates depending on how a company plans to use the capital, and Outfund is flexible on the length of repayment plans.
Also contributing to its sixfold revenue increase last year was the money it makes from FX payments for its customers, and the money it earns from Visa and Mastercard whenever customers use Outfund’s marketing spend card.
Competing in the US
Nothing we’ve not seen before among competitors, so how does Outfund plan to steal their market share — especially in the more mature RBF lending landscape that is the US?
Outfund isn’t really gunning to serve SaaS companies like some other RBF players in the UK, but it’s not laser-focused on ecommerce companies either. Instead, it will loan to any company that takes revenues from traditional invoices as well as online payments.
Each RBF player has its own algorithm that sifts through customers’ bank accounts, advertising statistics, and projections, then underwrites the loan. What Outfund’s algorithm does that others don’t, Lipinski says, is it takes into account businesses’ “offline” revenue as well as the revenue they gain from online payments, using open banking.
“Our customer could be, say, a manufacturer, a wholesaler or a distributor that has offline revenues, doesn’t use a payments processor for one part of its business, but still gets paid regularly by their clients,” Lipinski says.
“Whereas others don’t have access to those more irregular offline payments, we can see 100% of their revenue — so we can give capital based on the ecommerce B2C side and the invoicing B2B side.”
According to Lipinski, this means Outfund can give another 30 to 40% uplift on the amount of capital it can give some businesses, compared to its competitors. He also believes it makes Outfund’s underwriting more risk averse — because it’s able to see more data coming in from the companies it loans to.
Next up: Germany
Outfund entered the Spanish market last year through its acquisition of local competitor Clicfunds, and with this Series A under its belt, is actively on the prowl for further acquisitions as a way of entering new markets. Next on the cards? Germany, where it’s eyeing up one competitor already.
According to Lipinski, it’s very much “early days” for Outfund’s expansion in the US, where it’s opened an office and has five employees on the ground, but it plans on going “heavy handed into the market” soon, with plans to double to ten people by the end of the year. Half of its workforce is based in London, and the remainder is based in its offices in Spain and Australia.
Outfund has no intention of moving further into banking for its customers, but it’s already in discussions with other neobanks to partner and provide counsel to their business customers.
“I think if you try and become a ‘me too’ in the business bank market, there’s already other people putting more effort in that space,” Lipinski says.
“What we’re very good at is providing data analysis and data understanding — we’d rather stick with that and do it really well.”
Amy O’Brien is Sifted’s fintech reporter. She coauthors Sifted’s fintech newsletter and tweets from @Amy_EOBrien