Fintech/Analysis/

Revenue-based financing in Europe: The competitors, compared

European investors are tripping over themselves to fund a new wave of fintechs who want to usurp them. It’s a land grab, but who does what?

By Amy O'Brien

Capchase founders

VC cash has traditionally been a holy grail for founders. But a new wave of startups are promising an alternative funding option: fast cash that doesn’t involve founders giving up ownership of their business. 

18 of these revenue-based financing (RBF) startups — so called because they offer capital in return for between 5-20% of future sales — have cropped up in Europe since 2019. That’s more than the number of speedy grocery startups founded in Europe in that time, according to Dealroom data.

And that’s not to mention Pipe, Capchase and Clearco, who have all set up shop this side of the Atlantic to get a piece of the European market. 

These alternative financiers are harbingers of a world where founders are able to choose from many different ways of financing and don’t have to give up equity if they don’t want to. 

18 RBF startups have been founded in Europe since 2019 — more than the number of speedy grocery startups founded in that time

RBF startups attracted a record $671m VC investment in Europe last year. Three months into 2022 they’ve already raised $220m, on the back of raises by Wayflyer, Karmen and Silvr. 

But with so many new kids on the block, it’s hard to keep track of who’s who and what’s what. So Sifted spoke to the major players (so far), quizzed the VCs invested in the nascent industry and worked out what exactly they all do. 

Sifted has used a combination of Dealroom data, company information and interviews with founders and investors in this piece.  

How exactly does RBF work? 

RBF works best for subscription-based business models, which in the startup world generally means ecommerce businesses or software-as-a-service (SaaS) businesses. More on that later — but it’s essentially so that the RBF company is able to work out the size and terms of the loan easily, based on current and future revenue. 

Currently, the founders of these companies’ only other real alternative for quick cash is to offer heavy discounts — sometimes up to 40% — on annual subscriptions, to lure in customers that will then pay in bulk. 

Most of the competing RBF providers offer companies an upfront loan so that they can secure their subscription revenue upfront. 

When a startup applies for such financing, RBFs asks them for access to various data points, such as the platform they use for payments, or their Google Analytics account. They then use their own algorithms to underwrite the loans. 

These will set each startup’s repayment at a fixed percentage of their future revenues per month until the upfront loan has been repaid, and most of the competing RBFs charge a fee of between 5-15% on the amount borrowed (i.e., the interest). 

This means that ultimately it ends up being more expensive than a loan from a legacy bank — but these are much harder to obtain if you’re a high-growth, “high-risk” startup. 

When it comes to the fees they charge, RBFs are split according to two main approaches. 

Some follow a “multiple”, or “capped” strategy, where the borrowing startups repay the loan as well as a “multiple” or “cap” of the original capital the RBF provided — normally from 1.5x to 2.5x. Startups such as Berlin’s Uplift1 follow this kind of lending strategy. 

Others, like Uncapped and Forward Partners’ RBF startup venture Forward Advances, follow an “uncapped” approach to loans, where borrowing startups repay the original loan as well as a fixed fee. 

RBF initial loans are usually designed to be paid off in up to 12 months, and most of the competitors don’t attach any of the nasties that sometimes come with capital: think no personal guarantees or hidden fees. 

Who’s got the most dosh?

Who’s in the running?

The veteran in the space is Liberis, which has provided over £500m in financing to 17,000 SMEs across Europe, the US and the UK since it launched in 2007. After raising £70m from the likes of Silicon Valley Bank (SVB) in 2020, Liberis teamed up with Klarna last summer to offer merchants on the buy now, pay later platform its revenue-based financing. 

Eight years later, in 2015, Clearco (formerly Clearbanc) began providing revenue-based financing for ecommerce and SaaS companies in Canada. It launched in the UK in 2020, where it’s on track to invest £500m in local startups. After expanding to the Netherlands last May, the unicorn landed a $200m investment from SoftBank’s Vision Fund II to ramp up its European expansion, and it has eyes on Asia-Pacific too. 

Then came the “new wave”. 2019 saw the emergence of Pipe in the US, Wayflyer in Dublin, Uncapped and Outfund in the UK and Uplift1 in Berlin.

We mention Pipe because the buzzy US fintech — it pitches itself as the “Nasdaq for revenue” — entered the European market in September with a UK office. One of the poster children for the new RBF generation, Pipe has enjoyed rapid growth since its launch, reaching double unicorn status and 12,000 customers less than a year after launching. Last week the company announced its first acquisition: London-based media and entertainment financing company Purely Capital. 

Ultimately, our goal is to be the definitive growth partner for every ambitious ecommerce founder, covering all their funding and banking needs”

Irish fintech Wayflyer was founded in the same year as Pipe, promising to do the same but different (more on that later). Wayflyer’s focus is on lending to ecommerce companies, and it’s also enjoyed rapid growth — it reached a $1.6bn valuation last month, less than two years after launching. Backed by the likes of QED, JP Morgan and Checkout.com’s founder Guillaume Pousaz, the fintech expanded to Spain, the Netherlands and the US last year. 

Spanish-American Capchase expanded into Europe via the UK and Spain last summer, having raised a $125m (debt and equity) Series A, and then moved into the Nordics soon after with its SaaS-focused recurring revenue model. The fintech’s loans are designed to be paid off in 12 months, based on ARR calculations. European managing director Henrik Grim tells Sifted Germany is next on the cards.  

The founders of Uncapped claim to be building “Silicon Valley Bank 2.0” — a reference to the US bank known for lending to and banking for high-growth startups. Also founded in 2019, London-based Uncapped raised an $80m Series B in May last year from the likes of Lakestar and Mouro Capital to expand its lending offering — which serves both SaaS companies and ecommerce — into a suite of new banking products. It started issuing Visa cards to companies in 2020, and cofounder and CEO Piotr Pisarz tells Sifted: “We’re also building a complete banking proposition where every feature is tailored to ecommerce businesses. Ultimately, our goal is to be the definitive growth partner for every ambitious ecommerce founder, covering all their funding and banking needs.”

Then a flurry of European copycats emerged in quick succession in 2020. There’s Paris-based Silvr, which raised a $20.6m Series A round last month to do much the same as Pipe. It’s financed 100 companies since launching in 2020. 

Madrid’s Ritmo, Warsaw’s Boost, London’s Vitt, Amsterdam’s Requr, Forward Partners’ new startup Forward Advances, Berlin’s Banxware and re:cap, Paris’s Karmen, Lille’s Unlimitd, Milan’s ViceVersa and Stockholm’s ArK Kapital are all doing more or less the same thing, but a bit different. 

Here’s how …

SaaS vs ecommerce 

The clue is in the name, but RBF startups work best for companies that are generating a recurring — hopefully growing — revenue, as well as decent gross margins. These are businesses that can very accurately forecast how much money is going to be coming in and have the margins to cover the revenue they need to put up for loan payments. 

In the high-growth startup world, this can mean ecommerce businesses. They turn to RBF startups to guarantee a steady cash flow during periods where they need to spend more on stock and marketing. 

Or it means software-as-a-service companies (SaaS), which rely on subscription models and generate high gross margins. RBF can offer them immediate cash for growth and also things like marketing, so they don’t have to dig into VC money for everything. 

Olga Shikhantsova — principal at Speedinvest

Speedinvest’s Olga Shikhantsova has invested in both ends of the RBF spectrum — ecommerce stalwart Wayflyer and SaaS-focused Vitt. She says that while revenue-based financing is not new, its uses have evolved.  

“There was merchant cash advance in the US for ages. But this was very heavy with terms for the companies,” she says. “Today, it is a much more user — or company — friendly tool. It’s being used for sustainable cash flow management and enabling growth, rather than just as emergency cash to cover losses.”

“Today [RBF] is a much more user friendly tool. It’s being used for sustainable cash flow management and enabling growth, rather than just as emergency cash to cover losses”

SpeedInvest’s portfolio company Wayflyer uses big data and analytics to track how a business is performing, and then tailors the size and frequency of the loans it makes to them.  

SaaS is a more emergent industry that is growing and maturing in terms of the kinds of analytics tools it needs, she explains. 

“We’re seeing huge growth in RBF because they’ve really found the product-market fit with SaaS companies. These founders have reached a point where they realise their company needs to grow faster, but not at the expense of their stake.” 

Most other current players serve a combination of ecommerce and SaaS companies, while a growing group, including Capchase, re:cap and Karmen, just serve SaaS startups. 

Investors and founders say that for the most part, companies using RBF are also raising other forms of capital as well, including VC. And the two have different uses; RBF is mostly used for spend like marketing, while VC could be used for large-scale hiring. 

Who gets you capital fastest? 

If there’s one thing all the RBF rivals can agree on, it’s that legacy banks don’t serve the needs of the modern digital economy. Why? Because they can’t lend startups the money they want fast enough. 

RBFs get around this by asking companies for access to various data points such as the platform they use for payments, or their Google Analytics account. They then use their own algorithms, often powered by AI, to underwrite the loans. 

Vitt, Ritmo, Requr, Capchase, Uncapped, Silvr and Wayflyer all boast a turnaround time of 24 hours from application until money hits their customers’ banks. Karmen, re:cap and Pipe pitch their underwriting time at under 48 hours, and ViceVersa has picked a conservative 72 hours. 

The secret to a faster turnaround time depends on the RBF’s business model. Fintechs like Pipe and re:cap do the risk analysis and act as the middleman by pairing companies with investors on a marketplace — they are not the lenders themselves, and focus on subscriptions as a guaranteed “returnable”. 

But Capchase, Uncapped and Wayflyer underwrite the loans to companies themselves — cutting out the middleman altogether. 

“This gives us the flexibility and the ability to move quickly, as we only have one partner that we negotiate with, instead of a big marketplace,” says Grim at Capchase. 

Who will come out on top?

The sheer amount of European newcomers lining up to compete in the same locations for the same (predominantly SaaS) companies makes coming out on top tough. 

For fintechs like Pipe, Wayflyer and Clearco, who already have existing customer bases in the thousands, aggressive expansion plans for Europe and beyond may guarantee new customer acquisition. 

But when it comes to the newcomers, those aggressive plans are the whole problem, according to Craig Fox, fintech managing director at Silicon Valley Bank. 

“Historically the most difficult headwind is the cost to acquire a customer, so cracking the code on efficient acquisition channels is key to make unit economics work,” Fox says. 

Investors in the newest RBFs are banking on their ability to offer an expanding array of products — from clever data analytics to the ambition to become a fully fledged bank.

 “It’s what I call their ambition to become Goldman Saas”

“The best RBFs, and the ones that will be competitive long-term, are ones that offer a specialist understanding of the customer’s vertical,” says Tara Reeves, managing director at Eurazeo, who invested in Silvr. 

“This includes integrations with their data analytics, marketing tracking and ERP tools, which allow them to underwrite more effectively.” 

For Shikhantsova at SpeedInvest, the decision to invest in Vitt was very much guided by the founders’ long-term vision to offer a broad array of services.

“It’s an easy fix to sort the cash flow,” she says. “But then you ultimately want to extend the proposition to be broader — it goes down to analytics, the Treasury solutions, liquidity management.

“They’ll cover all the needs of SaaS businesses, starting with finance. It’s what I call their ambition to become ‘Goldman Saas.’”

Amy O’Brien is a reporter at Sifted. She tweets from @Amy_EOBrien

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