Small and medium-sized businesses regularly face cash flow problems. But if it’s an embarrassing situation already, it has been escalated to breaking point for too many people during the COVID-19 pandemic. Now a UK startup called financial market – which has built a lending platform to help SMEs stay afloat during these lean times – announces a major funding injection of £280m ($383m) as it prepares to a new wave of loan applications.
“It’s a good time to lend, at the start of the economic cycle,” CEO and founder Anil Stocker said in an interview.
Funding comes primarily from debt – money lent to MarketFinance to in turn be lent to its clients as an approved UK government partner. stimulus loan program; and £10 million ($14 million) is equity that MarketInvoice will use to continue improving its platform.
Italian bank Intesa Sanpaolo SpA and an anonymous “global investment firm” provide the debt, while the equity portion is led by Black River Ventures (which has also backed Marqeta, Upgrade, Coursera and Digital Ocean) with participation from the existing lender, Barclays Bank PLC. Barclays is a strategic investor: MarketFinance powers the bank’s online SME lending service. Other investors in the startup include Northzone.
We understand that the company’s valuation is somewhere in the region of less than $500 million, but more than $250 million, although officially it does not disclose any numbers.
Stocker said MarketFinance has been profitable since 2018, one reason it hasn’t sold a lot of equity in this current round of funding.
“We are building a sustainable business, and the capital we raised was aimed at unlocking better debt at better prices,” he said. “It can help show more equity on the balance sheet.” He said the money will “go into our reserves” and be used for new product development, marketing and to continue to grow its API connectivity.
This latest development is important: it taps into the great wave of “integrated finance” games we see today, where third parties offer, on their own platforms, loans to customers – with the loan product powered by MarketFinance, similar to what Barclays does. currently. The range of companies using it is potentially as wide as the Internet itself. The promise of integrated finance is that any online brand that already does business with SMEs could potentially offer those SMEs loans to… do more business together.
MarketFinance originated several years ago as MarketInvoice, with its core business model focused on providing short-term loans to a given SME against the value of its unpaid invoices – a practice generally described as invoice financing. The idea at the time was to solve the most immediate cash flow problem faced by SMEs by taking advantage of the thing (unpaid invoices, which would usually end up being paid, but not immediately) that caused the cash flow problem in the first place.
However, much of the financing that SMBs get on invoices is primarily for working capital, helping businesses make their payroll and pay their own monthly bills. But Stocker said that over time, the startup could see greater opportunity in providing larger sums of funding and covering more ambitious business expansion goals. That was two years ago, so after his last round MarketInvoice has been renamed MarketFinance accordingly. (He still offers the product based on the invoice very well.)
The timing turned out to be fortuitous, although the reason was certainly not lucky: COVID-19 arrived and completely upended the way the world works. SMEs have been on the cutting edge of this corner, not least because of these cash flow issues and the fact that they’re just less focused on diversification and pivoting due to changing market forces due to their size.
It turned out to be a great opportunity for MarketInvoice.
Stocker said the early part of the COVID-19 pandemic saw the bulk of loans taken out to manage business disruptions due to COVID-19. Interruptions could mean business closings, or they could just mean customers not coming in like they used to, and so on. “The big theme was frictionless access to funding,” he said, using technology to assess applications better and faster digitally without “any meetings with bank managers” and reducing response time. days compared to the typical 4-6 weeks that SMBs would have. traditionally expected.
If last year was more about ‘panic, consolidate or pivot’, in Stocker’s words, ‘now what we see is a bunch of them struggling with chain issues supply, Brexit exacerbations and labor shortages. It’s really hard for them to deal with all that.
He said the number of loan applications had exploded, so there was no shortage of demand. He estimates that monthly loan requests have reached $500 million, a huge sum for a small startup in the UK. He is selective in what he lends: “We choose to support those who we believe will return the money,” he said.