It isn’t always easy to secure external financing for your startup. Banks are often hesitant to lend you or demand a personal loan guarantee. On the other hand, VCs, PEs, or angels (if willing to invest at all) seek significant returns and a hefty slice of equity.

For budding entrepreneurs, this poses enormous challenges. There are not many options for them to raise capital without diluting equity or acquiring crippling debt.

This is where revenue-based financing fits in. For the uninitiated, revenue-based financing enables startups to raise funding by pledging a percentage of their future revenues. It allows companies to invest in growth while tying their repayment to a percentage of their future sales instead of a rigid fixed repayment structure. It is also one of the popular fundraising models in other parts of the world.

Singapore-based Jenfi is a leading company in this space. Its creation was motivated by some of the challenges its Co-Founders, Jeffrey Liu and Justin Louie, faced while financing a high-growth startup. “We saw that many startups and digital native companies did not have many options for raising capital aside from venture capital, which is dilutive and requires founders to give up control (e.g. board seats),” said CEO Liu. “We wanted to offer every digital company a quick and easy solution while allowing them to retain full control.”

Jenfi was launched in 2019. Liu and Louie earlier built GuavaPass, a social community of premium fitness studios and healthy-living experts across Asia and the Middle East. GuavaPass was acquired by ClassPass in 2019. Liu said building GuavaPass gave them firsthand experience in understanding the pain points in scaling a business quickly and, more importantly, understanding how to underwrite businesses better.

Also Read: GuavaPass co-founders’ new alternative lending startup Jenfi lands US$6.3M led by Monk’s Hill

A dock of distinctive offerings

According to Liu, Jenfi aims to democratise access to quick and efficient growth capital. “Our experience running GuavaPass made us realise that many companies were not getting approved by traditional banks because they did not fit their underwriting criteria. Many of these firms are actually fast-growing companies and represent the future growth opportunities of Southeast Asia. It is important to cater to this untapped market. This is where Jenfi’s solutions assume significance; we use alternative data, such as revenue and marketing data, to drive our underwriting decisions.”

He pointed out that traditional funding uses stale, backwards-looking data, such as historical financial statements (cash flow analysis) or historical bank statements. Jenfi, on the other hand, leverages alternative real-time transactional data to understand a company’s performance.

For instance, e-commerce companies have a high volume of daily sales. At the same time, they have substantial working capital requirements where they constantly need to front-load their investment into marketing or inventory to deliver future growth. Traditional funding is rigid and forces e-commerce companies into a precarious position during a downturn, as they are made to repay a fixed amount, regardless of their revenue. This makes it particularly interesting for Jenfi to underwrite.

To top it all, revenue-based financing offers a highly flexible alternative. Companies repay less (based on per cent of sales) during a downturn, giving them more free cash flow to navigate a downturn.

“In essence, traditional funding penalises a business at its worst time, while revenue-based financing supports a business by giving them more leeway during a downturn,” Liu shared. “Alternate funding solutions also help businesses look past short-term profitability and strive toward sustainable scalability. They are more sensitive to data inputs; they pick up real-time trends and changes to a business significantly earlier than traditional underwriting.”

He further noted that since businesses are becoming more dynamic, alternative funding offers better flexibility. Revenue-based financing smooths out a business’ free cash flow margin since it’s based on a percentage of sales instead of a fixed amount. 

On the other hand, with traditional funding, debt servicing becomes an enormous burden to the company (since it represents a more considerable percentage of sales).

“We offer fast and efficient funding (as quickly as the same day) vs six to nine months, which is typical for VC/PE funding. Companies can qualify for high amounts of funding if they grow efficiently. Jenfi is one of the only fintech platforms that offer credit for efficient marketing spending,” he claims. “We are also non-dilutive; companies will not experience any loss of ownership and can retain full control (no board seats).”

Jenfi follows a ‘subscription financing’ model, wherein companies can draw additional capital to fund recurring growth activities, guaranteeing rapid growth and scalability. According to Liu, Jenfi has backed hundreds of digitally native companies to date.

Last August, the fintech firm raised a US$6.3 million Series A led by Monk’s Hill Ventures, with participation from Korea Investment Partners, Golden Equator Capital, 8VC, ICU Ventures and Taurus Ventures. Jenfi previously raised US$25 million in debt financing from San Francisco-based Arc Labs.

Also Read: How e-commerce businesses can unlock growth using alternative funding

As for competition, Liu said Jenfi has no direct competitors in its markets. However, it competes indirectly with other fintech firms and banks, which provide capital to companies at a competitive rate. 

It is not the competition but education that is more challenging for Jenfi. He remarked, “The biggest challenge is educating the market on revenue-based financing. Since it is still a new concept, most companies are unaware of this model. To overcome this, our local sales teams spend time educating prospects and walking them through the benefits of revenue-based financing.“

What the future holds

Envisioning the next few years, Liu says that Jenfi will continue to focus on offering the best customer experience to digital native companies looking to obtain growth capital across Southeast Asia. “We are constantly investing in expanding our technology, data coverage and underwriting capabilities to deliver financing at an even more efficient pace. We must continue innovating to meet our customers where they are – whether they adopt new technology or business models.”

The firm, with staff strength of 30 people, is also opportunistic and will continue to align itself with strong investment partners to help it reach its growth objectives. “We are excited to offer a brand-new asset class to serve the millions of consumer tech startups and digital native companies to help them reach their true growth potential,” concluded Liu.

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