Globalization has been one of the biggest trends in e-commerce over the past decade: the internet facilitates a much broader market for consumers and the selection of items for them to buy; And to meet that need, the manufacturing and logistics industries have also made great strides in geography. Now, a startup that has built a platform to help provide exceptional financing to businesses that operate within that supply chain is announcing some funding of its own.
Sten – apply big data analytics, take a few data points about a business (the main two being how much business comes in and out based on invoices) and matches them against an algorithm that takes into account 1,000 factors other to determine eligibility for loans up to $10 million; and otherwise tap into its network of institutions and other major lenders to fund that funding – raised $50 million in equity to expand its business later when witnessing rapid growth.
The funding came from a single investor, US private equity firm Centerbridge, and it values Stenn at $900 million, the company said.
Stenn has been around since 2015 and has since financed approximately $6 billion in loans from 74 countries, with $1 billion of which being loaned in 2022 alone, with an approach bringing technology to an area that was previously largely untouched by lenders. Stenn Founder and CEO Greg Karpovsky in an interview.
“Accenture estimates that financing needs in this business segment are $3.6 trillion and will grow to $6.1 trillion over the next four years,” he said. And yet, the “main source” [of funding] For them this is the traditional banking system. Banks in developed countries are focusing on supply chain financing for large countries, and banking systems in developing markets are still underdeveloped. So companies in this segment are left with no banks. No one else is using technology to facilitate finance [for them]. ”
In the fintech world, there are a number of companies on the market that serve the needs of small businesses in need of capital, or act as a bridge between them invoicing and getting paid; or fund projects or activities that fall outside of their normal business schedule that will help them grow in the long run; or for something else entirely. New banking and lending platforms catering to SMEs in the country include Kabbage (now a part of Amex); Final; Brex, Rho, Juni, NorthOne, Lili, Mercury, Hatch (now renamed to ) Nearside), Anna, Tide, Viva’s wallet, Open, Novos, MarketInvoice and many others.
However, the gap in the market that Stenn is addressing is not typical SMBs, but businesses running operations that eventually transition to larger cross-border operations.
These can be international sellers in the marketplace or a company that provides products or services to those sellers. What they all have in common – and what sets them apart from typical SMBs as your average fintech offers loans to SMBs – is that they tend to be significantly smaller than large multinationals, but much larger than your typical SMB, in terms of scope and capital to match.
“Domestic SMEs are usually much smaller,” says Karpovsky. “They could be a barbershop.” The usual level of risk – the amount borrowed – could be in the $30,000 to $50,000 range, he said. For the SMBs Stenn targets, it uses the World Bank definition, which applies to a business with up to $120 million in annual sales. Using what Karpovsky describes as “very limited information” – the name and location of the company, plus details of bills in progress – it lent up to $10 million , with a turnaround time of no more than 48 hours from application submission and approval . Typically, he said loans are more in the region of $500,000 to $1 million.
The opportunity gap is simple: it is giving this market segment – and the larger amount they are borrowing – the kind of approach that domestic SMEs have long taken. He added: “The risk management here is very different.
Those who put money behind the loans include banks like Barclays and HSBC, as well as family offices and other large financial institutions like insurance companies, he said. And a side note on the topic of where the funding is coming from: Karpovsky himself is of Russian descent, and he says the company has drawn a red line from the start, “a very strict rule.” , on the reception of any financial partnership with Russia. (He left the country after the Crimean invasion, he said, and so this is “a decision we made many years ago.”)
“We are experts in KYC and anti-money laundering, so we exercise accountability to all of our partners,” he added.
In terms of competition, while those that provide loans to SMBs in the domestic market may be able to switch to companies that work internationally – for example Amex has a large enough international profile. to be able to look at this – the bigger competitive force could be some markets where these SMBs already do a lot of their business.
Indeed, Alibaba (through Ant Financial and Alipay) is keen on doing more business in international markets before regulators step in. Amazon has yet to make big moves here, but it could do so by partnering with other financiers, opening an opportunity for a company like Stenn. The banks themselves now seem happy to be partners, referring customers to Stenn and acting as lenders on its platform.
As for the players in this space, Karpovsky notes that “They are a long way, more than 10 years, from focusing on solving the problem that we are solving now. Their existing customers have more immediate problems, and so we don’t see much competition right now, and likely won’t for many years.”
That is an opportunity that investors are also interested in supporting.
“We are impressed with Stenn’s groundbreaking approach to addressing the challenges of global trade finance supply and believe Stenn has a highly scalable proposition,” said Jed Hart, co-author Centerbridge’s European business director and senior MD, said in a statement. “We are delighted to partner with and support Stenn’s growth at a critical time in its development and in a time of great uncertainty around the world.”