Globalization has been one of the biggest trends in e-commerce in the last decade: internet rails facilitate a much wider marketplace of would-be consumers and a selection of items for them to buy; and to meet that demand manufacturing and logistics have also made great geographical leaps. Now, a startup that's built a platform to help provide financing specifically to businesses working within that supply chain is announcing some financing of its own.
Stenn -- which applies big data analytics, taking a few datapoints about a business (the main two being what money it has coming in and going out based on invoices) and matching them up against an algorithm that takes some 1,000 other factors into account to determine its eligibility for a loan of up to $10 million; and on the other side taps a network of institutions and other big lenders to provide the capital for that financing -- has raised $50 million in equity funding to expand its business after seeing accelerated growth.
The funding is coming from a single investor, the U.S. private equity firm Centerbridge, and it values Stenn at $900 million, the company said.
Stenn has been around since 2015 and has since then financed some $6 billion in loans from 74 countries, with $1 billion of that loaned out in 2022 alone, with an approach that brings technology to an area that had previously been largely untouched by lenders, said Stenn's founder and CEO Greg Karpovsky in an interview.
"Accenture estimates that the demand for finance in this business segment is $3.6 trillion and will grow to $6.1 trillion in the next four years," he said. And yet, "the main source [of funding] for them right now is the traditional banking system. Banks in developed countries are focused on supply chain finance for large countries and banking systems in developing markets are still underdeveloped. So companies in this segment are just left unbanked. No one else is using technology to facilitate financing [for them]."
In the world of fintech, there are a number of companies in the market that cater to the needs of small businesses that need capital, either to bridge them between invoices going out and getting paid; or to finance projects or activities outside of the normal schedule of business that will help them grow in the longer run; or for something else altogether. The loans platforms and neobanks catering to domestic SMBs include Kabbage (now a part of Amex); Finally; Brex, Rho, Juni, NorthOne, Lili, Mercury, Hatch (now rebranded as Nearside), Anna, Tide, Viva Wallet, Open, Novo, MarketInvoice and many others.
However, the gap in the market that Stenn is addressing is not that of the typical SMB, but businesses that specifically are running operations that eventually feed into a bigger, cross-border operations.
These could be international sellers on marketplaces, or a company that supplies those sellers with products or services. What they have in common with each other -- and what differentiates them from typical SMBs served by your average fintech providing loans to SMBs -- is that they tend to be significantly smaller than large multinationals, but much bigger than your typical SMB, with scope and capital needs to match.
"Domestic SMEs are normally much smaller," Karpovsky said. "They could be a barbershop." He said the typical exposure -- the amount borrowed -- might be in the range of $30,000 to $50,000. For the SMBs that Stenn targets, it uses the World Bank's definition, which works out to a business having up to $120 million in annual sales. Using what Karpovsky described as "very limited information" -- a company's name and location, plus details of invoices that are in the process of being paid -- it loans up to $10 million, with a turnaround of no more than 48 hours between application and approval. Typically he said loans are more in the region of $500,000 to $1 million.
The opportunity gap is simple: it's bringing this segment of the market -- and the larger sums that they are borrowing -- the kind of approach that domestic SMBs have been getting for a while now. "The risk management here is very different," he added.
Those putting up the money for loans include banks like Barclays and HSBC, he said, as well as family offices and other big financial institutions such as insurance companies. And one side note on the topic of where financing is being sourced: Karpovsky is of Russian origin himself, and he said the company has from the start drawn a red line, "a very strict rule," over taking on any financing partnerships with money with Russian ties. (He left the country after the invasion of Crimea, he said, and so this was "a decision we made many years ago.")
"We are professionals in KYC and anti-money laundering, so we do due diligence on all our partners," he added.
In terms of competitors, while those providing loans to SMBs in domestic markets may well potentially look to move into those working internationally -- Amex for example has a big enough international profile to possibly consider this -- the bigger competitive force might turn out to be some of the marketplaces where these SMBs do a lot of their business already.
Indeed, Alibaba (via Ant Financial and Alipay) was very interested in doing more in international markets before regulators stepped in. Amazon has yet to make large moves here but it might well do so in partnership with other financiers, opening up a window of opportunity for a company like Stenn. Banks themselves seem happy for now to be partners, referring customers to Stenn and acting as lenders on its platform.
Of would-be players in this space, Karpovsky noted that "They are very far, more than 10 years away, from focusing on solving the problem that we are solving now. Their existing clients have more immediate problems, and so right now we are not seeing much competition, and might not for many years."
It's an opportunity that investors are also interested in backing.
“We have been impressed with Stenn’s disruptive approach to addressing the challenges of global trade finance supply and believe that Stenn has a highly scalable proposition," said Jed Hart, co-head of Centerbridge’s European business and senior MD, in a statement. "We are excited to be partnering and supporting Stenn’s growth at an important time in its evolution and during a period of uncertainty in the world.”