2021 was a watershed moment for the tech startup ecosystem in Europe with over $100billion invested in businesses across the continent. That’s more than three times the amount in 2020. This has put startup founders in a rare and powerful position: more money than ever before and the means to help fund their dreams, with more power over VC term sheets than what we have been used to so far.
After a year of record-breaking amounts of VC money, however, in recent months the market has faced various headwinds and the private funding market has slowed down. The covid pandemic has rocked markets worldwide and the economic recovery from it has pushed inflation levels to record highs. The invasion of Ukraine has further added to instability in markets.
Henrik Grim is general manager Europe at Capchase, and brings over 10 years experience at leading technology, consultancy and VC firms across Europe, including Northzone Ventures, Spotify and McKinsey. He explains Capchase’s journey through the pandemic and what the future of VC funding looks like.
What has been the traditional Capchase response to financial technology innovations nationally?
A major driver of fintech innovation has been the novel use of new data science techniques to uncover more insights faster than ever before. For Capchase this means constantly developing our platform to better assess the companies that approach us for capital. We are using the latest in machine learning and automation to get a deeper appreciation of the fundamentals of the startups we look at. This enables us to provide exactly the right amount of capital on terms that work for both us and our clients.
On the other hand, we know that each month brings many new use cases within financial services. There are hundreds of startups with amazing potential. A lot of them have established great customer bases but need capital to take the next big step on their journey. Our team is constantly looking at where this disruption is taking place and which startups have the greatest potential to make a major impact.
Is there anything that has created a culture of change inside the company?
Capchase was founded in an era of unprecedented change. We started right when the pandemic hit. With lockdowns, the explosion in digital transformation, growth of fintech, AI and other tech verticals, not to mention the rapid changes in consumer behaviour and working practices – we have always had to move quickly. It has made us highly adaptable, experienced in rapid disruption and incredibly dynamic. This culture has developed naturally. However, our great founding team has supported it every way they can. From cultivating a very flexible working environment to giving everyone the freedom and tools they need to help direct our approach.
What fintech ideas have been implemented?
Capchase is part of the ‘non-dilutive revolution’. We provide recurring revenue companies with access to fast, flexible and scalable non-dilutive growth capital. We do this by enabling them to leverage one of their biggest assets: the base of future revenues. Founders access it in the form of a revolving line of credit against their ARR, allowing them to tap into cash flow fully on-demand.
What benefits have these brought?
We have helped to create a new way to finance startups. Previously, the main avenues open to these businesses was VC capital or business loans from traditional financial institutions. Both options have their pros and cons but they aren’t the appropriate solution for every business. There are many startups which could use different types of capital for different purposes – such as acquiring new clients or entering a new market. For these entrepreneurs a drawn out funding round or giving up equity isn’t the only option. This is where we step in.
Through our digital platform and use of AI, and our deep knowledge of startups, we are able to analyse business performance and assess eligibility at a fundamental level. It is very transparent financing, with one flat fee, no hidden costs or restrictions on the use of capital. Crucially, we do not take equity.
In addition to this service, we’re building a suite of products that help founders make the most of their capital. For example, Capchase Earn, allows founders to earn an ultra-competitive three per cent return on existing funds they park with Capchase.
Do you see any other industry challenges on the horizon?
I think there are now clear signs that VC funding is beginning to slow and valuations are falling. This is a natural part of the tech cycle but one that can pose a lot of challenges for startups. For Capchase, there’s an opportunity for us to step in and support well run startups that might want the insurance of additional capital to weather a more unpredictable environment or may struggle to attract investor interest on acceptable terms.
There are also the institutional challenges within tech and investment. We all know that all female or minority funding teams are underrepresented. We think that our approach to funding can break this cycle by providing a level playing field for all founders. Our own data shows that 15 per cent of the capital we have provided has been to female and minority-led startups. This compares to only 2-3 per cent of venture capital deals struck in 2021. There’s still a long way to go but it’s a clear indication that disrupting startup funding can make a much broader impact on the industry.
Can these challenges be aided by fintech?
Undoubtedly. The power of fintech is found in how it can break the monopoly of traditional institutions and vested interests. This results in more choice, innovation, lower prices and better products and services for consumers and businesses. You can see it in action from the global DeFi movement right the way through to the access open banking products now provide to consumers in the UK.
For startup financing there’s so much more disruption that can take place. We’re developing a range of new services that will give entrepreneurs even greater freedom of choice in how they fund and develop their businesses. Over time, this type of disruption will mean factors such as the VC funding cycle or changes in interest rates, will have less of a wider impact on tech sector growth. It will also provide greater access to groups that have been previously locked out of traditional funding options or support.
We hope to become an even more established part of the funding ecosystem in the coming months and years. We have high ambitions for continued growth and development, and are always listening to founders to learn about where the gaps in the funding system are, and the inefficiencies that can be solved – especially during the present uncertain economic times.