Meet Defacto, a new French startup that wants to improve the credit infrastructure for small and medium companies. The startup wants to offer credit products using an API. It automatically analyzes your revenue to give you an answer in real time.
Defacto is an embedded finance product, meaning that it doesn’t distribute its credit offering directly to small companies. Instead, other companies are embedding Defacto within their own products so that their customers can access Defacto’s products. It’s a B2B2B strategy, and embedded finance has been an important trend in fintech over the past couple of years.
The three founders, Jordane Giuly, Morgan O’hana and Marc-Henri Gires, started working on the company in May 2021. They think that it’s still too complicated to get some cash quickly so that you still have money to pay your employees or your suppliers. In France, big clients usually pay an invoice 30 to 60 days after the initial signature.
Instead of reinventing the bank from scratch, Defacto is trying to reach potential clients where they already are. For instance, the company has signed a deal with StaffMe, a French marketplace for short-term freelancing jobs. Instead of waiting a month or two to get paid, you can open a credit line with Defacto and get paid right now.
The fintech startup is already thinking about other potential partnerships with marketplaces for contractors, freelancers, logistics, freight and more.
In addition to this strategy, Defacto thinks there are other potential distribution channels. If you work for an SME, chances are you already use a fintech product for accounting, accounts receivable and accounts payable, such as Pennylane, Libeo or Agicap.
“All these companies want to become the financial dashboard of SMEs. They will all want to offer credit,” Jordane Giuly told me.
And companies using these products can see that they’re supposed to receive a big check in a few weeks. So they could click on a button and start applying for a Defacto loan.
You could also imagine a deep integration with e-commerce clients. As e-commerce companies acquire goods, they could use Defacto to pay their suppliers directly. With each sale, Defacto could get a cut to repay outstanding loans.
This strategy reminds me of Square’s loan offering. Customers can repay loans with a percentage of daily card sales through Square.
Defacto recently raised a $3.4 million (€3 million) pre-seed round from Global Founders Capital and Headline, as well as various business angels, such as Thibaud Elzière, Rodolphe Ardant and Arthur Waller. In addition to that traditional equity round, Defacto also raised $3.4 million (€3 million) in debt.
“We’re starting by lending from our balance sheet — that’s why we had to raise a first funding round in debt and equity,” Giuly said.
And because Defacto wants to give you an answer as quickly as possible, the company is starting with small, short-term loans. Eventually, as the product gets better and as the company improves its risk scoring engine, Defacto expects to finance €100 million in transactions by the end of 2022.