We’ve seen how non-dilutive, revenue-based financing has risen up the priority ranks for companies as the era of ZIRP — as the Zero Interest Rate Period is now lovingly and somewhat longingly known — recedes into the distance, and securing venture capital funds becomes harder. An example of this is how U.S. companies in this vein are oft raising capital, such as Lighter Capital, with its new $130 million credit facility, in August.
And in Europe, at least 18 (at last count) RBF startups have appeared, according to Dealroom data, pulling in an impressive $671 million in venture capital. And that’s not to leave out U.S.-based firms such as Pipe, Capchase and Clearco, all launching on the continent.
Against this background, Flow48, a UAE-based fintech, has now raised $25 million in pre-Series A funding, with an aim to push this business model into the SME space in the MENA region. The round is a mix of equity and debt, and investors include 212 VC (a Luxembourg-domiciled, Istanbul-based fund), Austria’s Speedinvest, Daphni, Blockchain Founders Fund, Unpopular Ventures, Endeavor Catalyst and TLG, as well as angel investors including Scott Sandell from NEA.
The move is savvy because there is a lot more beyond Revenue Based Financing that a MENA-focused fintech lending platform could do in the growing regional economy. The region is forecast to grow by 5.4% in 2022 (the fastest rate since 2016) and by 3.5% in 2023, according to the IMF. Furthermore, according to Bain, the e-commerce market in Saudi Arabia, UAE and Egypt is projected to grow by more than 50% to $33.3 billion in the next three years.
Founder Idriss Al Rifai told me me that the company doesn’t have many competitors per se in its core markets, though it does “have similar companies in the U.S./ Europe such as Wayflier, Pipe.com or the likes of Uncapped or Silvr in France.”
“However,” he said the Middle East and its “peculiar ecosystem and weaknesses” (his words) is ripe for RBF.
You might say Al Rifai has some knowledge of those weaknesses. He was previously founder of Fetchr, a Dubai-based express, mail delivery and logistics services company which raised $77 million, and famously brought last-mile delivery to a region which rarely has any kind of formal address system. It achieved this by allowing users to geolocate the pick-up and drop-off points for their packages, using a smartphone’s GPS location as the address.
Al Rifai thinks that his experience of having to solve those “last-mile” issues in the Middle East will be brought to bear in this new arena of revenue-based financing: “The level of comprehensiveness and accuracy of information in the Middle East is way different than the one we have in the U.S. or in Europe. Therefore our product is different in the sense that it is plugged into various sources of information and data.”
He is therefore hoping Flow48 will be able to assemble a robust view of the the financial strength of its SME clients, and to that end the firm has already completed a pilot of its platform between this year and last.
Certainly, the funding gap for SMEs in emerging markets is well known, so the opportunity to bridge this could well work in Flow48’s favor. It is already planning to expand into South Africa.
However, as we’ve seen in the U.S. and Europe, it’s unlikely Flow48 will be the last company to launch such a product in the growing MENA region.
FlapKap, a revenue-based financing platform, is already servicing markets such as Egypt and the UAE, and raised $3.6 million in seed funding last year, for instance.