French startup Karmen has secured a small funding round to expand its quick financing product. The company offers short-term loans to small companies facing a working capital crisis. This is an equity and debt round of €9 million ($9.4 million at current exchange rates) with Seventure Partners buying a stake in the small startup. Financière Arbevel and Bpifrance completed the round with debt. Startups are not the only companies operating in this space which can be called as quick funding for SMEs. French competitors include Silvr, Defacto, Unlimitd and Hero. The reason revenue-based financing has become a hot vertical is because traditional banks and financial institutions struggle to deal with SMEs at scale. This is a very fragmented market with small margins. That’s why tech startups are trying to fill that funding gap with a data-driven approach. Today’s news comes just a few months after Karmen acquired a €100 million debt vehicle that forms the basis for the company’s short-term debt. Six months later, it seems some companies are now relying on Karmen to fix their cash flow problems. About 600 companies already use Karmen to buy inventory, pay suppliers, finance paid acquisition campaigns and more. Loans from €20,000 to €3 million, from 2 months to 24 months. On average, a typical Karmen client borrows €200,000 with a six-month term. But as you can see, there are many different financing options. In addition, the smallest customer generates only €300,000 in annual turnover (most likely a one-person business), while Karmen’s largest customer generates €160 million per year. More importantly, Karmen has attracted a number of loyal customers, as 80% of initial customers contact Karmen several times a year to unlock new loans. Clients include Maison Kitsuné, Balibaris, Les Raffineurs and Almé. While most companies contact Karmen directly, startups have a hybrid distribution strategy. Partner with other fintech companies to offer Karmen financing products to their own clients. Some ERP, e-commerce marketplaces and business banks like Qonto have integrated with Karmen. This embedded funding strategy represents 40% of Karmen’s current clients. But the company says it hopes to raise that metric to 75% of new clients by the end of 2025. While most companies pay off debt without a problem, companies may struggle to pay off debt. “This is part of our job as lenders. But we limit these risks through a data-driven approach, which allows us to have great visibility of the financial and operational performance of our clients,” said co-founder and CEO Karmen Gabriel Thierry. “In addition, we are investing heavily in risk assessment technology tools (thanks to AI) to strengthen this approach,” he said. So, today’s funding round. Karmen currently uses around 60 different financial metrics to score loan applications in real time. Embedded strategies can also be leveraged to make smarter decisions – bank accounts, accounting software, ERP and invoicing tools contain valuable data about the overall performance of the company. Image Credit: Karmen
