We’ve seen how non-dilutive, revenue-based financing has moved up the priority ranks for companies as the ZIRP era — as the Zero Interest Rate Period is now fondly and somewhat longingly known — recedes and securing venture capital becomes more difficult. An example of this is how US companies in this vein often raise 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 emerged, according to Dealroom data, raising an impressive $671 million in venture capital. And that’s not to leave out US-based companies like Pipe, Capchase and Clearco, all of which operate on the continent.
Against this backdrop, Flow48, a fintech based in the United Arab Emirates, has now raised $25 million in pre-Series A funding, aiming to advance this business model in the SME space in the MENA region. The round is a mix of equity and debt, and investors include 212 VC (a Luxembourg-based, Istanbul-based fund), Austria’s Speedinvest, Daphni, Blockchain Founders Fund, Unpopular Ventures, Endeavor Catalyst and TLG, as well as investors angels, like Scott Sandell from NEA.
The move is smart because there is much more beyond revenue-based financing that a MENA-focused fintech lending platform could do in the growing regional economy. The region is projected to grow by 5.4% in 2022 (the fastest pace since 2016) and by 3.5% in 2023, according to the IMF. Furthermore, according to Bainthe e-commerce market in Saudi Arabia, UAE and Egypt is is displayed to grow more than 50% to $33.3 billion over the next three years.
Founder Idriss Al Rifai told me the company doesn’t have many competitors of its own in its core markets, although it “does have similar companies in the US/Europe like Wayflier, Pipe.com or like Uncapped or Silvr in France. “
“However,” he said, the Middle East and its “idiosyncratic ecosystem and weaknesses” (his words) are ripe for RBF.
You could say that Al Rifai has some knowledge of these weaknesses. He previously founded Fetchr, a Dubai-based express, mail delivery and logistics company that raised $77 million and famously brought last-mile delivery to a region that rarely has any kind of formal address system. It achieved this by allowing users to geo-locate pickup and delivery points for their packages, using a smartphone’s GPS location as the address.
Al Rifai believes his experience in solving these ‘last mile’ issues in the Middle East will be leveraged in this new arena of revenue-based finance: “The level of completeness and accuracy of information in the Middle East is very different from that we have in the US or Europe. So our product is different in the sense that it is connected to different sources of information and data.”
Therefore, it hopes that Flow48 will be able to gather a strong picture of the financial strength of its SME customers, and to this end the company has already completed a pilot program of its platform from this year to last year.
Of course, the funding gap for SMEs in emerging markets is well-known, so the opportunity to bridge this could well work in Flow48’s favour. It is already planning to expand into South Africa.
However, as we have seen in the US and Europe, it is unlikely that Flow48 will be the last company to launch such a product in the growing MENA region.
FlapKap, a revenue-based financing platform, already serves markets such as Egypt and the United Arab Emirates, and raised $3.6 million in seed funding last year, for example.
