It’s the year 2000. The word fintech is but a mere twinkle in the eyes of the future disruptors of finance, but, in a Goldman Sachs deal room, most likely even unbeknownst to the MBA educated financiers present, the seeds of one of the biggest success stories of modern day fintech have just been sown. An $80 million dollar deal has just been struck for Magex, the platform that today powers the mighty peer to peer lender, Lending Club. And future fintech entrepreneur Dermot Crean is sitting at the deal table.
“Looking back, my experience of working side by side, over many years with successful growth capital investors and companies like Magex was absolutely influential in the way I’ve grown and developed the business to date”, says Crean, speaking from the Hobart offices of InvoiceX, his latest fintech venture. “Early investments into platforms like Altfi, Zopa and Marketinvoice also showed me just what was possible with fintech. InvoiceX is a realisation of a long career in finance, and wish to do things better.”
After a career in investment banking that has crossed continents and spanned a number high profile organisations, the Cork born and bred Crean has landed in Tasmania, a beautiful but somewhat remote island off the coast of Australia, and far removed from the corridors of fintech power in London and New York. His latest fintech venture is a partnership with Australian Steve Yannarakis, and aims to plug a painful cash flow financing gap Australian small business face when growing. And while debtor financing is nothing new, Crean, true to passionate entrepreneur form, believes InvoiceX can deliver the X factor to both investors and small businesses alike. But how?
Pay-as-you-go working capital
Financing a going concern, and keeping it going at that, can be a stressful experience for the average small business owner, especially early on in the growth cycle. It certainly doesn’t help when some of your biggest clients can take over 50 days to pay their bills, and you have zero ability to coerce them into paying sooner.
And while bank originated revolving credit facilities and overdrafts have long been the mainstay for businesses looking to make ends meet come pay-day, they certainly aren’t known for being the most cost effective short term working capital solution. For starters, most require a minimum credit commitment of around $10 thousand +, your house put up as security and a locked-in 12 – 24 month term. Hardly the sort of flexible credit solution small business need.
Inflexible contracts remain the bread and butter of the banking industry however they are fast falling out of favour in many other sectors. Nowadays, economical and flexible pay-as-you-go services like GoGet have dramatically changed the way we think about car ownership. And lock in gym memberships are also a dying breed, with consumers opting for more flexible, pay-per-visit offerings from the new breed of 24/7 fitness centres. Why not, says Crean, apply the same principle of flexibility to short term finance?
Finding the X factor in alternative finance
“For the first time in Australia, InvoiceX allows entrepreneurs to tap into growth capital on demand, on good terms, confidentially. Investors also get a good yield – it’s the perfect match”, says Crean. “In my opinion, this has the potential to turbo-charge many high quality businesses across the country, creating jobs and opportunity.” Having spent much of 2014 building the platform, Crean and the team soft-launched at the beginning of 2015. Results to date are looking promising, the business is on track to deploy $50m during FY16, suggesting many small businesses are indeed hearing his clarion call and jumping onboard the alternative finance train.
Crean is bearish about the banks ability to continue to grow, suggesting there is plenty of room in the market for companies like his to prosper. With a longstanding focus on residential mortgages, small businesses have struggled to find the products they need off-the-shelf, creating a niche for alternative finance providers. And with returns on bank shares looking to have hit their highs, investors seeking returns will look to platforms like InvoiceX more actively. It’s a win-win-win for customers, investors, and the InvoiceX business.
An alternative businesses can trust
One of the hurdles InvoiceX faces, like many fintech startups, is the huge mind-share banks in Australia have with consumers and businesses alike. No doubt this keeps Crean awake at night. But discipline, persistence and endurance, qualities Crean admires in business leaders and successful companies he has worked with in the past, are central to his and the InvoiceX teams endeavour. Taking on the Big 4 Banks is not for the fainthearted. “At the end of the day,” says Crean, “both myself and my business partner are very passionate about growing businesses. We really enjoy working with people who are trying to make a real difference, create a much better customer experience, innovate, do things quicker, better and more efficiently. Customers are already responding to this and putting faith in us over the banks, so I’d say we’re on to something.” Hear, hear.
This is the third story in my Fintech Founders series. You can read them all here.
Did you enjoy reading this post? Subscribe to my blog here to get new articles delivered straight to your inbox as they come off the press!