Uncapped, the new alternative lender, is closing its first handful of deals having raised £10m from investors earlier this month.
The lender, which claims to be Europe’s first revenue-based financier for growth businesses, is set to close 10 deals before Christmas with “hundreds” following in the New Year.
The financier, which went live on December 2, received over 400 lending applications on its first day.
Demand for Uncapped’s product has been so overwhelming, the financier plans to raise tens of millions of pounds from investors early in 2020.
White Star Capital, Global Founders Capital and Seedcamp backed its seed funding round.
Unlike venture capital, which takes equity in a company in exchange for funding, and debt, which often requires a personal guarantee from borrowers, putting their home at risk, revenue-based finance carves out a share of sales by connecting direct to your accountancy software or bank.
Co-founder Asher Ismail said: “Equity is the most expensive way to raise capital. Founders end up owning 15 per cent of their business they exit.”
Instead, Uncapped monitors repayment by plugging in either to your online accounting software such as Xero or a payments processor like Stripe or an e-commerce platform such as Shopify, which tells the lender who your business is performing in real-time.
The lender can see what’s going on with your bank account or income in real-time, adjusting its monthly repayments accordingly.
This kind of lending would not have been possible without the introduction of Open Banking, which allows third parties to have access to one’s financial data.
Uncapped lends anything between £10,000 and £1 million and charges a flat 6 per cent fee in exchange for a share of future revenue.
So, if you borrow £100,000 then your total repayment total is £106,000.
In exchange, Uncapped takes a recoupment corridor of between 5pc-25pc, which shuts off once the capital plus fee has been repaid.
Because it has an overview of your real-time financial situation, Uncapped does not take equity, or want a personal guarantee, or take a costly warrant (where lenders have the option to buy heavily discounted equity later) and it does not charge interest.
In effect, Uncapped is money repaid at source, much as PayPal lends small retailers money because it can see how much is going through its own system.
Ismail said: “We have taken the PayPal concept and extended it. We take 50 data sources, as opposed to just one, your PayPal account.”
What Uncapped is looking for
Uncapped is looking for business that have been in existence for at least one year, even if they only been trading for nine months, generating anything over £25,000 in monthly sales.
Businesses that are either e-commerce based or Subscription-as-a-Service (SaaS) or follow a subscription box model (think, Harry’s shaving goods), are perfect for Uncapped.
Typically, loans will be repaid between six and nine months.
Ismail says there are two types of firm that are perfect for Uncapped: one is an already venture-capital backed business that needs non-dilutive working capital and does not want to give away more equity. Or a boot-strapping business that doesn’t want to give away control/equity but needs to grow fast.
Ismail said: “There are so many fantastic businesses out there that are wrong for venture capital, which is the most expensive way to raise money. Maybe their family businesses not looking to sell or they’re in a niche market and they’re never going to be unicorns. Not every business wants to be a unicorn. We’re hoping to fill that gap in the market.”
Loans can be arranged within three days compared to anything between three to nine months for a bank or a venture capitalist.
“Plus customers don’t even have to come and see us as everything is done digitally,” Ismail said.
And because everything is done online, Ismail says he hopes to attract a wider geographical footprint of companies compared to VCs, most of which are based in London.
Uncapped’s first investment was in menswear brand L’Estrange, whose co-founder Wiliam Green said: “The ability to raise capital without giving up equity in our business or subjecting ourselves to spiralling interest payments was crucial for us.”
Ismail, who previously worked for Boston Consulting Group, Skype and was general manager at MoneySupermarket.com, co-founded Uncapped after spending nearly three years as CEO of startup Midrive.
“One of the problems we had at Midrive was that non-dilutive capital was incredibly tricky. As an entrepreneur, you’re forced to make a decision: do you just give away more equity in your company or do you take on debt which might involve a personal guarantee where you could lose your house? Neither felt right to me.”