Miami Based Fintech did $70m in 2023 Revenue - What about Gross Margin?
Mar 21, 2024
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The podcast delves into a fintech company's revenue growth, default rates, and capital deployment goals. It explores challenges in revenue-based finance, write-offs, and suing for cost-effectiveness. The CEO's hands-on approach to operations, growth strategies, and maintaining low default rates are also highlighted.
Funkite targets $300m in capital deployed in 2024, posing questions about its long-term financial viability.
Funkite maintains a good loss rate of 6.8% on total receivables, with efforts to recover at least 50% from defaulted accounts.
Funkite's engineering-led approach focuses on enhancing technology to streamline operations and expand into credit card processing services.
Deep dives
Funkite Overview and Growth
Funkite, a FinTech company based in New York, provides funding to small businesses in the US. Founded in 2015, Funkite offers a boutique funding style tailored to meet individual business needs. With a focus on capital efficiency, they receive around 5,000 monthly business applications, approving a percentage of those. By 2023, the company reported approximately $70 million in revenue, maintaining good economics with a low default rate of 16% and a charge-off loss rate of 6.8%. Funkite employs 91 team members and funds deals through promissory notes and partnerships with capital providers.
Client Profile and Offerings
Funkite's average deal size is $110,000, catering to businesses generating between $1 million and $5 million in annual sales. They serve various sectors, from e-commerce to restaurants, excluding industries like transportation and trucking due to financial challenges faced by those sectors. Funkite's revenue-based finance system involves buying future receivables at a discount, aligning repayments with sales, with no fixed term until receivables are collected.
Risk Management and Charge-Offs
Funkite's risk management strategy involves assessing historical sales data of businesses to determine funding offers, averaging a discount rate ranging from 10% to 28%. They maintain a good loss rate of 6.8% on total receivables purchased, with efforts to recover at least 50% from defaulted accounts. The company highlights that most defaults arise from external influences rather than internal business issues.
Business Operations and Growth Strategies
Funkite's operations emphasize automation and efficiency to handle a high volume of applications, with plans to expand into credit card processing services for underserved merchants. The company's engineering-led approach focuses on enhancing technology to streamline processes. With a goal of exceeding 100% annual growth, Funkite aims to expand its reach and maintain a healthy margin by optimizing operational costs and capital efficiency.
Future Goals and Financial Insights
Amid discussions about valuation and growth projections, Funkite targets significant revenue growth to surpass $100 million, leveraging its technology-driven approach and strong financial performance. The company's cost of capital remains around 12%, showcasing a focus on favorable financial metrics and operational excellence. Funkite's strategic partnerships and funding model position it for further expansion and success in the competitive FinTech landscape.
CEO Alex Shvarts shared a default rate of 15%, charge off rate of 6.8%, along with significant expenses related to acquisition costs, and interest expenses. The firm is targeting $300m in capital deployed in 2024. If it hits its target, does this FinTech SMB factoring company have enough margin to survive long term?
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