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Financing the modern way, Karmen

4 min read First on Medium

Contents
  1. General presentation
  2. Technology
  3. Fundraising
  4. Business Model
  5. Market
  6. Competitors

General presentation

Karmen is a French fintech startup with 6 employees founded in May 2021. It offers a Revenue-Based-Financing solution for companies with recurring revenues (SaaS, subscriptions, service companies,…).

The concept is simple: instead of waiting to cash in on subscriptions month after month, Karmen releases the annual value of subscriptions upfront and turns them into immediate cash. This allows companies to obtain capital in a non-dilutive way (without raising funds) and quickly (within days).

Technology

To raise or to go into debt is the dilemma that many young companies face. On the one hand, raising funds leads to a dilution of the capital and on the other hand, debt. But to get into debt, you often have to put up a personal guarantee and the process can take a long time to get the funds.

Karmen, therefore, offers an alternative to fundraising and bank loans. The idea is: why wait when you can have the money immediately? The startup simply (and ingeniously) proposes to advance the recurring revenues (subscriptions) of companies.

For this, Karmen proposes a simple and fast process (guaranteed <72h):

  • Step 0: You apply to Karmen for funding;
  • Step 1: Karmen retrieves the data from your different financial tools (such as Sage, Salesforce, Stripe, Google Ads, etc.) thanks to their APIs;
  • Step 2: The data is then analyzed by a proprietary scoring algorithm that evaluates the credit risk and assigns a “Karmen Score”;
  • Step 3: Based on the Karmen Score, the startup is now able to offer you financing.

In concrete terms, this can be seen as a loan, granted after careful analysis of recurring income, with a repayment term set between 6 and 12 months by the beneficiary.

The use of an algorithm taking into account financial data to define a score and de facto a certain degree of accessibility to financing is not new. This allows the company lending the money to have a more in-depth guarantee than a simple analysis of the turnover. For the beneficiary company, it is also an opportunity to show all its potential and not to limit itself to “basic” indicators. Some banks, especially in Asia, already offer such solutions, even to individuals.

As far as Karmen is concerned, it is currently the only Revenue-Based-Financing (RBF) player in France backed by an institutional financial institution Fasanara Capital.

Fundraising

After winning the France Fintech award for “Economic Recovery” in June 2021, Karmen has just raised a seed round of 22 million euros from Fasanara Capital, Samaipata, and Business Angels. The young startup incubated at Platform58, La Banque Postale’s fintech/assurtech incubator now plans to recruit 20 employees in 2022 and expand in Southern Europe.

Business Model

Karmen is remunerated by a fixed commission that depends on several criteria including the repayment period of the beneficiary company (6 to 12 months) as well as its performance.

Apart from the commission, there are no additional costs such as a paid registration or subscription to the service.

The advantage for Karmen is that the financing method it offers to companies allows it to earn a recurring income via commission. This is not the case with Business Angels or Limited Partners who have to wait for the exit or a specific time to receive the money invested in a fundraising investment.

Market

Cash flow is often a major issue for companies that have deferred cash receipts and disbursements. Moreover, traditional banks have difficulty granting credit to digital companies that are growing rapidly. RBF, therefore, offers an alternative cash flow solution to traditional financing.

In 2020, FBR represented about €3,343,000 for 310 independent companies in France and some forecasts estimate that the global market could represent $42 billion by 2027.

If the model seems to be democratized across the Atlantic, it is still in full expansion in France and more widely in Europe where competition is starting to be felt between FBR startups (see Competitors section)

However, it seems that France is the country in Europe where consumption by subscription is growing the fastest, at 19% per year. This is particularly interesting for Karmen, which focuses on subscription-based businesses.

Competitors

Today, the competition in the FBR market is fierce. The criteria that differentiate companies are generally: the percentage of Annual Recurring Revenue (ARR) that can be recovered by the beneficiary company, the recovery time (usually between 24 and 72 hours), and the commission percentage.

As for Karmen, what sets it apart from its competitors is its focus on subscription services.

Competitors with the same or very similar model to Karmen include:

The business part of this article was written by Emilie Nouacer, the tech part by Mathieu Van de catsije.

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