Berlin-based finmid — one of the many startups building embedded fintech solutions, in its case targeting marketplaces that want to provide their own payment and financing options — has raised €23 million ($24.7 million) in a Series A round to further build out its product and enter new markets. The round values the company at €100 million ($107 million), post money.
Marketplaces — typically two-sided businesses that bring together retailers or other third-party providers with customers to buy their products or services — are very classic targets for embedded finance companies, not least because they host a lot of transaction activity already, so it makes sense for them to build in more functionality around that to improve their own margins.
Players like Airwallex, Rapyd, Kriya, and many more are among those building for that opportunity. But finmid believes it has the potential to lock in more business specifically in its home region. Small and medium-sized businesses in Europe typically look to banks to borrow money. The rise of fintech has opened the door to SMBs accessing more, varied sources of financing than ever before, and an increasing number are doing so.
The startup believes that it makes more sense for SMBs to access capital via business partners than via a bank or neobank, and they will do so. “In an ideal scenario, you don’t have to get out of that context,” finmid’s co-founder, Max Schertel, told TechCrunch in an interview.
It also makes sense for marketplaces to offer these services itself: A captive audience of customers and the customers of their customers means they are sitting on a trove of data that can help produce, for example, more personalized financing offers.
As one example of how that works, Schertel said that food delivery brand Wolt uses finmid’s tech to offer cash advances to some of its restaurant partners directly inside its app. Unlike a bank, Wolt has access to the restaurants’ sales history, and finmid helps it leverage that data to decide who will see a pre-approved financing offer.
The working capital doesn’t come from Wolt, but from finmid’s financing partners. Both finmid and the platform earn a percentage of every transaction. “We have banking relationships with a lot of the large banks,” Schertel said.
For a platform like Wolt, embedding finmid is a way to make life easier for restaurants while generating additional revenue without much additional effort. That’s a fairly straightforward value proposition, as long as partners are willing to give the startup’s API a go.
In its early days, finmid’s pitch wasn’t an easy sell to VCs, Schertel said. Embedded finance may get a lot of hype, but it is still an approach that requires signing on partners to get any results. That takes patience that not all VCs will have.
However, finmid managed to find investors who have stuck around since it started during the pandemic, and have helped the company raise €35 million in equity funding to date. Before this new Series A, the company raised €2 million in pre-seed and €10 million in seed funding, finmid’s other co-founder, Alexander Talkanitsa, told TechCrunch.
That support seems to be paying off. According to Schertel, once you are running on a platform like Wolt, “success really compounds.”
“I like [my] job today a lot better than I did a year ago,” he joked.
Schertel and Talkanitsa met at challenger bank N26, whose founder, Max Tayenthal, is now one of their investors alongside VC firms Blossom Capital and Earlybird VC.
The co-founders learned a crucial lesson at N26: Financial infrastructure leaves no space for mistakes. “You have to invest a lot in reliability,” Schertel said.
Finmid has an API that connects several data points from the platform and can also plug in other sources of information on the prospective borrower, like a bank would do.
To make the user experience more fluid, finmid can let its clients display pre-approved capital offers that end users can decide to take or not.
The company also offers a product called B2B Payments that allows partners to finance trading between their users. Marketplaces such as FruPro (for fruits and vegetables), VonWood (for timber), and Vanilla Steel (for metal) use this product.
The new money will go toward hiring, and Schertel said the startup is looking for people with deep experience in specific areas, especially finance.
The company is also looking to expand into other countries. First on the list is Italy, but there are no plans to open an office there, Schertel said. Talkanitsa spends half his time in Vienna, and finmid has an office in Berlin.
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