French startup Karmen has secured a small funding round so that it can improve its instant financing products. The company offers short-term loans to small companies facing a working capital crunch.
It’s a €9 million equity-and-debt round ($9.4 million at today’s exchange rates) with Seventure Partners buying a stake in the small startup. Financière Arbevel and Bpifrance are complementing the round with some debt.
The startup isn’t the only company operating in this space that could be described as instant financing for SMEs. French competitors include Silvr, Defacto, Unlimitd and Hero.
Revenue-based financing has become a hot vertical because banks and traditional financial institutions struggle to address SMEs at scale. It’s a highly fragmented market with small margins. That’s why tech startups are trying to fill that financing gap with a data-driven approach.
Today’s news comes just a few months after Karmen secured a €100 million debt vehicle that serves as the basis for the company’s short-term loans. Six months later, it seems like quite a few companies are now relying on Karmen to fix their cashflow issues.
According to the company, around 600 companies have used it to buy inventory, pay suppliers, finance paid acquisition campaigns and more. Loans range from €20,000 to €3 million, from 2 months to 24 months.
On average, the typical Karmen client borrows €200,000 with a six-month term. But there’s a wide diversity of financing options. The smallest customers generate only €300,000 in annual turnover (those are most likely one-person businesses), while Karmen’s largest customer generates €160 million in revenue per year.
More importantly, Karmen says it has attracted some loyal customers, claiming that 80% of its customers contact Karmen several times per year to unlock a new debt line. Clients include Maison Kitsuné, Balibaris, Les Raffineurs and Almé.
Most companies contact Karmen directly, but the startup has a hybrid distribution strategy. It partners with other fintech companies so that they can offer Karmen financing products to their own clients. Some ERPs, e-commerce marketplaces and business banks like Qonto already integrate with Karmen.
This embedded financing strategy represents 40% of Karmen’s clients right now, says the company, adding that it hopes it can raise that figure to 75% of new clients by the end of 2025.
While most companies repay their loans without any issue, companies can sometimes struggle to repay what they owe.
“This is part of our job as a lender. But we limit these risks through our data-driven approach, which allows us to have very granular visibility into the financial and operational performance of our clients,” Karmen co-founder and CEO Gabriel Thierry said.
“In addition, we are investing heavily in our risk assessment technology tool (thanks to AI) to strengthen this approach,” he added. Hence, today’s funding round.
Karmen currently uses around 60 different financial metrics to score loan applications in near real-time. It argues that its embedded strategy can also be leveraged to make smarter decisions — bank accounts, accounting software, ERPs and invoicing tools hold valuable data on a company’s overall performance.
