Bringing creative financing to the subscription economy, welcome to re:cap, our latest investment
Felix Capital and Project A co-lead $111m seed round in re:cap to bring Non-Dilutive-Funding (“NDF”) offering to market, support first batch of entrepreneurs and expand across Europe
Welcome to the credit revolution!
We live in the age of data. Never before have we been more (digitally) connected as a species, from mobile phones to laptops, social media to streaming — technological innovation and advancements in the digital lifestyle have generated an explosion in data creation. The numbers are staggering, every minute of the day, 65,000 Instagram photos are 1shared, 575,000 twitter tweets are made, 5.7million google searches conducted and 12million people send an iMessage. What this translates into is an unprecedented ability to understand consumer behaviour, and price risk.
Credit may not be the most exciting word out there, however this industry has been one of the biggest beneficiaries of boundless data, which in turn has led to unnoticed improvements in all of our lives. More than 90million consumers around the world have used Klarna to buy-now-pay-later a product, using technology to package a credit offering that is convenient and valuable to both consumers and merchants. Over 5,500 businesses have taken out £1.4bn+ in revenue-backed loans from ClearCo to help grow their sales. These are just two examples of modern credit solutions however there are many more — you can thank Affirm for your Peloton payment plan, Brex for your corporate credit solution and Chime for receiving your salary a few days early.
The “Power of Data” has always been core to our thesis at Felix (alongside other core themes of “The Power of Brand” and “The Power of Design”, both of which being highly relevant to re:cap) so it comes as no surprise we have been watching this credit revolution carefully. What is perhaps less obvious with all of these companies, is the incredible brands that are being created at the same time. A simple example, many happy VanMoof customers (a Felix-backed business), will receive their bikes in time for Xmas thanks to a Klarna payment plan, building brand equity for both businesses. On the B2B side, the likes of Wayflyer and ClearCo have delivered a best in class product, addressing a core customer need, and built globally recognised brands within the eCommerce entrepreneur community as a result.
Entrepreneurs rejoice, you now have a new funding option
Entrepreneurs looking for funding have had only two real options in front of them — equity (dilutive and not very flexible) and debt (less dilutive but still expensive and constraining). Debt in the form of bank loans or venture facilities can bring restrictive covenants, expensive interest rates and frequently hidden equity commitments. Equity capital can bring a lot of value if entrepreneurs find the right investors, however it is dilutive and can be difficult to access for the long-tail of companies who aren’t necessarily ‘shiny’ enough to attract attention — This is where non-dilutive funding (“NDF”) comes in.
Tapping into the emergence of new credit solutions, NDF is a form of capital which unlocks the future value of recurring revenue streams and provides that as upfront capital. The benefits of this are numerous — it is a source of Day 1 capital which can be used to invest in future growth, it allows greater flexibility in customer payment terms, gives entrepreneurs access to a new capital class, and importantly, by leveraging data the application and issuance process can be done in a matter of days not weeks / months. Our mission at Felix has always been to back the best entrepreneurs, and we are incredibly excited by the prospect of NDF helping the entire entrepreneurial ecosystem.
One fateful day in Berlin
As a thematically focused fund, we work top-down by identifying investment areas and then all the companies contained within. This can be a long and arduous process, sometimes with the conclusion that a space is not one we will make an investment in, however thankfully the team at re:cap made this an easy decision. We had the opportunity to meet Paul and Jonas in Berlin (after they had ignored four of our outreach emails), and as cliché as it sounds, there was an immediate spark and we knew we had found the team to support. They appreciated our thoughtful approach alongside knowledge of their customers and the requirements for brand building and product excellence in this space. We loved their passion, genuineness and vision, coupled with humility and curiosity to learn more.
For background, Paul and Jonas are a highly complementary founding team, having previously founded successful fintech LIQID. Within a few months of founding re:cap, they managed to pull together an A-class leadership team with ex-executives from Solarisbank, Klarna, Google and NIBC. At the same time, they had built a considerable pipeline from prospective customers and liquidity providers alike (despite only having a landing page and done no marketing).
The team are initially focusing their efforts on NDF for SaaS businesses across Europe, however there are plans to quickly expand into new verticals and geographies in the near future. Unlike some of their competitors, re:cap are utilising a marketplace model, matching institutional sources of capital with the revenue streams of digital companies, creating a whole new asset class in its own right. We believe this unique business model and amazing team are the foundations upon which re:cap will become a global champion in modern credit.
We are incredibly excited to be joining Paul, Jonas and the whole team on this journey, and participating in this landmark $111m equity+liquidity funding round alongside our friends at Project A and Entrée Capital. For any entrepreneurs reading this, make sure you consider re:cap as part of your future funding needs!
Written by Joseph Pizzolato
