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Interviews

CASH FLOW KINGS – CLEAR FACTOR, THE DECENTRALISED GLOBAL INVOICE FINANCE ECOSYSTEM DESIGNED FOR SME’S

Ricky Shankar, Chairman of Clear Factor

 

How was inter-bank lending affected by the 2008 financial crisis?

In the aftermath of the financial crisis of September 2008, money market interest rates rose sharply and there was a virtual freeze in inter-bank lending. A principal source of funding for loans to businesses and individuals was no longer available.

SME’s were directly affected. These small businesses, more than any other, relied on bank debt including overdrafts and loans for their external financing needs and were particularly at risk from a collapse in bank lending. Indeed, the available evidence from 2008 suggests that small businesses were not only finding it increasingly difficult to obtain finance, but were dealing with the withdrawal of promised finance, experiencing sharp increases in loan interest rates and were having facility fees imposed. Even firms with good credit histories were not immune to these problems. Banks became more risk averse and small business owners were being offered smaller loans, as falling house prices meant they had reduced collateral.

 

What type of SME’s were affected?

Ricky Shankar launched his then software services firm Amsphere, in 2002 to help FTSE 100 businesses reduce their risk of business change, particularly in IT.

Like many entrepreneurs getting started, Shankar had put up his home as collateral with a high street bank – HBOS. Amsphere grew quickly and exponentially, posting 100% growth in revenue and profits. In 2005, Amsphere continued to expand and subsequently, payment terms lengthened. Yet, despite being profitable, cash flow was becoming an issue and Amsphere required access to working capital in order to pay the monthly bills.

Shankar looked in to invoice financing and within a few weeks agreed an invoice finance facility with HBOS. In short, Amsphere was able to draw down 85% of all invoices raised immediately. Their cash flow problems were solved at a stroke.

Ricky Shankar

The next three years saw Amsphere’s trajectory further rise, peaking in 2008 when the firm was named in The Sunday Times fastest growing Techtrack companies in the UK. HBOS publicised Amsphere’s accolades and were quick to also take credit.

In 2009, as a direct result of the financial crisis, HBOS was taken over by Lloyds and they merged to become Lloyds Banking Group, the largest retail bank in the UK.

The following year, Lloyds recalibrated its risk assessment and Amsphere was now deemed ‘high risk’ despite being a reliable client and posting no bad debts. In no uncertain terms, Amsphere was given six months to find a new invoice finance lender.

Shankar quickly sought an alternative arrangement with Bibby Financial Services and a deal was signed. However, three days before the transfer between banks, Bibby pulled out of the deal, asking for directors’ homes as collateral. Amsphere, now struggling as many SME’s were in the recession, still remained profitable but was three days away from collapse.

Shankar contacted Simon Featherstone, who at the time was Managing Director of Lloyds Commercial Finance. A meeting with Lloyds was arranged whereby it was explained how the failings of banks would in effect be putting a perfectly profitable and fast growing UK SME out of business and Featherstone convinced Lloyds to take back Amsphere as a client.

Whilst Shankar’s predicament had a happy ending, thousands of other profitable businesses were not so fortunate. According to data from the Federation of Small Businesses, 50,000 small businesses fail each year due to cash flow issues.

 

So, is the Alternative Finance Marketplace changing? 

“After my experience, I saw the opportunity for the invoice financing sector to grow away from the banks. There are almost six million small businesses in Britain today. Of those, less than one per cent are funded by high street banks!” added Shankar, who is now Chairman of Clear Factor, a transparent, democratised global invoice-finance ecosystem that provides every viable SME with access to fair and affordable working capital.

“SME’s today have very few choices for working capital. Low borrowing rates no longer exist as interest rates range from 12% to 100% per annum for SME loans via the alternative finance lenders. Most lenders require director guarantees, additional collateral and debentures on the business. SME invoice finance for most of the business community still remains at a very nascent stage of development. That is why we have launched Clear Factor to change the playing field forever.”

 

So what does Clear Factor bring that is new to the sector, as the invoice financing industry has been using the banks’ collapse of 2008 as their marketing tool for the last decade?

Clear Factor is a new financial paradigm that has absolutely no reliance on banks which is attractive from a customer point of view. We have seen how people are flocking to digital platforms such as Tide and Starling instead of the high street banks.

Clear Factor is levelling the playing field so that all SMEs can access all investors on a global level through the auction system. Clear Factor will give every viable SME anywhere on the planet, in any currency, access to the affordable working capital they need to grow. The fair interest rate will be determined by the auction and agreed to by the SME.

Clear Factor is focusing on micro and small segments of the SME market – those that are not currently serviced by banks for invoice finance. There are no lock-ins, impositions, hidden costs or contractual binds and there will always be a quick payment against the invoice. The only fee is the ecosystem fee which is 1.0% of the withdrawal amount taken and this applies to the SME, individual investor and trade investor.

What is not ‘new’ but important for Clear Factor is that the company has a mandate to make sure that it is recession robust. It is about protecting SMEs from a possible future financial crash and a repeat of 2008.

 

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Interviews

HOW NEW TECH START-UP IS SHAKING UP THE IT CONTRACT MARKET

Neil How, CEO and Co-founder, ten80

 

1. What is ten80?

ten80 enables cost savings on SAP/software projects by an average of 43%. We do this by switching companies to an on-demand workforce – think Uber and how that has disrupted the taxi industry.

The ten80 marketplace connects companies with around 47,000 verified contractors, using algorithms to match companies with the very best experts that then deliver on projects remotely. This enables SAP customers to utilise a global workforce and break free from geographical borders, as well as take advantage of international market rates. In other words, it gives them the exact resources, when they want them, for however long they need them for and at a cost-effective price.

 

2. How did the idea of ten80 come about?

I’ve been lucky enough to work with SAP my entire career. My journey first started at the end-user side. I ran my first SAP implementation project in my early twenties and went on to form an SAP Centre of Excellence to allow for long term improvement.

Over the next six years, I ran three other major change programmes before joining the consulting world, and for the next 10 years I worked with various consultancies running numerous projects in a wide variety of sectors, including retail, utilities, banking public sector and government.

But having spent time working both end-user side and consulting side, it became clear that SAP clients were struggling to access the best in class consultants and contractors. Wanting to get this knowledge into the wider world, ten80 was formed to digitally link the global contracting workforce to a global customer base, while allowing clients to digitally access the ‘best in world’ not the ‘best in organisation’.

 

3. ten80 is solving business problems, but how is it helping contractors?

Consistency of regular work is becoming a challenge for many contractors, and the impact of ‘dead time’ becoming more severe and likely. This is made worse through an ever increasing pool of expert contractors.

In addition, selling time for money is not a sustainable model for financial freedom, and contractors are tired of being capped at an ever decreasing day rate. Contracting also puts a huge pressure on family life, especially if you have to be on-site away from home — missing out on time with family and loved ones is a huge drawback, and there is little work life balance.

With ten80, contractors can benefit from the following:

  • An ‘always on’ demand for work
  • The ability to sell their knowledge and capabilities rather than a day of their time
  • Being able to carry out their role wherever in the world at any time, with total bulletproof security

 

4. What are the main challenges for your business?

ten80 is operating in a completely new area — outcomes-based delivery, so not being able to be ‘put’ us in a specific vendor box type is a challenge. Often corporate organisation’s procurement processes want to categorise us as a systems integrator or recruiter, but we are neither.

Being the first to market is always hard. We are offering some really powerful benefits to businesses and contractors, but we have no one to follow and are learning at every step of the way. There is a great saying that I have always believed in – “Success leaves footprints.” The big difference with ten80 is that we are making them! We are running agile processes on each stage of our journey. Everything is tested, iterated, refined, repeated. It’s the curse of being the first, but actually embedding continual improvement into our business has been one of our rocks of success.

Another challenge has also been controlling deal size. Big corporates have latched onto the benefits of what we are offering and are immediately referring us globally. It’s great but can quickly escalate and then take longer to close.

 

5. What’s next for ten80?

Our focus/goal is to secure a major investment over the next six months. That’s the first ticket to the major league and will give us the potential to grow to 150 people and some pretty big numbers revenue wise. We are entertaining some pretty important investment houses and are looking forward to one of them closing.

Running alongside that we have some really amazing companies in our pipeline, and I am looking forward to welcoming them onto our platform.

 

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Interviews

GOING FOR INVESTMENT IN CENTRAL EUROPE: START-UP LIFE OUTSIDE A TRADITIONAL TECH HUB

A Q&A with Bence Jendruszak, Co-founder and COO at SEON

 

  1. At what stage did you realise you were going to need an investor onboard?

During the early stages of the development (when completing our minimum viable product), we managed secure a Central European payment gateway in order to start using our system (free of charge). From this point on our product development was user feedback driven. It was at this stage, that we realised that our product has gained enough proof of concept, that we were ready to pitch the idea to investors.

 

  1. How important was the investment to getting your business to the current point?

Our pre-seed investment (50k EUR in January of 2017) was the initial kick-start to arriving to the current point. That micro-investment allowed myself and Tamas (Co-founder and CEO or SEON) to start working on the project full time and also to scale up the development team (from freelancers to full time programmers).

 

  1. How did you start the process of looking for an investor? 

We started by setting up our very first pitch deck. Of course, a lot of market analysis and USP shaping went into this. Once we had our first deck, we started contacting investors and started pitching the project to them. That specific pitch deck was very different to what the current version looks like.

 

  1. Were you aware of the challenges you could potentially face as a tech start-up in CE?

We were very well aware of the challenges. The European investment mentality is different than that of the US investment mentality, for example. Investors tend to be more conservative in the EU. Now imagine what the investment mentality may be like in the CE region. Nevertheless, we were also aware of the advantages of setting up a tech start-up in the CE region. The talent pool of

engineers and the cost of labour is by far the best in our home-turf – so the challenge was worthwhile.

 

  1. What was your journey to finding an investor like? Challenges / milestones?

Initially, we were faced with multiple unacceptable deals. The terms and conditions weren’t right for us in the long term. We were always aware that in order to build an international start-up (that would later develop into a scale-up), we had to on-board investors that we were fully comfortable to cooperate with – and vice versa. We needed to be on the same page and have a shared vision for SEON’s future.

 

  1. How did you find your lead investor, Portfolion? What else do they offer in addition to financial investment? (international network etc.)

We met them by introduction from an acquaintance. Portfolion is a well renowned VC in the CE region. They seemed like a partner that we could on-board into our boat and we could steer the ship together with them. They are the subsidiary of OTP Bank, one of the largest banks in the CE region. A potential gateway to partnering with a major bank seemed like a mutually beneficial setup. Aside from receiving a financial investment from the fintech fund of Portfolion, we can happily say that we are providing our fraud prevention services to OTP Bank as of today.

 

  1. What have you learned about the investor landscape in CE?

We found out that European investors are even more sceptical when it comes to CEE countries. They tend to avoid start-ups that aren’t located in hubs like Berlin or London. For them, Hungary is still seen as a former Eastern bloc country playing catch up with the rest of Europe in terms of living standards and infrastructure.

That said, there are a lot of investors in the region, but you really have to focus on getting in touch with the right organization. Onboarding an investor is a long-term partnership, there has to be a fundamental alignment in terms of the vision and mission of the two teams. We believe that we’ve managed to partner with investors who share the same vision and mission as us (up to date).

 

  1. What role will investment play in the next growth stage of the SEON?

 The next growth stage is focused on international expansion. We will be seeking an investor that can provide not only funds, but also somebody that has a solid portfolio of fintech companies and a partner network of financial institutions.

 

  1. Do you have any advice for other businesses in your position that are looking for funding in the CE region?

Do not rush into any deal that is in front of you, time is on your side. If you are in an early stage, make sure to approach as many investors as possible, in order to be able benchmark each opportunity.

 

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