Entrepreneurs usually face difficulties in securing financing to scale their business. Jeffrey Liu experienced the same struggle in 2015 when he was developing his first company, a fitness subscription company named GuavaPass.
According to Liu, traditional methods such as bank loans don’t always work for startups or small businesses in Singapore. Startups may own fewer assets to put up for collateral, while many entrepreneurs are not qualified for old school underwriting due to lack of credit.
“We were spending hundreds of thousands of dollars per month on Facebook ads and other digital advertising with a healthy return on ad spend (ROAS). Yet, there was no one willing to fund our activities. Our sole funding source was our venture capital investors,” Liu told KrASIA in a recent interview.
He noticed that many of his peers faced the same problem, and after selling GuavaPass to American fitness subscription platform ClassPass in 2019, Liu switched his entrepreneurial focus to the fintech sector.
Fueled by an undisclosed amount of financing from GuavaPass’ early investors in an angel round involving debt and equity, Liu, together with Justin Louie, former chief technical officer of GuavaPass, founded lending fintech firm Jenfi in 2019. The Singapore-based startup was launched to provide alternative sources of capital for small and medium business owners, Liu told KrASIA.
In 2020, Jenfi joined the Y Combinator’s accelerator program, taking its total funds raised since conception to USD 3.3 million, according to Crunchbase.
Focusing on growth channels
Southeast Asian countries have seen the proliferation of lending fintech startups targeting small and medium enterprises, with most of them opting for the peer-to-peer (P2P) lending model. Jenfi, however, provides revenue-based financing, focusing on funding marketing, inventory, and growth campaigns. Liu explained that he uses a growth perspective when offering credit to businesses.
“We focus on funding expenditures that directly generate positive revenue growth,” Liu said, adding that good marketing can generate healthy ROAS, which leads to stronger value creation.
Jenfi’s clients can apply for three funding options, with check sizes ranging from SGD 10,000 to 150,000 (USD 7,400–110,500).
To apply, customers need to input certain data, such as average income and spending, into Jenfi’s platform. Then, an underwriting engine will produce an assessment based on various metrics, along with productivity and growth projections, which will serve as a guide for the applicant, Liu explained.
“Our underwriting model ensures that a business only takes what it needs in terms of financing. We have the mantra that too much leverage with weak or declining sales is a recipe for disaster.”
Each week, Jenfi collects an undisclosed percentage of sales generated until the loan is fully paid. “In weeks where sales are softer, the business pays less. In weeks where sales are strong, the business has excess cash to pay down the financing,” Liu said, without specifying an average ratio.
Can revenue-based financing work?
Revenue-based financing is still rare in the region, as it doesn’t employ fixed monthly repayments like under P2P lending or other models. Aside from Jenfi, another known player is India-based GetVantage, which announced plans to launch in Singapore and Indonesia in the next two years.
Read more: ‘We are the first to bring revenue-based financing to India’ | Q&A with Bhavik Vasa of GetVantage
Still, Liu believes that this model offers a better underwriting approach compared to P2P or conventional bank loans. “Drive-in fintech has always been geared towards automating manual processes instead of improving the underwriting approach,” he said.
So far, Jenfi says it has processed “thousands of applications over the past year, funding about 10% of them.” Per February 2020, the company has disbursed around SGD 600,000 (USD 444,000) in loans. As for growth, Liu said that Jenfi’s portfolio companies experienced average monthly growth rates of between 5% and 10%.
In the coming years, Jenfi plans to expand its geographical footprint across Asia and introduce more financial products for small businesses. The company is also developing analytical tools to measure marketing return on ad spend, among other offerings, Liu revealed.
“Our goal is to provide a full suite of tools that can allow firms to diagnose and recognize opportunities to optimize and grow their business,” Liu said.
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in South and Southeast Asia.