When fast-growing Irish fintech startup Wayflyer announced in February that it had raised $150 million in equity investment from a consortium of backers including global investment bank JPMorgan, much of the talk was about valuation.
The Series B funding round made Wayflyer Ireland’s sixth ‘unicorn’ firm to finance its next phase of growth after launching in April 2020 – a private tech startup with a valuation of over $1bn.
At a hypothetical $1.6bn (€1.5bn), Wayflyer easily qualified. It has also moved into consumer branding by becoming a sponsor of high-profile Irish golfer Shane Lowry.
But there was little discussion about what exactly the company did. On the receiving end of a bull market that tech companies love, it might not have mattered that much, but the world has changed a lot since February.
With inflation hiking Wayflyer’s markets and central banks in the US and Europe, business models matter again and money is no longer cheap and easy.
So, it’s worth mentioning that JPM keeps coming back to Wayflyer. The Wall Street firm is preparing to approve a new line of credit to the company after recently approving $300m in debt finance in early May.
But such is the pace of Wayflyer’s growth, that the company is looking to support more than $500m in 2021 to grow its sales to $2.5bn this year.
Essentially, this means providing working capital to e-commerce companies that are increasingly striving to scale and coming up against a wall they can’t finish alone. There’s more to it in the back-end, but the core product is financing.
“We’re solving a financial problem,” says chief revenue officer Dan O’Brien.
“At the simplest level if I buy a lot of stock, and I sell it all, I need to buy more stock next time, but my revenue won’t give me room to do that.”
Wayflyer “closes that hole,” as O’Brien puts it, by supplying cash for inventory and marketing, which he calls a “small upfront fee” plus a percentage of future sales.
It’s not a million miles away from direct banking or invoice discounting, except that there is a tendency for banks and asset financiers to stay away from startup e-commerce companies that require unsecured capital and may have creditworthiness to borrow. This means that digital companies looking to grow typically turn to expensive venture capital or private equity.
O’Brien says, “The reason we’re closing that hole is because if you go out as a company and you raise VC money or anything like that, you make a fortune or the company.” To provide working capital.
“Essentially, what you’re doing is just creating a rotation where you’re constantly asked to go out, raise money, and give more and more to your company.”
The partnership with JPM makes Wayflyer a loan originator of sorts for a Wall Street bank that has ambitions in the fintech payments space and is driving this forward partly by investing in promising companies like Wayflyer.
It’s easy to see why. Global e-commerce is set to exceed $5trn this year and Wayflyer came along at the right time, just as the Covid-19 pandemic made everyone an online shopper.
To date, Wayflyer remains on the small end of e-commerce, with companies making between $1m and $12m in sales a year. But it is changing with the help of JPM. The company recently launched a new revolving credit product, called Scalar, which has generated over $20m in revenue. And since Wayflyer’s own revenue is tied to sales from its customers, that means rapid growth.
That is the ultimate side of fintech. What is happening behind the scenes? Unsurprisingly, it’s all about the data, which Wayflyer calls “technical underwriting.”
“We plug in their sales, their analytics, their marketing, and their bank account,” O’Brien says.
“So we have a holistic view of the company and what is that cycle, how do they generate revenue and how proficient they are on the marketing side.
“It allows us to assess them, which means we don’t have to have strict confidence about securities or anything like that.”
Data immersion allows Wayflyer to make quick credit decisions with the help of AI and disburse funds to merchants quickly – in a matter of days or hours where it might take months with a more traditional lender.
The data is also recycled into value-added services such as analytics, marketing support and shipping support that Wayflyer can then sell to its borrowers.
“We see a lot of similar trends within companies and within industries, so we know how to help them increase that lifetime value or offset acquisition costs,” O’Brien says.
“We want to work as an ecosystem where e-commerce companies can essentially get to the point where they can drive their brands on our apps where we have a lot of tools and they are consolidated together.”
O’Brien acknowledged that the post-Covid environment is not an easy place to keep sprinting.
“The macro environment is obviously quite tough, but we’re really well set up to be successful in it.
“So from that point of view, right now, we just want to focus on getting big results and growing as much as possible and then take it next year and try to do the exact same thing.”