French startup Karmen has secured a small round of funding so it can improve its instant funding products. The company provides short-term loans to small companies facing a working capital crisis.
It’s a €9 million ($9.4 million at today’s exchange rate) equity and debt round with Seventure Partners buying a stake in the small startup. Financière Arbevel and Bpifrance are completing the round with some debt.
Startup is not the only company operating in this space that can be described as instant financing for SMEs. French competitors include Silvr, Defacto, Unlimitedd and Hero.
The reason why income-based financing has become a hot vertical is because banks and traditional financial institutions struggle to address SMEs at scale. It is a very fragmented market with small margins. That’s why tech startups are trying to fill that funding gap with a data-driven approach.
Today’s news comes just a few months after Karmen secured a €100 million debt facility that serves as the basis for the company’s short-term loans. Six months later, it seems like many companies are now relying on Karmen to fix their cash flow problems.
About 600 companies have used Karmen to buy inventory, pay suppliers, fund paid shopping campaigns and more. Loans range from €20,000 to €3 million, from 2 months to 24 months.
On average, the typical Karmen customer borrows €200,000 with a six-month term. But as you can see, there are a wide variety of financing options. Similarly, the smallest clients generate only €300,000 in annual turnover (they are most likely one-person businesses), while Karmen’s largest client generates €160 million in annual revenue.
Most importantly, Karmen has attracted some loyal customers, as 80% of the startup’s customers contact Karmen several times a year to unlock a new line of debt. Clients include Maison Kitsuné, Balibaris, Les Raffineurs and Almé.
While most companies contact Karmen directly, the startup has a hybrid distribution strategy. It collaborates with other fintech companies so that they can offer Karmen financing products to their customers. Some ERPs, e-commerce marketplaces and business banks like Qonto already integrate with Karmen.
This integrated financing strategy represents 40% of Karmen’s customers now. But the company says it hopes to increase that metric to 75% of new customers by the end of 2025.
While most companies pay off their loans without any problems, companies can sometimes struggle to pay back 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 clear visibility into the financial and operational performance of our clients,” said Karmen co-founder and CEO Gabriel Thierry.
“In addition, we are investing heavily in our risk assessment technology tool (powered by 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. Its integrated strategy can also be used to make smarter decisions – bank accounts, accounting software, ERPs and invoicing tools hold valuable data about a company’s overall performance.
