Fresh off $40 million in funding, Fundbox wants to level the playing field for freelancers and small businesses whose clients take forever to pay. They use machine learning to assess credit risk within minutes
It’s one of the greatest frustrations of being a freelancer or small business owner. You work hard to deliver a great product or service. You may even pull an all-nighter to meet an important deadline. But then, when it comes to getting reimbursed, your clients take months to fork over payment. Not only is this frustrating, but many small businesses fail due to cash-flow problems caused by late-paying clients.
Enter Fundbox, a fast rising three-year-old San Francisco and Israel-based startup that uses big data to solve this cash-flow problem for small businesses. The company, founded by Eyal Shinar, Tomer Michaeli, and Yuval Ariav, announced a $40 million Series B funding round last week, less than a year after raising a $17.5 million Series A. As Yuval Ariav, the company’s co-founder and CTO, explains to Geektime, they advance cash on unpaid invoices “so you don’t have to wait 60 or 90 days to get paid.”
Fundbox doesn’t buy your invoices, nor does it offer a traditional loan. Rather, you embed the Fundbox tool into your business workflow and it analyses data from software like Quickbooks, Freshbooks, and Xero as well as data from the U.S. Census Bureau, company web sites, social media, and possibly the deep web to determine whether both you, and the company you billed, are a worthwhile credit risk.
“We say yes about 50 percent of the time,” Ariav tells Geektime, “which is a very high number. We’re looking for reasons to say yes.” Even better, said Ariav, because the process is done by algorithm, “We can underwrite a small business in less than a minute.”
“That’s our secret sauce. We’re essentially a data analytics company. Our first product just happens to be a product that solves the biggest pain point that small businesses experience today, and the way we can do that is we have very sophisticated data science engines and machine learning algorithms. We know who will pay back and who won’t.”
By contrast, says Ariav, banks (in the United States) won’t extend credit to a small business for any amount less than $250,000.
“That’s because the underwriting process, researching you to make sure you’ll pay them back is manual. It takes a long time.”
Because banks aren’t using big data, says Ariav, “They lose money on any type of credit below $250,000. The Bank of America tried to do something similar to Fundbox, and they ended up rejecting 96 percent of applicants.”
Better than a credit card
The obvious question is if a small business or individual is suffering a temporary shortfall of several thousand dollars, why not just use a credit card?
That’s easy, says Ariav.
“Small business credit cards are expensive. There are a lot of hidden fees. Also, in the United States, which is our primary market, you can’t use a credit card to make payroll.”
A typical Fundbox advance will be for $1,000.
“Then you pay us back $1,000, plus $20 which is our fee.” However, explains Ariav, the fee varies depending on how risky the credit is considered to be as well as how long the user takes to pay it back, all of which is of course determined by the algorithm.
Ariav says that at present, Fundbox is clearing thousands of invoices a week, from amounts as low as $100 to tens of thousands of dollars.”
As for amounts larger than that, “We will be offering the product for larger businesses down the road.”
But the real cash flow problem is for businesses that are much smaller, up to 25 employees, says Ariav.
“This problem is universal. Almost every country has this problem. Israel has it and the U.S. has it.” And the problem is getting worse, as the number of freelancers grows by leaps and bounds.
As for Fundbox itself, Ariav won’t discuss whether the company is profitable but says it has seen 300 percent growth in revenue for each of the last six quarters. But with $40 million in additional funding led by General Catalyst Partners, the company is poised to expand even further.
Assessing the competition, Ariav concedes, “there are companies that do small business financing in the U.S. It’s not like we invented the concept.”
But most of these are traditional credit unions or credit providers, he says. “They have a website. Then they give you a call. No company does this 100 percent automatically. We’re the first and only ones to do that.”
Featured Image Credit: Fundbox