Berlin-based finmid — one of several startups building embedded fintech solutions, in its case targeting markets that want to provide their own payment and financing options — has raised €23 million ($24.7 million) in a Series A round to continue… Build your company's product and enter new markets. The round values the company at €100 million ($107 million), after funds.
Marketplaces – typically a two-sided business that brings together retailers or other third-party service providers with customers to buy their products or services – are very classic targets for embedded finance companies, not least because they host a lot of transaction activity already, so it makes sense for them Build more jobs around that to improve their own margins.
Players like Airwallex, Rapidd, Kriya, and many more are among those building this opportunity. But finmid believes it has the potential to secure more business specifically in its home region. Small and medium-sized businesses in Europe typically look to banks to borrow money. The rise of fintech has opened the door for SMEs to access more diverse sources of financing than ever before, and an increasing number are doing so.
The startup believes that it makes more sense for SMEs to access capital through trading partners rather than accessing a bank or neobank, and it will do so. “In an ideal scenario, you don't have to go out of that context,” Max Schertel, co-founder of finmid, told TechCrunch in an interview.
It also makes sense for markets to provide these services themselves: a captive audience of customers and their clients' clients means they are sitting on a trove of data that can help produce more personalized financing offers, for example.
As one example of how this works, Schertel said food delivery brand Wolt is using finmid technology to offer cash advances to some restaurant partners directly within its app. Unlike a bank, Wolt has access to a restaurant's sales history, and finmid helps it leverage that data to determine who will see a pre-approved financing offer.
Image credits: Vinmed
Working capital does not come from Wolt, but from finmid financing partners. Both finmid and the platform get a percentage of each transaction. “We have banking relationships with a lot of major banks,” Schertel said.
For a platform like Wolt, including finmid is a way to make life easier for restaurants while generating additional revenue without a lot of extra effort. This is a fairly straightforward value proposition, as long as partners are willing to experiment with the startup's API.
In its early days, it wasn't easy to sell Finmid's offering to venture capital firms, Schertel said. Embedded financing may get a lot of hype, but it's still an approach that requires signing on partners to get any results. This requires patience, which not all venture capitalists have.
However, Finmid has managed to find investors who have stuck around since it started during the pandemic, and have helped the company raise €35 million in equity funding so far. Prior to this new Series A, the company had raised €2 million in seed funding and €10 million in pre-seed funding, Alexander Talkanitsa, another co-founder of finmid, told TechCrunch.
This support appears to be paying off. Once you're up and running on a platform like Wolt, “success really multiplies,” according to Schertel.
“I like [my] “The job today is much better than it was a year ago,” he joked.
Schertel and Talkanitsa met at rival bank N26, whose founder, Max Tayenthal, is now an investor alongside venture capital firms Blossom Capital and Earlybird VC.
The co-founders learned a critical lesson at N26: financial infrastructure leaves no room for mistakes. “You have to invest a lot in reliability,” Schertle said.
Finmid has an Application Programming Interface (API) that connects several data points from the platform, and can also connect other sources of information about a potential borrower, as a bank does.
To make the user experience more flexible, finmid can allow its clients to view pre-approved capital offers which end users can decide to accept or not.
The company also offers a product called B2B Payments that allows partners to fund trading between their users. Markets like Frupro (for fruits and vegetables), VonWood (for wood), and Vanilla Steel (for metal) use this product.
The new money will go toward hiring, and Schertel said the startup is looking for people with deep experience in specific areas, especially finance.
The company is also looking to expand into other countries. Italy is first on the list, Schertel said, but there are no plans to open an office there. Talkanitsa spends half his time in Vienna, and FinMed has an office in Berlin.
