Drip Capital provides trade finance loans (credit lines, factoring) to medium and small businesses from the US, Mexico, Ecuador, UAE and India. An entrepreneur applies online and receives a collateral-free loan within 24 hours. Since 2015, Drip Capital has funded $2.2+ billion in trade transactions reaching recipients in 100+ countries. The company has over 3500 clients.
Official website: https://www.dripcapital.com/
HQ: Palo Alto, USA
Why invest in Drip Capital?
3500+ business clients and 2X revenue growth in 2021 Global market reach and highly demanded product “Top 250 FinTech companies” by CB Insights
Financial metrics of Drip Capital
- Total funding: $375 million
- Last round: $40 million Series C and $135 million debt from Barclays and East West Bank
- Last round valuation: $335 million
- Last round date: October 2021
- Lead investors: Y Combinator, Accel Capital, Sequoia Capital India, Silicon Valley Bank, Sand Hill Angels, Barclays, Abstract Ventures
Business model of Drip Capital
Drip Capital solves the problem of capital gaps for businesses in the export/import industry. Exporters are often forced to receive payment for the shipped goods (raw materials, components or final product) with a delay — after the product is sold. Such a gap makes international trade less efficient. Importers, in turn, are not always able to pay for the purchased goods immediately upon receipt.
To avoid capital gaps, enterprises turn to credits, which are usually not available to small and medium-sized businesses. Traditional banks and credit institutions require SMEs to provide collateral, a large package of documents, and also set high-interest rates. The approval process is complex and time-consuming.
Drip Capital offers SMEs to apply for a credit completely online and receive working capital within 24 hours. There is no collateral, the loan amount varies from $100,000 to $2.5 million. The exporter can receive up to 80% of the amount of the contract for the supply of goods. The company evaluates borrowers and their transactions using its own risk management system built on AI.
Investment opportunity
Drip Capital services more than 3,500 clients, and since 2020 their number has increased by 3.5 times. The geography of supplies has expanded to 100+ countries. In 2021, Drip Capital’s revenue and loans to exporters almost doubled.
Strategic partnerships:
- ICICI Bank — 2nd largest private bank in India,
- CMA CGM — 3rd largest global shipper,
- DP World — 2nd largest port operator in the world.
The company plans to launch new products such as foreign currency hedging, insurance, a marketplace and warehouses services for suppliers. Drip Capital also intends to accelerate expansion in Southeast Asia and Latin America.
The company attracts capital for issuing loans from large institutional investors and classic banks, offering them high returns. The company also uses its own funds to offer credits which increases revenue streams.
Market overview
The global trade finance gap is estimated at $1.7-$3.6 trillion. In India alone, export trade was valued at $320 billion (2019), with 50% being made by SMEs. According to various studies, from 40% to 50% of SMEs in developing countries do not receive working capital credits from banks. India’s trade finance gap for SMEs reaches $70-$80 billion.
Startups offering alternative lending solutions have fought the attention of venture capital as well. Funding for such startups has grown by 220% over the past year, from $6.4 billion to $20.5 billion. The number of digital lending rounds has doubled from 334 in 2020 to 633 in 2021, according to CB Insights.
Digital Lending is dominated by M&A rather than public listings. In 2021, there were 46 acquisitions against 6 IPOs and 3 SPACs. This affected the fact that 60% of venture deals were closed by startups at an early stage.
Competitive analysis
In India, Drip Capital has major competitors — Lendingkart, InCred and Kredx. However, they mainly lend to local trade operations, while Drip operates internationally and specialises in export financing.
All companies in this field provide customers with the service of warehousing goods on their own premises. For example, InCred has partnered with the food delivery and e-commerce companies to provide them with sorting space. Drip Capital on its hand has received $135 million in funding to build warehouses for its clients.
Founders and management
Pushkar Mekivar — Founder and CEO. He started his career at Capital One as a subprime business loan analyst. Since then, he held a management position at the Indian venture fund Saama Capital and received an MBA from Wharton Business School.
Carl Bug — CFO Drip Capital. Worked at BlackRock and Meryl Lynch, graduated from Wharton Business School.
Edmunto Mantanos — CBDO Drip Capital. Worked at Amazon and Boston Consulting Group. Graduated from Harvard Business School.
Rasool Nath — CPO Drip Capital. Worked at Google, McKinsey and Citibank. Received an MBA from Wharton Business School.
Risks of investing in Drip Capital
The risk of increase of debt defaults (as with any other lending financial institution) with an increase in key rates.
Currency risks: Clients’ activity may decrease due to fluctuations in the exchange rates of national currencies. This will affect the turnover and income of the company.
Drip Capital recently raised $135 million in loans to build warehouses. If the volume of international trade declines, while key rates, on the contrary, rise, there may be a risk of refinancing the loan on less favorable terms.