The rise of E-Commerce platforms
Widespread use of the internet has led to the rise of digital marketplaces such as Amazon, Alibaba, and Tokopedia, and consequently, there has been a boom in the amount of E-Commerce startups on the internet, selling anything from refurbished phones to customized soap. Furthermore, E-Commerce platforms, such as Shopify and Woocommerce, are removing ‘middlemen’ digital retailers such as Amazon and Alibaba from the picture, allowing startups to do their business without huge cuts from their revenue.
Despite this, how E-Commerce startups can raise startup capital still remains a challenge for many founders. On the one hand, E-Commerce startups don’t need many assets to be successful businesses while on the other hand, traditional financial institutions and banks are reluctant to give funding to businesses without a long credit history or assets for collateral.
Additionally, exchanging equity for capital may not be ideal. Venture Capital (VC) and Private Equity (PE) firms will always look to buy undervalued shares, so that they can sell it for a bigger profit. Founders may be forced to undervalue their company to raise capital and in exchange, they lose ownership and control of their company.
Why don’t banks invest into these new economy businesses?
Banks don’t typically invest into ‘new economy businesses’ because they are deemed high risk. The truth is that these traditional financial institutions have not yet developed a way of analyzing these businesses effectively. Rather than focusing on a business’ potential to grow, they focus on existing assets.
However, Revenue Based Financing (RBF), a new model of alternative finance, can give non-dilutive loans that are collateral free to startups with high growth potential. The RBF model is focused on the future revenue potential of a startup and therefore, does not follow the credit analysis systems of traditional banking institutions.
How does Choco Up conduct credit analysis?
Choco Up does not conduct ‘credit analysis’. Instead, we perform risk assessments of startups that apply for a loan. This risk assessment is done through producing financial models of a business, assessing their unit economics, and analyzing their marketing trends. This way, we can make fair judgments of a startup based on their transaction history and potential to grow, rather than the assets that they have.
In addition, Choco Up is pioneering the development of data integration systems which will allow us to access real time business-to-consumer information, to aid in our decision making process. This is especially relevant to E-Commerce startups because data integration systems will allow creditors to fully understand the performance of a business.
Who is Choco Up?
Choco Up is Asia’s leading revenue-based financing and growth platform, offering flexible, non-dilutive funding solutions across different markets and verticals.
Choco Up is an advanced data-driven fintech platform that leverages data analytics and vast integration to automate growth fund deployment, providing companies with recurring access to growth capital with no expensive dilution and stringent terms.
Our funding model allows our portfolio companies to grow their revenue, resulting in an increase in profitability and valuation of the businesses while preserving equity for future equity fundraising rounds.