I joined Northzone in 2013 to establish the London division and since then we’ve made over 40 investments. Our strategy focuses on sectors and themes where we see disruptive growth potential and we then find the leading start-ups within those areas.
My most recent London-based investment is in MarketInvoice, a disruptively modelled version of the old style factoring services, which allow small businesses to borrow money against raised invoices.
As well as a business-facing front end, MarketInvoice is an investment platform: the funds the companies receive against their invoices are provided by investors. It’s an elegant fintech product, a great example of reinvention at both ends of the process. The company delivers a level of online service and low rates that traditional banks and lenders can’t compete with due to their structural costs and organisation.
MarketInvoice started trading with the founders’ own money, and didn’t attract external investment for several years. With all lending models it takes times to understand the default rates, the client cycle, and analytics of how the market responds to the product. It doesn’t matter if a credit based product has a 1% default rate or a 10% default rate. What matters is that the likely default rate is known, and knowable. The MarketInvoice statistics are transparently presented on their website.
Credit sector fintech is not e-commerce, it’s not all about super-fast growth and market share. It’s about creating profitable long term business models, and client cycles can be measured in years.
The UK invoice finance market is worth £13bn. MarketInvoice had already proven the model and even reached profitability before we invested. When we initially bought in last year, it was to prepare the company for scale. This is now happening, our recent investment will enable them to really shift gears and take a big chunk of the market. They are just reaching £500m lent and growth is accelerating.
We have seen wider growth in the fintech sector in the last few years, both in Europe and the US, and make active investments in a number of areas. Viewing it as an umbrella term for a number of investment themes, we are primarily interested in companies that both deliver a fundamentally better customer experience by applying a disruptive business model, such as iZettle or Klarna - our most recent investment. But we also think the entire technology stack of financial institutions is being unbundled. Security is an obvious example and here we have invested in Behaviosec and are looking to find more investments. Data warehousing and analytics are bound to be disrupted to create new data driven service models and we are actively looking at that space too.
Partner at Northzone