Fintech startup bridges trade finance gap for small businesses


Greg Karpovsky had a formative university experience that inspired the creation of Stenn, an online platform that provides working capital to international suppliers. He was studying at Moscow State in the 1990s when Jack Welch, then chairman and CEO of conglomerate GE, visited to give a lecture.

Young Karpovsky asked Welch what line of business he should consider—markets in Eastern Europe were opening fast and he was already an avid entrepreneur.

Welch’s response was to focus on commercial finance. And that’s what launched Karpovsky on his journey to create Stenn.

His first venture, Eurokommerz, focused on providing working capital to small businesses primarily serving domestic trade in Eastern Europe. But Karpovsky had global ambitions. After leaving eurocommerce and other projects, he founded Stenn in 2015 with his own capital.

Karpovsky’s goal was to offer cash through digital channels to small businesses that trade goods internationally but lack banking support.

“We have seen that there is a very large market for small businesses involved in international trade and the digital economy that are dramatically underserved by banks,” he says.

“I learned more than 20 years ago that there was an opportunity, so I started to solve this problem in local markets. I am now trying to spread this idea on a global scale.”

The need for trade finance remains urgent. The international trade credit gap is $3 trillion and growing, according to the World Bank. A report commissioned by Stenn from consulting firm Accenture estimates that demand for trade finance will reach $6.1 trillion over the next four years.

But the provision of finance to smaller businesses has lagged – a problem exacerbated by the global financial crisis of 2008, which prompted large banks to pull back from lending more broadly.

Recently, supply chains have also come under pressure and hit small suppliers. The Covid-19 pandemic and the war in Ukraine have restricted the movement of goods around the world, compounding the problem of suppliers receiving payments on time.

Stenn is working on the addressing this problem. The aim is to connect small and medium-sized companies around the world with developed capital markets. Stenn’s proprietary technology enables it to process trade finance applications in as little as 48 hours in more than 70 countries.

It is backed by major global financial institutions, including HSBC and Barclays, but focuses on companies that need financing and trade credit protection ranging from $10,000 to $10 million. To date, Stenn has facilitated approximately $10 billion in total funding.

“We found that a lot of goods are being bought from emerging countries like China, India and Latin America, so we started meeting with suppliers in those countries and we saw how dramatically they are undersupplied,” explains Karpovsky.

“Many of these providers serve stores in mature markets such as the US and Western Europe. But they also sell directly to the end customer in these markets.”

Although Stenn offers a range of financing options, its bread and butter is invoice financing: advance payments to suppliers immediately and later collect them from their customers for a fee. Its service allows suppliers to get paid as soon as their goods are shipped, while allowing buyers to receive their products and earn some income from them before they have to settle the bill.

Without invoice financing, suppliers could wait months for payment when exporting goods to overseas buyers, hurting their cash flow and growth.

In return, Stenn takes a fee of between 0.65 percent and 4 percent of the invoice value from the supplier and also assumes the default risk of a buyer.

However, unlike many other invoice financing providers, Stenn offers larger loans. “This company is doing this at scale, with bills up to $10 million, which is pretty impressive,” says David Brear, managing director of fintech consultancy 11:FS.

“Given the cash flow situation, I think people will line up for this service in this market,” he adds. “The pressures that these medium-sized, growing SMEs are under [are] creepy. I can only see Stenn cleaning up this room. So if it has a big enough book from a lending perspective, that’s pretty low risk in bill financing. Given the lack of competition at this scale, it’s a bit of a blue ocean for them.”

Although banks offer trade finance, their approval processes typically take longer than the 48 hours offered by Stenn. “Banks are embracing some of that in various forms, but they’re making people jump through a lot of hurdles,” notes Brear. Shane Burgess of venture capital fund Stripe, an adviser to Karpovsky, says Stenn is “democratizing access” to working capital for entrepreneurs in emerging markets.

“Karpovsky has not only shaped his view of the world by being based in London, he has lived in Singapore, he has gone out to meet merchants in China and other areas of the Far East and is building a good understanding of their pain points on.”

In the heart of Stenn’s Competitive offering is its technology. “What we’re selling investors is risk management,” says Karpovsky. “We can integrate customers, check creditworthiness, manage customer risks – that’s what our technology is designed for.

“We are a technology company focused on risk, credit, fraud and compliance management. We call it “de-risking” for banks. . . 50 percent of [our] People are computer engineers, which has allowed us to scale quickly.”

He says Stenn’s technology enables the company to “find and efficiently onboard customers online, as well as digitally risk-assess and verify transactions.”

Pictured: Stenn Technology’s mobile app makes it easy for customers to get the financing they need © Emre Akkoy/Alamy

Larry Illg of venture capital firm Naspers and a non-executive director on Stenn’s board sees a need in emerging markets. “Western capital will not finance developing countries because, frankly, they misjudge the risk,” he argues. “Karpovsky is trying to close the gap [and] bring Western capital to developing countries; He has developed a technology that can better price the risk.”

Earlier this year, Stenn raised $50 million from private equity firm Centerbridge, giving the company a $900 million valuation and putting it on track to become a “unicorn,” as $1 billion startup be called oops.

The Covid-19 pandemic was also an opportunity for Stenn. “What we saw during the pandemic was that it was even harder for these companies to get capital from banks,” says Karpovsky. The group’s eventual co-founder and chief financial officer, Chris Rigby, believes the “enduring benefit” of being able to extend credit terms with buyers has only been “accented by the pandemic.”

However, no business is without risks. Or critic. Invoice finance and its perils came under scrutiny last year when supply chain finance firm Greensill Capital collapsed. Greensill, which counted former British Prime Minister David Cameron among its advisers, was overly exposed to certain clients, some of whom defaulted on their payments.

Stenn expressly emphasizes that this is a different business model. “We have never competed with [Greensill]; we were never in his shop,” says Karpovsky.

“It was focused on larger, buyer-led transactions. We focus on suppliers and small businesses worldwide. It acted like a bank and didn’t use technology like we do. So we have a different business model.”

Brear of 11:FS says, “I don’t think Greensill has spoiled the industry as a whole. Invoice financing has been around for a very long time because of the need to bridge the gap between getting the job done and getting the job done. For anyone on a smaller scale, cash flow is king.”

Karpovsky wants to expand further. “We will plan new equity rounds, but are currently very well positioned. We are profitable, which is almost unique for a young technology company.”

His ambition doesn’t let up either. Where does he see the valuation of the company? “We plan to grow about 30 times over the next four to five years,” he says.


Comments are closed.