The ‘hands-on fintech’ approach for SME financing: GapCap

GapCap's Alex Fenton on SME cash flow struggles, starting up in the fiercely competitive fintech space, and his vision for alternative finance.

Alex Fenton left his self-proclaimed “cushy job” to take the road less travelled; starting up a fintech invoice finance company at a time when industry heavyweights were beginning to carve up market share. But his start-up, GapCap, isn’t a traditional invoice finance platform. He talks to GrowthBusiness about selective invoicing and the need for a cohesive voice in the alternative finance sector.

  • Name: Alex Fenton, GapCap
  • Location: London, UK
  • Date launched: June 2014
  • Number of employees: 15

What does your business do?

We bridge the gap between when businesses raise an invoice and when they get paid. The thing is, I feel sorry for small businesses sometimes because they just do so much to get started. Small businesses put in so much hard work to build a product and build a supply chain. I know a business who bakes cakes and everyone loves them. Then Waitrose came in with a £50,000 order, which was amazing for the business, but with their 90-day payment terms, how is she going to finance the order?

Where did the idea for your business come from?

Invoice financing isn’t exactly an attractive sector to be in from an outside perspective. We’re almost like a resource for businesses who have no other option and may fail without funding. It also wasn’t an area that was disrupted yet at the time. In my previous life, I was working with financing SMEs that needed capital through debt or equity funding, and I noticed that a lot of businesses didn’t need the capital; they just needed the cash flow. It’s the payment terms that was really damaging them. Giving them that cash flow boost, and doing that without taking control of their business really appealed to me.

How did you know there was a market for it?

I worked with SMEs before and I realised there’s cash flow problems. Those using traditional invoice finance are also struggling. A huge amount of people we met when we first launched gave us a lot of confidence that people were buying into the concept and idea.

How did you raise funding, and why?

Initially it was through friends, family and fools. In hindsight, they don’t think they’re fools. They backed us for very small equity so we could start up. The big facility we’ve put in place is a family office. With my background in finance, I’m pretty lucky I didn’t have to kiss a lot of frogs as much as I might had to. It’s hard raising money. Due diligence is very difficult, but I’ve been on the other side of the fence so knowing what they’d ask and preparing for that helped.

Describe your business model in brief.

Selective invoice finance, also known as single invoice finance or spot factoring allows businesses to get finance against a single debtor within a ledger. We finance up to 80 to 85 per cent of the value on the day it’s raised. This allows businesses to have the cash flow to pay their staff or prepare for the next big order. Traditional invoice finance takes the whole sales ledger and ties everyone to contracts, with hidden fees and the rest. We’re trying to let small businesses access funding as fast as they possibly can. Our fastest transaction took 26 minutes from the moment it was raised to when the cash was in the client’s bank account. We charge day rates so businesses can make it in time for payroll.

The thing is not everyone wants to finance everything on the ledger. Within our market, a lot of players are peer-to-peer lenders, or they buy an invoice and auction it off. We purchase assets with our money. This helps us stand out from our competitors.

We think of ourselves as ‘hands-on fintech,’ which means we can do things very quickly. However with risk profiles and due diligence, we can turn the same stuff around very, very quickly. We’ve got the algorithmic risk stuff, but also a pretty well tried-and-tested method underpinned by industry experience on the direct receivables risk.

Every client has a trained client manager to hold their hand through the process, who works alongside our risk team to go into a lot more detail about the business and how our product can work for them.

What was your first big milestone and when did you cross it?

It’s really tough to say. There are so many when you’re a small business. The first milestone was plucking up the courage to leave my cushy job! Speaking to the first client, the first transaction, getting the first million out the door; they came very quickly for us.

A really big milestone was hiring staff in October. It makes you a proper business when you’re thinking about filling functions with people.

What advice would you give to other entrepreneurs?

Hold on to your hats! I think when you’re in a credit business in the lending game, you have to be prepared to be flexible and dynamic in your product, outlook and clients.

You have to take a view that isn’t black and white. When you’re just lending, it’s about getting money back with a little on top of it. But if you’re helping people, you may have to be a little more flexible than perhaps what banks have been. That’s what we’re pretty proud of. We’ve seen other business in our sector be completely inflexible. That doesn’t help SMEs, and its what banks have been doing historically.

We’re quite lucky that Funding Circle, Marketinvoice, Crowdcube, and others are out there doing the marketing and PR for alternative finance. The only thing holding the sector back is the lack of education. Collectively, we should educate the world that there’s a product out there for everyone. We’re not naive enough to think that everyone requires invoice finance. For us, it’s working alongside these alternative finance providers to provide businesses with what works for them.

Where do you want to be in five years’ time?

If you asked me this two years ago, I wouldn’t be able to predict we’d be where we are now. I’d like the debate on whether alternative finance is alternative anymore to be put to rest by then. The broad alternative finance market in five years should ideally be seen alongside banks. It’s all one. We’re financing SMEs in different ways with different products. For GapCap, I can’t say where we’ll be in five years with any certainty but I’d like us to be a well established trustworthy entity that provides SMEs with an option when they face cash flow problems.

If you weren’t an entrepreneur, you would be…

No idea. I’d probably be annoying someone else instead of just myself! I imagine I was a bit of pain for my old boss because I didn’t sit down for long…

What is your philosophy on business or life, in a nutshell?

One of the chaps in the office said it should be ‘eat, sleep, invoice, repeat’, but that’s not something to live by. I really like to smile, and I think if you take each day with a smile, you can get through just about anything.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.