It’s been a turbulent few years in the world of fintech, and navigating uncertainties has become a part of our daily routine. As the COO of Outfund, a fintech pioneer in the revenue-based finance model, I’ve had a front-row seat to the challenges and triumphs facing businesses, particularly in the tech and fintech sectors. Here, I share insights and strategies that can help companies weather these uncertainties – both learned from our own endeavours, and also observed from that of the companies we invest in and support.
I should note that 2024 is poised to be as finely balanced as previous years. I have my eye on three key uncertainties this year: subdued economic growth, geopolitical tensions, and high interest rates. These challenges are universal, yet they offer unique opportunities, particularly for the tech and fintech sectors. We’re hopeful that an anticipated increase in interest rates later in the year could boost investment in tech companies, positively impacting consumer spending, especially in B2C domains. Also that a shift in attitudes, emphasising solid business fundamentals will see the hype and vanity driven businesses die off, leaving a large pool of businesses with solid economics and a positive trajectory. However, with more than half of the globe’s democratic nations holding elections this year, geopolitical uncertainty – and the financial turbulence that comes with it – are real risks.
The role of revenue-based financing (RBF)
In today’s unpredictable economic climate, the limitations of traditional lending become more apparent. Traditional equity financing or loans often come with inflexible repayment terms, which can be particularly challenging during economic downturns. This rigidity doesn’t always align with the fluctuating revenues many businesses experience, especially in times of uncertainty. In contrast, revenue-based financing (RBF) offers a dynamic solution.
RBF’s adaptability is its strongest suit. It’s designed to sync with a company’s revenue ebbs and flows, offering much-needed breathing space when the market is tough. This flexibility is a game-changer for businesses navigating through uncertain periods. It’s not just about having access to funds but about having a financial partner that understands and accommodates the realities of fluctuating income.
We’ve seen diverse businesses, extending well beyond the realms of e-commerce and SaaS, leverage RBF to their strategic advantage. During slower business cycles, they’ve utilised RBF to bolster their operations, be it stocking up on inventory or ramping up marketing efforts. As these businesses prepare for peak demand periods, RBF allows them to do so without the added stress of stringent repayment schedules typical of traditional loans. The recent events that have resulted in the crippling of Red Sea shipping lanes is set to severely dampen revenue in coming months for many import-based businesses. Those that have RBF lending in place will benefit from reduced repayment burdens as revenue dips in the short term. Their counterparts with traditional financing in place are more likely to experience a strain on cash flow. In essence, RBF’s customisability makes it an inclusive financial tool, catering to a variety of business models and their unique needs in these unpredictable times.
The need for sustainable growth
Given the outlook for 2024, it pays for a business to be sustainable. At our company, our philosophy is straightforward – our success is deeply intertwined with that of our clients. This is reflected in our flexible repayment models, which are in sync with the revenue trends of the businesses we support. For instance, if a business experiences a downturn in a particular month, we adjust the repayment terms accordingly, alleviating financial pressure during challenging periods.
For businesses, especially those in their nascent stages or with fluctuating revenue streams, the focus has decisively shifted towards achieving sustainable growth. Gone are the days when rapid, often reckless expansion was the norm. Today, the emphasis is on building a robust foundation grounded in strategic partnerships and measured scaling. Our experience has shown that prioritising long-term stability over fleeting gains is crucial in these uncertain times. Whilst taking risks and experimentation are important when a startup is still looking for its positioning and identity, this does need to be counterbalanced with a need not to overextend. As a younger management team, we certainly learned this the hard way, taking on far too many salespeople in an attempt to maintain an unsustainable and unrealistic growth trajectory. The resulting need to restructure and re-strategitise set us back several months, but was an important and necessary milestone in our maturing as a leadership team.
As a company, understanding and adapting to our clients’ changing needs has been pivotal in our journey. We’ve witnessed firsthand how some businesses crave more predictability in their financial obligations, especially under volatile economic conditions. In response, we’ve developed fixed repayment programs to offer that very predictability and stability. This approach, centred on adaptability and a deep understanding of our clients’ requirements, has been instrumental in helping us and the businesses we work with navigate through these unpredictable economic waters.
Looking ahead, the fintech sector stands at a crucial crossroads. As we forge ahead in 2024, businesses must remain agile and open to new strategies. The ability to innovate and adapt will define the winners in this space. I envision a future where fintech not only thrives in the face of economic uncertainties but also leads the way in demonstrating resilience and ingenuity. Businesses that embrace adaptable financing models, prioritise long-term stability, and remain attuned to evolving market and customer needs will not only weather the current economic storms but emerge stronger and more prepared for the opportunities that lie ahead.