Kapitale | Lending platform for SMEs

There are approximately 16 million MSMEs in Brazil that employ 7 out of 10 people in the country. According to a McKinsey survey with IFC, 91% of these companies have difficulties accessing credit. Despite the enormous importance they have for the Brazilian economy, they are the ones who suffer the most to grow.

Accordingly to the World Bank, Brazil has the 5° largest interest rate in the world for SME lending. Over the last ten years, a business owner in Brazil has paid more for a credit line than its peers in Afghanistan, Yemen, or even Venezuela.

SME finance is crucial because it helps these businesses access the capital to invest in their operations, hire employees, and pursue new opportunities. By providing access to financing, Kapitale can help companies to grow and contribute to the overall health and vitality of the economy.

Kapitale will provide accessible, fast, and affordable access to credit, improving job creation, stimulating economic growth in local communities, reducing poverty, and increasing financial inclusion and community development in emerging economies. These factors contribute to the overall well-being of societies and communities worldwide.

Kapitale is an impact lending platform for SMBs based in Brazil. Kapitale unlocks the growth potential of small businesses by offering a diversified source of capital and financial solutions at the most competitive rates.

Our company utilizes cutting-edge technologies and leverages a new regulatory framework to collect unstructured data and create innovative financial solutions based on invoices and credit card receivables as collaterals.

Kapitale offers an online platform enabling business owners to offer their credit card receivables as collateral to a credit operation (either factoring or MCA). Kapitale captures all information generated by credit card sales and allows revenue-based finance, applying Machine Learning and AI to create its automated credit model.

Small and medium-sized enterprises are crucial for the global economy. They account for significant employment worldwide and contribute to innovation and economic growth. However, SMEs often face challenges in obtaining financing, limiting their ability to prosper.

In Brazil, there is a market of USD 500 billion in credit card transactions, and it’s estimated that 15% of this amount is anticipated at rates ranging from 2% to 8% per month.

Accordingly to McKinsey's and IFC's study "MSME Finance Gap," Brazil has about 16 million MSMEs, but less than 10% are well-served in credit matters. Worldwide, there is a demand for $8.1 trillion in MSME finance. However, only 44% of this volume is provided. This creates a financial gap of $4.5 trillion in the world, of which $600 billion is only in Brazil.

Kapitale will start focusing on small merchants that receive through credit cards and suffer from cashflow problems. In Brazil, it takes up to 30 days for the value of a credit card sale to be transferred by the Bank to a merchant. This delay is due to a design in the financial system and occurs in all transactions. This creates a huge cashflow problem for SMEs, making 45% of all Brazilian merchants pay from 2% to an 8% a.m. discount rate to receive the value instantaneously.

Before 2021, by law, SMEs could only cash these future sales with banks and acquirers. They are my competitors. The concentration of this market and the little incentive for competition created a market reserve with high rates and low-quality service. Consequently, SMEs paid a high price for collateralized and super-secure credit.

Now, this scenario has changed. The Central Bank changed the regulation and allowed fintechs to access and operate in this market. That is precisely what Kapitale will do, unlocking an innovative credit line for SMEs, offering better rates and high-quality service, and boosting the growth of millions of businesses in Brazil.

From a low-income family, Anderson, the son of a junkyard owner, saw how much his father struggled to manage the company's and family's finances and his complex relationship with banks.

This inspired Anderson to join a fintech marketplace for SMBs loans in 2013. After almost 3 years leading this venture's commercial efforts, interacting directly with several financial institutions and SMB owners, Anderson understood the factors limiting credit access and the friction between Banks and SMBs. With that, he saw an opportunity to create Kapitale in 2015, but after a year and a half, he was forced to close the activities due to a regulation constraint.

During his period at MIT, Anderson discovered that the legislation that prevented Kapitale from operating in 2015 had been changed, and his idea could be resumed. He invited Ivan, with whom he worked together at Santander Bank in Brazil as the head of innovation and Ivan as the technology superintendent, to partner up again in this new venture.

Anderson and Ivan worked together between 2016 and 2018 at Banco Santander in Brazil—Anderson as head of innovation and Ivan as superintendent of technology and digital channels. Together, Anderson and Ivan collaborated on several projects to develop solutions for the Bank's apps, digital platforms, and technological solutions. They created Santander Pass, a payment wearable sold to more than 500,000 customers, and the personal finance management (PFM) solution was later implemented for all users of Santander's app.

Ivan has further worked as Chief Product Officer and Technology Director at Rede D'Or, a BRL 50 billion healthcare company and the largest care provider in Latin America. Anderson is a Sloan Fellows MBA candidate at MIT, a Fellow in the Legatum Center for Development and Entrepreneurship, a Global Shaper in the World Economic Forum, a Young Leader of the American Initiative, and a Forbes Under 30.

At the moment, the solution has more than 300 SMBs in the invoice factoring business. They trade BRL 5 million (around USD 1 million) monthly on invoices factoring from 80 different anchors (large corps).

We are currently expanding our operations in two new products: (i) credit card receivables; and (ii) MCA (merchant cash advance). Two innovative finance options will use cutting-edge technology and unstructured data to provide SMEs with low-cost and highly efficient capital.

We want to use SOLVE to catalyze our product launch in credit card receivables and MCA. We expect to take advantage of the entire program methodology, available tools, and MIT mentors to launch our product technically and efficiently. We look forward to using the most modern tools available to guarantee that we are doing our go-to-market more assertively.

At the end of the program, we hope to have already launched our new products and tested our solution with our first customers. This date will also mark the start of our Series A fundraising process, which will take place after the program.

We hope to be able to use the SOLVE to:

(i) Develop our go-to-market strategy more efficiently;

(ii) Structure more professional corporate governance for the company with mentoring and support;

(iii) Utilize the mentor network to accelerate and improve our growth and product development strategies;

(iv) Expose our team to the MIT ecosystem and enhance their development;

(v) Have access to the MIT student network to attract market-leading professionals.

What makes Kapitale have a unique value proposition is the application of cutting-edge technologies such as AI and ML, leveraging a new regulatory framework to collect unstructured data (credit card sales) and create innovative financial solutions based on invoices and credit card receivables as collaterals.

In Brazil, it takes up to 30 days for the value of a credit card sale to be transferred by the Bank to a merchant. This delay is due to a design in the financial system and occurs in all transactions. This creates a huge cashflow problem for SMEs, making 45% of all Brazilian merchants pay from 2% to 8% a.m. discount rate to receive the value instantaneously.

Before 2021, by law, SMEs could only cash these future sales with banks and acquirers. The concentration of this market and the little incentive for competition created a market reserve with high rates and low-quality service. Consequently, SMEs paid a high price for collateralized and super-secure credit.

Now, this scenario has changed. The Central Bank changed the regulation and allowed fintechs to access and operate in this market. That is precisely what Kapitale will do, unlocking an innovative credit line for SMEs, offering better rates and high-quality service, and boosting the growth of millions of businesses in Brazil.

Over the next year and five years, Kapitale aims to impact Brazil's SME lending market significantly. We have set clear milestones to achieve our ambitious goals, which include finding a product-market fit in an underserved SME segment, raising a Series A investment to scale and expand our business, and ultimately building a one-stop shop for SMEs to access various financial products with the best service.

In our first year, we will focus on identifying a product-market fit for an underserved segment of SMEs in Brazil. This will involve extensive research and analysis of the market, as well as working closely with our customers to understand their needs and challenges. By addressing the financing needs of this underserved segment, we aim to create a solid foundation for our business and prove the social impact of our lending platform.

Once we have established a solid product-market fit, our next goal will be to raise a Series A investment to scale and expand our business. The funds raised will enhance our technology, strengthen our team, and bolster our marketing efforts. This will enable us to reach a broader audience, offer more competitive rates, and provide an even better experience for our customers.

In the long run, our vision is to disrupt the SME finance market in Brazil, much like how NuBank revolutionized the individual market. To achieve this, we will work relentlessly to build a one-stop shop for SMEs, offering a wide range of financial products in a single platform. This will save time and effort for our customers, enabling them to focus on growing their businesses rather than navigating complex financial processes.

Our commitment to leveraging cutting-edge technology and alternative data sources will be vital to achieving our goals. By continuously improving our risk assessment models and incorporating new data sources, we can provide more accurate credit evaluations, leading to better rates and a more streamlined process for our customers.

Through our dedication to customer-centricity, technological innovation, and a comprehensive range of financial products, we aim to disrupt the SME finance market in Brazil on a scale larger than NuBank's impact on the individual market.

To effectively measure our progress towards our social impact goals, we have established several key performance indicators (KPIs) focusing on the positive social outcomes generated by our lending platform for SMEs in Brazil. Some of these social impact indicators include:

1. Number of Underserved SMEs Reached and total volume borrowed: This metric reflects our ability to successfully target and provide financial services to the underserved segment of SMEs. A growing number of such SMEs utilizing our platform indicates progress toward financial inclusion and broadening access to essential financial services.

2. Job Creation and Preservation: By tracking the number of jobs created or preserved due to the financing we provide, we can assess the direct impact of our services on employment and economic opportunities for local communities.

3. Business Growth Metrics: Monitoring the revenue growth, increased production capacity, or expanded market presence of our SME customers allows us to gauge the tangible impact of our financial services on their businesses' success and long-term sustainability.

4. Financial Health Indicators: Assessing the improvements in financial health among our clients, such as reduced debt levels, improved credit scores, or increased access to additional credit, helps us understand the effectiveness of our lending platform in fostering financial stability and resilience for SMEs.

5. SME Customer Satisfaction: By measuring the satisfaction of our SME customers through surveys and feedback, we can evaluate the extent to which our services meet their unique needs and address the challenges they face in the traditional financial system.

6. Community Impact: Tracking the indirect benefits of our services on local communities, such as increased investments in infrastructure, education, or social programs, can help us better understand the broader social and economic impact of our platform.

7. Diversity and Inclusion Metrics: Monitoring the demographic characteristics of our customer base, such as the proportion of women-owned or minority-owned businesses, enables us to measure our progress toward promoting diversity and inclusion within the SME sector.

These social impact KPIs, among others, allow us to evaluate our progress toward achieving our mission of fostering financial inclusion, promoting economic growth, and creating a positive social impact on SMEs and local communities in Brazil. Tracking these metrics allows us to make data-driven decisions, adjust our strategies as needed, and remain focused on delivering meaningful social outcomes through our lending platform.

Our theory of change outlines how Kapitale's lending platform will address the financing challenges faced by underserved SMEs in Brazil, ultimately contributing to their financial stability, growth, and positive social impact on local communities. Here's a simple breakdown of the logical framework:

1. Activities: We will provide a user-friendly online platform that allows SMEs to access credit lines backed by their credit card receivables. By leveraging alternative data and cutting-edge technology, we will offer competitive rates and a streamlined process for obtaining funding.

2. Immediate Outputs: Our activities will lead to several immediate outputs, including increased access to financing for underserved SMEs, a higher number of loans disbursed, reduced time and complexity in the lending process, and better interest rates for borrowers.

3. Short-term Outcomes: As a result of these outputs, SMEs will experience improved financial stability and resilience, enabling them to weather economic challenges and reduce their dependence on expensive, short-term financing options. Additionally, they will be able to invest in business growth, such as expanding their operations, increasing their workforce, or improving their products and services.

4. Long-term Outcomes: Over time, the financial success and growth of these SMEs will lead to broader positive impacts on the local communities. This includes job creation, economic growth, and increased investments in infrastructure, education, and social programs. Furthermore, the success of our lending platform will encourage more financial service providers to cater to underserved SMEs, promoting greater financial inclusion in the market.

In summary, our theory of change posits that Kapitale's lending platform will address the financing needs of underserved SMEs by providing accessible and affordable credit lines. This, in turn, will lead to improved financial stability and growth for these businesses, ultimately resulting in broader positive social and economic impacts on local communities.

Kapitale's lending platform integrates cutting-edge technologies like AI, ML, Blockchain, and others to create a more efficient, fast, and cost-effective lending process for SMEs. Here's how these technologies empower our solution:

Artificial Intelligence (AI) and Machine Learning (ML)

AI and ML algorithms enable us to analyze large volumes of data to assess the creditworthiness of SMEs more accurately. By leveraging alternative data sources, such as transaction history, social media presence, and other non-traditional indicators, we can better understand the risk profile of SMEs that might lack an established credit history. This enables us to offer competitive rates and make more informed lending decisions. ML models continuously improve with more data, enhancing our risk assessment and credit evaluation processes over time.

Blockchain

Blockchain technology can create a transparent and secure ledger of credit card receivables, which serve as loan collateral. This decentralized and tamper-proof system enhances trust between lenders and borrowers while reducing the risk of fraud. Moreover, smart contracts built on blockchain technology can automate loan disbursement and repayment processes, further streamlining the lending experience and reducing operational costs.

Robotic Process Automation (RPA)

RPA allows us to automate repetitive tasks and administrative processes like data entry, document verification, and customer onboarding. This reduces human error and significantly speeds up the lending process, resulting in a faster and more seamless experience for SMEs.

Application Programming Interfaces (APIs)

APIs enable seamless integration with various financial services providers, such as credit card companies, banks, and credit bureaus. This allows us to access and analyze financial data in real time, making the lending process more efficient and reducing the time it takes for SMEs to receive funding.

Data Analytics

Advanced data analytics tools help us uncover patterns, trends, and insights within our loan portfolio. This enables us to monitor the performance of our loans, identify potential issues, and make data-driven decisions to improve our lending practices.

By incorporating these cutting-edge technologies into our platform, Kapitale can increase access to financing for underserved businesses and empower them to grow, succeed, and positively impact their local communities.

At Kapitale, we are deeply committed to fostering diversity, equity, and inclusivity in every aspect of our work. Our approach is based on the belief that diverse perspectives drive innovation, strengthen our decision-making process, and contribute to the overall success of our business. As the former CEO of Universia, I bring extensive experience in promoting diversity and building inclusive recruitment processes for underrepresented communities, which we leverage in our pursuit of creating a diverse, equitable, and inclusive work environment.

Our leadership team comprises individuals with diverse backgrounds, skills, and experiences. We understand the importance of diverse leadership in driving our commitment to inclusivity and setting an example for the entire organization. We have implemented recruitment strategies specifically designed to attract and hire talent from underrepresented communities, including targeted outreach, partnerships with organizations focused on diversity, and inclusive job descriptions. This helps ensure that our talent pipeline is diverse and that our hiring process is equitable.

We actively promote an inclusive culture by providing training and resources to help our employees understand the importance of DEI and develop the skills necessary to create an inclusive work environment. We also encourage open conversations about diversity and inclusion to foster a sense of belonging and acceptance within our team. We support the creation of Employee Resource Groups that bring together employees from different backgrounds and experiences, enabling them to connect, share ideas, and support one another.

We are also committed to engaging with diverse clients and business partners. We ensure that our supply chain and SMEs who got finance through Kapitale reflect our commitment to diversity, equity, and inclusivity.

As evidenced by the record rates of diversity achieved in Santander's, TIM's, Getnet's, Zurich's, and Gerdau's internship programs during my tenure at Universia, we are dedicated to making a positive impact on diversity and inclusion both within our organization and in the broader business community. By implementing these strategies and actions, we aim to create a more diverse, equitable, and inclusive work environment that drives success for our business, employees, and the SMEs we serve.

Our business model at Kapitale is designed to create value for the SMEs we serve and our stakeholders by providing accessible and affordable financing solutions.

We offer a range of financing solutions, including factoring and merchant cash advances (MCAs), backed by credit card receivables as collateral. Our online platform enables SMEs to submit their credit card sales information and obtain funding quickly without requiring extensive documentation or a lengthy approval process.

Our services are delivered through a user-friendly online platform, which streamlines the application and approval process. This platform leverages cutting-edge technologies, such as AI, ML, and blockchain, to provide SMEs with competitive interest rates and fast access to funds.

We address the financing needs of SMEs by providing them with easy access to credit lines, which are crucial for their growth and financial stability. Our alternative data-driven approach enables us to offer competitive rates and terms, even for businesses with limited credit history. The speed and convenience of our platform set us apart from traditional lenders, making our services more attractive and accessible to SMEs.

Our revenue is primarily generated through interest and fees on our financing solutions to SMEs. By offering competitive rates and a seamless lending experience, we aim to attract and retain a growing customer base, which will drive our revenue growth.

In summary, Kapitale's business model focuses on delivering value to SMEs by providing accessible and affordable financing solutions that address their unique needs and challenges. Through our innovative online platform and alternative data-driven approach, we can offer competitive rates, fast funding, and a user-friendly experience, which sets us apart from traditional lenders and drives our revenue growth.

Our plan for achieving financial sustainability involves a combination of strategies designed to maximize revenue generation while effectively managing our operating costs. As mentioned, our business model centers on providing accessible and affordable financing solutions for SMEs. Here's how we plan to monetize Kapitale's key to ensure financial sustainability:

(i) Interest Rate on Financial Products: We generate significant revenue through the interest rates charged on the loans and credit lines provided to SMEs. By offering competitive rates and terms, we aim to attract and retain a loyal customer base, contributing to a stable and growing stream of interest income.

(ii) Service Fees for Financial Product Matching: We also charge service fees for finding the best financial providers for specific products that meet the unique needs of our SME customers. Our platform's ability to match businesses with the most suitable financial providers adds value to our customers. It helps generate additional revenue for Kapitale in those products that are best for an SME, and eventually, it is not on our portfolio (insurance, payments, etc.)

(iii) SaaS Fees for AI-driven Financial Insights and Advice: We offer a subscription-based model where SMEs can pay a fee to access our AI-driven platform that provides insights, financial advice, and recommendations. This helps businesses make better financial decisions, optimize their cash flow, and improve their overall financial health while generating recurring revenue for Kapitale.

(iv) Cost Management: Achieving financial sustainability involves effectively managing operating costs. By leveraging cutting-edge technologies, such as AI, ML, and RPA, we can optimize our processes, reduce manual labor, and minimize overhead expenses. This enables us to maintain a lean cost structure and improve our profitability.

(v) Scaling and Expansion: As we grow our customer base and expand our product offerings, we will benefit from economies of scale, further enhancing our financial sustainability. Moreover, we plan to use our Series A investment to scale our business, enter new markets, and explore additional revenue streams, such as partnerships with other financial service providers.

In summary, our plan for achieving financial sustainability involves a multi-faceted approach that combines revenue generation through interest rates, service fees, and SaaS fees, along with effective cost management and strategic scaling of our business. By successfully executing this plan, we aim to create a financially sustainable business that continues to serve the needs of SMEs and promote financial inclusion in Brazil.

Anderson created this company in 2015 and got into an acceleration program by Artemisia, a social business accelerator in Brazil. He developed Kapitale's product and launched it, acquiring its first customers. After this MVP stage, he learned that a banking license was needed to operate in this segment, so he ended its operations in 2016.

In 2021 this regulation changed, and from 2022 onwards, the Brazilian Central Bank (regulator) allowed new companies and startups to operate without a bank license.

To date, Anderson raised USD 1 million in a pre-seed round with angel investors, and instead of building the product from scratch, he decided to buy Size Fintech, an existing Supply Chain Finance startup, and develop the credit card module. He signed a deal with this local fintech to take over their operations after 18 months of working together if some traction OKRs were met.

Currently, a duo-diligence has been in progress, and we intend to run the first operations with real customers around August and September 2023.