Trade Finance Advice

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Drip Capital – Powering Trade Finance for SMBs

This week’s spotlight is on Drip Capital, a trade finance provider serving SMBs in India, USA and Mexico.

Drip Capital is a cross-border trade finance provider offering collateral-free financing to small and medium businesses in the USA, India, UAE and Mexico, leveraging new-age technology like artificial intelligence and data analytics. The company is headquartered in Palo Alto, California and has a base in India. In fact, I learnt that approximately 80% of Drip’s business is generated from SMBs in India. As of March 2022, the company had onboarded over 100 new customers from India alone.

Drip’s Pathway to Growth

Just do casual research on the company – and you will instantly realize that this is a company that has seen exponential growth over the past 6 or 7 years. I often wonder what it takes for a company to grow from 0 – billion in just about a few years. I would only attribute it to the resilience of the founding team and the unwavering focus on their objectives.

Drip was founded in 2015 as a small venture by 2 aspiring young men – Pushakar Mukewar and Neil Kothari, who quit their lucrative careers to launch their own. I have read interviews of Pushkar as he outlined the initial years of the starting Drip, not knowing what to do but only having the drive and passion for achieving something big. From winning their first customer to pitching to YCombinator, the road ahead could not have been easy. As Pushkar notes, they won the YCombinator Pitch interview despite not having many customers or an expert team backing them. This was possible only because they clearly understood their customers’ pain points, which was all that YC cared about.

And this is what I normally advise my readers. Only if you have understood the problem can you find a foolproof solution.

So, what started with just the 2 of Pushkar and Neil, grew into a five-member team by 2017. Today, the company employs more than 250 employees – finance and technology experts – who continue to drive passion and innovation in all that they do. Though the team’s vision was to expand on a global scale, their initial focus was on India, maybe until 2018. Neil and Pushkar firmly believed that the challenges they were solving for SMEs in India were no different from those in emerging markets around the world. This led them to launch themselves in Mexico in 2018. The focus continued to be on creating a global product. In 2019, the company positioned itself in the US markets, offering buyer finance for SMBs.

I mentioned how understanding the customer’s pain point is an essential part of building a marketable product. So what exactly were the problems that Neil and Mukesh set out to solve?

Bridging the Trade Finance Gap

Trade finance is largely a paper-based sector that has been around for centuries. Banks that target large, established companies have traditionally monopolised the trade finance market.

Today, small businesses are the lifeblood of international trade, accounting for nearly 40% of global trade. However, banks have been slow to recognize this and have not been doing enough to provide them with the necessary financing. This has created a huge trade finance gap and is causing immense difficulties for small businesses around the world.

In fact, as I have pointed out in my other articles, the global trade finance gap is estimated to be around USD 3 trillion, with the international trading community facing a host of challenges. I observe that shipping costs have become outrageous, geopolitical tensions have been rising, and economies have been slow to recover from the COVID slowdown – and all of these have contributed to a supply chain crisis.

As SMBs struggled to raise working capital, Drip perfectly recognized the opportunity – the need to bridge the rising trade finance gap. By leveraging technology, Drip leveraged technology to consolidate the core components of international trade finance infrastructure and simplify the underwriting and financing of international B2B transactions. The company was on a clear mission to level the playing ground for SMBs and empower them with adequate capital to thrive in the international markets.

Also Read: KredX – Enabling Streamlined Cash Flow for Businesses

The Solution

Drip’s trade finance solution is based on a simple premise – enabling businesses to fund their growth using their receivables. To this end, the company employs their proprietary machine-learning-driven risk assessment algorithm and cloud technology to fund cross-border trading transactions.

Traders worldwide are using Drip’s capital financing not only to fulfil their orders but also for their other operational expenditures, including inventory expansion, procuring raw materials, staffing needs, or other near-term cash flow requirements. The solution is a huge success, with Drip having funded more than USD 3 billion in international trade since its inception. To this date, the company has funded nearly 5000 traders from across 105 countries. Impressive numbers, isn’t it?

Besides funding traders, the company also offers institutional investors access to profitable trade finance assets, enabling them to diversify their portfolios with receivable funding opportunities across geographies and industries.

The Road Ahead

Mukewar has some tall aspirations for the future of his company. His focus for the next 18 months will be on accelerating the company’s GTM (go-to-market) strategy in the UAE, Latin America, North America, and South Africa. Drip’s target is to fund international trade operations worth at least USD 10 Billion through its digital solution over the next three years. Additionally, Drip acknowledges that SMBs that are involved in international trade also find other supporting processes, such as logistics, forex and insurance management, very complicated and rigid. In my view, this is the area that they may target to attack next – to emerge as a single holistic solution that will make cross-border trade completely digitized, seamless and hassle-free.

Breaching new Frontiers

Drip Capital has also been successful in attracting VC funding and angel investors. To support its warehouse credit facilities, the company partnered with East West Bank and Barclays.

In terms of equity, the company recently raised around USD 95 million from VCs such as YCombinator, Accel Partners, Sequoia Capital, Wing VC, TI platform, and Irongrey. These companies trust Drip Capital to deliver big and are very optimistic about the company’s potential to scale high in the supply chain finance market. YCombinator recently named Drip in their Top companies list, a recognition that stands as testimony to the company’s capabilities.

Early this year, Drip identified and partnered with Onfido to leverage the latter’s Real Identity platform to simplify the onboarding of new clients using selfie biometric technology.

In March 2022, the company announced that it recorded more than USD 150 million in origination. Having closely followed their performance, I can tell you this is the highest recorded origination since their launch.

Over the course of this year, the company has also raised working capital close to USD 175 million to unleash its growth potential. Industry experts believe that the company could use these funds to scale itself and be prepared for potential opportunities in the upcoming months.

Drip Capital has been on a whirlwind journey, growing year-on-year and forging new alliances to establish itself as a global force to reckon with. It’s no surprise that the company was recently named “Fintech Startup of the Year” in the digital lending category by Entrepreneur magazine.

Stories like this reinforce my belief that when a solution is born out of understanding customer problems, the chapters of its growth story are already scripted.

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