The future of credit for digital companies in LatAm
(and why we invested in Fairplay)
Note: This article was written by the DILA Capital Team.
As investors, we don’t get to check all the boxes too often in an investment. Most of the time we need to take a leap of faith and trust a great team. Luckily for us at DILA, that’s not what happened with our investment in Fairplay.
Naturally, the “great team” box was quickly checked: we’ve been tracking Manolo for a long time now, and together with Andrew they are a highly experienced founding team, with an extremely complementary set of skills, the optimal balance between short-term, disciplined growth focus and a grand long-term vision, as well as an impressive network of investors, operators and entrepreneurs in the LatAm tech ecosystem (which happen to be their end customers!).
Beyond the team and the ideal co-investors (shoutout to the QED and Nazca teams!), this was clearly the right space and time, with a segment of companies painfully unserved, tackled with a clear first mover advantage in Spanish-speaking LatAm, and a solid strategy to sustain their competitive edge in the long run.
As is the case with many other processes, we started our analysis by understanding and validating the need for this product. This one came easily for us given our role as investors, which enables a constant interaction with small and medium digital companies and a deep understanding of their financing needs.
It’s no news that equity is limited for most of these companies, and for the few prospects that do have access, it’s not always the right financing instrument to meet specific funding needs. Debt, on the other hand, is mostly unavailable for companies in the new digital economy and is especially difficult to access by those companies that are still in the early stages of their high-growth phase. Access to attractive credit, both from incumbent and challenger credit providers, usually materializes once this phase has occurred successfully, but not before.
Fairplay is a platform that seeks to cover that financing gap for asset-light technology companies with recurring revenue and exponential growth. The Company has created a revenue-based credit product providing a non-dilutive, flexible, fast and transparent alternative for this segment of companies. This credit solution is built over a free “Insights Platform”.
This is where it gets really interesting for us…
The Insights Platform represents a core part of the integral proposition. It offers potential customers a real-time, comprehensive analysis of all their data sources, which includes i) sales trends and projections based on mathematical models with a high level of accuracy, ii) critical performance metrics that are not internally obtainable, and iii) a guide through tactics that should boost their results. For this to occur, customers need to plug in and integrate data from public credit databases, gateways, marketplaces, and online advertising platforms like Google and Facebook.
Through an innovative product strategy, the Company is developing an unfair advantage in terms of real-time data access and underwriting, monitoring and collection. The access to free and valuable real-time insights creates very strong incentives for e-comm players to voluntarily share their data. Developing a creative approach to acquire very large and proprietary data sets is arguably one of the largest challenges of every new start-up, and therefore a major competitive advantage moving forward.
This would basically translate into three main advantages, i) an efficient way to map the world of potential prospects in the market, ii) the possibility for early detection of high-quality leads, optimizing their funnel, and iii) the ability to assess the credit risk better than any other player. To develop this kind of underwriting competitive advantage, a company requires access to continuous, real-time data which can reflect changing conditions.
Beyond the data advantage, the Company’s product disposition enables full control over the process. The Insights platform plays a relevant part in mitigating risk by issuing a recommendation for the customer to better allocate and maximize their return on the capital investment. In addition, the integration with their customer’s platforms allows for i) real time monitoring so the Company can know well in advance if a contract could become an NPL and act accordingly, and ii) systematic collection off the top through payment integration, significantly reducing the amount of debt a customer has at a certain point in time and the Company’s exposure.
So that’s how Fairplay differentiates from other credit players. Here’s how we expect them to defend that advantage in the long term…
Fairplay’s product strategy plays a central role in driving higher engagement by enabling continuous touchpoints across the customer journey, from lead to credit and beyond.
This outcome differs significantly from the traditional credit experience: a low engagement product with an initially arduous process for the customer in the application and underwriting, followed by a long period of time with minimal interaction with the customer, other than monthly loan repayments or renewal applications.
The Company is reinventing the credit space, converting a purely transactional experience characterized by high price-sensitivity, limited loyalty, and a lack of end customer ownership, into a data-rich growth partnership, which is sticky and creates dependency and ownership between the credit provider and the end customer. This is how the user journey looks until the first credit:
Our whole investment thesis was centered around Fairplay’s ability to generate that sticky growth relationship after the first loan, driving recurrency and enabling future cross-selling. We anticipate the development of a virtuous cycle, enabled by several product touchpoints and enriched by new data:
As the platform becomes more and more valuable, we expect Fairplay to become the go-to platform for any e-comm seller in the region, looking for a range of adjacent solutions beyond revenue-based financing and other credit alternatives.
We are excited to be part of this story!