Exponential growth is a term often used by start-ups in pitch decks, but rarely achieved. Dublin-headquartered Wayflyer, however, is among that rare breed. 

In its first month’s trading in April, it loaned $600,000 in short-term finance to rapidly growing e-commerce companies, and last month the figure was $12 million.

This month, which includes today’s Black Friday, will be another step up again. By March next year, Wayflyer expects to have crossed the $100 million lending mark. 

Its lending cycles are fast, measured in weeks or months, versus traditional lenders who think in years or decades. Wayflyer is helping e-commerce businesses grow rapidly, and it is delivering good returns for its backers, especially in a negative interest environment. 

It is, by any measure, growing explosively, but how did it do it?

Finding QED

Wayflyer co-founder and chief executive Aidan Corbett is sitting inside a grey soundproof cubicle when he takes my call. 

I had heard about his company previously as I knew Wayflyer had financed a rapidly growing start-up called Bionicgym, which uses neuromuscular pulses to simulate a cardio workout. Bionicgym has done about $5 million in sales since it started trading a few years ago.

Wayflyer had funded the business, which was founded by Dr Louis Crowe, when it needed cash flow to scale quickly and bridge the gap between making products, marketing them, and getting paid for them. 

For many startups, especially non-venture capital-backed e-commerce ones, getting across this cashflow barrier is critical. Money from Wayflyer is not cheap but it can make the difference between having a business that grows slowly and being able to capitalise on a good idea.  

It takes a data-driven approach to lending that is alien to traditional banks, who look for security like a charge on property or years of financial records before lending.

Ambr Eyewear, a blue light-blocking glasses maker based in Dun Laoghaire; Moby, Thomas O’Connell’s micro-mobility company; and athleisure maker Gym+Coffee are among the Irish firms to tap into its finance successfully when they need it. 

There were rumblings on the start-up scene that the business was about to raise significant funding, having got some well-known Irish business families to back it in its early days. Just as I was gearing up to find out more about Wayflyer, it announced a $10.2 million seed round in late October. Its roster of new backers is impressive.

One of its new funders is QED Investors, which has backed 13 unicorns or $1 billion businesses to date, mainly in the fintech space, including Nubank (a Brazilian digital bank valued at $10 billion last count); SoFi (a student loan to mortgages digital lender valued at $4.8 billion); and Credit Karma (bought for $7.1 billion in March). QED partner Yusuf Ozdalga went on Wayflyer’s board the month prior to the funding announcement. 

Also, there was Middle Ventures, a European-based venture capital fund which has invested over $300 million in fintech companies from late seed to series B, as well as Speedinvest, another Europe- and fintech-focused venture capital firm.

To attract this kind of investment so quickly usually requires either a brilliant idea or experienced founders. Corbett is a bit of both. His previous business Conjura measures the impact of digital ad spending on sales for online businesses. Its clients include menswear retailer TM Lewin and publisher Independent News & Media.

“The technology in Conjura takes advertising data, website data, transaction data and so on and cleans, joins and formats it and pushes it into a single location that everybody can use,” Corbett said. 

The business was going well, but about 18 months ago Jack Pierse came to him with an idea. 

Pierse had got to know him from playing golf with Fran Quilty, another co-founder of Conjura.  “Jack said instead of using data just to give businesses analytics and improve performance, you could actually use it to give them short-term finance,” Corbett recalled.

Pierse was back in Dublin having worked with Liam Casey’s hardware accelerator Highway1 in San Francisco. He had learned about venture capital too, working with Casey on a fund called PRC Ventures. 

Pierse’s suggestion intrigued Corbett, so he asked a small team of his engineers to work on the idea as a side project. Pierse, meanwhile, went out and raised a “small bit of capital” to support the business as it was developed under the radar over the following six months.

“What we wanted was a self-serve product where you could share your data with us and, within an hour or two of signing up, we would be able to offer you a finance product,” Corbett said. 

E-commerce, he said, uniquely suited its platform as sellers tend to build their websites the same – in terms of transactions, sales, advertising and so on. “The technology stack is very uniform,” Corbett explained. 

Wayflyer, as a result, built a way of collecting this data, importing it and analysing it automatically, allowing it to sift out which companies looked good to lend to. 

“The second thing is, small e-commerce companies tend to have a really difficult working capital profile,” he said. “They are people who spend money on inventory upfront. Then they have to spend money on online marketing and then hopefully they achieve sales at the end of it all.” 

To prepare for, say, a Black Friday sale (November 27), he explained, e-commerce companies would have to put down 30 per cent deposits to secure stock in September, then put up the remaining 70 per cent in October, before needing more cash to spend on online marketing. “It is only then, hopefully, they will be able to recoup that all in sales,” Corbett said. 

“We essentially provide the finance they need to get there,” he said. Wayflyer will lend from €5,000 up to millions. “The largest business that we’ve financed was a deal for over €3 million,” he said. “The reason we need that range is that e-commerce companies can scale incredibly quickly. One of the first companies that we funded, I think it had €50,000 off us back in May and they have just taken €600,000 more off us in the last three weeks.” 

“If you get e-commerce working, it scales really efficiently because you can just dial up the advertising spend to make it bigger. You don’t need to hire a sales team to make a profit,” he added. 

Wayflyer uses a combination of its own equity and debt to lend out. Some of the $10 million Wayflyer has raised to date he said was used for this equity. “A portion of our equity assigned to that debt. In this current $10 million round, almost half of that will be to act as that first loss for more debt.” As a result, Corbett said Wayflyer had about $20 million currently leant out to businesses raised from a mixture of debt and equity.  

Wayflyer raised its initial financing from private family offices, primarily in Ireland. “They have been really great for us,” he said. “But as you get bigger you tend to use institutions more. We haven’t done an institutional funding round yet but we will probably do one next year. That will allow us to take on bigger amounts and make it easier as you are managing one counterparty rather than many.”

How can Wayflyer make lending decisions quickly when traditional lenders can’t? “It is mostly due to the fact that we get access to more data than your typical lender.” Wayflyer, he said, would look at things like companies’ Facebook ads and Google ads accounts, website analytics and so on, to give them a real view of how the business was performing. “We can see at a granular level how efficient you are at online marketing,” Corbett said. “What your customer base looks like. How often they repurchase. The seasonality associated with your business and also some near-term metrics like, has the key wording pricing been very competitive for your primary campaigns?” 

“So you trust me with your data and I trust you with the money I give you,” Corbett said. “In addition, we also look at your bank account. But it is really the granularity of the detail that we can get that allows us to have a really strong understanding of your business and to underwrite quite quickly and also in an automated way.” 

“If you look at typical banks that rely on management accounts… They then come back with questions and look for manual data that has to be sent through. None of the data that we collect is done like that. It is all done through API (application programming interface) connectors into the systems that you use and that means that we get a screen of clean data that we can analyse easily.” 

Going into the US 

In Wayflyer’s second month trading, it went into the United States. Such a move would usually take much longer, even for an ambitious startup. 

Wayflyer, however, had done the groundwork. After the business was founded in September 2019, one of the first things it focused on was getting the paperwork in place to allow it to trade in the US. 

From the off, things went well, despite launching in the midst of Covid-19. “It has been growing incredibly quickly in the US,” Corbett said. “About 70 per cent of our entire business is now there.”

You’ve lent $35 million to date, but compared to the size of the markets you are targeting, this is tiny? “Very small. Our finance cycles very quickly as it is very short-term.” 

“You can deploy a lot of money but it actually comes back very quick,” Corbett said. 

How does it work exactly? “The way the advance is structured is it is called a merchant cash advance.” Wayflyer, he said, charges a fee for lending and then takes a percentage of daily sales on top of that. “If you do really well, I do really well too and I get paid back faster,” Corbett explained. “If you don’t do very well, I get paid back slowly. There is a lovely alignment between Wayflyer and our customers.”

How do you know a good business from a bad one? “We rely on the data. I am not a good person to figure out if vegan dog food is a good product. I don’t own a dog and I am not a vegan.” 

“We don’t really take a position on the product ourselves. We just look at the data and let that decide for us. What we try and do with the data that we collect is to create a six-month daily sales prediction model and that determines the loan offers that we can give out.” 

Corbett said Wayfarer’s team would talk to customers before lending to make sure they understood everything. “So say a customer may want $100,000 and we may be able to give them up to $200,000. Or they may want a larger fee and a shorter payback period or vice versa. There is a human element to it but the generation of the offers and the data means that that human component comes in closer to the decision stage than would normally be the case.”

What about preventing fraud? “We have got AML (anti-money laundering) and KYC (know-your-customer) checks in place. Our products are uniquely unattractive to a fraudster. If you were to try and defraud us you would need to steal lots of different logins and create lots of different fake accounts.” 

“You’d need to simulate thousands of transactions over the last 12-month period. It is a huge amount of work for a fraudster even before you get to the AML period.”

“SME lending online has suffered from a lot of fraud historically, but just given the nature of our product and the way we interact with data there is less.”

Who is your competition? “It depends on the geo. The US is quite competitive. The biggest competitor in the market is a company called PayBright based in Toronto. In the UK there is a smaller competitor called Uncapped.” 

“We have served about 130 customers at this stage. We think there are about 250,000 customers in the markets we want to serve of a size that we want to advance money to. So with that in mind, while there is competition, there is a huge amount of white space for us to grow into.”

Where will you get enough money to lend? “We will definitely use a US bank for our next round of debt finance.” 

How big geographically can you get? “I am very bullish on this whole concept of vertical lending. My ability to focus on e-commerce means I have a better understanding of their business model. I can understand the underwriting very quickly and I can go internationally very quickly.” 

“We are almost launching in a new market each month. This month I think it is Canada, previously it was the Netherlands then Australia. Our ability to build a product for a specific vertical allows us to grow internationally and go really deep on that vertical.” 

“It is hard for banks that would have traditionally relied on geography as their competitive advantage to compete with that.”

“This is a thing that keeps entrepreneurs awake at night. When you are solving a visceral need, you will grow through virality and word of mouth as this is a thing entrepreneurs want.”

Aidan Corbett

Wayflyer has offices in Dublin, London, New York and Sydney. Its office on Baggot Street, Dublin 2 is where the bulk of its sales, marketing and senior executives are based. Its engineers all worked remotely, even pre-Covid-19, in places like Waterford, Belfast and Sweden. The business employs 40 people, but plans to get to 60 by the end of February. 

On what platform do your clients tend to spend most money? “For e-commerce business the vast majority goes on Facebook. Facebook is designed to create demand. Google is designed to satisfy it. If I google a “blue shirt” I hit big brands…you cannot as a startup compete with those keywords.” 

“You have to generate your own demand and that is where Facebook comes in. For the vast majority of our companies, Facebook will be a greater percentage of their spend than Google will be.”

How quickly will Wayfarer get to lending its first $100 million? “We are taking advantage of seasonality running up to Black Friday,” Corbett said. “I would imagine we will hit $100 million in about March.”

“There is a visceral need for what we do,” he said. “This is a thing that keeps entrepreneurs awake at night. When you are solving a visceral need, you will grow through virality and word of mouth as this is a thing entrepreneurs want.” 

Covid-19, he admits, had helped his business. With big brands reining in their marketing and advertising budgets, smaller e-commerce companies got better value from Facebook and other online platforms. “In April, May, June, ad rates were incredibly attractive. Companies we were recommending to increase advertising spend did incredibly well,” he said. One of Wayflyer’s advantages, he said, was its analytics tools, which helped companies see how well their digital ad spending was doing. 

The size of the market Wayflyer is targeting makes $10 million seem small. When will it go back to the market? “It will need to be in 2021. We are hoping to again use international investors. One of the things we have really benefited from is getting in a number of VCs who are real fintech experts.” 

“They know how businesses like this are going to scale. That is the real advantage of bringing in an international investor as well as their international network.” 

“If we do take in another round next year it will be with an international VC who brings that global perspective. They know how companies like this one have scaled quickly and hopefully get to unicorn status.”