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But no dice: Their U.S. product wasn't differentiated enough, as one of many options for American manufacturers. Eventually they decided to draw on their family backgrounds and focus on small and medium-sized businesses in emerging markets, where it's harder to get financing to produce products for overseas buyers.
"It's much easier to acquire customers [there] because the cost of acquiring customers is less and those are unexplored markets," Mukewar said.
Mukewar, who is from India, learned from family members who were involved with small businesses. Kothari, who is no longer at the company but is still a shareholder, learned about the export business growing up in Hong Kong, where his father worked in export and manufacturing businesses.
The founders had a unique advantage because of their personal histories, said Garry Tan, founder and managing partner of Drip Capital investor Initialized Capital, who first met the founders when the company was in Y Combinator. "With Pushkar's roots in India, he was able to go speak to people who normally tech people don't have access to: Indian manufacturers of food, textiles," Tan said. "That's not something a lot of people have direct access to."
Buyers typically don't pay these small businesses until 60 to 90 days after they receive the products, which makes it hard for the sellers to produce goods and grow their businesses. Often sellers have to either produce less, since big banks won't lend to them without collateral, or find high-priced, private, non-bank lending sources.
With Drip Capital, sellers can get a loan of between $50,000 and $2 million. Drip doesn't require collateral; instead, it's developed algorithms to calculate risk. It gathers a range of data on the buyers, sellers and the individual deals from a range of electronic data that's produced by public agencies and other sources such as trade insurance companies. Drip captures this unstructured data and analyzes it to produce its risk assessment.
When a seller ships its goods, Drip pays it upfront, then collects payment from the buyer directly in 60 to 90 days. "This allows SMEs to get working capital faster and allow[s] them to do more business," Mukewar said. Drip gets paid about 1.5% of the transaction on a 60-day transaction. In other words, if a seller ships $100,000 worth of goods, Drip would pay the seller $98,500 upfront and then collect the full $100,000 from the buyer.
Drip also now finances buyers on the other side, in what is akin to "buy now, pay later" for businesses. So far, it has done more than $1 billion in trade finance, the company said.
After starting with a focus on India, Drip last year expanded into Mexico. And up to now it's been playing in a fairly empty field: Large banks which dominate trade finance focus on large corporations, Mukewar said. "Most banks don't have an unsecured collateral solution for small-medium sized businesses," he said.
Drip — which went through Y Combinator in 2015 and is backed by about $45 million from Initialized Capital, Accel, Sequoia and Wing Venture Capital — finances its deals through lenders that are looking for higher interest rates. To those lenders, the company is an asset class that's uncorrelated with equities markets, and provides short-term flexibility since transactions are 60 to 90 days, Mukewar said. Drip started with family offices and high-net worth individuals and has expanded to institutional investors such as credit funds and hedge funds.
During the pandemic, its business dropped, but it has since bounced back 60% to 70% above pre-Covid levels with demand for items like shrimp and rice from India and avocados from Mexico, as well as textiles and industrial equipment, Mukewar said.
"We obviously had to pause on the growth side in March when Covid hit," Muekwar said. "But we came out very strong from Covid. The last five to six months have been very strong because of increased demand for more non-cyclical products like food."
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Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at firstname.lastname@example.org or email@example.com.