Early-stage venture fund Forward Partners has shut down its loss-making revenue-based financing subsidiary, Forward Advances, just two years after launch due to “macroeconomic uncertainty”.
The London-headquartered firm said that winding down Advances will allow it to focus on its core early-stage venture capital business, which has invested in the likes of Cazoo, Spoke and Patch.
UKTN understands that Forward Partners is still in the process of closing down the business, which will mean some redundancies at Advances.
According to the company’s LinkedIn page there are 34 members of staff working at Forward Partners. The Advances team is understood to be just small percentage of this figure.
The closure of Forward Advances was first announced in a trading update published on 24 August.
Forward Partners CEO and managing partner Nic Brisbourne said in a blog post last week that customers will continue to receive capital for the remainder of their contract.
“Macroeconomic uncertainty and pressures of inflation and rising interest rates have fundamentally changed the dynamics of the businesses we work with,” Brisbourne wrote. “These factors have put incredible pressure on the unit economics of Advance’s core customers – particularly those serving consumers through ecommerce.”
Revenue-based financing troubles
Launched in April 2020 to provide capital to “fast-growing” ecommerce and B2C software startups, Forward Advances is one of a dozen or so revenue-based financing providers to have risen to prominence across Europe over the past five years.
Instead of giving away equity, startups using revenue-based financing repay an upfront loan by paying the lender a percentage of future revenues.
In Forward Advances’ case, it charged a 6% flat fee recouped as part of a company’s revenue.
While this model has proven popular over the last two years – particularly with software and ecommerce startups with stable recurring revenue – the current market downturn has spelled bad news for revenue-based finance.
Lenders are at greater risk to interest fluctuations and unlike a traditional loan, the lender does not have any assets secured as collateral in the event of a default.
Coupled with declining revenues amid a looming recession and the margins for this funding model can become unviable.
Last year, Forward Advances losses after tax reached £1.1m on revenues of £366,000.
Forward Partners anticipates costs from the subsidiary wind down to reach £2.8m.
Sifted reported last month that Forward Advances’ total write-offs reached 8.4% of its 2021 cohort of loans.
Forward Advances isn’t the only revenue-based finance company to be impacted by the gloomy economic environment.
Earlier this year London-based Uncapped made 29 of its staff redundant – 26% of its total headcount.
And across the Atlantic, Canada-headquartered revenue-based financing startup laid off a quarter of global staff.
Forward Partners said that it will use the capital “conserved” from the “managed wind down” to focus on venture investments into “new technology businesses with strong fundamentals and existing portfolio companies that we know and trust”.
Brisbourne added: “Our forecasts show that a managed wind-down of Advances will reduce our operating costs and lead to a stronger balance sheet over time. We believe that this is the best approach to deliver long-term shareholder returns.”
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