Deal focus: Reap looks beyond Hong Kong

When Fresco Capital became Reap’s first institutional investor in 2018, the Hong Kong-based financial technology start-up hardly had a product to its name. Due diligence focused on the problem Reap was looking to solve and the execution capabilities of the founding team.

“Our view is that SMEs [small and medium-sized enterprises] have been structurally underserved by incumbent financial institutions and that this is a massive, untapped market opportunity. The Reap team understands the pain points,” said Tytus Michalski, a managing partner at Fresco.

The venture capital firm believes this early demonstration of faith has been vindicated following Reap’s recent USD 40m Series A. The round, which comprises equity and debt, was led by Acorn Pacific Ventures, Arcadia Funds, and HashKey Capital. Fresco re-upped, alongside Hustle Fund and Abacus Ventures, while Payment Asia, another Hong Kong-based fintech start-up, came in as a new investor.

Where SMEs are overlooked by traditional banks – driven by a reluctance to take on the risk and processing burdens tied to small loans on which they expect to make little return – Reap fills the gap with a digital offering. The starting point is spending management software that captures inflows and outflows of money and automatically generates invoices and accounting statements.

Equipped with data that give a detailed picture of a company’s operating and liquidity situation, Reap is well-positioned to conduct credit assessments. These are the foundation stones for the second part of its business: payment products. A corporate credit card, launched in collaboration with Visa, is said to transform business expenses for SMEs.

“Most SMEs feel ignored by banks,” said Michalski. “The real test is in trying to open an account and get access to a meaningful amount of credit – good luck trying to do that as an SME.”

Reap’s customer base has grown to more than 20,000, including some larger companies – such as Acer and Sompo Insurance – as well as SMEs. Revenue has doubled over the past year. There are now over 40 employees spread across Hong Kong, Australia, Canada, Japan, Malaysia, Singapore and Vietnam, and the goal is to double the team size by the end of 2023.

Michalski acknowledges there is growing competition in the SME credit space in Hong Kong. Neat – which secured more than USD 15m in VC funding and was acquired by London-headquartered Rapyd Financial Network earlier this year – has a similar product offering, while eight digital banks are now operational in the territory. But it is not a zero-sum game.

“While there are several start-ups targeting this market, each has specific points of differentiation. We believe the Reap team is especially strong at the combination of credit, which is more complex than debit cards, and providing scalable technology solutions for ecosystem partners,” said Michalski.

The company was designed to serve local businesses, but it has gained traction globally by working with SMEs that have cross-border needs and addressing complex international regulatory systems and transaction costs. This is arguably another point of differentiation, and part of the Series A will be used to support expansion throughout Asia, North America, and Europe.

Steps will also be taken to broaden the customer base. Reap already works with a slew of web3 companies, such as Animoca Brands, Binance, and LayerZero, and it wants to build up exposure to the cryptocurrency space.

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• Topics
• Greater China
• Early-stage
• Financials
• Technology
• Hong Kong (China)
• Fintech
• Fresco Capital
• HashKey Capital
• Acorn Pacific Ventures