Digital assets backed by real-world commercial agreements will offset volatility, companies claim.
Corl Financial Investments Inc. has secured $20 million in USD stablecoin from Naos Finance, a decentralized (DeFi) cryptocurrency investment company.
Corl provides revenue-based financing for companies, using artificial intelligence (AI) to do due diligence on businesses, often in a matter of minutes.
The financial deal includes a partnership between Corl and Naos that will see so-called “real world assets” enter the DeFi capital markets to help offset some of the volatility inherent in cryptocurrency. In this instance, the real world assets are the digital economy businesses Corl backs.
“NAOS will provide Corl with permission-less capital without the operational overhead, tardiness, and restrictions associated with the traditional banking system.”
Corl plans to use the capital to further expand its investments in high-growth businesses in the digital economy, including SaaS, e-commerce, and tech-enabled startups through the use of revenue-based financing.
Naos describes itself as a “decentralized real-world asset (RWA) lending protocol that facilitates the borrowing of crypto native assets by using RWA as collateral.” That’s where Corl comes in. The startup will supply its real-world investments as collateral to Naos.
In a sign of the times, Corl accepted USD dollar stablecoins for the investment. USD stablecoins are a type of cryptocurrency that has a one-to-one value to the US dollar, but can be transferred over the Ethereum network.
Investment via cryptocurrency is a growing trend. Coindesk reports that decentralized autonomous organizations (DAOs) are on the rise, and not only do they invest in crypto companies, but often use cryptocurrencies to do so as an alternative to traditional venture capital. While Naos is not a DAO, the growing existence of DAOs shows that Corl’s stablecoin investment isn’t just a one-off deal.
“We’re seeing high demand for royalty financing from Corl,” Corl founder and CEO Derek Manuge told BetaKit. “Having more stable and abundant capital sources will help fuel our growth and finance more high-growth businesses. Through this partnership, NAOS will provide Corl with permission-less capital without the operational overhead, tardiness, and restrictions associated with the traditional banking system.”
Manuge noted how cryptocurrencies such as Bitcoin and Ethereum are currently volatile, and can easily lose 20 percent of their value in a day. He explained that while some people want exposure to crypto, they’re not necessarily comfortable with that level of volatility.
So Corl and Naos are mixing digital assets backed by real-world commercial agreements to offset the volatility for investors.
Naos claims it has established a large network of corporate borrowers and is operating with financing licenses in multiple regions.
“They’re doing some very innovative things in the crypto and DeFi space,” Manuge said. “We see this as an opportunity for more real-world assets to be involved in the DeFi capital market.”
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Naos’s investment is structured as non-dilutive debt financing. The moment Corl draws on the capital it pays seven percent interest on the $20 million. “We will probably repay it over time, but it’s technically perpetual, so there are no terms in mind,” Manuge told BetaKit.
In the revenue financing space, Corl operates alongside the likes of Clearco and Seattle-based Lighter Capital, among other international players.
Other than a dive into the DeFi space, Manuge argued that what makes Corl unique in the market versus others is a focus on longer-term financing. “Where Clearco does, say, six to 12 months financing and they take a really high percentage of a businesses’ revenue we will take a much lower percentage, usually one to 10 percent and the term we issue is usually 24 months,” claimed the Corl CEO.
A one-one comparison with Clearco doesn’t necessarily work, as Clearco has moved beyond revenue financing in the past year to provide a more fulsome suite of entrepreneurial support tools.
Much like Clearco though, Corl invests in businesses across the United States and Canada, with Manuge noting 85 to 90 percent of the deals Corl makes come from the US simply because it’s a larger market.
Businesses can apply for funding amounts up to five times their monthly revenue to a maxim of $5 million. Rates vary between one and 10 percent of monthly revenues, but Manuge said it depends on the capital required and the investment risk level. The length of a deal is normally 24 months. The business has the option to buy out Corl’s investment at any point in time throughout the life of the deal, and usually pays a small premium for doing so.
Corl claims to have evaluated more than 2,000 businesses using its AI-powered platform, and has supplied over $250 million in requested capital for more than 50 startups.
Manuge describes the platform as essentially an onboarding platform for businesses. Businesses come to Corl’s website, click apply now, fill in some basic information about the business, and connect their bank accounts and accounting systems to the platform. With that data, Corel runs that through its models and spits out a score as well as a due diligence report on the business, and that gives Corl the comfort of whether or not it should move forward with the financing.
The software allows the startup to be fair with the process, eliminating bias that might occur from non-data-driven investments, resulting in more than 10 times the investments in women-led and minority-led businesses, Manuge claims. An eerily similar claim to Clearco, which has invested in more than 6,500 businesses globally and claims its AI has eliminated bias to such a point that it has invested in 25 times more women than traditional venture capital firms.
Corl also works with the Government of Canada through the Northumberland Development Assistance Corp (NCFDC), which was announced this month as one of the four not-for-profits that will be delivering the Canadian government’s Women Entrepreneurship Loan Fund. Corl helps the NCFDC administer the funds with its software.
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Founded in 2019, Corl has five staff. Manuge is a mathematician who turned to finance in university. He worked at Scotiabank in credit risk, and then went to KPMG, leading a quantitative analysis team that focused on financial risk, model development, validation, and audit. He left KPMG to start Corl.
“I saw a significant funding gap in the market where most of the clients I had worked for were not leveraging data in the way that they could have in order to finance businesses,” Manuge said. The majority were still plugging static financial data into an Excel spreadsheet to produce a score deciding whether they should invest or extend credit, according to Manuge.
“We felt that by tapping in directly to bank accounts and accounting systems you can get access to over 10,000 different data points on a business which is far more reliable to make credit decisions on,” he noted.
Before landing the $20 million with Naos, Corl secured a $2 million CAD seed round in 2019 with investment from Connetic Ventures, Ethos Angel Investment Fund II, Elemental Ventures, and other angel investors, and executives from financial institutions.
While Manuge does not currently disclose the valuation of Corl, he said the startup is planning another funding round in the next six months or so, with other investors including some VCs.
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