Asia’s leading revenue-based financing and growth platform, Choco Up is celebrating one year since its official launch into the Australian market, helping local businesses of all sizes access flexible and fast funding, essential for growth.
Choco Up was founded in 2018 by a team who had their own experience building e-commerce and bricks-and-mortar retail businesses, including cafes and health food stores.
“We realised how difficult it was to raise money for these businesses to scale and grow,” Choco Up co-founder, Percy Hung told Retailbiz in a recent interview.
“The process of borrowing funds from a bank is cumbersome, especially if you’re not a business with a long history or legacy. It’s difficult for banks to lend money to new small businesses and it’s equally as challenging to apply for private credit or investment from family or friends.
“Some of our ventures didn’t work out so we decided to pull in money and provide capital to like-minded founders and merchants backed by due diligence to ultimately make it easier for them to start and run a business, as well as tap into growth opportunities.”
The funding process is done in four simple steps – the first, check for eligibility with a minimum six-month revenue history and average monthly revenue of US$10,000, the second, connect with a dedicated account manager to discuss options, the third, receive an indicative offer amount and the fourth, funds will be transferred to a nominated account upon approval.
“Initially, Choco Up wasn’t tech enabled, meaning we didn’t have the money to build the technology – firstly for data integration and analytics. If you’re an Amazon or Shopify store seller, or WooCommerce customer, we can plug into your store and pull your sales data including refunds, average order value and ad spend. With this data, our credit model can project and provide a credit score with a finance amount we can lend, which reduces friction during the application process,” Hung explained.
The Choco Up team at Online Retailer Sydney.
“Unlike traditional finance lenders, our business model isn’t based on charging interest. Our funding is revenue-based, and we work with a flat fee structure. For example, if I lend $100 and charge 10%, the outstanding amount is $110. Every month, we take a percentage of a businesses’ revenue for the repayment.”
In addition to data analytics and credit modelling, there’s an auto repayment collection, which means Choco Up doesn’t need to chase merchants for repayments as deductions are automatically done.
“For example, if you’re selling a water bottle online or a cup of coffee offline, we can take this money off the payment gateway – through the point of sale (POS) or online payment gateway. You can look at it as a small commission to repay the principal and interest,” Hung said.
“This auto repayment system helps enhance our relationship with our customers because the repayments are done automatically in the backend.”
The Choco Up team at the International Edge Conference Sydney.
Hung believes what makes the Choco Up business model unique and sets the company apart is Merchant Success and Growth (MSG), a range of advisory and consulting resources offered as value-added services free of charge.
“For example, we can recommend more cost-effective platforms or subscriptions or introduce a business to an international logistics service if they are looking to expand overseas.
“Many people recognise our business as a revenue-based finance (RBF) company. RBF is a broad term – repayments are being done through a revenue share model until the amount is repaid – however, the application of RBF can be wide. Choco Up also does invoice financing, accounts receivable and payable, and merger and acquisition (M&A) for business.”
But the six-year journey hasn’t been all smooth sailing, although Hung describes the setbacks as “important milestones to learn and grow”.
The Choco Up team at an AliExpress Workshop.
He said: “Our mission is to help our merchants grow tenfold – whether that’s in the form of revenue, number of employees, or social footprint. We have seen quite a few companies grow from $50,000 revenue per month to over $1 million per month in a couple of years. To be able to provide the tools to help them achieve that kind of growth is very comforting.”
Hung recognises that every market around the world is different so it’s not a case of ‘copy and paste’ when you expand into new regions such as Australia.
“In Australia, the tech infrastructure is quite mature and with this mind, we thought it would be easy to integrate, adapt and sell product but we were wrong. Because this country is so advanced and self-sufficient, Australians want to do business with their own people. This was the biggest challenge for us as a non-Australian company, but it just meant we needed to show our commitment with boots on the ground and work hard to build our customer relationships,” he said.
The Choco Up team at Amazon Sellers Summit Sydney.
“Our team frequently visits Australia and joins the major retail events including Online Retailer in Sydney, SHE-com in Brisbane, and Retail Fest on the Gold Coast. We want to be active in the local market and show that we are sincere in our support. Eventually, we would love to set up a team based in Australia.
“Our goal is to learn more about the local market and user requirements, while making the process even more seamless and ensuring there is flexibility in customisation.
“We know that for more Australian businesses to trust us, it takes education, time and effort with support from local partners and clients. There’s no shortcut to this but it’s something we want to break through to open more doors.
“We believe in the Australian market and want it to become a key market for our business. We want to deploy more capital safely and securely and see local businesses thrive both here and overseas.”
Case study: AMR Hair & Beauty
One of Choco Up’s customers is AMR Hair & Beauty, which provides hair and beauty products to salons and consumers across Australia.
AMR opened a local manufacturing facility to manufacture its own products that met the quality expectations of its customers at unrivalled prices.
AMR founder, Ammar Ahmad believes the hardest part about running a business is getting funding or raising capital.
“We’ve had private equity companies come to the table, but it was always dilutive assets that we didn’t see as a good fit,” he said.
“Finding a company that wasn’t taking equity was key for us. Choco Up asked for no equity in the business and the revenue-based funding model was a perfect fit. The percentage of sales taken means there’s margin in there that leaves us with funding to grow. With the funding, we were able to invest in several brands which doubled our funding quite quickly. It was inventory we couldn’t get with the cashflow we had at the time.
“We were able to turn that around, flip the funding and significantly increase order numbers. We realised it was because we had the right inventory, which drove sales up 160% from pre-funding to post-funding.”