WHY WE INVESTED
The fintech on a mission to close the SME trade finance gap
Twinco offers SME suppliers financing from the start of production to final invoice payment
For Jeteway Holding Limited, an eco-friendly supplier in mainland China, access to financing has always been an upward battle. The COVID-19 pandemic only made things worse as the company experienced gaps in cash flow and shortages of supplies, symptoms of broader supply chain issues that rocked the globe.
The company was determined to survive, and continued investing in production and R&D. But when it came to options available to them for capital, they encountered roadblock after roadblock, from expensive financing options to complicated documentation requirements.
The problem with supply chain financing
SMEs across the world have long had issues with supply chain finance; international transactions, in particular, take longer to settle and require more capital investment than domestic transactions.
Think about it this way: When a t-shirt or jeans producer in Bangladesh or Pakistan receives an order from a wholesaler, that producer must cover the costs of people and materials necessary to manufacture the order. Yet supply costs have been steadily rising, leaving manufacturers unable to fund raw materials, production, shipping, and payment terms before they receive payment from the original customer who placed the order. This dilemma leaves manufacturers struggling to produce goods on time, as they often await payments for previous orders so they can fulfill new ones.
At the very least, manufacturers would like to be paid before they ship out the items they produce. Large customers, however, tend to pay only once goods have been received — which can sometimes result in months-long delays between production and payment.
For SMEs, this liquidity crunch is felt more acutely; they don’t generally have access to the kind of credit that larger producers might. And it’s not merely that they can’t access credit — though 74% of rejected trade finance loans are from SMEs and mid-cap companies — it’s that the credit available to them is incredibly expensive, requires significant collateral and personal guarantees, and involves heavy administrative burdens.
The global trade financing gap is massive. In 2020, this gap was $1.7 trillion, up from $1.5 trillion in 2018. And while just 23% of overall trade finance demand is from SMEs, SMEs account for 40% of trade finance rejections.
For companies like Jetway and other SMEs to be able to participate and benefit from global trade, it is critical to level the playing field by making affordable trade finance available to suppliers and manufacturers around the world.
A novel solution
In 2016, Sandra Nolasco, then managing director and head of structured trade finance at Spain’s BBVA, was knee-deep in emerging markets including Asia and Latin America, when she decided to solve the persistent financing challenges faced by SME suppliers.
A 20-year veteran of the international banking world specializing in trade finance, Nolasco had started her career in commodity finance with Fortis Bank, where she dealt with everything from copper smelters in Yekaterinburg, to Brazil’s sugar mills and soy plantations, to meat producers in Argentina, and ferroalloys in China.
“From those early days, I learned that the client’s customer portfolio, market function and production track record often provided better insights into their risk profile than their annual financial accounts did,” Nolasco says. “My years with BBVA pulled me into the world of global production networks — from automotive to retailers — as well as transactional trade and receivables financing.”
“Banks have long been offering supply chain finance solutions that are, essentially, “reverse factoring” — when a lender provides cash to a company against accepted but yet to be paid invoices,” she says. “But manufacturers need capital much earlier to buy raw materials and start production.” That capital is hard to access, especially for SMEs. Nolasco was convinced it could be done better, and that if she and her team could put together modern receivables financing techniques with the kinds of pre-shipment funding they had done for commodity producers, they could finance efficient global trade that could effectively level the playing field, fostering more participation from SMEs.
A simple but powerful idea
As Nolasco set out to start Twinco, she knew she needed a strong partner, and she had her eye on Carmen Marin Romano, an investment banker from Banco Santander. “Convincing Carmen to come on board was arguably my first and best achievement at Twinco,” says Nolasco.
Marin brought with her a unique and powerful combination of skills: Eight years working on the equity side, analyzing and managing strategic equity investments for Banco Santander, and another eight years working on structured debt/project finance, covering infrastructure. She had also headed up a global team focused on energy and natural resources.
“I always had a sense of purpose in my life,” says Marin. “Professionally, I had the privilege of being involved in significant infrastructure and energy-related projects…and personally I was a mission-driven volunteer in many social causes.
“From my first conversation with Sandra, I understood Twinco’s potential to make an impact by providing affordable funding to SME suppliers around the world — in particular, in emerging markets — so they could thrive and share in the benefits of global trade. I was thrilled to put my professional and personal expertise to the service of this mission…it was the perfect match,” she says. Twinco Capital was born.
Leveraging commercial relationships to fund supply chain from the start
Based in both Amsterdam and Madrid, Twinco works with large corporations to offer their suppliers (mostly SMEs in emerging markets) access to affordable, easy, hassle-free funding, from purchase order to payment for the final invoice. Working with suppliers in countries such as Bangladesh, Turkey, Pakistan, and China, Twinco offers access to capital early in the production cycle so SME businesses can flourish and grow.
Using a unique model that’s vastly different from traditional supply chain models, the startup supplies up to 60% of the purchase order upfront. The remaining balance is paid immediately upon delivery. And contrary to traditional financing models, instead of requiring complex documentation, collateral, and expensive letters of credit, suppliers tap into their strong relationships and existing track record with the corporations they provide goods for.
“Exporters in countries like Bangladesh, China or Vietnam have been supplying European and American companies for years, with stable commercial relationships. However, their creditworthiness to others is still measured mostly on the basis of annual financials, making access to competitive liquidity a major obstacle to their growth,” says Nolasco. “At Twinco, we look at how companies perform — not just at the size of their balance sheet. Whether the company is small or large, we focus on how well they have delivered to their customers over the years.”
She adds, “This dramatically levels the playing field for SMEs. If a supplier delivers well, it can get the liquidity it needs to produce more and better goods through Twinco, regardless of the size of their company.”
For Jeteway, that means receiving funds in advance, which are then used to secure raw materials. Before Twinco, suppliers of Jeteway’s size in China would have had to provide documentation numerous times and go through tedious verification processes repeatedly.
“By working with Twinco, and knowing that the payment will arrive immediately, we can make actionable plans over when to request funds, and plan subsequent production,” says Eric Wu, Jeteway’s managing director. “Everything is controllable for us.”
An easy-to-use platform
When Nolasco and Marin left the banking world in 2016 to start up Twinco, they invested over two years to fully conceptualize the idea, build out the platform, and put all the main pieces in place before launching it to market.
“A good idea is important, but it means little without great execution. We were obsessed from the beginning with building a sophisticated yet easy-to-use online platform,” says Nolasco. “We use technology to deliver an outstanding customer experience that does not interfere with the commercial processes, but makes funding available at a click of button.”
“Today suppliers register and onboard fully online,” adds Marin. “Every time the buyer issues a purchase order, Twinco gets looped in. Suppliers see the purchase orders on the platform and decide which purchase orders they would like to receive financing for. The supplier is completely in charge of which purchase orders they want to finance, and pay only for what they use. This transparency and optionality is very important to us.”
Risk and building competitive, socially responsible supply chains
To better evaluate risk, Twinco taps into internal data on the suppliers and buyers and their past transactions and relationships. But there’s an Environmental, Social and Governance (ESG) aspect to these evaluations as well.
“We collect data related to where the suppliers buy their raw materials, what types of raw materials are being used, whether they are shipped by boat or by plane, where the factories are located, and more,” notes Nolasco. “This provides us with valuable insights into commercial performance and ESG-related risks.” Twinco’s advanced data analytics allow it to better assess, price and significantly mitigate risk, providing better funding conditions to reward responsible production practices, she says.
“The good news is that the more transactions we fund, the more suppliers and buyers we add, the more robust our risk assessment becomes. There is a strong network effect that will multiply Twinco’s impact, benefitting suppliers and buyers, and improving livelihoods across the world,” says Nolasco.
Commitment to inclusive growth
In its first full year of operations in 2020, Twinco processed $7 million in purchase orders. In 2021, that number grew to $37 million and in 2022, the startup funded $90 million.
While in its first year, Twinco had just two suppliers, today it has more than 100.
With humble beginnings sitting at two small desks dusted off from Nolasco’s garage, Twinco’s team is now 27 people strong and growing, committed to bettering economies with an eye toward social good.
Beyond providing capital to SME suppliers in the apparel industry in emerging markets, Twinco has big plans to roll out to other large, global, diversified supply chains where it can grant funds to SMEs in emerging markets — think automotive and consumer goods industries. “The more industries we impact, the more people and companies we empower,” says Nolasco.
Quona Capital co-led a $12 million equity and debt round for Twinco in January 2023. Other investors included Working Capital, Mundi Ventures and Finch Capital. Zubi Capital provided the venture debt portion.
Disclaimer: Quona portfolio companies were selected for profiles based on objective, non-performance-based criteria for the purpose of illustrating the types of investment made by Quona funds and their impacts. These profiles are being provided for illustrative purposes only, in order to provide examples of the idea generation, research, and thought process of Quona investment teams. No representation is made as to whether or if the investment ideas represented in these profiles have been or will be profitable. It should not be assumed that Quona will be able to identify similar investment opportunities in the future, or that any such opportunities will be profitable. The above statements include the opinions of the Firm and are for illustrative purposes only. There is no assurance that any trends depicted or objectives described in Quona profiles will continue or become successful.