How SA brothers in their early 20s launched cash-advance fintech after lessons learnt in US

So eager were they to learn how to run a cash-advance business, that SA brothers Maxi, 22 and Sebastian Cohen, 24, started a merchant cash advance brokerage in the US.

Two years later the two exited to an existing partner, after having developed a suitable underwriting model that they could deploy elsewhere, and decided to focus on South Africa.

In October last year the two teamed up with Jonti Strimling, 23, to found SA based fintech lender Growise Capital (with Maxi Cohen, pictured above right with brother Sebi, left and Strimling).

The lender’s unsecured lending product competes with Merchant Capital and Retail Capital, as it uses data points to make small cash advances to businesses (GroWise’s average cash advance is R40 000, repaid in three months).

The GroWise Capital founders say they are passionate about building a business in South Africa

So far the business has lent out R600 000 via its automated online system in 20 deals to small businesses such as a vaping retailer, a stationery business and a bakery.

The lender charges borrowers a fee, and not interest, on advances. The fee, however, works out to be the equivalent of about 20% of a cash advance.

The R600 000 so far has come from the three founders’ own capital. Sebastian Cohen, who serves as the startup’s CEO, said the three are looking to get the book to R2-million before going out to source additional funding from the market.

Born in the USA

Cohen, in a call to Ventureburn last week, would not say how much he and his brother invested in the US merchant cash advance (MCA) business, which operated under the name Arieh Capital Solutions (ACS). He did however point out that to open a brokerage “isn’t necessarily capital intensive”.

The two brothers registered the business in 2018 in Delaware and made use of a remote sales team, most of whom operated out of New York.

So, why did they go to the US to set up a cash advance business?

“America is the birthplace of merchant cash advances, so we thought we needed to go to ground zero, where it all started,” explained Cohen.

In the two years on the business, the two were able to establish connections and work with key stakeholders and operations in the cash advance sector.

They brokered deals with companies like Yellowstone, Kalamata Cash Group (formerly Kings Cash Group), Vader Mountain Capital, Everest Funding among others, explained Cohen.

At least once a month either he or Maxi (or both of them together) would visit the US to check on business there to interact with clients and stakeholders.

‘Market was saturated’

“During our time in ACS, we realised that the MCA market was largely saturated in the US already and not commercially viable,” he explained.

By then he and his brother had identified what he calls a “huge opportunity” in setting up a direct business cash advance company in South Africa, with the idea of later expanding operations to the rest of the continent.

“We hence ceased operations in the US to focus our full time and pivot into a South African business. It was at this point that GroWise Capital was born, motivated by financial inclusion and stimulating growth in the African SME sector,” he said.

On the way the two also sought help from key mentors and advisors whom they had worked closely with in the US, and who had been involved in largely setting up the industry. They also hooked up with Strimling, a close school friend and Wits Actuarial Science honours graduate.

Today ACA remains operational, but Cohen conceded that it isn’t the central income source for any of the current investors.

He said part of the reason for he and Maxi exiting the US lender to focus on South Africa was because the three are “passionate” about building a business in South Africa.

And despite the ongoing electricity blackouts and failing state-owned enterprises threatening to drag the economy down with it, he says the three remain “positive about South Africa”.

Featured image (from left to right): Maxi Cohen, Sebi Cohen and Jonti Strimling (Supplied)