Three-month-old startup Lumi raises $31.5 million to kick-start its SME lending solution

It’s only been up and running since August, but small business lending startup Lumi has secured $31.5 million in debt and equity funding to fuel massive growth and shake up the industry.

Founder and chief executive Yanir Yakutiel previously founded fintech startup Sail Funding, but has now stepped away from the venture due to “misalignments of vision”. However, 13 former Sail Funding team members have moved to join him at Lumi.

“We definitely hit the ground running,” Yakutiel says.

“For a very young company, it’s already a large and established team,” he adds.

“We have a history of working together, and that gave investors a lot of comfort … there’s a proof of execution.”

The majority of the funding, $25 million, was a debt facility provided by Israeli credit fund Arbel Fund. The $6.5 million equity raise was led by the Josh Liberman Investment Group, and also included global VC firm Follow [the] Seed and an assortment of family offices.

The debt will be deployed to Lumi’s borrowers, allowing the startup to spring into action in a big way.

The equity funding, however, is pegged for growing the team, further improving the technology, and marketing and business development.

Yakutiel is feeling positive about the startup’s future, predicting double-digit growth month-on-month.

“We would want to grow faster than that in order to gain market share,” he says.

Although it’s difficult to forecast, Yakutiel says the team is seeing “almost insatiable demand for our product”.

At this stage in the game, the challenge is more likely to be “managing the growth than actually trying to achieve it,” he says.

Risks and regulation

Lumi’s raise announcement coincides with the federal government’s pledging of $2 billion into a fund to support small business lending.

“As far as public policy is concerned, there’s a bipartisan recognition that the SME sector is underfunded in Australia,” Yakutiel says.

It’s a very “equity-skewed” market, he says, with an almost non-existent private debt market. At the same time, the housing market is cooling and it’s becoming harder to access personal debt.

The government’s response to try to help fund the alternative lending sector is a very positive thing, he adds.

“The banks are basically deposit-taking institutions and mortgage lenders,” Yakutiel says.

Another small business lending startup, Prospa, ran into some trouble earlier this year, delaying its IPO indefinitely as ASIC called its contract terms into question.

In July this year, six fintech lenders signed up to a code of practice to improve transparency in the small business lending space, and in September, Prospa announced it had amended its lending terms, but didn’t give any indication that it would reschedule its IPO.

Financial services is a heavily regulated sector, and the Lumi team has been “very careful in how we structure our product”, Yakutiel says.

Lumi has also already signed up to the code of practice, becoming the first to do so since the initial six signatories.

“Our product is not only fully compliant with all legislation relating to the category … we pride ourselves on having the most straightforward and easy-to-understand loan document on the market,” he says.

As well as adhering to regulations, it’s up to fintechs to self-regulate as well. Whether regulation is external or self-imposed “doesn’t make such a difference to us,” he adds.

“We conduct ourselves to a very, very high ethical standard. Whatever we need to comply with we comply with, and we go beyond.”

And for Yakutiel, it’s also about having pride in his work.

“I think I’m doing a positive thing,” he says. “We help [customers] achieve their dreams.”

Yakutiel’s seven-year-old son wants to be an SME lender when he’s older, Yakutiel says, and while he doesn’t take this too seriously at the moment, “I want him to have the same feeling of pride when he’s 15 or 16,” he says.

“I also want staff members to be proud of what they’re doing, and that they’re helping people,” he adds.

“That’s genuinely ingrained in our company culture.”

Passion projects

Being an entrepreneur requires a delicate balance between “having faith in your conviction … and not listening to any of the naysayers” and having the ability to accept feedback and criticism, Yakutiel says.

“It’s a very tough balance to strike,” he adds.

However, he advises there’s also a balance to be struck regarding the right time to embark on the startup journey.

“The younger you do it, the easier it is,” he says.

While it may be wise to wait a while after finishing school or university, “if you’ve got the entrepreneurial passion in you, follow it whenever you think you’re ready”.

Yakutiel’s final piece of advice for aspiring startup founders is to do something you’re genuinely passionate about, “because it’s so all-encompassing”, he says.

“You’ve just got to do it for the love of what you’re doing, and the sense of creation and building something, and everything else will fall into place,” he adds.

“If you don’t have that, it will be very hard to give it what it takes.”

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