After over a ten-year gap between funding rounds, eflow Global has secured its Series A funding round to support its new focus as a 100% cloud-based SaaS model.
There is always something inspiring about a family-owned business. Whether it is a megacorporation like Walmart or a local retailer, a business run by a family is special. eflow is a prime example. It was founded in 2004 by brothers Ben and Alex Parker and their mother Marsha Parker to help financial services companies meet their regulatory requirements.
Current services available are trade surveillance for market abuse, best execution and transaction cost analysis, custom and bespoke regulatory reporting, transaction reporting, eComms surveillance and MiFID II record keeping. Its technology is currently used by businesses of all sizes, including over 100 financial institutions globally, including Aegon Asset Management and Plus500.
Earlier this week, eflow closed its Series A funding round on £7m, as it looks ahead to a new future focused entirely on a cloud-based SaaS model. Finch Capital, a European investment firm aimed at technology companies, deployed £5m into the Series A making it the lead investor. The remaining £2m was supplied through a debt facility from fellow tech investors Atempo and ScaleUp Group.
Finding the perfect investor in a tough market
Finding the right investors can be a stressful task. This is even more paramount in the current fundraising market where financial concerns are forcing investors to be cautious about where they put their money.
The effects of the current market have meant fewer companies are raising capital and the size of rounds are smaller than recent years. Looking at the FinTech market, global funding plummeted by 49% year-over-year to hit $23bn across the first half of 2023, according to S&P. With this backdrop, eflow needed to not only find the best investor, but prove its value.
There were two core factors the eflow team were keen to see in potential backers. The first of these was domain expertise within the FinTech world. Ben Parker, CEO and co-founder of eflow Global, reflected on their mindset during the seed funding stage, saying they were entirely focused on taking whatever route would bring their most viable product to market. “Whereas with Series A, we needed to have that right blend of supportive investors, but also ones that weren’t necessarily going to try and control us, but also had the domain experience,” he added.
The second factor was to find an investor that bought into the vision of eflow and could help to create a capital efficient business. Aggressive investors that sought growth at all costs were instantly dismissed.
The tough financial landscape also meant eflow was put under a microscope by the investors. Parker explained that “Historically, when approaching the market, I’d never actually used advisors before. But I think the current financial market led us to go down that route, just to sort of open doors if we found those doors to be somewhat sticky. But, in fact, it turned out not to be the case.”
While the industry players had prepared eflow for a difficult market where it would be tough to find investors, it proved to be a relatively smooth process. So much so that the team had four offers within three months. “I was told by everybody that it’s actually very unusual at this moment in time.” Parker attributed this success to its ability to prove financial stability and five years of very strong performance.
For other early-stage companies looking to raise capital in the market, Parker emphasised how valuable it is to have an advisor and proof of value. A successful advisor would have fostered relationships with investment firms for many years and experienced several financial cycles. This makes them perfect for connecting a company with the right investor as well as explaining best ways to approach an investor in the current climate.
As for demonstrating value, many of the other companies Parker has spoken with are revaluating what their growth has been over the past few years. Some have even gone back to the drawing board to try and demonstrate their continued growth under capital efficient plans compared to those established when funding was in abundance. “If they can demonstrate that sustainability going forward, they will be able to raise the funds that they need – the money is out there.”
Plans for the growth
The RegTech company underwent a major shift during 2021 as it realigned its business to focus on becoming a full-suite SaaS platform. eflow’s reformed SaaS platform now has five distinct product lines that it currently offers to clients. Its flagship product is TZ, a trade surveillance system that boasts global coverage of regulations, customisable test parameters, support for all asset classes, reporting tools and MiFID II-compliant data archiving and indexing.
To bolster its new position, eflow recently released a major update to its eComms surveillance solution that utilises a new sophisticated form of automated decision automation to reduce human intervention. The tool allows financial firms to ingest and archive unstructured voice, communication, calendar, messaging and collaboration data to be monitored and tested alongside structured trade data within TZ. These insights are then to uncover incidents of market abuse and manipulation.
New developments like this are set to become more frequent. eflow’s fresh Series A capital will commence a two-year period of exhaustive research and development that will focus on the development of new products and enhanced solutions.
On top of this, the RegTech company is looking to grow its market presence beyond its core market of the UK and EU, where 70% of its current revenue comes from. With the support of the Series A, eflow plans to bolster its growth efforts across North America and APAC over the next three to five years. Parker noted that there might be later series funding rounds to support this further, but that will not be for many years. Although, it won’t be as big of a gap as there was between the seed round and Series A.
The management buyout
In the lead up to the Series A funding round, eflow completed a management buyout. The deal, which closed in July 2022, saw the RegTech purchase all the remaining VC positions in the company through a funding structure provided by SME capital. At the time, the team said this move was to push the company into a new period of technological innovation and geographical expansion.
Reflecting on the buyout, Parker attributed it to the “constraints” seed-round investors had placed on the business. The fund was coming to a close, which presented eflow with an opportunity to complete the buyout to regain full control of the company’s direction, which allowed it to pivot away on-premises trade lifecycle solutions.
After the experience of having an investor with too much power over company direction, eflow took this lesson with it into its search for Series A backers. He said, “I’ve learned that it’s not money at all costs in terms of trying to bring your product or service to market. That has given us the good grounding in our decision making when it comes to looking for investors this time.” Any company looking to raise capital should think about where that capital comes from and how it will impact getting the product off the ground, Parker added.
The fundraising market has also changed drastically since 2008. There are now many routes a company can take to raise capital, such as crowdfunding platforms. Companies should explore all of these routes to find the one that best fits their needs and long-term vision.
“What might seem like a very simple thing and all you need is the money in the door. The sort of ramifications of your next series of investments or the terms of how you grow, can really come back to, in this case, hamper you 15 years later,” he added.
The future growth
As mentioned, Parker is confident the gap between funding rounds will not be anywhere near as vast. As eflow has been profitable for several years, there is no pressure to raise funding rounds in quick consecutive bursts. While it will go through high levels of cash burn, much of this will be targeted at product and business development, driving greater revenue and funds. This gives the team flexibility to focus on growth and only raise capital when they want to.
Interestingly, he also indicated that the team could soon enter a phase of mergers and acquisitions. The team already has several complementary solutions on its radar that it would like to add to its armoury so it can pursue its goal of becoming a complete suite for clients. These companies might be holistic surveillance solutions, businesses focused on transaction monitoring or something niche.
“There are a lot of strong products around at the moment, that might have been born in the environment of COVID and are now trying to gain traction in this difficult world where tech businesses have been offloading, cutting headcount, etc. These companies might not necessarily have got the traction that they needed to, but actually would fit in a much bigger ecosystem.”
With his eyes firmly on the future, Parker is really excited about what is to come next for eflow. He stated that while the company has had a great period of development over the past 20 years, the adoption and excitement around SaaS solutions is only just getting started. The FinTech revolution has opened the market to a lot of competition that has challenged traditional financial institutions to adapt and transform how finance operates. This is something the RegTech sector is currently going through and Parker expects a “massive explosion of additional services.” eflow is certain it is in the right position to ride this coming wave.
With this Series A helping eflow’s growth in its new direction, Parker concluded, “From my perspective, it’s an unbelievably exciting time.”
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