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How to Scale Your CEE-Based AI Fintech: Advice from a Startup Empowering SMEs

jaroslav ton, ceo and founder at 4trans factoring
Image credit: Jaroslav Ton, CEO and Founder of 4Trans Factoring
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Only have 1 minute? Here are 3 takeaways from the piece:

  • Czech AI FinTech startup 4Trans Factoring emerged in 2018 to empower systemically underserved SMEs, representing up to 99% of EU businesses.
  • The Recursive sat down with the founder of 4Trans Factoring and former venture partner, Jaroslav Ton, uncovering the importance of motivation, a deep understanding of the market, and cooperation to scale business in the CEE region and beyond.
  • Regarding utilizing AI, Jaroslav shared that the technology enables them to offer solutions with speed and accuracy, allowing SMEs in logistics to make data-driven financial decisions.

 

In today’s fast-paced business landscape, logistics play a pivotal role in the success of small and medium-sized enterprises (SMEs). As the supply chain becomes more complex and customer expectations rise, innovative solutions are emerging to streamline operations and empower businesses to thrive. 

In 2018, 28-year-old Oxford graduate Jaroslav Ton set out to transform the rigid financial processes SMEs face on a daily basis. Drawing on his venture capital background, Jaroslav established an AI FinTech startup, 4Trans Factoring, providing a swift financing solution to underserved businesses in the logistics sector and beyond.

4Trans Factoring raised €18M in seed and debt financing in 2022 and, last month, secured additional undisclosed seed funding. To date, the company has financed over 90,000 invoices worth €90M and offers a database of 13,000 regularly checked contractors.

In an exclusive interview with Jaroslav, The Recursive talks about the opportunities at the intersection of finance and logistics, the benefits of AI technology in these sectors, and how a CEE-based fintech can overcome scaling challenges.

 

The Recursive: As a former investor and venture partner, what led you to establish your own company in the logistics sector?

Jaroslav Ton: The turning point that led me to 4Trans was the deep understanding of the challenges that SMEs face globally. Already as a student, I dived deep into the role of banks and their offering towards SMEs, uncovering the systemic challenges they face. 

Moreover, with my grandfather being himself a small-business owner who faced daily the financial challenges that the logistics sector pertains to, I witnessed firsthand the immense potential for disruption and innovation in both finance and logistics. 

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I was motivated by the desire to create a company that could make a difference in solving the pain points of SMEs, and logistics was the perfect start for this mission. The eye-opening moment came during the COVID-19 pandemic when the challenges of digitalization became pressing overnight. This is where we doubled down on creating a seamless, digital financing solution for SMEs in logistics.

 

What pain points is 4Trans solving, and how do you differentiate from the competitors?

Jaroslav Ton: 4Trans addresses a global issue. SMEs are systemically underserved by traditional finance institutions, which hinders their growth. Although they make up to 99% of EU businesses and contribute to more than two-thirds of our GDP, they lack the capital to truly grow and further contribute to our economic growth. 

Historically, banks cater to corporates, consumer loans, and mortgages, leaving unserved what is in between – the real, SME-driven economy. Thus, we specialize in SME financing – through solutions such as factoring, business loans, and insurance products. 

Our deep industry expertise, data-driven approach, and proprietary Risk AI technology set us apart from competitors, enabling us to offer real-time and accurate credit assessments. We also differentiate ourselves by providing a comprehensive suite of financial, insurance, and value-added services tailored specifically to the needs of our clients in the logistics sector. This means that we create a one-stop shop for logistics SMEs, where they can find everything they need related to financing, allowing them to grow their business.

 

How does your startup leverage AI? What sets your solution apart from traditional methods?

Jaroslav Ton: AI is at the core of our operations. We leverage algorithms and technology with our proprietary Risk AI model to analyze extensive data sources and generate comprehensive credit assessments for SMEs. We operate in minutes compared to days or weeks. This enables us to offer our financing solutions with speed and accuracy, unlocking financial opportunities and liquidity for our clients.

“Using AI, our solution provides faster processing times, more precise risk evaluation, and seamless digital experience, empowering SMEs in logistics to make data-driven financial decisions,” Jaroslav Ton tells The Recursive.

 

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How do you handle risks, such as non-payment of invoices by contractors?

Jaroslav Ton: We have a robust risk management system in place. Our AI-driven risk engine and debtor scoring system help us assess the creditworthiness of our clients’ business partners even before they engage in business transactions. We also maintain a strong focus on client support and provide proactive communication channels to address any issues that may arise. 

In the event of non-payment, we have dedicated collections processes and protocols to mitigate risks and ensure the best possible outcomes for our clients. Ultimately, the idea is to offer a comprehensive solution. After uploading an invoice, our clients wait a couple of minutes to get finances. All the rest is on our shoulders, while they can focus on what truly matters – running their business.

 

As a fintech startup operating in Central and Eastern Europe, what kind of barriers do you face when expanding abroad?

“Expanding to new markets as a fintech startup in Europe presents various barriers, including comprehending and adhering to different legal and regulatory landscapes, adjusting to diverse working cultures, understanding local market subtleties, and the practicalities of expansion,” says Jaroslav Ton.

However, our approach to overcoming these barriers involves thorough research, careful planning, and strategic execution. We rigorously evaluate potential markets based on size, competition, growth potential, and the presence of underserved SMEs, among other factors. After pinpointing our expansion locations – in our case, Slovakia and Poland – we dedicated resources to understanding the local market environment and adapting our product to suit local preferences and demands. 

To ensure smooth operations, we combined the expertise of our existing team with the insights and skills of local hires. Our C-suite has been instrumental in this process, dedicating significant portions of the time to these new markets. Additionally, we invest in local talent acquisition to ensure we keep a deep understanding of the market and can tailor our solutions to meet the specific needs of each region.

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Since 2022, you have secured over €18M in investment. Has your prior experience in venture capital helped you in raising funds? What advice would you share with other early-stage founders?

Jaroslav Ton: My prior venture capital experience has been instrumental in raising funds for 4Trans. It has provided valuable insights into the fundraising process and investors’ expectations. 

During my time in the UK through the London School of Economics and Oxford, I’ve amassed valuable contacts that allowed me to understand that our ambition has to be global. My advice to other early-stage founders who are or plan to fundraise would be:

  1. Focus on building strong relationships with potential investors;
  2. Clearly communicate the unique value proposition of their companies;
  3. Demonstrate a deep understanding of the market and the problem they are solving. 

It’s essential to be persistent, adaptable, and open to feedback throughout the fundraising journey.

 

How do you envision the future of 4Trans in the logistics sector? Are there any upcoming features or developments you are working on?

Jaroslav Ton: Our focus is empowering logistics SMEs to thrive in an increasingly digital and connected world. For our clients, the financial cycle of an invoice should be closed already at the time of its issuance. That is something that we believe will be possible. Therefore, we are constantly exploring opportunities to enhance our financial products, leverage emerging technologies, and expand our ecosystem of value-added services. 

We are actively working on exciting features and developments, including further advancements in our Risk AI technology, partnerships to expand our service offerings, and initiatives to strengthen our position as a trusted and comprehensive financial partner for SMEs, not only in logistics.

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