We speak to Richard Prime, CEO and co-founder, Sonovate
SONOVATE’S VITAL STATISTICS
What it does, in a sentence: Provides finance for recruitment agencies to enable them to place contractors
Founded: 01/01/2012, London
Founders: Richard Prime and Damon Chapple
Turnover for most recent year end: £6.6m
Turnover projected this year: £25m
Size of team: 22
Your name and role: Richard Prime, CEO and co-founder
Total investment to date: £14.2m:
o £4m from tech entrepreneur and BeBo co-founder, Paul Birch
o Richard and his co-founder Damon Chapple have invested £150,000 between them
o £10m debt facility from American bank PNC
What problem are you solving?
When a recruitment agency places a contractor, it has to pay the contractor before receiving payment from the clients. As you can imagine, this presents a huge cashflow problem that restricts an agency’s ability to grow. And that’s not to mention the significant administrative burden associated with chasing payments from clients!
Before Sonovate, recruitment companies had to rely on banks to secure the necessary finance to run contractors, banks that offer outdated and off-the-shelf products that are not tailored to the unique requirements of small businesses.
We’re the first company to take on the banks by offering recruitment agencies a finance solution that is tailored specifically to their needs. And unlike the banks, we provide more than just finance – we’ve spent over £1m developing a cloud-based technology which takes care of all the admin associated with paying contractors – including invoicing clients, chasing payments, and managing timesheets.
How big is the market – and how much of it do you think you can own?
The UK contractor market is currently worth £24.1bn and its growth is showing no sign of slowing down. In just a year we’ve already overtaken all the UK banks in terms of new deals recorded, to become the number one provider of contract finance to the recruitment industry. We look forward to helping more agencies this year access the finance they need to grow.
How do you make money?
Our pricing model is very simple; we charge recruitment agencies a small percentage of the total contract turnover that requires funding. This single fee includes all the administrative and back office support that’s required to run contractors. Unlike the banks, there are no hidden fees or unnecessary charges and we are very flexible. Recruitment agencies only use us when they need to.
Who’s on your team that makes you think you can do this?
My business partner Damon Chapple and I have over thirty years’ experience working in recruitment – so we understand first-hand the frustrations faced by recruiters placing contractors.
We’ve designed a solution that we know works and that we know there’s a need for. We’ve also spent time recruiting a very experienced board to help us steer the business in the right direction – people like Paul Saunders, former board director of Lloyds TSB Commercial Finance. Paul’s decades of knowledge from the commercial recruitment finance sector will enable us to take our contract finance solutions to the next level. We’ve also got a great team in place who share our vision for the future of the business.
Who’s bankrolling you?
Damon and I have invested £150,000 in the business. We’ve also secured a £4m investment from tech angel investor Paul Birch and a £10m funding line from American bank, PNC. This underpins Sonovate’s commitment to finance up to £250m in the UK contract recruitment market within the next three years.
What advice would you give other entrepreneurs trying to secure that kind of finance?
Have confidence in your business model – it is easy to become pessimistic if you get turned down once or twice, but don’t. Trust in your business idea and you will find the funding you need. It’s also essential to know your business inside out – any potential investors will want to know everything about it, not just top level information. The second you start to sound unsure of anything, you’ll be on shaky ground.
What do you believe the key to growing this business is?
Sonovate fills a gap in the market – we’re helping more recruitment agencies than ever overcome the cashflow and administrative burden that has traditionally restricted their ability to grow. Our biggest competition is the banks – but they just don’t understand the requirements of small businesses, let alone recruitment agencies, of which 85% have fewer than 10 employees. The contract market is growing rapidly and we are now well positioned to take advantage of that.
What metrics do you look at every day?
Number of new customers, growth acceleration, and customer satisfaction. We have a dedicated customer service team that regularly check in with clients – and I always keep an eye on that.
What’s been the most unexpectedly valuable lesson you’ve learnt so far?
When Sonovate launched in 2012 we provided a ‘solution in a box’ for recruitment businesses. This included website management, CRM, help with branding, time-sheeting software and contract finance. The business was successful but it wasn’t long before we realised it could be even more successful if we changed its offering to become a specialist contract finance provider. So it would be that: changing the direction of your business is a good thing, and that you don’t have to stick to plan A if plan B works better!
What’s been your biggest mistake so far?
We built the Sonovate technology to include everything our customers were asking for – but when it came to actually using it, they only used about 10% of its full functionality. So while it’s obviously essential to respond to customer demand and give them what they want, it’s important to build a minimum viable product and then develop it from there. That way you can ensure you don’t waste budget on unnecessary applications, while ensuring your customers have everything they need.
What do you think is on the horizon for your industry in the year ahead?
The recruitment industry is growing rapidly, especially if last year’s Fast Track 100 is anything to go by. Recruitment agencies now populate 6% of the 100 fastest growing businesses in the UK and this is set only to continue into 2015. We look forward to helping even more agencies than ever secure the finance required to grow.
Which London startup/s are you watching, and why?
Given that Sonovate operates within the invoice finance market, I always keep an eye on the likes of Market Invoice and Funding Circle as some of the biggest disruptive fintech start-ups out there. It’s an incredibly exciting time for fintech and great to see so many disruptive start-ups launching all the time – London is leading the way and I can’t wait to see what 2015 has in store.