Supply chain trade financier Twinco closes €12m equity and debt round 

Twinco’s CEO explains how the business allows smaller apparel suppliers in the developing world to compete with larger rivals and make ESG improvements

Madrid-based Twinco Capital has closed a €12m equity and debt round to further its aim of facilitating supply chain trade finance flows between global retailers and small-scale suppliers in developing countries, mainly in the apparel sector. 

The investment was led by Quona Capital, with participation from Working Capital and existing investors Mundi Ventures and Finch Capital. Zubi Capital provided venture debt.  

Twinco, which was founded in 2019, previously raised €7m in previous pre-seed and seed funding. It is currently seeking to arrange a $100m debt facility during the first quarter 2023.  

The company says it is the first global supply chain finance solution that covers the production cycle from purchase order to final invoice payment. Its founders, CEO Sandra Nolasco and COO Carmen Marín, are striving to make a dent in an estimated $1.7trn global trade finance gap, which they say impacts emerging market SMEs disproportionately.  

Small firms with fragile balance sheets often have to wait months after delivery of their exports – typically 90 days – to  get paid by the global giants they supply, leaving them reliant on limited bank loans to smooth out cashflow and pay bills. Twinco acts as an intermediary between retailers and suppliers by advancing up to 60% of a purchase order value to suppliers upfront, with the remainder paid on delivery. The buyer then pays Twinco following order delivery.  

The company has worked with over 100 suppliers across 12 countries including Bangladesh, China, Pakistan, South Korea, Turkey, Thailand, Vietnam, Indonesia and Spain.  

Upfront funding

Nolasco told Impact Investor that Twinco is able to provide the upfront funding that local banks are reluctant to offer, by aligning its financing to reflect the strength of the supplier’s commercial relationship with buyers.     

“A bank typically looks at a firm’s financials, the size of the balance sheet, and treats it on an individual basis. We engage with the big buyers, we look at the base of their suppliers, and their recurrent trade flows. Then we use data analytics to assess the probability that a supplier will deliver these purchase orders,” she said. 

By focusing on reliability of delivery rather than the scale of the business or its credit rating as a basis for lending, this approach is designed to level the playing field for smaller SMEs competing with larger rival suppliers with better liquidity. 

So far, the business model is working well for Twinco, with low overall default rates, even through the COVID pandemic when global supply chains were disrupted, according to Nolasco. “We’re looking at suppliers that have at least a three-year history with big brands, and the commercial defaults that these big brands have are actually very low,” she said. 

Meanwhile, business volume has been rising. Twinco handled $7m in 2020, $37m in 2021 and around $100m in 2022. For 2023, the company is projecting business volume of $300-350m.  

Nolasco believes Twinco’s business model, focusing on performance rather than credit risk, and working with a diverse supplier portfolio provides investors with “a bridge to invest in emerging market SMEs at reasonable, attractive returns adjusted to the risk”. 

Supply chain ESG tools 

The latest round of funding from investors will be directed at strengthening technology and data capabilities, with the creation of ESG tools a particular focus.  

Retailers, especially in Europe, are being regulated evermore strictly on their ESG impact, most of which occurs down the supply chain. As an intermediary, Twinco has been accumulating a wealth of data from suppliers via trade documentation on origins of raw materials, transportation methods, organisation of human resources and so on that provide valuable insights on ESG at those firms. 

“Our retail customers were saying, we really need that information, because we need to establish a strategy to incentivize our suppliers to do better from an ESG perspective,” Nolasco said.   

As a result, Twinco has developed a tool in collaboration with some of its buyers intended to drive improved ESG performance at suppliers, for example by allowing buyers to offer preferential terms to those making headway with ESG. 

Denim-E, a family-owned denim garment manufacturer and exporter based in Karachi, Pakistan is one supplier working with Twinco with well-defined ESG strategy.  The company, which supplies large retailers in Europe, the US and Asia, aims to become “100% sustainable” by 2025, having already invested in a water recycling plant and rooftop solar, and used sustainable laundry chemicals. Twinco says its support has helped the business increase turnover by an average of two or three times year-on-year since it was incorporated in 2018. 

For the moment, the focus for Twinco remains on the developing world apparel sector, which Nolasco and Marín chose due to its well-documented social and environmental problems, but the model could later be applied to other sectors involving small-scale suppliers, such as the automotive industry and electronics. 

“All of these industries have this type of supply chain where you can really provide SMEs with an opportunity to increase their share in global trade,” Nolasco said.