FlexWage plans to enter UK market via partnerships, capital raise, CEO says

FlexWage Solutions, a private equity backed employee payment firm, plans to enter the UK market through distribution partnerships and a capital raise, founder and CEO Frank Dombroski said.

The Mountainside, New Jersey-based firm works with employers to provide early pay and financially responsible short-term liquidity solutions for cash-strapped employees. It wants to build a presence in the UK, where the industry demand is strong, especially after the collapse of UK payday lender Wonga in 2018, Dombroski said.

Through a middleman in the UK, FlexWage is in talks with a handful of distribution partners in the UK and plans to build a channel partnership there by the year end. He added that Spain and other Eastern European countries are its next targeted locations as employees in these regions are usually paid monthly and may need liquidity solutions after overspending.

FlexWage is in the process of a USD 10m raise, which it plans to close this year. At least half of the proceeds will be used to support sales and marketing in the US and Europe, with the remainder going toward operational maintenance.

With the funding, it plans to become profitable next year. FlexWage generates slightly under USD 10m in annual revenue and aims to grow its top line to USD 100m in four years. It has seen around 400% annual revenue growth year to date.

The firm is in talks with a handful of venture capital firms and strategic investors in the US for this round, and just started early discussions with an UK investor. Dombroski said he doesn’t want a long road show process for the round. He prefers to pick up a right investor, move forward, and focus on the business. FlexWage may consider a “much bigger” capital raise in 12 to 18 months if it finds a compelling acquisition target or wants to support further expansion in the UK and European markets, he said, adding it’s hard to determine the exact size now.

The company has drawn interest from potential buyers. It attracted a public company a few years ago but didn’t pursue a sale then. It has one or two ongoing discussions after being contacted by a couple of companies. FlexWage values itself north of USD 100m, Dombroski said, adding that it would consider a sale when its investors want to cash out. He prefers a buyer that can allow FlexWage to run independently and grow faster.

FlexWage’s financial wellness solutions for employees include earlier access to earned wages, a reloadable Visa-branded payroll debit card as a substitute for direct deposits, and immediate delivery of non-recurring payments such as tips and expenses. It recently acquired Sum180 for an undisclosed price to add a subscription-based mobile service that supports pay tracking, budgeting, and coaching from financial advisors. FlexWage would consider buying more firms that have less than USD 10m in annual revenue and can accelerate its product adoption, he said, though it is not in talks with any target.

FlexWage has offices in Mountainside, New Jersey; Scottsdale, Arizona; and Jacksonville, Florida, and may build a UK entity to support expansion, he said. The firm has 22 employees and plans to double its headcount in the next 12 months. It now works with around 240 companies in the US, spanning tens of thousands of employees. It plans to have a half-million global employee users over the next two years.

The firm has raised around USD 13m since founding in 2010. Investors include Marathon Partners Equity ManagementSerenity InvestmentsMetaBank [NASDAQ:CASH] and high-net-worth individuals. Dombroski is the largest shareholder. No single shareholder has a controlling stake.

It works with DLA Piper for legal counsel and receives financial advice from one of its investors’ partner.

Dombroski named Even FinancialInstant Financial, DailyPayPayActiv and Earnin as its competitors.

by Xinyi Jiang in Charlottesville, Virginia