Jun 21, 2024

questioned VC Digial lender auxmoney praises the virtues of buidling a starup in one of Germany's less heralded startup cities. Düsseldorf might not seem the most obvious startup hub but the German city has all the ingredients for a startup to flourish, according to one of its offspring startups. Raffael Johnen, CEO and co-founder of Düsseldorf-based digital lender auxmoney, recalls a conversation he had with auxmoney's first VC investor, Union Square Ventures. He says: “The investor asked ‘how the heck can you build a multi-billion-dollar business in Düsseldorf? Berlin, we know. Munich, we know. But how can you do that?’ That was actually one of the trickiest parts to convince them.” Auxmoney, founded in 2007, is valued at $825m so is not yet multi-billion-dollar valued but it's teetering on unicorn status, says Sifted . It last undertook an equity round in 2020, when it raised €150m. In 2022, it announced a €500 million debt funding round  from Citi and Natixis and has taken on $210 million of equity funding in total. So, what are Düsseldorf's attributes? Along with a “high quality of living”, Düsseldorf can boast a community of tech startups, strong access to talent, proximity to universities and good transport links, says the CEO. Allied to that, says Johnen, Düsseldorf-located startups can retain staff better than, perhaps, more well-known tech hubs, where competition is more intense. A further boon is Düsseldorf’s proximity to Cologne, a city also with a “vital” community of bubbling startups, says Johnen. He admis capital raising happens outside Düsseldorf but says this isn’t a barrier given modern communication. Auxmoney, which has around 190 staff, hires staff from around Europe and beyond, such as Brazil, says the CEO. Auxmoney, which has a presence in Germany and the Netherlands, calls itself a “tech-enabled lender”. In short, auxmoney provides consumer loans to “prime” and “hidden prime” (customers which look high credit risk to banks, but auxmoney says are actually low credit risk) customers, funded via institutional investors. It says it beats rivals with its tech- it has invested heavily in developing scoring technology based on data and using advances in AI to power its digital lending and underwriting processes. It says around 90% of the loans that it processes through its platform are scored, priced and underwritten fully automatically, having funded hundreds of thousands of loans to date. But more important to Johnen than unicorn status is being profitable, a feat it achieved for the full year 2023. Johnen says making a profit is “way more relevant because it really gives you independence”. The perks of being profitable, he says, include potentially proceeding without external funding, as well as a reassurance to external partners and employees that the business is heading in the right direction. And what has been the driver of the move into the black? Growth and “inherent efficiencies”, coupled with an organisational review, says Johnen. On AI, Johnen says auxmoney has been using machine learning to forecast defaults based on real-time payment data for some time but is not using “black box” AI to make credit decisions. It has also been leveraging Generative AI across the organisation, including across customer service. But he says he doesn’t think Generative AI will replace auxmoney’s customer service agents. He adds: “I don’t necessarily think AI will replace those humans but it will set them free to do more creative, strategic stuff.”