First Stage Investor

Portfolio Update: Tradefox Enters an Inflection Year

Portfolio Update: Tradefox Enters an Inflection Year
By Andy Gordon
Date March 2, 2023

According to Tradefox, a trade analytics company with a focus on scrap metal and recyclables, waste materials are recyclables in the wrong place. The faster and more efficiently they get to the right place, the better it is for the health of the planet.

In its latest fundraise on Wefunder, Tradefox (formerly known as Scrap Connection) has broadened its mission from protecting buyers of recyclables to protecting the planet. Tradefox’s new emphasis on the environment is less of a pivot and more of an attempt to place the company’s services in a broader global perspective that puts the planet’s health front and center. 

But why and why now?

Founder and CEO Chris Yerbey doesn’t beat around the bush. “Transitioning to green fintech I think will trigger interest from impact venture capital (VC) funds,” he said. 

Is Chris spinning his story a bit? Maybe just a bit. Is he misleading us as to what the company does? Nope. Tradefox’s extensive data collection will help surface sustainable funding opportunities in the recycling industry. 

Tradefox gets its data from the companies doing scrap metal trades and from the companies they’re trading with. The latter — called counterparties — provide a crucial informational feedback loop. They rate their trade partners on metrics such as integrity, material quality, payment, and shipping and the handling of quality claims, just to name a few. Then Tradefox’s scoring algorithm combs through the data and provides assessments on each company’s reliability and trustworthiness.

The company’s environmental impact was always implicit in these services. By making the global scrap business more transparent and honest, Tradefox hopes to increase the industry’s access to financial products — especially green capital-seeking, sustainable opportunities.  

Chris is simply highlighting this aspect of the company’s mission. In doing so, he’s brought the company squarely into today’s dominant zeitgeist. Not many people (or VC funds) give a fig about the scrap business. But who doesn’t want to save the planet?

It’s a smart move. And it should encourage more capital to flow Tradefox’s way. That’s a good thing because the company has real innovative solutions for the dysfunctional world of recyclable trading.

Tradefox is one of our older recommendations. I first told you about it exactly six years and two weeks ago. It was raising on Wefunder at a $4.5 million cap then. It’s now raising on Wefunder at a $30 million cap. The valuation cap has increased 6.6 times — driven by an expanding database, along with a much higher number of reports, companies, and transactions covered.

Tradefox has made great progress in collecting data and turning that data into useful products. It has been at the core of the company’s efforts to date, as it should be. Now, with the help of several large companies adding thousands of their historical transactions (along with post-transaction notes) to the database, that phase of the company’s efforts is finally coming to an end — at least as a core activity. 

But what’s also notable about Tradefox’s progress to date is the conspicuous absence of customers and partners. Tradefox will be addressing both these things in its next phase. While it has 5,300 members, they’re non-paying. Tradefox will continue to give its members “credit” for adding to the company’s database of more than 125,000 transactions, but when those credits run out, it will begin charging for its reports.

It’s targeting new membership growth in Central Asia and the Middle East, where recyclable buyers far outnumber sellers. And it wants to maintain its strong presence among exporters from North America and Europe. They use their Tradefox profiles to create a competitive edge in attracting buyers.

Tradefox likes its monetization plan and is confident that it’s found price-product-market fit. As far as I’m concerned, I’m just happy that Tradefox is finally going after revenue.

The company’s monetization plans don’t end there. It’s about to ink a partnership with Amsterdam-based Atradius, one of the biggest commercial insurance agencies in the world. Tradefox will use its extensive data library to vet companies Atradius has targeted for debt collection. 

Chris has also struck up a relationship with Sealink International, a major freight forwarder based in Texas. Through Sealink, Chris hopes to forge a commercial partnership with Maersk, a huge Danish shipping company. 

These various initiatives are projected to generate around $12 million to $15 million in revenue in three years — with accelerated growth expected after that. By that time, Tradefox should be in a position to enable Atradius and other insurance companies to underwrite trading behavior that is now uninsurable, including certain fraud practices, canceled contracts, etc.

This year is clearly an inflection point for the company. Its partnerships need to work. Its initial monetization steps need to show promise and prove that it has indeed found product-market fit. A good year should set the company up for many more thereafter. A bad year would represent a significant setback that would seriously dent the flow of future capital and possibly put the company’s ability to survive in question. 

In other words, a lot is riding on this year. Chris has proved to be a strong CEO. He’ll be hiring six to seven more people with the money from this raise — including a chief commercial officer. He also has a more than capable partner in Chief Technology Officer and newly minted co-founder Will Cavendish. He’ll have plenty of help navigating the challenges that are sure to come. But make no mistake — this is Chris’ time to shine. 

For those of you who have followed Tradefox/Scrap Connection over the years and like what you’re seeing, be forewarned. If all goes according to plan, this will be the last crowdfunding round for Tradefox. Chris plans to raise again next year in a Series A round with a hoped-for valuation of $50 million to $100 million. That’s a nice little jump from its current $30 million valuation cap. But it’s a projection, not a guarantee. 

It’s going to be a sink-or-swim kind of year. The floor is low. But the ceiling is enticingly high. The company seems to have a clear vision of where it’s going. And the pieces are finally falling into place. 

We’ll know a lot more by this time next year. But by then, your chance to invest (or re-invest) will have come and gone. 

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