How Fundkite CEO Alex Shvarts grew Fundkite to $70M revenue with a 91 person team in 2024.

fun kite was launched back in 2015 on a dream in an idea they've scaled nicely today in a capital efficient way they put out or they generated uh they get 5,000 applications per month they send out offers about 1,300 of those some portion of those are accepted and approved the business in 2023 did quote about 70 million bucks of Revenue Alex is constantly thinking about how do they keep their both default rate low which is uh 16% if I'm remembering properly and then the actual charge off loss rate 6.8% of that those are good economics they optimize for about a 16% uh take rate Nim sort of Allin which is very healthy 91 folks full-time on the team they're funding these deals with prom notes on their own balance sheet and then also sourcing some of them out to Capital Partners as well hey folks if we haven't met yet my name is Nathan ladka I launched and sold my first software company back in 2015 and went on to write a book about it which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies thank you so much for that after the book I launched this show and went went on to create founder path.com I raised a large fund to do non-dilutive deals with B2B software Founders so far we've invested in over 400 software Founders totaling $150 million here in 2024 we're doing three to four New Deals per week so if you're looking for Capital and don't want to give up Equity go sign up at founder path.com for free to get your offer all right let's jump into the interview hey folks my guest is Alex Schwarz he's a CEO of fun kite one of the fastest growing fintech companies in New York that provides funding to small businesses across the US the company was founded in 2015 and his company utilizes a boutique funding style offering business owners a flexible variety of products and services that can be tailored to fit their individual needs before fun kite he engineered and sold proprietary technology to the greater fintech industry Alex you ready to take us to the top let's do it all right give me your just to get us all on the right frame right off the bat give us your sweet spot deal is it 100,000 bucks into a small business doing a million a year in Revenue so our our average deal size is about $110,000 um and these are companies that are doing between one and five million a year in annual growth sales okay and any specific sector uh Ecom restaurants no very broad everything from restaurants to Ecom to Medical there's some industries that we don't um cater to at the moment like what like transportation and trucking they're really in trouble those guys are really having a big hard time right now getting by um we don't do bail bondsmen uh so truckers transportation and we've um we've we've pulled back a little bit on the construction industry and why is that I mean there's a lot of fintech firms that are doing on balance sheet lending to truck drivers or truck companies that buy the truck and then you can sort of discount cash flow the trucking revenues and they lend against that why are you staying away from so let's understand our product first I think that will that will break it down so what we do is called Revenue based Finance where're we're we're buying future receivables based on historical sales and we're buying them at a discount so as the merchant is generating sales we collect our receivables and we collect those receivables a portion of those receivables to recover or um I'm sorry to to accumulate what we've purchased right so let's say we bought $100,000 worth of receivables for a lump sum payment of $90,000 today and we'll collect 10% or whatever that fixed ratio is of your receivable so if you did 5,000 in sales this month we'll collect $500 if you did 3,000 will collect 300 so it varies so we take what's the what's the typical term though is that you're gonna get back no term there is no term until we our receivables there is no term but Alex for you what's typical though right so if you're taking 10% a monthly receivables do you typically get paid back on the receivables you purchased within 5 months or do you model for 12 months or I mean we we we we model anywhere from eight to 16 months but it's very unpredictable right so there is no term there is no fixed term with our product we're taking a ride with the with the um uh with the merchant at you know look we look at historical data and we hope that business is going to increase and sales are going to go up but it it's it's really hard to uh to predict that so um having said that White Trucking is it so we've seen a lot of Transportation companies fail um they're having they're the biggest problem they have is accounting for the cost of goods which in their case might be fuel right so fuel is jumping up and down they're booking the the jobs at One Rate they're not getting paid fast enough so they're having a hard time and this has been going on for years we see a lot of major transportation companies follow bankruptcy in the last two years but construction so we're seeing a delaying payments they're having a hard time collecting money a lot of projects went into to S standstill so when interest rates went up a lot of the commercial properties are in trouble we see a lot of big developers in trouble right now they can't refinance so that's slow down the residential Market still seems to be doing good but not as good as it was you know post immediately postco right and Alex in fact during a key a key component you have to model is obviously the discount rate the 100K example you just gave us where you wire 90k up front would represent a 10% discount of future receivables is that your target typically um typically it can range from anywhere from 10 to about 28% discount so depending on the risk factors that we're facing and the quickest way at least on an Ann on a year-long facility now years again go from 8 to 16 months depending on the percentto monthly receivables but a 28% discount rate paid back over 12 months represents about a 50 52% effective interest rate uh how do you get consumers or how do you get these businesses comfortable with that kind of interest you can't really consider an effective interest rate on this because this is not a loan and it's it's impossible well no but Alex sorry just to take a step back it's not a loan it's not but they it's a true sale they're selling you future receivables which is why you don't have to deal with Rec characterization Lisk and Usery and lending laws right that's the way you get around that as a factoring business you can still calculate I mean we don't get around it this is what the product is right yeah but the reason factoring the reason factoring is a thing is because it's a true sale you don't have to worry about Usery laws in certain States and lending licenses and things of that nature but the differ between a factoring product and this product and you me 30 seconds factoring works like this I've got a purchase order from Home Depot I've got a real buyer that's ready to buy a million dollars worth of worth of widgets I'm a manufacturer I need $500,000 to produce those widgets I go to a factor I say here's a purchase order from Home Depot for a million give me a half a million when I deliver those goods Home Depot is writing the check to the factor and I get the difference and so in factoring you're underwriting the buyer right who's buying the product how credit worthy are they so that's a little and there's usually they're very short-term type of deals right with us we're buying receivables we don't know what if they're going to have so we're looking at let's say a restaurant we look at 12 months of of receivables they're averaging $100,000 a month in sales and that's how we're going to calculate our offer but what happens if their sales go down it's a hurricane it's co it's there there there is no guarantee that they're going to have receivables so because we reconcile their sales constantly right so we do reconciliation so if we're supposed to take 10% we're looking at their sales or we're adjusting payments it it most of the time it never works out as planned it's it's always a slower Pace okay so there is no uh fixed term here and and it's very hard look we have disclosures in States like California and States like New York where at the time of um origination we have to provide a APR right and it it we do calculate this APR based on the standards that they have provided but it's not always accurate and it's it it will change it will change because what if it takes them two years or three years right so the better way to look at this is is the cost of capital so you know I'm getting $90,000 I got to pay back $100,000 my cost of capital is $10,000 that's the true way to look at this and um because there is no term and and and that's really really important right so my audience will understand this they're they're sort of Savvy find they'll understand this completely but I just want to underscore paying back that 10K cost of capital in three months if the company grows really fast and receivables grows really fast be a lot more very different than paying back 10K over someone that delays their payments and it takes three years absolutely absolutely yeah and we're not catering to your bankable client right we're not banking yeah yeah I get that it's a restaurant I guess my question to you though is the example we just gave is if you do a deal with a restaurant for 110k your average deal size and then they explode right they do really well that's good for you that's great you're going to get your money back...