Fundthrough Team Size (2022)

you're gonna love this interview just got done editing it i'm glad i got it live for you i'll be in the comments for the next 30 minutes hanging out answering any questions you have in fact leave a comment below about data points or what you think is going to happen to the company and i will respond to every comment additionally if you're just loving the content click the thumbs up and i will go and check out your profile as well and give your videos some love as well in the meantime enjoy the interview hello everyone my guest today is steven uster he's the co-founder and ceo of a company called fund through before fund through he was an investment banker in new york first at ubs and then as a founding employee of centreview partners stephen is an mba from the wharton school and a bachelor of commerce with honors from mcgill university all right stephen you already take us to the top i am all right so your cool factor goes up uh at least for my audience when you leave you know big fintech and you start your own company so you're already ahead of the ball here tell us what fun through does and how you guys make money for sure so we are reimagining uh invoicing so that small businesses can get paid instantly essentially bridging that gap for companies that invoice their customers and those customers take 60 90 sometimes 120 days for them to pay them yep okay so let's role play here for a second there's a lot of people competing in the space and really it's a function of your cost of capital what you're raising you're dead at and what you're lending it at and there's a spread so let's say a sas company is listening right now and they have a hundred thousand dollars and committed annual contract value uh that is not that's paid quarterly and they want to get that money you know three months ahead of time on each quarter payment what could you offer them on a hundred thousand dollar acv yeah so uh typically by the way we we we do work with sas companies uh but our core users are either tech companies or non-tech companies that just invoice for products or services to large typically larger customers and then wait uh to get paid but on that hundred thousand dollars large by the way sorry stephen what's large well so we have folks on our platform who have you know a hundred thousand dollars for your example we have folks on our platform who have actually 10 million dollars uh outstanding that wouldn't be one invoice that would be you know a lot of different invoices on the low end we actually have folks on our platform we have 500 and these are just micro businesses who are selling typically to smaller businesses uh but our sweet spot tends to be in the hundred thousand to a million okay someone that so someone that's listening right now if they are sending out invoices could be one or a thousand that add up to between a hundred thousand and a million their potential great fit for fun through yes absolutely so tell us more how does it work yeah so uh all you would do is connect a couple of your data sources connect your invoicing platform let's say you use quickbooks online uh all of your invoices would show up on our uh our platform you click the one that you uh you want to fund uh we would verify that that invoice uh is uh accurate and that you've completed the work that you said that you were going to be doing or deliver the product that you said you were going to and then the money will be in your account uh usually that same day uh once you're on board okay so again let's be specific here let's say someone's saying they have a contract that's a 10 000 contract they sent the invoice to the customer and the customer has 60 days to pay they don't want to wait 60 days what will you give them today on that 10 000 invoice yeah so on that 10 000 invoice we might advance them you know 9 900 or something um and then uh so there would be a hundred dollar fee um it may be it may range somewhere between you know nine thousand and ninety nine hundred out of that ten thousand so how do you come up with that right so the effective cost of the capital advance is whatever the delta is between the 10k and what you advance so what is that typically yeah so it's typically somewhere in the range of one to two percent a month or one and a half to two percent a month uh so the way we like to think about it is it is cheaper than giving a discount to your customer to getting paid early um you know and when you go and you talk to small business owners and ask them if they're ever given a discount to their customers you'll get things in the range of oh yeah for sure i've given a two percent discount or i've given a 10 discount and nobody ever does sort of the apr on what that is it's really on the margin yeah and what we're trying to say is never do that it's always better to use an invoice funding platform such as fun through and obviously well i want to jump into that because you have a lot of people competing in this space some from your backyard right so you have clear bank that is doing a lot of this interesting thing you've got espresso which was essentially shred financing they're not getting more aggressive with rbfs and term loans even uh sas capital lighter cap there's so many people playing in the space and then you have the pure play kind of you know advanced you know arr advanced kind of solutions like or at least for sas which it sounds like what you're doing invoice advances so we did try and back in the way to compare all these folks is to try and back into a true apr right so if i'm going to pay you you're going to advance 9 900 on a 10 000 contract so it's a hundred dollars that's what it costs me to save that two months right multiply obviously at a year that's 600 on 10k you can back into essentially a six percent effective apr am i doing that math correctly yeah that that math is correct the other thing that i would uh i would say that is is different is what's interesting is there are a lot of players in the capital space and a lot of them uh you've just you've just mentioned they all actually do really different things uh and it is our job and you know the industry's job to actually demonstrate to small business owners in which case you would want to use one versus versus another the interesting thing about fun through is uh relative to say a loan uh which was what the other ones that you were talking about are all uh are all loans is that when you take a loan you get the money up front and you spend the money and that's great but now the money's gone and you hopefully have used it to generate revenue or you know more cash but at some point you've got to find a way to repay the loan yeah that's different than what we do uh all we're doing is advancing your payment so we are waiting so that you don't have to but you know that ultimately your payment is going to come because you've delivered the goods or the service so you know your invoice is going to get paid and all you want to do is get paid faster it wouldn't make sense if the check is in the mail kind of uh and you have an opportunity to buy more inventory or you know want to make payroll to take out a longer term you know loan um with some of the folks that you may be referring to if all you need is to bridge that short term gap so so when did you leave the bank and launch this company so i moved back from new york to toronto in 2009 and i never intended on starting this company um i went out there with the the goal of actually going out and buying and operating uh a company and that was the center of iowa firm where they were you doing kind of growth majority buyouts there no centerview was an m a boutique investment bank so it competed with goldman sachs and ubs and others but all they did was mna they didn't have a financing arm they didn't have a capital markets at that time so when i moved back the goal was to actually go out and and buy a business but when i spoke to all these uh small business owners they would say things like yeah i'm interested in you telling me how much my my business might be worth if you want to acquire it but take into account that my customers are taking longer and longer to pay me a bank won't lend to me because after the crisis and i might be asset light or too small or just don't fit their credit profile and i've got this gap but i've got a stack of purchase orders that i if only i had the capital i would be able to fill and i've got a stack of invoices uh they're just taking longer and longer to pay so i took a bit of a detour and i had never heard the term factoring i'm embarrassed to say uh you know having an undergraduate degree in finance having been working on wall street having an mba in finance i had never heard the term factoring but what i realized was that when you sell to high quality customers you're creating an asset and you should be able to use that asset and no other asset as a way of being able to get the capital that you need so what year was your first advance 2014 june 2014 we made our first advance so i mean what the hell were you doing for between 2009 2014 that's five years old uh so between 2009 and 2014 so the first thing i did is i spent several months trying to figure out uh how to buy a business then i realized that wait a minute this thing called factoring the best way for me to learn about factoring because to me it was it sounded like the best way for you to fund yourself you know off of the creditworthiness of who you sell to not off of who you are get unlimited access to capital simply by doing what you do best which is sell sounded great but the next question i asked was why doesn't everybody do this why doesn't everybody know about it so you know i'm a curious guy and i figured the best way to figure it out is to just jump right in so i did it and i created a factoring company interesting so that was now did you raise equity right off the bat to do these or using your own money that was my own money and i i got some friends and family to to use money to uh lend out so what did you pay your friends and family back because you didn't have to manage the spread so what did your first kind of kind of debt financing what was your cost at the time the debt well with no track record and uh uh and no history uh i was paying 15 percent okay and for at some point it was 15 and for others it was just a um sort of a profit it was debt but it was a profit share of what i made uh by advancing that yeah so just to be clear you essentially maybe were like the sole gp in a little fun and he basically said i won't give you a 15 hurdle what i'll do is i'll just split just trust that i'm going to make an a good spread here and we'll do an 80 20 model that's right now the way you say it is so sophisticated and it sounds amazing i didn't think of it that way you know hindsight's 20 exactly well the reason i'm positioning it that way in the context of this interview is because i want to now pull this forward right so what did you grow your loan tape to in 2014 how many kind of total advances did you do gmv well so that so 2014 is when we launched fund through so prior to that uh it was not fun through it was just you know on my own book when we launched on through uh the the very first advance that we made was a 300 000 advance to a guy who was selling uh to walmart and had never sold anything before uh so he he invented this tool it was a really cool uh tool he won best in show at his you know conference and walmart gave him an opening order and we said okay you know we're gonna take a risk because it's walmart we're gonna we're gonna fund it the only thing i can promise you is we're gonna charge you too much money it's gonna be really cumbersome um but i promise that you'll have founder level attention and you yeah we'll solve it will be creative and he's like okay he was an early adopter he's like okay let's go for it i think we charged him the equivalent of like 36 percent annualized we didn't really know and you know we were trying to figure out what it is uh and we had 50 percent three percent a month yeah yeah two percent a month yeah uh and we advanced the the three hundred thousand dollars and then didn't sleep for about 30 days waiting for it to come back the first the first payment yes was it was it was it a a month long term or was it a two month term yeah that was about a 30-day term but of course walmart never actually pays on 30 days so it ended up taking about 45 days okay so that's a good story of your first loan but someone all up for me 2014. you know 300k it sounds like it was a minimum how much how many total you add it all together how much total advances did you yeah that year oh now you're getting me thinking uh that year we probably did uh a couple million bucks for sure less than five million dollars okay less than so called between maybe two and five million something like that okay and then fast forward to last year what'd you do last year yeah so now we're last year in 2018 we're doing about 15 million dollars a month okay uh in advances and what we break this year you think and this year we're uh you know we've crossed the let's call it about 20 million dollars going into 2020 we now have a bunch of really interesting channels and partnerships um you know it'll be somewhere between 20 and 30. yep so this weekend in 2018 if you average i don't know if this wasn't average i'm going to ask 15 million to be about 180 million total recycled you know that year is that right that's right and then you'll break 240 this year 240 million that's right that's great okay yeah and so so the the nature of these things is you essentially can go raise debt capital and lock your creditors capital up for whatever four years but you're able to recycle this fair and money velocity is critical so help me understand how you have funded the business both on the equity and debt side how much equity have you raised for the company so all in we've raised about 15 million dollars uh in equity um you know going from angel seed rounds or seed extension to a certain a uh and so and that's been primarily through um local canadian vc firms and high net worth individuals um sort of angels call it on the loan side we started with high net worth individuals not dissimilar to the story that i told you about how i started the uh the other business just asking around you know who was interested we did in the form of debentures uh where we would um you know have a variable rate of return based on the rate of return that uh we were able to generate with you know the invoices so there was not a hurdle it was more like they share on the upside yeah it was not a there was not a minimum uh it was just what it is what it was but uh we knew what our minimum pricing was going to be but we didn't know at that point what losses or anything was going to be well so go back to the first tranche of equity though right so you took 2.2 canadian from real ventures in 2015. what story were you telling them to figure out what the valuation was going to be was it literally here's the loan tape here's the performance you know i de-risk this it works well so it was a bit of a hope and a dream and a powerpoint presentation with a little bit of traction okay so the first the first advance was june 2014 we raised uh that 2.2 in february of 2015. so we had about six months uh to show that uh there were some users who actually liked it and what we were able to show was uh that when users came on board they were really sticky they used us often they were big invoices the ltv seemed to be still early but seemed to be quite high what we had no idea about was how to actually get a lot more users yeah so just based on that uh we were able to say okay there's a huge market here you know it's sort of motherhood and apple pie that uh you know small businesses invoice and have to get paid everybody understands that gap but are we able to actually bring in enough users to be able to make it worthwhile so you did that first two and a half million dollar round or about two and a half million with about between two and five million of loan tape history right plus a powerpoint help me understand you don't have to give an exact number here you're not comfortable but it was a while ago what was the valuation you got on that first round yeah that first round uh the post money valuation was about eight million dollars okay so six six ish pre 5.83 yeah yeah okay interesting and then so fast forward right so the key to building a great business like this is is to build a track record and then drive down your cost of capital and then you can choose to either keep that extra spread for yourself and drive profit for yourself or if you want to open your tuple funnel make your cost to capital cheaper to these ecommerce brands these brands that do the invoicing so what have you done you start out 15 with friends and family money you then do the 20 million debt financing i believe in 2016 who was that with that was with a family office in uh um in toronto like a canadian-based family and were you able to drive with them to a deal that basically you were paying them way less than fifteen percent i wouldn't say we were paying them way less you know at that point we were paying about eleven percent okay and now we're we finally got it into single digits and you know we have to keep as you say keep driving it down yeah so as we take our track record up we'll continue to drive yeah yeah the last one in chronometers is wrong but based on my research june 18 2018 you raised 25 million another more debt from from uh from intercap that's the one that you drove into the single digits that's the one sorry that's the one that was eleven percent uh okay yeah okay intercap was eleven percent and sorry what was the one in 2016 was that also eleven percent the the one in 2016 was variable was this uh oh the the rates that they ended up getting were um somewhere between sort of 12 and 14 but it was variable yeah yeah okay got it that makes sense so you move to like a fixed hurdle model with the latest remainder cap that's right yeah interesting and and loan to so up to in the decks that you worked with when you're negotiating with intercap how much history were able to point to at that point i mean had you done more than 15 million in total kind of recycled money yeah if i remember correctly we were just uh getting close to 100 million um okay wow that's interesting that i mean it's impressive you you shave 400 points off from 15 down to 11 but you i would guess with that kind of history like why can't you go get back leverage from like an svb or a or bank of toronto at like prime plus one or two yeah so that's the the next step now what's important to note in this business is uh cost of capital being whack and cost of debt the beauty of a model that we have right now is that we have a 100 advance rate so our cost of debt is actually our total cost of capital if we went to a bank wait wait i don't understand that give me a real number like tell a story worth real enough for every dollar that we advance we borrow a dollar as opposed to for every dollar we advance we borrow uh 80 cents and we have to put 20 cents of equity you have no equity back stop basically no equity back up at this point um so it makes it uh it makes it sort of capital efficient for us to be able to go into market so the math that we have to do is when we go to you know a bank or uh um you know a financial institution and we can get it at libor plus or prime plus or or whatever uh what is the advanced rate and what the total cost uh um you know when you account for the fact that you have to have some equity or sub debt right what's possible is that so do you feel like to get like libor plus one or two you'd have to put up percent equity into each you have to put some amount of equity now equity or equity like we might be able to rent that equity by bringing on um some additional loan capital at a higher rate and the blended rate comes out well so let me ask you do series a of nine million from june 2018 from scale up you did it looks like that exact same day the intercap kind of debt model i mean can't that nine million in equity raised actually equal purchasing power in the form of debt of like 90 million if you're putting up 10 equity well so what we uh what we ended up doing at that point is using our equity for 100 of the advances to the extent that we uh we had it so you know we're capturing the uh the margin now there there is some point if i were to do that though i wouldn't be able to use that equity for operations for marketing spend for technology is that significant what's it cost you to actually run the business each month total expenses oh um well we're growing quite quickly so we're adding you know growing in terms of of top line but also in terms of um costs uh so we are still burning uh money you know we're we're in the we're in the stage where we would be a very nice profitable company if we chose to but then on the side we've got this technology spends product spent and additional marketing from them so you turn like net burn you're talking like 200 300 a month something like that a couple a couple hundred thousand dollars a month yeah and then total expenses as well like 800 900 000 bucks a month uh probably a little bit more than that okay fair enough most that's head count yep yeah what is head count today how many folks 55 55 all in toronto no we've got folks in atlanta folks in denver new york texas alberta wow how many engineers uh we've got about 15 engineers and how many quota carrying sales reps uh so we have our sales model is an inbound sales model not an outbound sales model uh so they are commission based not necessarily quota based uh we've got three on the inbound sales two on the customer success it's really important uh to help on you know the existing users because they use so often um and then we've got a manager that oversees them and that area has been growing so what do you assume your total like cac is to get in you know at first a new customer in the door the first advance to them well what i would say is uh we've got some channels where we actually have what we would call zero cac because we've got uh partnerships where we have sort of rev share models and we love that and we've got others like you know pay-per-click and digital and radio and other stuff uh where there would be cac as as you're describing uh what we say is our our ratio of ltv to cac has been quite strong uh you know somewhere in the range of seven to nine seven and nine now what do you assume value is though because that's a big question pardon me what do you assume lifetime value is though because that's a big question yeah uh well look i'll talk about it in in terms of ratio not in terms of the uh the number what i would say is lifetime value is actually quite high uh it's it's much higher so we can afford to spend that seven to nine x to uh to cac and we are we're our short-term cac will go up as we experiment with some new channels um and some you know new potential partnerships and you know what that'll uh that'll impact the ratio but the ltv seems to be pretty constant we're early still so we're still trying to figure it out you can improve that yeah last couple questions here so 2019 you'll break 240 million bucks this this year in terms of advances done across how many companies uh low thousands so thousands okay yeah low single like two like two two three yeah two two to four thousand okay two to four that's pretty good uh very good and then um any plans to raise cap i mean you raised over a year ago it means you're raising capital probably right now or you're selling to cabbage which one is it so we're not selling to cabbage uh one day we'll buy cabbage oh really i like that they're at like stick they're like seven billion in loan paper you got some work to do that's right no that's that's that's right it won't maybe a year or two okay fair enough we'll talk about a year too so are you everything raising their next round of uh of equity capital probably in the first half of 2020. what's the right number like 18 20 million uh well we're thinking yeah it's hard to tell actually i mean we're doing some what if scenarios actually right now uh about what we would do with the capital and it could be anywhere from 18 to 50 you know depending on where we see that use of capital and the dilution that is associated with it and are you getting multiple like when you go and have the valuation conversation obviously because delusion is important let's say you go raise 20 million bucks can you argue that you are truly a sas company and get a 5 to 20 x on top line ar in terms of your valuation yeah it seems to be what uh uh what the market is is saying and you know it's how we operate we are not a you know we are a fintech player but we are not a lender um we are a casual tool and our users are although not um you know recurring they are very sticky and repeating and investors tend to see that yeah that's great all right let's wrap here with the famous five number one favorite business book so my favorite business book is an old book called pour your heart into it by howard schultz and it describes the how he started starbucks number two stephen is there a ceo you're following you're studying uh well it's probably the same as everybody i i love elon musk i love his ambition and i love the way he operates number three what's your favorite online tool for building your company slack couldn't live without it number four how many hours will sleep every night oh i sleep well i'd say seven hours and seven hours a night and what's your situation married single kids married with three kids oh wow you're worth you count fun through ooh you are busy okay and and uh how old are you i'm 41. 41 years old okay last question what do you wish your 20 year old self knew wow uh travel more because when you get three kids it's harder and harder see the world and experience it guys fund through they advance against your invoices 2014 made their first advance his cost to capital was 15 percent he'd lend out obviously above that did about between two and five million bucks of loan tape in 2014 2015 raised 2.2 million bucks in equity capital on a 5.8 million dollar free money evaluation so call it six seven eight ish post money 2016 uh goddess cost capital down from 15 to 12 to 14 variable basis on a 20 million dollar line and now he's driving his cost of capital down to call 11 with intercap in 2018 which is great that means he can ideally pass those savings on the customers and give entrepreneurs cheaper loans at scale this year 2019 they'll pass over 240 million dollars in essentially new invoices advanced that's up from 180 million last year um this is across two thousand four thousand uh founders building companies hoping in 2020 to potentially raise another round of equity and probably debt as well we'll see what happens in the meantime steven thanks for taking us to the top thank you nathan you guys know i fight like heck to get these data points for you from these ceos that rarely do these kinds of shows if you want more shows like this make sure you subscribe right now we're trying to get 10 000 youtube subscribers by the end of september here 2019 and it would mean the world to me if you clicked now to subscribe additionally i've got two more great interviews for you if you want more data points from the world's leading sas ceos click and watch one of them right now