RiskScout Revenue, Valuation & Funding (2024)

hey folks my guest today is justin fisher he's helping financial institutions bank higher risk businesses the company url if you want to follow it's called riskscout.com justin you ready to take us to the top let's do it all right what's that mean bank higher risk businesses uh well essentially banks bank you know consumers and regular businesses all the time uh the higher risk businesses in our world are thc so cannabis hemp cbd uh msbs which are money service businesses they move cash uh atms and there's about 30 other types but basically they require a lot of additional due diligence and compliance before the bank can ensure that they can bank them appropriately give me an example so i'm an investor that owns a bunch of atms i want to bank with jpmorgan chase jp morgan won't take me why don't they like atm revenue yeah that's a great question so uh atms are heavy in cash right doesn't mean you're doing criminal activity but because you're dealing with a lot of cash uh the source of funds can be obscured right so the other side of atms is they can be kind of dangerous especially if you decide to fill them yourselves so between those two concerns the banks um you know generally shy away from banking atm operators is what that's called a little little fact people don't know 60 of the atms in the country are actually run by independent operators and when all this pandemic and surplus cash came out like that's where people got their cash was in you know rural areas or even urban areas where a bank logoed atm isn't there so they they do provide a really important service i mean we're all down on six streets sometimes and we need cash right that's an independent atm you know is that a good business can you make a lot of money running an atm yeah there's great fees on it right i mean it depends on where your atm is uh and the funny side point to that is you put an atm and a cannas cannabis dispensary because they're so cash based hopefully you don't rake people over the coals with fees but they can be very lucrative about 15 times um the profitability as a regular atm wow how many atms are there in the united states oh that's a good question um hundreds of thousands i don't know the exact answer to that but definitely the larger percentage is non-bank atms why has anyone rolled up independent operators a good question a lot of these operators are long-time family uh owned businesses um a lot of them are um like one of the guys i spoke to runs a bunch of arcade machines and you know uh you know all that kind of work so it's just kind of an in aging industry and it also brings to the point they've been doing this for decades why is it a banking issue right um just to kind of compound on that a little bit the banking industry is um really led by uh federal regulators right and state-based regulators but a bunch of different acronym agencies that enforce compliance and in the last probably decade or so their guidance has been very convoluted and difficult for banks to follow so it ends up making ridiculous things come out when the examiner sits and talks to the bank so nathan you've got 300 atms you know what i'm going to decide to make you have to open up three dif 300 different bank accounts for every atm just so i can separate cash easier and an examiner actually told a bank that and forced the bank to not be able to bank that that that business right and they they they force them through saying hey this could be an enforcement action to you so now if i so if i open one atm i don't even know how much like every monday morning i have to take a slug of cash and stick it in the back of the machine how much cash is usually in an atm like how much would i be carrying down 6th street to restock my atm uh hundreds of thousands of dollars it depends on how you do your your process but mostly most atm machines will only have about 20k or less in them but i mean i'm sure you've seen in the news where people pull up trucks and drag these atms out and do all kinds of crazy stuff you know you take a you know an ounce of intelligence and you watch someone feed it you know not not advocating crime but that's unfortunately a very sensitive area and so that's why you'll see more armored car services but every time you use those other third parties they're cutting in on your fees right that's fascinating and i'm wanting to go i'm wanting to go roll up a bunch of atms now okay okay so how do you help how do you make money so we help make uh we make money by helping uh the institutions do compliance right so uh when a let's just say let's take a different market like a thc dispensary right you know and oklahoma has a ton of them texas we're not quite there but you know an oklahoma thc dispensary says hey i have to have a bank account i gotta make payroll i gotta you know i gotta do something with this cash you can't sit in a safe which is also unsafe and so um they will bring it to the bank well the bank has to do all this due diligence where's your license like you know um you know what is your criminal background all that kind of stuff they've got to do and all that due diligence ends up in like word documents uh you know back check background check systems and all these disparate places well then imagine if you if you have pretty much the only bank that's banking thc in oklahoma there's only a handful and you've got hundreds to thousands of those customers right they're hugely profitable for you you got great fees but you're just a you know person in their mid 50s who's like literally trying to do this with manual processes we come in and we automate all that process and so when the examiner then comes in and says okay nathan show me where you did everything you said you're supposed to do you can say right here inside risk out we have every you know every t crossed and every i dotted like ice is all our compliance stuff so who who is who's paying you the owner of the cannabis business or jp morgan that wants to bank the cannabis business the banks the banks and credit unions themselves in fact most of them are community banks and credit unions so not even at the jp morgan level like there's 8 000 community banks and credit unions in the us right 98 of them are under 10 billion dollars meaning they're like everyone you see around austin or anywhere you know where they've got a handful of branches and they're just trying to bank their community interesting okay what is it what does an average banker credit union pay you per month to use your tech yeah no so the great thing is we start off small so we have a five thousand dollar minimum so it's enterprise software right uh but we have a five thousand dollar minimum but very quickly annually monthly uh monthly mri yeah and what's great about it is um our banks end up growing we had a customer who was at that in november who's now over 20k in just uh you know a matter of months right um and part of that nathan is because we we actually charge off of each business that's under compliance so as their businesses start growing even if those businesses are just buying multiple products or working in multiple markets those are all individual pricing for us so uh here's the model right so you are a bank and you want to bank someone okay well you're going to charge them 250 a month because it's hard to bank their kind of industry and they're happy because they have consistent banking so 250 a month is kind of expensive in the normal banking world but in high risk it's actually really cheap you know they'll pay us say 150 right for that compliance work and then as they grow and the more products they stack on top of that customer like maybe i'm gonna do merchant processing for you or insurance then now i get to stack more and more fees and plus i'm getting all the deposits all the loans all of the additional financial products so we manage and open all that up and all those apps just come through our system and all the ongoing maintenance of the compliance is between the bank and you over electronic means now right over the phones and online so much so how many how many total banks pay you at least a dollar per month pay us at least a dollar per month um so we have 100 under a dozen banks we have over a thousand businesses on the system um we have like i said probably an average of usage right now is averaging in the 15 to 20k a month mrr you're that's where you're at right now 15 to 20 kmr yeah as a business no no no no no no so average of our of our customers is uh as a business we're right under 500k of ar okay this is great well what a story okay got it so just to be clear you've got 10 banks paying you for a thousand seats and a seat is a cannabis business that they're trying to bank right right right and you're talking they're paying you know well i don't know if you have oh you got it under a dozen so if you have like five or six customers paying sort of 10 15 grand a month that's where you get your 500 000 arrow correct correct i see okay really interesting how did you tell me the story of how you got your first customer uh yeah well also this isn't my first rodeo i've been doing this for 20 years i was with a company here in austin called q2 now everybody knows who q2 is because we're literally on the mls stadium that had the game last night so uh but i was around in that that company when we were really young i've done business speed to be sas for banks for a long time and i was out looking at this market i'm a solutions guy first so i went and looked at what the pain points were in banking right now and there's lots of people doing money movement and all kinds of stuff like that but people overlook these kind of block and tackling things that happen at banks and so i went in and worked with some compliance officers and a couple of key banks who also became investors of ours and uh how about two years ago um so it was a little over three million okay and launch was you said 2018. so we we actually started in late 2019 um and then the pandemic year was a weird year just for everybody but we had we we did a lot of building in that year and then came out with a new brand risk out um new new brand offering kind of re you know pivoted that um name and uh and then so this is your really our breakout year so we had we had you know essentially 5k in revenue a month um you know near like november of last year now we're you know approaching half you know half a million of ar we're actually at the end of the year we're approaching over a million of ar on track four so it's great it's really coming out and um you know it's uh it's great big big big banks now too we're not seeing as many small banks where's that growth going to come from adding more seats to the four or five customers you're with right now are adding new whole banks all together both so we call that expansion growth um you know or organic growth we also have cross-sale growth so adding additional products and services additional um you know templates like you want to do merchant processing you want to do insurance we can spin those up really quickly at the core of what we built is essentially you probably heard the term no code right we built our own no code platform and so that allows us to not have to have developers launch apps we can actually have our our team back here launch the apps for the the banks right but uh how much did you raise then back in 2019 three you said three total so we did it like you know like a two seed round like a seed one two i see okay and did you price those or were they were commercial notes with caps uh yeah so the first one was basically your typical safe right with the cap and then the second one uh was a price round okay that first round the cap how much was that for uh we did 800k in the first round okay so and what captured from that like a five million usually yeah we did that straight out of the gate that was like you know we just came out we had a great team deck you know it's the typical like what's the formula look like yeah well about 5 million in valuation and you know you figure out a discount for everybody get everybody involved a bunch of my early investors were experian and bankers and lots of great people so you know it was a lot you know the first day of enthusiasm as you get going right i also invested as well and then you raised two well how much of the 800 did you put in uh 100k so i mean is that i don't know if you're like super rich or not does that mean a lot to you like are you old yeah that's that's all in and then i'll be in the next round as well too like i'm i'm i'm parrying in there throwing in each round so okay and then the 2.2 million you raised during covet i guess uh yeah man that was a weird time yeah right in the middle of covet yeah i mean i want to learn that story so what was the valuation you raised that on uh we raised that valuation um at uh 12 million okay and uh in covet i mean that's crazy yeah no look i mean i i think you know the challenging thing is i have all my existing contacts and they knew where we were but i think the biggest problem with new companies taking on new round of capital was that you know in the first parts of covet always in the mid um you know vcs were looking at um you know stabilizing their existing portfolio right and so for us we went back to some existing investors who knew the story wanted to be involved and you know some of them just instead of being pro-rata came in more than where they were and said you know we're we're in it we're going to come in with you any plans right in the near term yeah actually so we're uh we're on a you know the typical start of a series a now given that our you know revenues are crossed in that point um and and really honestly the biggest part is you know we're in that typical flux now where time to add more devs time to add more sales uh i can't mention the two partnerships we just landed but they open up about 3 500 banks trusted partnerships for resale so that's another thing is rather than build a big sales team working with our trusted partners to be able to push out you know channel partners if you will right what we do makes the enterprise sales go a lot faster justin what's a team size today 15. how many engineers uh eight and how crazy are you comfortable getting with burn are you guys burning like net burn 50 grand a month right now what's that look like uh yeah i mean look i you know our nut burn isn't isn't bad um what i try to look at it as is you know really might try and make sure we don't get under that four or five month of uh runway burn because i just don't want to get in a spot like i'm never one to hire and then have to worry about putting people on you know doc so um and i'm i'm lowest paid employee um you know in the company so i think the the bottom line is for us is um you know just get a good raise here get see if we can um we can we can get a good valuation and fintech is is pretty enthusiastic right now how much do you want to raise and what would you consider a good valuation uh you know like i i think we're we're gonna be looking around eight to ten it's a pretty typical series a round um you know honestly man the valuation's gonna be interesting right some some of this is what market to bear but you know if i'm a founder saying what i want i mean i think we're in the in the mid thirties the high 40s um you know somewhere in there depending on how we look at the the tam and the process right yeah well we'll see what happens i'm obviously rooting for you it sounds like you've had no churn and you have a clear path to driving expansion revenue your net dollar retention past 12 months has got to be over 100 right oh absolutely yeah the churn is like absolutely non-existent right because the uh the only churn that we kind of exposed to is if a bank calls back their program but they don't really churn the enterprise agreements with us because it's it's very sticky right yeah what a story justin let's wrap up with the famous five here man number one favorite book uh okay i i always listen to your podcast on this and there's so many really great you listen you listen you listen to the show you enjoy it i listen to the show i enjoy it i like the rapid fire it's awesome stuff man you always go nathan why do founders agree to come on your show and you're just going to beat them up so i can ask you this you know the show format why did you agree to come on uh because because i think it's fun i think i think i think actually most importantly i think there's a lot of people like me five ten years ago that didn't run a business ran other you know big p l's and everything and don't know these things and i think it's important to get the at-bats and you do the at-bats faster than anybody so you know credit to you and i think it's i think it's worthwhile you know pushing that forward paying it forward right well thanks for being transparent man it doesn't work without you so what what what's your book yeah so anatomy of peace um written by arbinger institute if you haven't read it it's absolutely important uh i've read almost every business book in the typical ones you know um but this one is about um removing the obstacle that is working with people right treating people like obstacles um is kind of a natural human condition and so i think reading this and understanding it is a little bit of a religious connotation but not being overly religious just more about understanding that people are people you know i love that number two is there a foundry you're following or studying man uh i i usually follow elon i mean i think breaking the eggs and getting things done is pretty fascinating at the same time you know wildly irresponsible sometimes but i like following and seeing what he's going to do and then richard branson later i mean how can you not follow these two guys and you know what they've been doing so number three just favorite online tool for building risk scout besides your own uh i mean personally for me risk out mix max is is a lifesaver because i just i can't do the calendar thing i got to be able to send calendar appointments all out everywhere and i i can never go back to like when what time period what's you know time zone so mixed max has got a ton of features i don't even use all of them yet but um i like them a lot number four how many hours of sleep do you get every night i sleep pretty good uh you know it's stressful during the day but uh i get about eight hours of sleep that's great and what uh what's your situation married single kiddos uh married two kids or teenagers so it's a little easier they're they're usually sleeping pretty late especially in the summer that's a busy guy though how old are you uh i'm in the early 40s 42 42 last question something you wishing you when you were 20. uh man i'll tell you it's the lesson that anatomy of peace taught me uh i'll tell you this way sometimes meritocracy builds internal struggle internal competition right i've been in way too many businesses where it's like sales versus development or sales versus operations or what have you right and it's always about who's going to make the numbers who's going to make president's club and end up on the beach that's generally the sales team right so what it comes down to is really realizing we're all in the same boat even though we have different factions or you know areas of that boat and not treating people like an obstacle to your way but a but someone who can reach your hand up and pick you up and i think if people get that concept um read those books but get that concept i think everything in business works better guys risk scout grew from five grand a month last year and revenue to forty thousand dollars a month today in revenue on a path to break a million in terms of ar by the end of this year they've raised through about three million bucks to do it last one was 2.2 million on 12 million valuation teeing up and getting ready for their series a they make it easy for banks and credit unions to bank the unbankable tradition the cannabis businesses the atm businesses providing a very important function here for customers today very enterprise motion we'll see what happens next justin thanks for taking us to the top thanks nathan one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares backend dashboards their expenses their revenue arpu cac ltv you name it they share it and the buyers try and make a deal live it is fun to watch every thursday 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button 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