How RiskScout Grew from $5K Per Month to Nearly $500K ARR Helping Banks Underwrite High-Risk Businesses (Interview with Justin Fischer)

Introduction and What RiskScout Does

Nathan Latka

00:00Hey folks, my guest today is Justin Fischer. He's helping financial institutions bank higher risk businesses. The company you are of, if you wanna follow along, it's called riskscout.com. Justin, you ready to take us to the top?

Justin Fischer

00:10>> Let's do it. All right, what's

Nathan Latka

00:11that mean, bank higher risk businesses?

Defining High-Risk Businesses in Banking

Justin Fischer

00:14>> Well, essentially banks bank, you know, consumers and regular businesses all the time. The higher risk businesses in our world are THC, so cannabis, hemp, CBD, MSBs, which are money service businesses, they move cash, 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.

Why Banks Avoid ATM Operators

Nathan Latka

00:39Give me an example. So I'm an investor that owns a bunch of ATMs. I wanna bank with JPMorgan Chase. JP Morgan won't take me. Why don't they like ATM revenue?

Justin Fischer

00:46>> That's a great question. So ATMs are heavy in cash, right? Doesn't mean you're doing criminal activity, but because you're dealing with a lot of cash, 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, you know, generally shy away from banking ATM operators is what that's called. A little fact that people

01:09>> don't know, 60% of the ATMs in the country are actually run by independent operators. 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 6th Street sometimes and we need cash. Right? That's an independent ATM. You know?

Nathan Latka

01:32Is that a good business? Can you make a lot of money running an ATM?

Justin Fischer

01:34>> Yeah. There's great fees on it.

Nathan Latka

01:35Right?

Justin Fischer

01:36>> I mean, it depends on where your ATM is. And the funny side point to that is you put an ATM in a cannabis 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 the profitability as a as a regular ATM.

Nathan Latka

01:53Wow. How many ATMs are there in The United States?

Justin Fischer

01:56>> Oh, that's a good question. Hundreds of thousands. I don't know the exact answer to that, but definitely the larger percentage is non bank ATMs.

Nathan Latka

02:04Why hasn't anyone rolled up independent operators?

Justin Fischer

02:07>> It's a good question. A lot of these operators are long time family owned businesses. A lot of them are like one of the guys I spoke to runs a bunch of arcade machines and, you know, all that kind of work. So it's just kind of an aging industry. And it also brings to the point, they've been doing this for decades. Why is it a banking issue? Right? Just to kind of compound on that a little bit,

02:29>> the banking industry is really led by 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 with the bank. So Nathan, you've got 300 ATMs. You know what? I'm gonna decide to make you have to open

02:54>> up three diff 300 different bank accounts for every ATM just so I can separate cash easier. An examiner actually told the bank that and forced the bank to not be able to bank that business. And then they force them through saying, Hey, this could be an enforcement action to you.

Nathan Latka

03:10So if I open one ATM, I don't even know how much, like every Monday morning, I'd 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?

Justin Fischer

03:24>> Hundreds of thousands of dollars. It depends on how you do your process, but most most ATM machines will only have about 20 k 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 advocating crime, but that's unfortunately

03:44>> 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?

Nathan Latka

03:51That's fascinating.

03:52And I'm wanting to go roll up a bunch of ATMs now. Okay. Okay. So how do you help? How do you make money?

How RiskScout Makes Money

Justin Fischer

03:58>> So we make money by helping the institutions do compliance. When a let's just say let's just take a different market, like a THC dispensary. Oklahoma has a ton of them. Texas, we're not quite there. But an Oklahoma THC dispensary says, hey, have to have a bank account. I've to make payroll. I've got do something with this cash. Can't sit in a safe, which is also unsafe. And so they will bring it to the bank. Well, the

04:23>> bank has to do all this due diligence. Where's your license? What is your criminal background? All that kind of stuff they've got to do, and all that due diligence ends up in Word documents,

04:34>> background check systems, and all these disparate places. Well then imagine 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 fifties who's like literally trying to do this with manual processes. We come in and we automate all that process. And so when

04:57>> 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 RiskScout, we have every t crossed and every I dotted, this is all our compliance stuff.

Nathan Latka

05:07So who who is who's paying you? The the owner of the cannabis business or JPMorgan that wants to bank the cannabis business?

Justin Fischer

05:13>> The banks. The banks and credit unions themselves. In fact, most of them are

05:17>> community banks and credit unions. So not even at the JPMorgan level. Like, there's 8,000 community banks and credit unions in The US, right? 98% of them are under $10,000,000,000 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.

Pricing Model and Revenue Per Bank

Nathan Latka

05:34Interesting. Okay. What an average bank or credit union pay you per month to use your tech?

Justin Fischer

05:38>> Yeah. No. So the great thing

05:40>> is we start off small, so we have a $5,000 minimum. So it's enterprise software, right? But we have a $5,000 minimum, but very quickly Annual or monthly? Monthly, MRR. And what's great about it is our banks end up growing. We had a customer who was at that in November, who's now over 20 in just a matter of months. And part of that, Nathan, is because we actually charge off of each business that's under compliance. So as

06:04>> 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 here's the model, right? So you are a bank and you wanna bank someone. Okay. Well, you're gonna 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 a normal banking world, but

06:26>> in high risk it's actually really cheap. You know, they'll pay us say a $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

06:45>> 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. Much So how

Nathan Latka

06:56many total banks pay you at least a dollar per month?

Customer Count and ARR

Justin Fischer

07:00>> Pay us at least a dollar per month. We have under a dozen banks, we have over a thousand businesses on the system. We have, like I said, probably an average of usage right now is averaging in the 15 to 20 ks a month MRR. That's where you're

Nathan Latka

07:15at right now, 15 to 20 k MRR.

Justin Fischer

07:16>> Yeah. As a business.

Nathan Latka

07:17No, no, no, no, no, no.

Justin Fischer

07:19>> So average of our customers is as a business, we're right under 500 k of ARR.

Nathan Latka

07:24Okay, this is great. Wow, what a story.

07:27Okay, 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?

Justin Fischer

07:36>> Right, right. And they're paying,

07:38>> you know, well, on, if you have, you got it under a dozen. So if have

Nathan Latka

07:40like five or six customers paying sort of $10 to 15 grand a month, that's where you

Justin Fischer

07:43>> get your 500,000 ARR. Correct, correct.

Nathan Latka

07:45I see. Okay, really interesting. How did you tell me the story of

07:48how you got your first customer?

Founding Story and First Customers

Justin Fischer

07:50>> Yeah, well, also this isn't my first rodeo. I've been doing this for twenty years. I was with 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 I was around in that company when we were really young. I've done business B2B SaaS for banks for a long time. And I was out looking at this market. I'm a solutions guy

08:10>> 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. That's So about two years it was a little over 3,000,000.

Nathan Latka

08:29Okay.

Growth from $5K Per Month to Nearly $500K ARR

Justin Fischer

08:30>> And launch was, you said 2018? So we actually started in late twenty nineteen. And then the pandemic year was a weird year just for everybody, but we did a lot of building in that year and then came out with a new brand, RiskScout, new brand offering, kind of pivoted that name. So this is really our breakout year. We had essentially 5 ks in revenue a month near November of last year. Now we're approaching 500,000 of ARR.

09:01>> Actually, the end of the year, we're approaching over 1,000,000 of ARR on track for. So it's really coming out and it's great. Big, big, big banks now too. We're not seeing as many small banks.

Nathan Latka

09:11Where's that growth going to come from?

09:14Adding more seats to the four or five customers you're with right

Justin Fischer

09:16>> now or adding new whole banks altogether? Both. So we call that expansion growth, organic growth. We also have cross sell growth. So adding additional products and services, additional 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. We built our own no code platform. And so that allows us to not have

09:38>> to have developers launch apps. We can actually have our team back here launch the apps for the banks.

Funding History and Valuation

Nathan Latka

09:45How much did you raise then back in 2019?

Justin Fischer

09:47>> 3 you said? 3 total. So we did it like, you know, like a two seed round, like a seed one, two.

Nathan Latka

09:52I see. Okay. And did you price those or were they were convertible notes with caps?

Justin Fischer

09:58>> Yeah. So the first one was basically your typical safe, right, with the cap. And then the second one was a price round.

Nathan Latka

10:04Okay. That first round with

Justin Fischer

10:05>> the cap, how much was that for? We did 800 k in the first round.

Nathan Latka

10:09Okay. So and what cap did draw on that? Like, the 5,000,000?

Justin Fischer

10:12>> Yeah. We did that straight out of 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 5,000,000 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, it was a lot, the first day of enthusiasm as you get

10:30>> going, right? I also invested as well. And then you raised two, well, much of the 800 did you put in? 100 ks.

Nathan Latka

10:37So, I mean, is that, I don't know if you're like super rich or not, does that mean a lot to you? Like, you all in?

Justin Fischer

10:41>> Yeah, that's all in and then I'll be in the next round as well too. Like, I'm paring in there, throwing in each round, so.

Nathan Latka

10:47Okay, and then the 2,200,000

10:49you raised during COVID, I guess?

Justin Fischer

10:52>> Yeah, man, that was a weird time. Yeah, right in the middle of COVID, yeah.

Nathan Latka

10:55I wanna learn that story. So what was the valuation you raised that on?

Justin Fischer

10:59>> We raised that valuation at 12,000,000.

Nathan Latka

11:03Okay. How did you do this during COVID? Mean, that's crazy.

Justin Fischer

11:06>> Yeah, no, look, I mean, 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 in the first parts of COVID, all the to the mid, VCs were looking at stabilizing their existing portfolio, right? And so for us, we went back to some existing investors who knew the story and wanted to

11:28>> be involved and some of them just instead of being pro rata came in more than where they were and said, we're in it, we're going to come in with you.

Nathan Latka

11:35Any plans to raise in the near term?

Series A Plans and Channel Partnerships

Justin Fischer

11:37>> Yeah, actually, so we're on a, you know, the typical start of a series A now, given that our, you know, revenues are costing that point. And really, honestly, biggest part is, you know, we're in that typical flux now where time to add more devs, time to add more sales. I can't mention the two partnerships we just landed, but they open up about 3,500 banks, trusted partnerships for resell. So that's another thing is rather than build a

11:59>> 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.

Team Size, Burn and Churn

Nathan Latka

12:08Justin, what's the team size today?

Justin Fischer

12:10>> 15.

Nathan Latka

12:11How many engineers?

12:14Eight. And how crazy are you comfortable getting with burn? Are you guys burning like net burn $50 a month for an hour? What's that look like?

Justin Fischer

12:21>> Yeah, I mean, look, you know, our net burn isn't bad. What I try to look at it as is, know, really might try and make sure we don't get under that four or five month of 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, docked. And I'm lowest paid employee in company. So I think the bottom line

12:41>> is for us is just get a good raise here, see if we can get a good valuation. FinTech is pretty enthusiastic right now.

Nathan Latka

12:49How much do you wanna raise and what would you consider a good valuation?

Justin Fischer

12:53>> You know, like, I think we're we're gonna be looking around eight to 10. It's a pretty typical series a round. You know, honestly, man, the valuation is gonna be interesting. Some of this is what market to bear, but if I'm a founder saying what I want, I mean, I think we're in the mid thirties to high forties. Somewhere in there depending on how we look at the TAM and the process.

Nathan Latka

13:13Yeah. Well, we'll see what happens. I'm obviously rooting for you. It sounds like you've had no churn and

Justin Fischer

13:17>> you have a clear path

Nathan Latka

13:18to driving expansion revenue, your net dollar retention past twelve months has got to be over 100%, right?

Justin Fischer

13:22>> Absolutely. Yeah, the churn is like absolutely non existent, right? Because 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 very sticky, right?

Famous Five: Books, Founders, and Tools

Nathan Latka

13:35What a story, Justin. Let's wrap up with the Famous Five here, Number one, favorite book.

Justin Fischer

13:39>> Okay, I always listen

13:41>> to your podcasts on this. And there's so many You really great listen to

Nathan Latka

13:44the show, you enjoy it?

Justin Fischer

13:45>> 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

Nathan Latka

13:50come on your show and you're just gonna beat them up?

13:52So I can ask you this.

13:53You know the show format, why'd you agree to come on?

Justin Fischer

13:55>> Because I think it's fun. 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 big P and Ls 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. Credit to you. And I think it's worthwhile, you know, pushing that forward, paying it forward.

Nathan Latka

14:14Right. Well, thanks for being transparent, man. It doesn't work without you. So what's your book?

Justin Fischer

14:17>> Yeah. So Anatomy of Peace, written by Arbinger Institute. If you haven't read it, it's absolutely important. I've read almost every business book in the typical ones. But this one is about removing the obstacle that is working with people. Treating people like obstacles 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

14:45>> people, you know.

Nathan Latka

14:46I love that. Number two, is there a founder you're following or studying?

Justin Fischer

14:49>> Man, I usually follow Elon. I mean, 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 gonna 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.

Nathan Latka

15:05Number three, Justin, favorite

15:07online tool for building RiskScout besides your own?

Justin Fischer

15:09>> I mean, personally for me, RiskScout Mixmax is a lifesaver because I just I can't do the Calendly thing. I got to be able to send calendar appointments all out everywhere and I can never go back to, like, when, what time period, what's, you know, time zone. So Mixmax has got a ton of features. I don't even use all of them yet, but I I like them a lot.

Nathan Latka

15:29Number four, how many hours of sleep do you get every night?

Justin Fischer

15:31>> I sleep pretty good. You know, it's stressful during the day, but I get about eight hours of sleep.

Nathan Latka

15:37That's great. And what's your situation, married, single kiddos?

Justin Fischer

15:40>> Married, two kids or teenagers, so it's a little easier. They're usually sleeping pretty late, especially during the summer. That's a busy guy though.

Nathan Latka

15:47How old are you?

Justin Fischer

15:48>> I'm in early forties, 42.

Nathan Latka

15:5042. Last question.

15:51What's something you wish you knew when you were 20?

Closing Reflections on Business and People

Justin Fischer

15:54>> Man, I'll tell you, it's the lesson that anatomy of peace taught me. 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. 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. So what it comes down to

16:16>> is really realizing we're all in the same boat, even though we have different factions or areas of that boat, and not treating people like an obstacle to your way, but someone who can reach your hand up and pick you up. And I think if people get that concept, read those books, but get that concept, I think everything in business works better.

Recap and Wrap-Up

Nathan Latka

16:34Guys, RiskScout grew from $5K a month last year in revenue to $40,000 a month today in revenue on a path to break a million in terms of ARR by the end of this year. They've raised about $3,000,000 to do it last one, that's 2,200,000 on 12,000,000 valuation teeing up and getting ready for their Series A. They make it easy for banks and credit unions to bank the unbankable traditionally, the cannabis businesses, the ATM businesses, providing a

16:55very important function here for customers today, enterprise motion. We'll see what happens next. Justin, thanks for taking us to the top.

Justin Fischer

17:00>> Thanks, Nathan.

Nathan Latka

17:03One more thing before you go, we have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end 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 one

17:28p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. Central. To make sure you don't miss any of that, make sure you click the subscribe button below here on YouTube, the big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's

17:49an acquisition, a big fundraise, a big sale, a big profitability statement or something else. I don't want you to miss it. Additionally, if you wanna take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS founders. You wanna get in there. We've probably talked about your tool if you're running a company or your firm if you're investing. You can go in there and quickly search and see what people are

18:11saying. Sign up for that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter

18:31those people. We got to push them away. Click the thumbs up below to counter them and know that I appreciate your guys' support. Alright, I'll be in the comments. See you.