How SteadyPay CEO Oleg Mukhanov grew to $7.7M revenue and 10K customers in 2024.

hey folks my guest today is oleg mukenov he's the co-founder and ceo cfo at steadypay an award-winning lending london fintech focused on providing income stability solutions for the gig economy also an angel investor and advisor to early stage startups he was previously a partner and ceo at a london and new york-based venture capital fund called enso ventures as well as executive director of some of their portfolio companies oleg you're ready to take us to the top yeah all right this is sort of like buy now pay later but for personal paychecks huh uh well yes or no so what we're actually doing is new type of sas we like to call it salary as a service right and use new use for the same abbreviation so effectively what tackling is that about 50 workforce globally do not have fixed paycheck meaning that some months weeks or fortnights they earn above average sometimes they earn below average and whatever they earn below average there is not much they can do because they're usually priced out of the traditional markets can access traditional products so what we do we automatically provide them the shortfall if they earn below average and they repay us when they earn above average so effectively we convert irregular pay to a fixed salary and we do not charge interest we just charge a membership fee think about us as netflix for credit and this makes a lot of sense but i guess my question is how does someone establish you what data do they have to give you so you can establish what the average is uh that's actually the cool trick which we're doing and that's why we could grow so quickly we connect directly to their bank accounts and we use technology to actually get all the data so any everything from id check kyc iml establishing that credit risk as well their average and tracking it in real time is done by sac they're like directly to the through the banking connection so in the uk we use something called open banking in other countries we might use api connections quick screen scraping and whatnot that's why effectively customers cannot board in two or three minutes and the rest is done automatically so when you look at your entire user base using you right now what what is for the average paycheck per per month would you say yeah so we're talking at pretty close to the average income in the uk so we're talking about two thousand pounds call it two point five seven dollars not into your bank account after taxes so that's kind of low me to mid level of income so basically the backbone of uk economy that that's per month per month right correct correct okay so now let's say i'm a user just so my audience can really understand this let's say april's been a bad month for me you see via my open banking api connection that i've only collected net after tax is about fifteen hundred dollars you'll give me an extra thousand dollars right so no questions asked as long as you're within the risk parameters um yeah you just get automatically another one key into your bank account to make up for it and when do i how long do i have to pay that back oh it depends on how much you earn next month so for instance next month you can earn another 200 dollars below your average will give you some more money to make up for it obviously there is a limit depending on the customer so we're aiming for about 1000 pounds per customer limit but effectively you pay us back only when you earn at or above average so the obvious question is what if my business is declining and i never have a month again where i go above average how do you ever get your money back uh that's a really good question um there are two things to keep in mind number one is we do not charge interest but we do charge membership so as long as you pay a membership fee we still make certain amount of economics from our customers and number two it's underwriting at the end of the day we provide a credit to our customers and there is no escape from the fact that some of the customers might not pay us back some customers were default and that's where the whole magic of using open banking and machine learning uh to actually identify uh good customers comes in play oh what's going on there youtube good to see you guys now imagine this you love watching these interviews with sas founders but imagine if we took all of the valuation data out from over 2807 interviews i've done manually saves you a lot of time well we've done this we've built it into the beautiful interface inside of founder path check this out i'll show you how you can access this in a second but you log in you connect your stripe account you see your valuation real time you can see what it changed over the past 88 days and even set goals for valuation this year now the secret evaluation is there's many different ways to value a sas business so the reason you're going to see three or four different valuations inside of your frowner path dashboard this is all free by the way is because depending on who's doing the buying of your sas company you're going to get a different valuation a vc is going to pay a different valuation private equity firm is different if you're going to do a minority sale that's different and if you sell the whole business that's a different valuation you can see all those when i hover over here right so the teal is what a vc would pay yellow is what private equity and red is if you sold the whole thing outright now what's cool about this is this is not built off random data again you guys hear these interviews on youtube all these datas are built from real time valuation data points founders share with us on the show so traction 1.2 million seed round 3.7 raised they sold 22 to their business go in here and filter by the event maybe you only want to see companies that have sold the whole business well here are a bunch that have been acquired the valuation and the multiple maybe you're going out right now and you're raising your seed round well go in here and look at all this recent seed deals that went down what they raised what valuation they raised at and what percent that they sold there's never been a larger data set of sas valuations than what you can get now inside of founder path and we're thrilled to bring it to you all right we're gonna go back to the youtube video here in a second but if you want to check this tool out if you want to jump in and sign up you can check it out for free to get your valuation at this link this link founderpath.com forward slash products forward slash evaluations or if you go to founderpath.com and hover over products click on get your valuation here and go ahead and sign up to give it a whirl again all that valuation data live right inside the platform i hope to see you there all right let's jump back into the interview i see okay what's the membership fee per month so membership fee depends on the tier of the product but for our flagship product it's four pounds per week or uh 16 pounds per month give or take okay so about 20 us dollars on average per month something like that okay interesting so twenty dollars per month and then i guess now that we understand pricing what the product is put this all on a timeline for me when did you write the first line of code for the platform um so we started in 2018 and we started two workflows in parallel um one is writing our mvp but at the same time getting approval with our regulator in the uk fca because it's such a new product and nobody has done it before we actually went through the sandbox pro program so we were working directly with the regulator to figure out what would be the right regulatory framework for us um then we launched um a closed pizza for our product in beginning of 2019 so we had 100 people um to test whether it works or not um then closed our first institutional rounds in the end of 2019 and started scaling up in the beginning of 2020. and so how much did you raise in 2019 so in 2019 we raised uh less than a million in total between family and friends and bootstrapping between uh the founders then at the end of 19 we've raised um just over 1 million pounds of equity and 1.5 millions of debt to actually provide lending to our customers and then we just closed couple months ago our series a with another 5 million okay so just speaker sorry in 2020 1.5 million equity and 1.5 million debt so in 20 and the end of 2019 beginning of 2020 1 million of equity 1.5 million of that before that call it half a million of equity and now another 5 million of equity got it you just this year raised another five million of equity any more debt or you're still using that million dollar facility uh we're in the process of actually refinancing it as we speak as a next step ah very cool okay cool um got it so i guess i guess well i guess the right question is so today how many customers are you serving yeah so currently as of today we have 10 000 customers on our platform oh well that's a big milestone congratulations yeah thank you can i take 10 000 times 20 a month you're doing about 200 000 a month in revenue from fees uh yes or no because customers are on a different tier of the offering because that's the revenue for the top tier and the lowest year is five dollars per month which is credit building only so effectively if you take the average um you're getting just over one million annual recurring revenue right now okay got it so you're about eighty three thousand dollars a month in revenue across ten thousand customers right okay got it um yeah so so that's about more like an average of eight dollars per customer per month something like that yeah because the questions on the customers congrats on making them breaking the million dollar mark that's obviously a big milestone where were you exactly a year ago do you remember uh exactly a year ago we were at about uh what was it um about 4000 customers so we increased our customer base by two and a half times yeah so you grew from like 32 000 a month to 83 000 a month right yeah and managed to do it actually in a cost efficient matter so not only we grew to 100 to 1 million annual recurring revenue we actually broke even at that stage which is quite exciting broke even last year yeah very cool obviously you raised more today so you're maybe burning now when you raise that 5 million seed most i mean most of the metrics i'm seeing say when folks are raising their seed you're selling you know between 10 and 20 percent of the business were you in that same range oh yeah okay so you're about a 40 million valuation something like that 30 40 million uh well i'm not gonna give you exact number but it's getting close to that yes okay um okay got it so less than 30 million evaluation but still healthy talk to me a little bit more about the warehouse facility i mean i'm very familiar with sort of bankruptcy remote spvs these fintech folks raising balance sheet capital you're usually raising a warehouse facility and you've got to pay an interest rate on that million dollars you raised right so i mean is that how yours works uh well it's more like an rcf so or you can call it accordion facility so you create real limits and then you do monthly drawdowns and you pay the interest on the drawdown portion so original facility actually is quite healthy from the interest perspective but does carry some warrants as you can expect in the early stage facility um but no commitment for you or anything which is which is quite exciting i think the next next facility which we're raising right now will be with no equity equity element but we'll probably start have to pay some commitment fees moving more into the kind of institutional style facility yeah commitment or unused fees right so if it's a 10 million dollar facility you only use 2 million you have to pay fees on the 8 million you haven't deployed yet that's right which brings up a big question for you right so like your ability to recycle capital quickly especially over a year is ultimately what generates you know could generate an interesting return for you um you know you don't have to caught an interest rate but just to be clear you're like let's say i then that's that example earlier right i'm only making 1500 this month you give me another thousand let's say the next month i make 3 500. do i pay you back that full thousand that next month exactly a thousand you don't so actually when you get a top-up you've got indicative repayment schedule and it depends on your payment cycle so if you'd say on the monthly payment cycle you usually repay it within three months if you have a big balance if you have average balance two months if you have a smallish balance it's one month because we've done a lot of modeling and analysis of the cash flows of our customers to figure out what actually healthy for them not only from a top-up perspective but also from the repayment perspective well if you force me to take three months to repay it though and i'm paying a 20 a month fee that's a 60 fee against a thousand dollar loan which is effectively six percent over three months correct yeah so our annual uh interest is at 20.8 yeah yeah so you can back it you've structured this in a way where it's not actually sort of an interest rate because you have a fixed fee model but because of how you structure the timing you can really back into an interest rate about 20 on your on your facility correct um and the the way we wanted to structure it on one hand to make it reasonably priced but on the other hand to actually make it simple for the customers because if you look at the majority of customers uh in this income bracket the level of financial sophistication is not that great and people genuinely either do not understand interest or intentionally do not want to understand how it works yeah i would completely agree with that so as of today like right now how much total capital do you have deployed out of your facility oh that's really good that's a really good question um it's safe to say that over the last two and a half years we recycled facility more than twice already okay so you've deployed more than two million dollars in total sort of loans done effectively oh actually or if i convert into dollars we're talking closer to three million dollars of loans advanced over that period of time i see i see and so how do you determine what size of the your next warehouse facility should be it's tricky math to do because you're constantly having to recycle so you have to project and forecast demand yeah correct so um good old financial modeling and forecasting you basically calculate how many customers you will get then you split them between different subscriptions yes you take the average balance per customer at any point in time and that's how you get to your target facility size so but if you look at your utilization on your current million dollar facility i mean is it fair to say you probably have like 800 900 000 of it out right now it's basically fully deployed yup sounds about right yeah interesting and if you if you needed to do more top-ups but you've already used your whole warehouse facility you could dip into your equity if you wanted until you raise the next warehouse facility right correct yeah and are you only have you generated capital stack here or is all your capital just coming from this one provider the one million dollar warehouse no actually uh depending on the business lines because we're doing pilots of another business line where we have another finance provider so we have um two groups of finance providers at the moment okay okay and most of these initial warehouse facilities into fit and tech companies like yours you typically have one to two percent warrants which you've already addressed there's also usually an interest rate of something between like 10 and 13 percent were you guys in that range well a bit higher but yes okay so call it north of 13 so if you're making 20 minus 13 you have a spread of about six percent on a million lent out so that's additional revenue for you on top of the million dollar sas run rate right yeah but if you actually look at it that's the most expensive pricing you will ever pay and you pay just to do the proof of concept because if you actually look at the warehouse facility at the good size call it five million plus you're probably looking at um high single digits low double digits without equity meaning that you're not going to make much of the economics in early stages when you're proving the concept it's only when you start scaling up and refinance that's where the majority of economics will start trickling in yeah well that's that used to be true but with the current interest rate environment it's becoming harder and harder to figure out for fintech companies what yields and spreads might look like four or five years from now you know even one year from now so i mean i know a lot of people that raised a warehouse facility at fourteen percent then they got it down to eight percent but it's floating against sofa right and so if it's floating you have no idea what you're you're not in control of your yield moving forward so like it's very interesting to me you're going this right now i mean how are you thinking about locking down that warehouse facility would you prefer a fixed rate that's higher or one that's variable but lower to start with um i would say a couple of things to keep in mind one is i prefer fixed again it's a little bit easy because we pay fixed um subscription to all customers and we pay fixed interest so it's actually quite good natural hedge in a way because we do not have any floating rates but second one we can always uh play around with the composition of our portfolio because we have a range of products depending on the limit and depending on the services and one thing we have a control on in case let's say certain amounts certain levels of landing becoming quite expensive we can always rebalance our portfolio potentially it means we will leave some of the customers on the table but at the same time we have pretty good flexibility when managing our capital structure yeah how much capital have you lent out that you that has now defaulted you're not gonna get it back um below ten percent okay so below a hundred thousand of the million that's pretty high though i mean you i mean you wanna be under three percent vintage to fall right in these kind of businesses well there is a difference between default rate and to the loss rate in our case right because people might have defaulted on repayment but they still pay subscriptions and they still legally owe us meaning that we actually have a good percentage of customers who go into default and then go back into good customers so technically they could be in default and it's down to us actually to enforce them or not and given that it's a gig economy workers with volatile income there is very little benefit in enforcing it so actually taking approach more of being friendly nurturing and getting customers back on track in terms of total loss actually it's getting close to like three percent which you're talking about i see how do you make sure there's a lot of services like you how do you make sure that the same gig economy worker doesn't apply for you guys and seven others at the same time and all of you guys have not given them way too much debt we see that bank account so we see um multiple bank accounts okay that's a really good question so we require a couple we require quite a lot of things on the back end but the most important one we need to be connected to the account where they're getting their main income and across this account or several accounts because we have functionality to um connect across reconcile several accounts there should be certain expenditure visibility meaning that above 70 percent of all the income they're getting we need to see where it's spent on meaning if they have one bank account and then they get income there and then transfer all the income to another bank account they're not going to qualify because although we see the income we do not see enough of the visibility on the outgoings i see that makes sense to me and i guess the last question here before we wrap up what what kills businesses like the one you're building is two things one yield compression right if a lot of money comes in and people lower their rates and there's no yield left for you to make the second is cac arbitrage can you keep getting customers cheaply so you can keep recycling really fast on larger and larger warehouse facilities so how are you getting customers today what is your cac arbitrage today um so we started with direct marketing because we're up only um so there is no point in trying even before we do that other channels so we've done facebook google worked really well um and we are starting to push more and more into b2b partnerships because if you think about it it's a push-pull strategy let's say if we work if we uh have enough right hailing customers on our platform then it becomes quite an obvious thing to do is go to this right-handling company and effectively offer that as employee benefit and we're getting more and more inquiries and pushes in these regards so if you think about it we use direct marketing to generate the critical mass enough to be noticeable and have those specific groups um clustered around specific employers and then go directly to employers to capture the residual employment base through the partnership angle so these massive marketplaces are good targets for you like fiber top tell also the right you know the ubers where there's thousands or hundreds of other contractors is great for you too the problem that you're seeing here though is is if you partner with uber and do this for uber employees right to stream out the driver's rev you know the income streams and uber will realize how big of a business this is this is why embedded finance is taking off so how do you compete against that over the long term when people just build your you internally themselves um that's actually a really good question at the end of the day it's still uh quite heavily regulated consumer credit business meaning the barriers for entry are quite high and you do carry underwriting and default risk meaning that you need to have a proper treasury collection and credit risk function so if you throw a lot of money in it through a lot of people you can build it but actually what we've been noticing is that the businesses just prefer to outsource this function to any someone else and also from their reputational risk because couple of companies tried to do that and they had pretty bad publicity because effectively they got accused of putting people in the mode of slavery when you give the debt and you cannot leave this employed before you repay the debt they would rather have this relationship with a third party so they're not involved and i think that's a good hedge from that happening that makes a lot of sense yeah so what what is your cac today to get a new 20 a month customer um that's a good question i think the average tax for our across our product let's say for the top product we're talking at about 40 pounds fully loaded versus 200 and plus pounds annual uh revenue so that works yeah that math works uh for for now that works so how big can this be if everything works out perfectly how big can this be so that's a really good question so we're talking at the gig economy in uk only of about 20 million in the us we're talking 80 million people who have income uh volatility but if you add additional services such as credit building which which started offering about a year ago some overdraft protection we can easily be helpful or useful in one form or another to about 70 or 80 percent of workforce uh basically excluding top top paid office white collar workers who would not require any of those products so with that in mind and given that it's fully automated it could be instantly scalable yep well i'm rooting for you we'll see what happens in the meantime though like we're out of time let's wrap up with the famous five number one favorite book um sherdog by phil knight number two is is there a ceo you're following or studying um not really but i am fascinated by ellen musk and his combination of building a business but being very vocal and controversial at the same time number three what's your favorite online tool for building steadypay microsoft to-do list cannot live without it number three f4 how many hours of sleep to eat every night um i try to do at least six okay and what's your situation married single kids uh not married in a relationship no kids okay and how old are you i'm 36 last question something you wish you when you were 20. oh god um probably that the consequences are not as big and severe as you expect them to be so just plan less and do more guys there you have it steadypay.com celebrating here on the podcast their 10 000th customer and breaking a million dollar run rate up from a 380 000 run rate just a year ago healthy growth they also disclosed a seed round called 5 million bucks sold between 10 and 20 of their business again they're helping gig economy workers flatten out less volatility with their income streams by advancing them capital on down months and taking it back on up months they make a little bit of spread on their warehouse facility a million dollar facility 20 interest rate earned last 12 months on call at 13 14 cost that'll obviously grow margin over time without when that flywheel grows they're at negotiating right now for the next warehouse facility we will see what happens with that in the meantime thanks for taking us to the top yeah my pleasure nathan thank you for having me 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 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