How Fundkite Hit $70M in 2023 Revenue with 90 Employees and a 6.8% Charge-Off Rate (Interview with CEO Alex Shvarts)

Introduction to Fundkite and Alex Shvarts

Nathan Latka

00:00FunKite was launched back in 2015 on a dream and an idea. They've scaled nicely to in a capital efficient way. They put out or they generated, they get 5,000 applications per month. They send out offers about 1,300 of those. Some portion of those are accepted and approved. The business in 2023 did quote about $70,000,000 of revenue. Alex is constantly thinking about how do they keep their both default rate low, which is, 16%, if I'm remembering properly,

00:23and an actual charge off loss rate, 6.8 of that. Those are good economics. They optimize for about a 16%, take rate NIM sort of all in, which is very healthy. 91 folks full time on the team. They're funding these deals with prom notes on their own balance sheet and then also sourcing some of them out to capital partners as well. Hey, folks. If we haven't met yet, my name is Nathan Latka. I launched and sold my

00:44first software company back in 2015 and went on to write a book about it, which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies. Thank you so much for that. After the book, I launched this show and one went on to create founderpath.com. I raised a large fund to do non dilutive deals with b to b software founders. So far, we've invested in over 400 software founders totaling a $150,000,000. Here in 2024, we're

01:14doing three to four new deals per week. So if you're looking for capital and don't wanna give up equity, go sign up at founderpath.com for free to get your offer. Alright. Let's jump into the interview. Hey, folks. My guest is Alex Schwartz. He's the CEO of FunKite, one of the fastest growing fintech companies in New York that provides funding to small businesses across The US. The company was founded in 2015, and his company utilizes a boutique

01:36funding style offering business owners a flexible variety of products and services that can be tailored to fit their individual needs. Before FundKite, he engineered and sold proprietary technology to the greater fintech industry. Alex, you ready to take us to the top?

Sweet Spot Deal Size and Target Businesses

Alex Shvarts

01:48>> Let's do it.

Nathan Latka

01:49Alright. Give me your just to get us all in the right frame right off the bat, give us your sweet spot deal. Is it a $100,000 into a small business doing a million a year in revenue?

Alex Shvarts

01:57>> So our our average deal size is about a $110,000. Mhmm. And these these are companies that are doing between 1 and 5,000,000 a year in annual gross sales.

Nathan Latka

02:08Okay. And any specific sector, e comm, restaurants?

Industries Served and Sectors Avoided

Alex Shvarts

02:13>> Very broad. Everything from restaurants to e comm to medical. There's some industries that we don't cater to at the moment.

Nathan Latka

02:23Like what?

Alex Shvarts

02:24>> Like transportation and trucking. They're really in trouble. Those guys are really having a big hard time right now getting by. We don't do bail bondsman. So truckers, transportation, and we've we've we've pulled back a little bit on the construction industry.

Nathan Latka

02:41And why is that? I mean, there's a lot of fintech firms that are doing on balance sheet lending to truck drivers or truck companies that buy the truck, and then you can sort of discount cash flow the trucking revenues, and they lend against that. Why are you staying away from it?

Revenue-Based Financing Explained

Alex Shvarts

02:52>> So let let's understand our product first. I think that will that will break it down. So what we do is called revenue based finance. We're we're we're buying future receivables based on historical sales, and we're buying them at a discount. So as the merchant is generating sales, we collect our receivables and we collect those receivables, a portion of those receivables to recover or, I'm sorry, to to accumulate what we've purchased. Right? So let's say we bought

03:21>> a $100,000 worth of receivables for a lump sum payment of $90,000 today. And we'll collect 10% or whatever that fixed ratio is of your receivables. So if you did 5,000 in sales this month, we'll collect $500. If you did 3,000, we'll collect 300. So it varies. So we take

Typical Deal Terms and Flexibility

Nathan Latka

03:40And what's the what's the typical term, though? Is that you're gonna get back to 100?

Alex Shvarts

03:44>> There is no term. Until we get back to our receivables, there is no term.

Nathan Latka

03:48But, Alex, for you, what's typical, though? Right? So if you're taking 10% of monthly receivables, do you typically get paid back on the receivables you purchased within five months, or do you model for twelve months

Alex Shvarts

03:56>> or fifteen? We we we we model anywhere from eight to sixteen months, but it's very unpredictable. Right? So there is no term. There is no fixed term with our product. We're taking a ride with the with the, with the merchant that, you know, look, we look at historical data and we hope that business is going to increase and sales are going to go up. But it's it's really hard to, to predict that. So, having said that,

Challenges in Transportation and Construction

Alex Shvarts

04:24>> why trucking is it? So we've seen a lot of transportation companies fail. They're having their the biggest problem they have is accounting for the cost of goods, which in their case might be fuel. Right? So fuel is jumping up and down. They're booking the the jobs at one rate. They're not getting paid fast enough. So they're having a hard time, and this has been going on for years. We see a lot of major transportation companies file

04:49>> bankruptcy in the last two years. Mhmm. Construction, so we're seeing a delay in payments. They're having a hard time collecting money. A lot of projects went into stand standstill. So when interest rates went up, a lot of the commercial properties are in trouble. We see a lot of big developers in trouble right now. They can't refinance. So that's slowed down. The residential market still seems to be doing good, but not as good as it was, you

05:15>> know, post immediately post COVID. Right?

Nathan Latka

05:17And, Alex, in fact, during a key a key component you have to model is obviously the discount rate. The 100 k example you just gave us where you wired 90 k upfront represent a 10 discount to future receivables. Is that your target typically?

Alex Shvarts

05:28>> Typically, it can range from anywhere from 10 to about 28% discount. So depending on the risk factors that we're facing.

Discount Rates and Cost of Capital

Nathan Latka

05:37And the quickest way, at least on a annual on a year long facility, now years again go from eight to sixteen months depending on the percent of monthly receivables, but a 28% discount rate paid back over twelve months represents about a 5052% effective interest rate. How do you get consumers or how do get these businesses comfortable with that kind of interest rate?

Alex Shvarts

05:55>> Really consider an effective interest rate on this because this is not a loan, and it's it's impossible.

Nathan Latka

06:02Well, no. But, Alex, sorry. Just to take a step back. It's not a loan. It's not you but they are it's a true sale. They're selling you future receivables, which is why you don't have to deal with recarculation list, gain usury, and lending laws. Right? That's the way you get around that as a factoring business. You can still go calculate

Alex Shvarts

06:15>> I mean, we don't get around it. This is what the product is. Right?

Nathan Latka

06:19Yeah. But the reason factoring the reason factoring is a thing is because it's a true sale. You don't have to worry about usury laws in certain states and lending licenses and things of that nature.

Alex Shvarts

06:28>> But the difference between a factoring product and this product and if you give me thirty seconds. Factoring works like this. I've got a purchase order from Home Depot. I've got a real buyer that's ready to buy a million dollars worth of worth of widgets. I'm a manufacturer. I need $500,000 to produce those widgets. I go to a factor. I say, here's a purchase order from, Home Depot for a million. Give me a 500,000. When I deliver

06:54>> those goods, Home Depot is writing the check to the factor, and I get the difference. And so in factoring, you're underwriting the buyer. Right? Who's buying the product? How credit worthy are they? So that's a little and there's usually they're very short term type of deals. Right? With us, we're buying receivables. We don't know what if they're gonna have. So we're looking at, let's say, a restaurant. We look at twelve months of of receivables. They're averaging

07:18>> a $100,000 a month in sales, and that's how we're gonna correct calculator offer. But what happens if their sales go down? It's a hurricane. It's COVID. It's there there there is no guarantee that they're gonna have receivables. So because we reconcile their sales constantly, right? So we do reconciliation. So if we're supposed to take 10%, we're looking at their sales or we're adjusting payments. It most of the time, it never works out as planned. It's always

07:47>> a slower pace. Okay. So there is no fixed term here and and it's very hard. Look, we have disclosures in states like California and states like New York, where at the time of, origination, we have to provide a APR, right? And if we do calculate this APR based on the standards that they have provided, but it's not always accurate. And it's it will change. It will change because what if it takes them two years or three

08:15>> years? Right? So the better way to look at this is is the cost of capital. So, you know, I'm getting $90,000. I gotta pay back a $100,000. My cost of capital is $10,000. That's the true way to look at this. And, because there is no term, and and and and that's really, really important. Right?

Nathan Latka

08:36So we No. I audience will understand this. They're they're sort of savvy, find they'll understand this completely. But I just wanna underscore paying back that 10 k cost of capital in three months if the company grows really fast and receivables grows really fast.

Alex Shvarts

08:49>> It's gonna be a lot

Nathan Latka

08:50more expensive. Different than paying back 10 k over someone that delays their payments and it takes three years.

Alex Shvarts

08:56>> Absolutely. Absolutely. Yeah. And Okay. We're not catering to your bankable client. Right? You we're not banking.

Nathan Latka

09:03Yeah. Yeah. I get that. It's a restaurant. I guess my question to you though is the example we just gave is if you do a deal with a restaurant for a 110 k, your average deal size, and then they explode, right, they do really well, that's good for you. That's great. You're gonna get your money back quicker, but it drives the effective. Like, if they're backing into an effective rate, it drives it through the roof. Why

09:22do you do you ever restructure those to keep your good customers coming back for more?

Alex Shvarts

09:27>> No, we don't restructure them. And I've never seen it explode in a way where they just pay back like that. However, you know, if a merchant comes back in thirty days and says, look, I I I just wanna repay the receivables now. We just give them a discount on the balance.

Nathan Latka

09:40So So instead of, like, the 10 k, you might say you're

Alex Shvarts

09:42>> paying that early. You can pay a Yeah. We we discount it, and that that's great. Right? I see. But it never explodes in the way we we want it to explode.

Nathan Latka

09:51Yeah. It's always the worst case.

Alex Shvarts

09:53>> It's it's the implosion, not the explosion. Right?

Nathan Latka

09:55Yeah. Help me understand on a month. Let's just use last month, February. How many new deals did you do across how many companies?

Deal Flow and Application Process

Alex Shvarts

10:04>> Okay. So we processed last month probably approximately 5,000 applications for different businesses. Right?

Nathan Latka

10:11Okay.

Alex Shvarts

10:12>> We don't disclose the numbers of deals we actually fund or the volume. Can give you just average numbers. Right? But so you have 5,000 businesses, about 5,000 applications we process. A variety of industries. Like, there's we we get sometimes agriculture, supermarkets, restaurants, manufacturers.

10:35>> It's just to you name it, we see it.

Nathan Latka

10:38Mhmm. Can you give me I don't wanna I don't wanna I don't wanna push you on something you don't wanna disclose, but can you at least sort of put us in the right range? Right? So if you have 5,000 applicants, are you doing sort of on the range of a thousand new wires per month into these companies? Or or can you give us an No. No.

Alex Shvarts

10:51>> Nobody does that type of, conversion. No.

Nathan Latka

10:55That that's So it's much lower.

Alex Shvarts

10:56>> Yeah. It's much lower. It could be anywhere from so I'll I'll I'll I'll give you this number. Out of 5,000 applicants, we made offers to merchants. About 27% of those applicants, we made funding offers

Nathan Latka

11:11Okay. Okay. Got it. So so about about 1,300 you made offers to, and then some portion of the why would someone not accept your offer?

Alex Shvarts

11:23>> They might get a better deal from a competitor. Better charge. Who? There's OnDeck. There's Shopify. There's PayPal. There's there's a lot of big competitors in the space. Right?

Nathan Latka

11:35Mhmm. You can be with LendingClub.

Competitors and Fundkite's Value Proposition

Alex Shvarts

11:38>> So LendingClub is really not a funder. It's a the a lot of them are, like, kind of lead gen. So you're they're they're they're gathering. They're telling you they're doing it, and then they send it out. LendingClub is not really a business funding. They do it more personal stuff, consumer based.

Nathan Latka

11:53Right? I see. And that's because You're not lead gen. Right? You have your own source of capital. You raise

Alex Shvarts

11:58>> We're absolutely a a full, fintech in this space. Our own underwriting, legal, collections, sales, we do marketing.

Nathan Latka

12:05So you have you've raised balance sheet capital through these deals and hold them?

Technology, Automation, and Underwriting

Alex Shvarts

12:08>> Yes. We have. Yes.

Nathan Latka

12:09Okay. So what's your fund size? How much do you have available to lend out?

Alex Shvarts

12:13>> At any given time, our capacity is about 30,000,000 a month.

Nathan Latka

12:17Okay. This is so this is an interesting question. Like, who's who's backing these fintech providers today? I mean, you're seeing you're reading the news about folks backing up from the BaaS providers. Like, you're seeing treasury prime lose their banking partnerships and the government going on BaaS. I mean, are you seeing a lot of sources of capital for you to raise and then lend out or not lend out, but wire?

Alex Shvarts

12:35>> More and fund. The word the word fund.

Nathan Latka

12:38Fund.

Alex Shvarts

12:39>> Yeah. More and more every single day. So we've got there's a bigger influx of capital from hedge funds. Mhmm. High net worth individuals. There's a lot of syndication that goes on in this in this space. So the cap and and we've had some a lot of conversations with banks that wanna jump into this space. There's gonna be some regulation coming out next year where banks are gonna be forced to go back and start to lend out

13:04>> to the small business. But banks are not equipped to underwrite a small bit. They can't underwrite a pizzeria. They don't understand how to look at bank statements like we do. So we're we're in our final stages of automation that so let's go back a step. How does this really work? Right? So no two businesses are alike. You take a Burger King in in New York City and you take a Burger King in Toledo. It looks like

13:29>> it's a Burger King, two different operators, different costs, labor, rent, everything. Right? So and you've got two different people that run businesses and cash flow two different ways. So you really have to go through those bank statements to really understand true sales revenue and how they operate their business, right? You have to look at line by line to see what's going on, right? So what we've done is we've created automation that's able to really understand or

13:56>> read those base statements and with scoring models shoot out offers. So primary for us is looking at the cash flow history of the business. Second is is is credit and background in industry. And we've been able to do that. And banks, they they can't do that. I mean, we we talk to banks all the time. They don't understand that they're credit driven products. They pull the credit at $7.50. Great. We can fund this guy. We can

14:20>> provide credit. We don't look at credit. Credit is not the most important factor to us. It's how they got there. So you can have somebody with five fifty credit. They're just utilizing a lot of their credit and their credit score is down. You can have somebody with seven eighty FICO score and they have no credit. They've got one credit card and so credit isn't always a true reliable factor for us when it when it comes to

14:46>> providing funding.

Nathan Latka

14:47Mhmm. When your your source of capital on the 30,000,000 fund that you've raised

Funding Capacity and Capital Sources

Alex Shvarts

14:52>> No. No. We raised more than that. I'm just saying I have capacity to fund 30,000,000 a month.

Nathan Latka

14:57So what what how much capital have you raised total in in in debt funds that you can then, again, go go, you know

Alex Shvarts

15:03>> Both in in debt. And so both in debt and participation, almost 200,000,000.

Nathan Latka

15:12Okay. And how much do you have to participate on on the so the advance rate is what? 90 percent, 95%, 80%?

Alex Shvarts

15:18>> The average? What do you mean advance rate?

Nathan Latka

15:21Yes. You mentioned you write people fintechs raise equity to cover their haircut capital in their warehouse facilities typically. And those warehouse

Alex Shvarts

15:28>> facilities We don't have any warehouse facilities or or senior lines. We we don't take we don't take on capital like that. Right? We have investment partners that participate in these transactions or these

15:42>> contracts, and and that's how we structure it. So we have balance

Nathan Latka

15:44You're creating an s you're creating an individual SPV for every deal?

Alex Shvarts

15:47>> We have SPVs, but it it's structured as participations. Yes. Some of them. Some of it is participation, and some of it is balance sheet that we raised on on a debt basis, but not senior lines or mezzanine.

Nathan Latka

16:03Okay. Let me just use a real example from our research. Right? You raised 16,800,000 according to Crunchbase on October 2023. It's debt fund quote, debt financing fund kite $16,800,000. What is that?

Alex Shvarts

16:13>> That's structured notes.

Nathan Latka

16:15Oh, I see. So you're okay. Got it. So you're raising these sort of structured notes at your OpCo level, and then and then that's the money you're using to do these deals?

Alex Shvarts

16:24>> For sure.

Nathan Latka

16:25I see. See. Why'd you choose to go

Alex Shvarts

16:27>> that did another filing recently. That number went up to, like, 22.8 or something.

Nathan Latka

16:32Okay. So where do we get the 200,000,000 from? Like, I can't find that 200,000,000 number in my research anywhere. I see it's something like

Alex Shvarts

16:38>> We have a lot of participants that take down, participation in deals.

Nathan Latka

16:42Oh, I see. Okay. So that's the total that's like what you've also sourced out to your partners. That's not necessarily the paper you're holding. Okay. Yeah. You're holding something like 20,000,000.

Alex Shvarts

16:51>> No. We're holding way more than 20,000,000.

Nathan Latka

16:54Okay.

Alex Shvarts

16:55>> Because, you know, we'll we we we we fund, we collect, we put more money out. Right? So it's it's kind of a compounding out.

Nathan Latka

17:02Okay. Okay. And then the prom notes that you just mentioned, the prom notes you raised at your operating co, you raised those at a fixed or floating rate?

Alex Shvarts

17:10>> We raised them with a stated interest and a contingent interest. So we give the upside on how well the portfolio does.

Nathan Latka

17:18Oh, interesting. So it's like a hurdle rate almost and then a eighty twenty split above the hurdle.

Alex Shvarts

17:23>> No. Eighty twenty split. We we charge our fees regardless of of the performance. Right? But we we do provide stated interest fixed interest, let's say, and then the upside on how the portfolio or that node closes out over a period of time.

Nathan Latka

17:38We've recently seen others in the space like Pipe, for example, just give money out willy nilly. Those founders are now no longer there. The book effectively, according to press outlets, blew up, and the company has pivoted pivoted to selling embedded finance tools to to sort of a DevOps play. Charge offs are very, very important in this space and managing them. What would you consider a good loss rate, and and are you comfortable sharing sort of what

17:59you're under today?

Charge-Offs, Defaults, and Collections

Alex Shvarts

18:00>> Yeah. So traditionally, we're written off about 6.8%. That was through 12/3123 Mhmm. In bad write offs. What we see is

Nathan Latka

18:11That's on a monthly vintage or your total life to date?

Alex Shvarts

18:14>> Total life total life average of write off about 6.8% of the receivables we purchase.

Nathan Latka

18:19So just to be clear, if that if that that point in time, total life to date, you'd put out a $100,000,000 of capital, your losses

Alex Shvarts

18:24>> would have been 6.8. Yeah.

Nathan Latka

18:26Okay. Got it. Do you recover any of those, or are they just gone forever?

Alex Shvarts

18:29>> No. That's what we've written off. Right? So we recover at least 50% of what goes into, defaults or collections. And and here's an interesting

Nathan Latka

18:38And that's a 6.8 number. Right?

Alex Shvarts

18:40>> The 6.8 is a 100% right of uncollectible.

Nathan Latka

18:44Okay. So you've already tried to put it in and and and you can't get it out. Okay.

Alex Shvarts

18:48>> Can't get it out. Right? Yeah. Here here's some interesting stats. Nine out of ten of those deals that go into defaults are not because the merchant is running into issues. They're going in because they get the debt settlement companies call them and say, basically, stop paying. We're gonna negotiate for less. Right? That's that's the problem. Because the merchants that really have a problem calls, we just lower the payments based on their sales. We work with them.

19:16>> So the defaults that we and, of course, from time to time, we're wrong and the merchant goes out of business and does not that you know, that's the risk we take. Right?

Nathan Latka

19:23Yep.

Alex Shvarts

19:24>> But most of the defaults we see are, again, just people wake up in the morning and decide they don't wanna pay you because they either don't or someone convinced them they shouldn't.

Nathan Latka

19:32And what's that percent? It's obviously bigger than 6.8. What percent going to default?

Alex Shvarts

19:36>> So total total we I think trailing, it's about 12 to maybe 15% of the portfolio going to some type of a collection issue. Yep. And then, you know, we we work it out or we have to sue and then we get them back on track. But the write off is actually we're trailing about 6.8%.

Nathan Latka

19:56How do you sue and make it worth it? I mean, if these deals are only $30, don't you lose more money on the suit?

Alex Shvarts

20:03>> Depending if he if you if you have expect the lawyers. But, you know, if you if we we've kind of worked out a policy and procedure on how we do this to make it cost effective. Mhmm.

Nathan Latka

20:15And so as you think about building a business with a good margin of safety moving forward and you're thinking, okay. If every dollar we put out, 15% will end up defaulted. 6.8 will be actually charged off. In other words, we sued. We can't get the money. Collections couldn't get it. The company went out of out of business. You know you If

Alex Shvarts

20:28>> it goes out of business, we don't even sue.

2024 Growth Targets and Credit Card Processing Expansion

Nathan Latka

20:31Yeah. Okay. Obviously. Yeah. Yeah. My my point being though is that let's say in the next year, you put out a $100,000,000. In your head, you're thinking you gotta charge or make at least something like 30%, subtract the 15% default to 6.8%, then that's your margin. That's what you take home as a business.

Alex Shvarts

20:45>> You you could calculate it that way, but you're not going to have

20:52>> yeah. There I mean, I I would do it a little bit different.

Nathan Latka

20:55Well, how would you do it? This is all about you. How would you

Alex Shvarts

20:57>> Yeah. No. I know. I mean, so you're you're let's say your your average factor, let's say, is. 1.30, right? Because we still kind of calculated in fact, let's say your average factor is 1.30. So you put you take 100,000,000 you put out on you're going to you're buying 130 worth of receivables. Right?

21:15>> You're going to turn that money probably one and a half to two times a year. So with a 100,000,000, you're not gonna buy a 130. You're gonna buy 200, maybe $260,000,000 of receivables because you're collecting money and putting it back out, right? And then you'll deduct your fees, your expenses and your cost of capital.

Nathan Latka

21:36And that leaves your net interest margin. Right? Your NIM. Is there a NIM that you're optimizing for?

Alex Shvarts

21:43>> Approximately, in a good year, maybe about 16 to 18% return.

Nathan Latka

21:47And and I just don't know anything else about, like, OnDeck and others. Is that more or less than what you know sort of these other companies in your space are doing?

Alex Shvarts

21:55>> You know, there's it's hard to say. I I look. I'm OnDeck has long, you know, lower rates that they're trying to do these deals at. And, I mean, they're great. We work with them in in in in partnership sometimes, but hard to say. I I don't know. I it's I I spoke to I spoke to someone there and they said, look. Our our defaults are about 12%. You know, defaults is one thing. Actual write off is

22:21>> another. So it's it's hard to read. Yeah.

Nathan Latka

22:24How do you define a default? Is it, like, once a payment is a hundred days past due? Or how do you define

Alex Shvarts

22:29>> Yeah. Once they've reached the agreement, basically, they're not remitting any of the receivables that we purchased.

Nathan Latka

22:34And is there a cure period? So after thirty days, if

Alex Shvarts

22:36>> they're not cured? Work with look. We try to you know, we reach out to them. We try to get back on you know, get them back on track, find out what's going on. We're very merchant friendly to try to resolve a problem. But they'll block your payments, so you can't debit your payments anymore from their account. Right? They're not picking up the phone and they

Nathan Latka

22:54Oh, so you're not sitting in the flow of funds. They've gotta hit the ACH or the wire button every month to pay you.

Alex Shvarts

22:58>> No. No. We we will debit their account. We have the permission to do that, but they they could still block your access to do that.

Nathan Latka

23:05Exactly. Like you do use like modern you use modern treasury or something to automatically ACH the account.

Alex Shvarts

23:10>> Automatically. Yes. Yes. Yeah. And, you know, when we reconcile, we send a notice. This is your reconciliation. We're gonna debit $92 from your accounts tomorrow. Right? And then all of a sudden they block it. Right? Of course, you know, you you you reach out, you email, you call and you try to pay what's going on. So obviously, they go dark and, you know, you're returning certain number of those are blocked, that's a breach, you know, we

23:33>> we pursue legal.

Nathan Latka

23:34But a lot of I mean, do you have a UCC filing? I mean, how do you collect?

Alex Shvarts

23:38>> We have a UCC filing on the receivables and we we file we file in in courts for arbitration. Takes time, you know, takes time. But Yeah. Look, a lot of times the communication just works it out. Right? Yep. Yep.

Nathan Latka

23:53This is the underside of lending of this sort of world that nobody talks about. So I appreciate you being so open about talking

Alex Shvarts

23:57>> about it. Yeah. I mean, look, at the end of the day, if somebody has a problem, you know, we try to work it out. Get on the phone. Hey. What's we try at least. I mean, if if they're talking to us, we're gonna work it out. If they're not talking, they went dark. And, certainly, if people who go out of business, they tell you, hey. I'm closing down my business.

Nathan Latka

24:14Right? Exactly.

Alex Shvarts

24:15>> Yeah. And you just want some verification that they're closing down, and you write it off. That that's the risk you take.

Nathan Latka

24:20Yep. Is that your target this year? By the way, you used the 100, the 100,000,000, number earlier. I mean, would you consider 2024 a great year for you guys if you put out a 100,000,000?

Alex Shvarts

24:30>> I think it'd be below my expectations.

Nathan Latka

24:32What's your goal? What's your expectation?

Alex Shvarts

24:34>> At 300.

Nathan Latka

24:35300. Okay. And and what do you have to do between sort of now and December to get there? Any major changes or updates?

Alex Shvarts

24:41>> No. I mean, we're we we've created I hate using the word AI right now because we're I don't know if there really is such a thing in in our industry. It's really, I guess, teaching the computers to do what we do manually for many, many years. Right? There was a good line I heard yesterday, you know, in fintech, you're either finance or your technology. We're primary finance, right? Technology segment, right? You know, we have to, you

25:07>> know, create returns and protect money, right? So, what I think is gonna make a difference is our automation that we've built out and our processes. So we can go from processing 5,000 or 7,000 applications a month to 50 or a 100,000 because it's gonna be very automated and shoot these offers. So that the cost of labor goes down. The cost of processing goes down.

Team Size, Engineering, and Operational Efficiency

Nathan Latka

25:31So what's your full time team today? How many people?

Alex Shvarts

25:35>> I'd say about 90.

Nathan Latka

25:36And how many are engineers?

Alex Shvarts

25:39>> We have five engineers.

Nathan Latka

25:41Okay. I mean, some people might go, well, there's not a lot of engineering. Is it really automated?

Alex Shvarts

25:44>> Oh, this it it just doesn't and I'm deep involved. I'm I'm like the CEO who's first to tech. He was sitting there and writing code and working

Nathan Latka

25:51You write code still?

Alex Shvarts

25:52>> Oh my god. It never ends. You know? It never ends because, you know, because programmers, they they they work on, like, they they I love my guys, but they're very there's no urgency with that. Right?

Nathan Latka

26:04You gotta create the urgency.

Alex Shvarts

26:05>> Yeah. I have to create. And because I I I know what I'm doing and and I've built our platform architect that everything, I know it needs to be done quickly, but I also understand what, you know, the investors look for as far as their data, my employees, what they need to see. So I'm able to bridge all that together very, very quickly as opposed to explaining to a developer who's gonna sit there and write this out

26:26>> for thirty days. I mean, we want something we want stuff in days that I know, you know, other people take months.

Nathan Latka

26:32Yeah. Right. So considering macroeconomics and all that this year, I mean, you are you trying to target like a 100% year over year growth rate or 300% or more conservative?

Alex Shvarts

26:39>> Where's your We're we're we're going we're we're trying to target, yeah, way over a 100% growth here. And we we just got into, the credit card processing world because we see there's a lot of opportunities as so we like, funding merchants that have credit card sales. The biggest one in the space, as you as you know, is Square and Shopify, right? They're putting out billions of dollars and they're collecting it via the credit card sales, right?

27:06>> So there's a great market there, but there's a lot of underserved merchants there. So for example, with Shopify, unless they invite you to take money, you can't get a Shopify loan if you're sitting on their, on their platform. Right?

Nathan Latka

27:18Yep.

Alex Shvarts

27:19>> And and they cap you out. So we've had a lot of Shopify merchants turn to us and say, hey, Shopify only gave me this, but I need this. And these are good businesses. They've got really, really good track records or data that you could look at where you can project the future better. Right? Mhmm. So we we got into that space and we're we're actively marketing and

Nathan Latka

27:40Who'd you use as your who'd you use as your middleware and who's the sponsor bank?

Alex Shvarts

27:45>> So we partnered with the one I'm gonna mention is Solara. They're a fantastic outfit out of Nashville. We partnered with them. And then we have a couple of other partners that, we've gotten incredible deals with. And usually, it it either goes through, you know, first out of Fiserv or TSYS, which is Yep. Yep. Process. Yeah. Yep.

Nathan Latka

28:06And as we wrap up again, you mentioned trying to do 300,000,000 this year, and then you said you wanna be way over a 100% year over year growth, which would mean we could sort of back into volume this past year of, you know, call it a $150,000,000 at a 16% NIM, which you articulated earlier. That would mean you did about $24,000,000 this past year with your team in '91. Am I in the right range?

Alex Shvarts

28:26>> I'm not going to confirm or deny. I I I can't do that. We don't publish them. And there's a reason why we do it. We try to there's there's a lot going on with competitors in this world where

Nathan Latka

28:38I was gonna give you credit because $24,000,000 of revenue with 90 people is very high revenue per employee for the space.

Alex Shvarts

28:44>> Well, we we did it. I think, we did about 70,000,000 worth of revenue last year, give or take.

Nathan Latka

28:51Yep. Yep. But that just to be clear, though, that's before you're paying your cost capital on the prominence and all that. Yes. Yes. And so that's still pretty good. So that would be I mean, if you're taking 16 per I mean, you can back into something like $30.30 to 33,000,000 of revenue that you're keeping your take rate on that. Yeah. Pre pre losses. I mean, that's still very good in terms of revenue per employee with 90

29:10people.

Alex Shvarts

29:12>> Yes. And that's because I sit here seven days a week, and I write this this stuff and make sure it's working fast and quick and and seamless. And and that's a lot of and and, again, I gotta tell you, a lot of people so you have your Shopify's, you have your Stripe Squares, the big players, and and they're very technology driven. And then the rest of the industry is just not. They're really lagging behind. So that's

29:34>> that's, I think, where we stand out. You know, technology wise, I think we're really ahead of all of our midsize competitors in in the space.

Nathan Latka

29:42Yeah. How does a company like you get valued in the equity markets? Is it one x 70,000,000 or 10 x? Or how do think about that?

Alex Shvarts

29:48>> Good question. I think it's gonna be valued by who who the who the buyer is. And I see two you know, people ask me that what's the exit. There's there's really gonna be only two buyers. Right? There's either gonna be a bank who's gonna need, you know, this full setup that can underwrite and fund deals, or it's gonna be a hedge fund that's just got an enormous amount of money to put out and and wants a

30:09>> vehicle to be able to do it through seamlessly.

Nathan Latka

30:12Yeah. How do you drive your cost to capital down to increase your margin? I don't know what your prom notes are at,

Alex Shvarts

30:16>> but I imagine it's probably a

Nathan Latka

30:17lot of 10.

Alex Shvarts

30:18>> It's actually not easy right now, you know, with the raise the the the interest rates and everything going up. It it it got a little tighter and a little harder. So look. A lot of the the funds are putting money out at, you know, 13 to 15% a year in my space. We're taking

Nathan Latka

30:31Is that is that where you're at right now, your cost of capital?

Alex Shvarts

30:33>> No. I'm not. No. It's not.

Nathan Latka

30:34You're under that.

Alex Shvarts

30:35>> 1212% or less.

Nathan Latka

30:37Oh, that's great. So you don't think there's much room to push that lower though right now?

Alex Shvarts

30:40>> No. Not right now. No. Not at all.

Famous Five Rapid Fire

Nathan Latka

30:42Yeah. Interesting. This is awesome. I love it. Engineering founder in the fintech space, still writing code, 90 people, lot of revenue. Alex, we went way over time. I apologize. Let's wrap up here with the famous five. Number one, what's your favorite business book?

Alex Shvarts

30:55>> Oh god. I I can't even answer that. I'm sorry. I don't know.

Nathan Latka

30:59Okay. We'll skip it.

31:01Number two. Number two. Number two, is there a CEO you're following in the space?

Alex Shvarts

31:07>> In the space, no. There's no CEO in the space that, that I resonate with. No. Or resonates with me.

Nathan Latka

31:14Number three, is there an online tool you're using, that you built that you used to build a business?

Alex Shvarts

31:19>> Look, we're we're we're doing a lot of chat GTP stuff. There, no. There's nothing You know, we're we're we we do a lot of our on on traditional basic stuff that everybody does. Right? But Chad GP is playing a big role in in in many, in many aspects these days.

Nathan Latka

31:38Number four. How many hours of sleep do you get every night?

Alex Shvarts

31:41>> A good night is four and a half, five hours. That's a good night.

Nathan Latka

31:44Oh, wow. Okay. What's your situation? Married, single kids?

Alex Shvarts

31:46>> Married, two adult kids, grown ups, two French bulldogs which come to work every single day. That's important. Very family.

Nathan Latka

31:56Very family. Are they in your office right now? Can you point your camera down? Are they at your feet?

Alex Shvarts

31:59>> I can I can bring them in if you give me thirty seconds?

Nathan Latka

32:02Okay. Grab one. Grab one. Go grab one. Why not? Why not? Why not? Look. We'll look at this view. Then my audience will look at this view while we wait. Alex is based in, I believe, New York. Maybe it's it looks more like Miami, actually. There we go. Look at the bulldogs.

Alex Shvarts

32:17>> And Lucky. There they are.

Nathan Latka

32:19That's awesome. Lex and Lucky. Alright. So two bulldogs, married two kids. And and, Alex, how old are you?

Alex Shvarts

32:25>> I'm 55.

Nathan Latka

32:27Last question. Something you wish you knew when you were 20.

Alex Shvarts

32:31>> Studied code back then. I started to study code way way older in life. Should've read code when I was 20, but we only have, like, Commodores and Atari. So

Nathan Latka

32:43Guys, FunKite was launched back in 2015 on a dream and an idea. They've scaled nicely to in a capital efficient way. They put out or they generated, they get 5,000 applications per month. They send out offers about 1,300 of those. Some portion of those are accepted and approved. The business in 2023 did quote about $70,000,000 of revenue. Alex is constantly thinking about how do they keep their both default rate low, which is 16%, if I'm remembering

33:06properly, and an actual charge off loss rate, 6.8% of that. Those are good economics. They optimize for about a 16%, take rate NIM sort of all in, which is very healthy. 91 folks full time on the team. They're funding these deals with prom notes on their own balance sheet and then also sourcing some of them out to capital partners as well. Check them out at funkite dot com. Alex, thanks for taking us to the top.

Alex Shvarts

33:26>> Thank you.