The Exchanges

Q you know, if your credit score is too low or like, and you don't want to do a personal guarantee. So like bank financing isn't good for you, but you also don't have like super high growth and like VC and angels aren't a good fit for you. That that's why I wanted to bring BJ on with lighter capital. So BJ explain more of your model. How's it work?

A Yeah, we are, our sort of mantra is that we're a fintech company revolutionizing startup finance. So what does that really mean? It means that we're using technology to improve entrepreneurs' access to capital and to fund them with a different model. And that different model that we're using today is called revenue-based financing. Um, so the technology side of things really, that's a way of just expediting the fundraising process. We think entrepreneurs spend about eight to 10 hours with us before we write them a check, as opposed to, say, chasing down a bunch of angels or VCs. The, the funding methods to use, like I said, is revenue-based financing, and it's essentially a royalty agreement. Um, it attempts to be the best aspects of debt and equity. The best aspects of debt is that it's not dilutive to the entrepreneur, and it's not controlling, you don't take a board seat, things like that. Best aspects of equity is that there's a deep alignment between the entrepreneur and the capital source, um, towards growth. So ours achieves both of those, we think, um, and, um, the way it structures is this. Basically, on average, we provide companies about 250 K, uh, per funding. We'll go, we'll go up to two million per company total. But for sort of ease of, ease of mental mass, think about a 100,000 bucks. Let's say we give a company a 100,000 dollars. They then pay us a percentage o…

AI assessment note: “They pay us a set percentage of their revenue each month until they pay us”

Q Yeah. So, so we had him on back in episode four, It's a SaaS accounting platform. You know, they're doing about two and 38 grand in MRR, according to, according to him, about 4.2 million raised and 200 customers. So a company like that, um, you've worked with them. They raise their Series A. Do your payments accelerate on the Series A?

A It's, uh, interesting. It can or it can't. It's the company's option. So when we fund a company, um, let's go back to the example we gave, you know, we give them a hundred K and then they should pay us a 160 K. You know, ideally you target that to be over four years. Let's say 12 months after we do that, they go and raise a million dollars from a VC or angels or something like that. Um, Well, you know, we don't, it's not really fair for them to have to pay the full 160 K. They can choose to do that if they want or whatever. But what we do is we say, Hey, listen, if you want to pay us off early, like if you go raise an equity round, you want to pay us off early. Um, and usually that means in 12 months or 18 months after we funded them, you pay us a lesser total amount. So it might be like a 125 K or something like that. And it's pre-negotiated when we fund the company. They can pay us a lesser amount. And in that one instance, we'll actually sometimes take a little slice of equity. In that case, it'd probably be like five grand worth of equity or something like that. But we basically let them, they have the option of just continuing to pay us as they plan or to pay us off early and pay us a lesser amount.

AI assessment note: “It can or it can't. It's the company's option.”

Q I mean, is it like a hard money loan where you're going to pay like two or three basis points, or is it less or more aggressive?

A Um, no, it's less aggressive than, than, than hard money. Um, and again, it's flexible. So the, the companies, if they don't grow that quickly, they just don't pay us that much each month. Um, sort of an interesting thing. We, you know, most lenders, traditional lenders and things like that, they're really worried about getting like payment defaults. Like, you know, they're worried that they always want to get their, their payment that month. We're not really focused on that. We're really focused on, can these companies grow long term? Because that's really where we make our money. Um, And, and, and because a lot of times, literally, we have, we have companies that get no company, no customer payments in a particular month. They'd literally pay as a zero. Um, and that's, that's part of the deal is we're kind of there to ride along with them on their, their growth trajectory.

AI assessment note: “no, it's less aggressive than, than, than hard money. Um, and again, it's flexible.”

Q of your spectrum to pay it back, say five years, and you give them a hundred grand up front. I mean, you could argue or your LPs could argue and go, BJ, I could have just taken this a hundred grand and put in the stock market and made more than a 160 grand over five years. Why should I keep giving you more money? How do you balance that?

A Yeah, no, it's an interesting point. Well, number one, unfortunately, we don't, we can't fund companies that don't have any revenue. We have kind of a minimum threshold of 15,000 dollars a monthly revenue, but your question is exactly apt, which is like, let's say a company's doing, you know, 15 K in revenue, kind of our minimum, and, um, and we expect them to grow at a certain rate. Overall, so, Kind of looking at two different audiences. One is our customer, the company, the entrepreneur that's looking to grow. The other one is our capital provider, our limited partner and such. On the limited partner side, the answer is basically like, hey, listen, we're, we're trying to use technology to evaluate these companies and to do this at relatively high scale, do it high volume. We're funding, eh, 10 to 12 companies a month right now. Um, and overall, you know, you're going to have some that are winners and some that are losers, and overall, it's going to balance that. And, and that's just the nature of, of early stage, higher risk, uh, providing capital period. And, and so the limited partners to kind of understand that, you know, any particular, um, funding, you know, may or may not work out exactly the way we expect, but overall they're going to balance out in the way that we are. Um, and we've gotten really good at our technology, our internal technology. We have a group of, uh…

AI assessment note: “On the limited partner side, the answer is basically like, hey, listen”