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Debt Funding Without Drama | Abhiroop Medhekar @ Velocity
310 Plays2 years ago
In today’s world, a startup is no longer dependent on investors to acquire funding. One can fund their startup through revenue-based financing. This is like a business loan, except the repayment of the loan is not via a fixed EMI but rather as a percentage of the revenue for a fixed period of time. Abhiroop shares his insights from his experience as a serial entrepreneur and VC.
Know about:-
- Timing fundraisers without requirements
- Core product offering
- Equity is not a good use if deployed for inventory and marketing
- Future roadmap
Note: This podcast was recorded a while back and the metrics shared have significantly improved since then.
Recommended
Transcript
Introduction to Abhirup and Velocity
00:00:00
Speaker
Hi, everyone. My name is Abhirup. I am the founder and CEO of Velocity. It's a pleasure to be here and to talk to all of you about my journey.
The Allure of Shark Tank and Modern Financing
00:00:19
Speaker
I love watching Shark Tank. It's an amazing mix of emotional drama and suspense. You are always on the edge of your seat. Will they get funded or not? But the reality is that in today's world, as a founder, you are no longer dependent on an investor deciding to invest in your startup for you to survive and succeed. You can now fund your growing startup through the root of revenue-based financing.
00:00:40
Speaker
In
Role of Revenue-Based Financing
00:00:41
Speaker
this episode of the Founder Thesis Podcast, your host Akshay Dutt is talking with Abhirup Medhekar, the co-founder and CEO of Velocity, which provides revenue-based financing to startups. Revenue-based financing is basically a business loan, but the repayment of the loan is not via a fixed EMI, but rather as a percentage of your revenue for a fixed period of time. Stay tuned and follow the Founder Thesis Podcast on any audio streaming app to learn about how to really scale your business without the emotional drama of a shark tank episode.
00:01:09
Speaker
Just a quick note before the episode starts, this was recorded a while back and the metrics shared here have significantly improved since then.
Career Choices and McKinsey Experience
00:01:25
Speaker
So I did have an offer to join Google at the end of my undergraduate. After IIT, I could have joined Google. I would have had a very different life. I'll probably be somewhere in the West Coast right now, writing code and like building teams and all of that, building products. But I think I just gave CAD just like that. I didn't even prepare for it much, got into it. And then that was a choice to be made. After I am, I joined McKinsey and Company as a management consultant. So it's a top tier consulting firm in India. I joined them in 2010 and I was there from 2010 to 2015 for close to five years.
00:01:55
Speaker
So that must have been like five years crash course on solving business problems and solving problems of large businesses. Absolutely. I didn't join thinking that I'll end up spending five years there. I was joining, I thought that I'll maybe spend two years, get some like work experience also. And then after that, I'll take the plunge. But I think McKinsey was great because you again got to work with really smart people. You got to work on problems which are large and important for the organizations you're working with. And it also trains you very well in terms of
00:02:22
Speaker
building a structured approach towards problems.
Founding Taskbob: Challenges and Learnings
00:02:24
Speaker
So this is where your first stint of entrepreneurship happened. So tell me the thought process of how you thought through quitting a job and what was the idea you identified and what was your go-to market journey like? Sure.
00:02:38
Speaker
So see, I think the thought process behind quitting the job was that do you, I mean, if you basically fast forward five years, is this what you want to do? Or are there alternatives that you want to explore? The decision to leave McKinsey came up like that. Now what to do next? That was basically a more organic process. So two big questions before starting up anything is what do you want to work on and who do you want to build it with, right? And the initial team as well as the core idea or the area that you want to work on.
00:03:01
Speaker
So I was very much critical about the area per se. I had been maintaining a long list of problem statements that I have myself felt. And that I think I've been maintaining since college days. So I opened up that list. It was a list of, I think, 58 or 60 ideas, something like that.
00:03:18
Speaker
That was the backup list that I didn't maintain. The company that I eventually ended up starting was a company called Taskbob, aggregating local services providers and then delivering a very high quality and reliable home service to customers. Pretty similar to Urban Clap, which most of the people would have heard of now.
00:03:33
Speaker
So that was a company which we started in early 2015. And that was coming from a very personal pain point also. I was always working in fairly hectic jobs. You do have a lot of housework, which sort of gets deprioritized. You don't really have time for that. And it was a pain to deal with the working professionals who were not really showing up on time, who would need multiple follow ups, who would haggle with you for a price and all of that. So basically, that was a pain point. And I think the team was also great. Another close friend from undergrad was also looking to start at that time. And then that's when we decided to join hands. And then we started task work.
00:04:04
Speaker
What was your go-to market? Did you want to raise funds first or did you want to build an MVP and get traction and then go out and raise funds? Did you want to do one specific geographical area? Tell me about that whole journey.
00:04:17
Speaker
The business that I'm talking about was a hyper-local business, right? It's about you deliver customer delight when people get a high-quality service at a time when they need, right? And hence you need to build concentration at a hyper-local level. We had, in fact, started with the public locality of Mumbai, which is, I think, a 10 square kilometer kind of an area, right? And that was the initial market. We had built an app for that. We had done a lot of local publicity to ensure that multiple households in that locality knew of us.
00:04:40
Speaker
And that was the initial proof of concept that we had built even before we raised the first round. So basically we had a functioning app in place. We had a bunch of service providers. We had that initial traction going, right? And that's when we went out in the market to raise our first round of capital, which was a seed round of close to a million dollars. Okay.
00:04:56
Speaker
What traction did you have before you raised? Like how many aggregators? So I think in terms of the number of service providers, we would be working with some 15 or 20 service providers in the power of micro locality. And I think the number of orders per day would be 25 or 30 per day. Yeah. Okay.
00:05:11
Speaker
and they would book through the app, pay through the app. So the initial version of the app was also an MVP. We didn't have payments built in. It was a very simple app through which people would just choose a time slot and make a booking and then the service provider would show up. Initially the transaction would happen outside of the app. Over time we integrated payment gateway and other things. The initial broker contract was just a booking app which we publicized and then we had this initial traction going.
00:05:31
Speaker
The hard problem here would have been two. I think one would be pricing. How do you ensure transparent pricing for the customer? I think that's one of the biggest complaints as a customer. You never know what you'll end up getting charged. And the service provider would have valid reasons for changing the price because when you see some problem, you might decide to. Because you have to diagnose and then price it. So that upfront transparent pricing would be hard to achieve.
00:05:57
Speaker
Second would be how do you get your service providers to be committed, turn up on time, things like that. Then third is how do you keep the payment flowing through you and they don't bypass you. All those problems which Uber would have faced in those early years. I'd love to learn how you fixed these issues.
00:06:15
Speaker
Well, lots of challenges. So I think overall lots of learning from our experience building that company also. I think absolutely agree with the kind of problem statements that you're talking about. And I think even while building the company, we really used to look up to Uber as the gold glass of how to build a scalable hyper-local kind of a company. On-demand services, hyper-local services were booming at that time. And I think Uber had solved a lot of problems, which we were talking about.
00:06:36
Speaker
Urban Clap also launched around the same time, right? Like around you. Urban Clap launched, I think, one month before us. Okay. And I think there was one or two worlds, you know, like house joy or something. There were 48 more. There were like a total of 50 companies, which got started in 2015 in the same space. Out of those 50, I think, close to a dozen got funded, which are all competing for the same slice of the pie. And I think that was part of the problem in terms of what didn't work out eventually. Too much competition was like causing a lot of issues.
00:07:02
Speaker
So yeah, tell me about the challenges and how you fixed those challenges. See, I think obviously the objective of the company was to ensure that the customers get a very high quality and reliable and transparently priced kind of an experience. That requires you to have a good amount of influence on the supplier side. It can't be a loose model that you just pass on the lead and then people will coordinate and manage themselves.
00:07:23
Speaker
It can't be a gestal model. It can't be a gestal model because that was a problem actually that you can pass on the lead but the customer experience would still be broken. We were clear that we need to build a full stack kind of a solution in which we are trying to control the entire cycle end-to-end which had a pricing component, which had a reliability or an operations kind of a component and which also had a big component around supplier training and supplier management or an ongoing basis.
00:07:43
Speaker
What we again figured was that it's all a function of network density. If you pick, if, for example, you're taking the approach that we will launch pan Mumbai on day one, right? And we obviously want a water volume, but we have, we want a supplier spread across all the areas. Then it was difficult to ensure a good quality customer experience in terms of timeliness, et cetera. It would also have been difficult to ensure that the suppliers are getting a good number of orders per day, right? Because you get to exercise influence on them when you are actually making a meaningful dent on their livelihood. If an electrician is getting five orders per day from you,
00:08:12
Speaker
That creates more than what you typically get. And then you can tell him that, boss, you have to show up on time. I'm going to keep track of this. You have to ensure that the transaction gets completed through the app. You have to care about your ratings on the customer side and all of that, right? So that focus on building density at a hyper-local level was very inherent to our approach. And I think that worked well. So the entire scale-up also that we did after that in Mumbai, it was also locality by locality. Initially in Pavi, then in Andheri West, then in Bandra, then South Bombay, et cetera.
00:08:38
Speaker
What all services were you offering in your initial phase? It was a lot of these blue-collared services. So, electrician carpenter plumber, we had home cleaning, we had appliance repair, we eventually launched car cleaning also, and then we also launched a sub-brand for duty services for women, which is called Mayra.
00:08:54
Speaker
When you would launch a new locality, then you would first
The Struggles and Closure of Taskbob
00:08:57
Speaker
go to the local electrical goods shops and the hardware stores because generally you find plumbers there only, like near the hardware stores. First of all, for the supply side, you have to first go to a hyper locality, figure out who are the good servicemen in that level. I would also talk to customers and watchmen, for example, would be a source of leads for us. I mean, watchmen would maintain who are the electricians or plumbers who are actually visiting into a society, right? Then based upon that,
00:09:20
Speaker
talk to those people will tell them that we are a new platform, et cetera. And we'll aggregate the supply side first. Then we will do more demand generation initiatives, which would again be more hyper locality based. We will do like weekend camps in societies. We will do like activations in malls and all of that to ensure that more people in that locality get to know of task work.
00:09:35
Speaker
Once the funding came in, then how did the trajectory change? By the time you covered the whole of Mumbai, what number of supply side providers, number of customers, transactions? I think both the numbers increased between 10 to 20 times. We scaled to almost the entire of Mumbai. We had, I think, 300 odd suppliers on the platform. And I think the order volume used to be close to 800,000 per day. That's the kind of order volume that we reached in Mumbai itself.
00:10:02
Speaker
Yeah. So 15 you lost, right? When was the seed round? The $2 million. So seed round was in early 15 seed round happened in the month of March or April around that time. And then when did you cover full of Mumbai? So we covered full of Mumbai by the end of the year. So it was a period of rapid growth for us. 2015 was the year of expansion. And I think by end of 2015, early 2016, we had the entire Mumbai covered.
00:10:27
Speaker
Obviously, while we had it covered, we had a lot of problems also to solve. Our tech platform was not fully developed yet. Our operations processes are not set. All of these problems that you talk about, about the supplier churn happening around competition, around CACs not being sustainable, all of that. So I think that was the phase that we were dealing with towards the end of 2015, early 2016. Okay, okay. How did you fix CAC? Or how did you fix churn? I'd love to learn these fixes that you've
00:10:51
Speaker
So see, I think honestly, we're not able to fix it completely. I would say we did learn that it's a business of acquiring customer ones, but then trying to retain the customers across multiple orders and multiple services, right? So you, you do need to have a bunch of high frequency services, which will increase your customer. Because our tax used to be around, even optimized tax used to be around 500 or 600 rupees for transacting customer. And then that would break even on the third transaction. Typically.
00:11:15
Speaker
If the transaction does three times, that's when our take rate would be good enough to justify that. Okay. So something like an electrician is not high velocity, but a beauty services, high velocity, absolutely. Okay. So we think that therefore became a parameter to decide that which services should we get into based on the frequency of usage.
00:11:32
Speaker
But you were able to earn 503 transactions. That sounds high to me. No, so the average ticket size used to be close to 500 rupees. And our ticket rate used to be 25-30%. So that would... And 500 for a plumbing job or an electrical job or stuff like that. So it was a mix of low ticket size and high ticket size items. Electrician would be low ticket size typically. A carpenter would be high ticket size. Home cleaning would be high ticket size. Beauty would be high ticket size. On an average, I think 500-600 used to be the weighted average order value for transactions.
00:12:00
Speaker
And how did you solve the churn at a customer level or for the vendors on a supplier side? So vendor shares, see, I think we always were clear that we are not going to scale the vendor side until, so it was broadly in line with the scale up. We had a very hyper-local approach in which we would pick up a locality, pick up suppliers in that area. And then the target for the teams used to be to ensure that
00:12:20
Speaker
these vendors are getting at least three orders per day on an average. So basically supply churn for us was not very high. It was not really a big problem to be solved because our approach always was to not spray and pray, but to try and handpick the best suppliers from that locality and then ensure that they are dependent upon your platform for their day to day.
00:12:38
Speaker
customer churn was also a bit unknown to us because we are not very clear and I don't believe there is any way to find out that are the customers not transacting with you because they don't have a requirement at all or because they don't like your service and therefore they are churning. Because the frequency of usage for some of these things is unpredictable.
00:12:56
Speaker
You don't really know that is there an electrical carpenter plumbing issue out there or not, right? So we were initially quite worried about it in terms of how to think about it. Should we look at churn at a monthly level, at a quarterly level, at a half daily level? What is the right sequence over which if you don't get any transaction, then that should be Buddha's churn. But I think churn eventually on the customer side, it became clear to us also became a function of competition. Initially we were the early one in Mumbai. Urban Clap had started in Delhi NCR region as they also expanded to Mumbai and as a bunch of other options also came in.
00:13:26
Speaker
People obviously started giving deep discount that you get first service free, you get like one pay one free and things like that. And that obviously causes churn on the customer side. And that also increases your CAC. So I think that became the challenge because of the intensive funded competition in that space. So how long did that 2 million last you?
00:13:41
Speaker
So it was 1 million that we had raised, and then we had raised 2.5 million after that also. So this we raised in early 2016. And the burn was sort of going up primarily because of marketing and a bit because of team also. So I think that was a phase. It lasted us till the end of 2016, early 2017. And it was a time when other players were investing heavily in burning to grow. Carbon clap in the same period had raised $25 million. And it was like 10x more capital than we had. And if you remember 2016 was also a time in which
00:14:10
Speaker
Entire hyper-local market went through a down phase. In general, I think VC funding was slow in 2016. So the exuberance of 2015 got turned in 2016-2017. And hence, we found it very difficult to raise our next round, which is what eventually led to the company not working out. Because obviously investors would have thought that when you have a hyper-funded competitor, the chance of... Exactly. That becomes a barrier for sure. Let us say, overall also, so this hyper-local services model
00:14:37
Speaker
has not really worked in US. Earlier when we started, there were a few companies like Homejoy and I think there was one more company called Handy, which was there. But Homejoy shut down in early 2016. And basically that had further impact on investors which draw a lot of comfort from like global such stories, right? That was not a parallel level in 2016. And then even the investors who were on the fence, they backed out. What is the experience of shutting down a startup like? It was, I think, the most stressful phase of my life. You don't plan for it when you're building a company.
00:15:05
Speaker
You try to get the best people by selling a grand vision by talking about how it can be like a great outcome for all of them. And then it was a particularly painful time when we realized that we don't really have enough. And hence this could be a possibility that we have to plan for, but I think we managed it really well. We were clear about what is the point at which we have to pull the plug, right? And you do need to ensure that you are planning for a bunch of you are keeping a buffer.
00:15:29
Speaker
to plan for a bunch of payments, right? You have to clear all your vendor bills, you have to ensure that your employees are getting severance for at least two or three months of notice period so that they can look for a job. And at the same time, you should also work actively to outplace them by opening up your network. And I think we did all of that very well. We were, I think, clear that beyond this point, if you're not able to raise, then we have to activate Plan B. And I think that's what we did. And I think for that reason, we are still on very strong terms with everyone who worked with us. In fact, at Velocity, two of my co-founders are people who were a part of my top team at TASO earlier.
00:15:57
Speaker
And we do have a lot of people who have joined us in the team as well. How did you manage to be detached? Most founders will, being an entrepreneur, I think one of the requirements is that you have to be insanely optimistic. You have to believe even when everything says, so how did you manage to take such a dispassionate decision that if by this date I don't raise funds, then
00:16:18
Speaker
We need to wind it up, otherwise people will be left getting unpaid. No, you're right in saying, and I think that's a good question that, you know, as a founder, you do need to be a bit irrationally optimistic, right? And that that is typically anti to decisions like this, because you do believe that you will figure something out.
00:16:34
Speaker
So we had been trying for quite a while. I think one key learning from that period is that we should not really time fundraisers with our requirements. We should time it based upon when the market is good versus not. So 2016 was an exceptionally bad time to be raising for this idea. Particularly when you had a competitor which had 10 times more, you had a business model in which CACs were increasing, the repeats were uncertain and all of that.
00:16:55
Speaker
So I think it was across multiple months that it transpired. We also wanted to be fair to employees who are always clear that this is going to be a decision-making framework. We need to ensure that by the time our bank balance reduces to X, which is a good point to basically ensure that you're taking care of all the liabilities. You need to be very clear about that. And we've taken that call much earlier than being at that time. It happened over a period of time. And then when the time came, it was not like you can decide it. It was like, we have already built this framework, let's implement it.
00:17:21
Speaker
So then Taskbob, we went on the business, we told our customers, a lot of customer love code in, which was like very heartening to see because people had really started liking the service a lot, which we did not know earlier,
Exploring Venture Capital at SAIF Partners
00:17:33
Speaker
right? Because typically you only hear the escalations on the customer. You only hear, yeah, this is not working, this guy didn't show up on time, this guy charged me, et cetera. And typically we did actually dealing with that. But when we told people that we are not going to be operational anymore, there was a lot of love which came down, which was great. We outplaced people using our network. A lot of them got good outplacement roles.
00:17:51
Speaker
I was happy with we took some break in between I took I think two or three months off to just figure out what next what to plan for etc and I think that's when saps partners which is a top VC fund in the country they were looking to expand their team in India they had not been expanding their team for a few years and they were actively looking and they reached out.
00:18:09
Speaker
I've always had a lot of respect for Saif as a fund. I'd interacted with them earlier also. And I think when that worked out, that seemed like an interesting new thing to explore. So you were wearing the proper VC hat where founders would be pitching to you and you would figure out, should I invest or not? Yeah, absolutely. So I think the entire cycle from building a point of view on space
00:18:30
Speaker
trying to talk to multiple companies who are building something in that space, figuring out which one is the best team, which one is the best traction, building the investment case, and then also being involved with the company after you make the investment. That was the role which I was playing. I was primarily focused on the FinTech and the financial services space itself. So for close to two years, everything FinTech was me and my team's responsibility.
00:18:49
Speaker
What were some of those interesting startups that you backed? Like the more memorable ones? And why did you back them? See, I think overall this SME financing was a big area of interest for us, right? It is by far a big need gap in India. I think the market for SME financing in terms of the untapped need is much bigger in India compared to any other global market also, right?
00:19:09
Speaker
It is some $200 billion market opportunity, which is untapped right now. And I think people had been approaching that market from multiple sides. We already had a few investments in that space. So we were already investors in capital float, for example. But we did understand that market very well. And I think that was a good particular area of interest for me also. So one of the investments was a company called Ziplone, which is a daily-based startup, which primarily it does to the bottom of the pyramid SMEs.
00:19:31
Speaker
essentially people who would have monthly revenue of less than five lakhs. That's the kind of SMBs that you would be getting. Like this would be like traders and retail. Traders. Absolutely. You basically go to a local market traders there. That's the kind of companies that you would be funding. And they had built a new data bank approach to identify them. So they had built a very interesting bank-based approach to figure out the credit risk here and to build their underwriting models based upon that. That was interesting about the company that they had built their own underwriting model by leveraging the banking data which these people have.
00:19:59
Speaker
And what did you learn about who gets funded? A lot of people think that you need to be good at networking to get funded. People have a lot of conceptions which may or may not be true about who gets funded or how you get funded. What was your learning? Who gets funded? See, even right now, I work with a lot of companies and founders that you work with on their equity fundraising also.
00:20:19
Speaker
And I'd be glad to share what I tell them. I think what most people don't realize about fundraising is that it's a game of building. It's a game of matching demand and supply, right? You have to ensure that you are creating enough demand for investment in your company. You should not expect that it will happen automatically, or you should not approach it sequentially. I think a big part of your focus should be to ensure that you are running a very tight process. You're talking to multiple investors in parallel.
00:20:41
Speaker
You create excitement across at least a few of them, and you have a few offers on the table. That's what will lead to a good outcome for you. If you take a very sequential approach that you are just switching to one investor, they run a two month long process, you hear a no, then you go to investor number two, then they run a three month process, you hear a no, people will just keep you hanging because there is no pressure for them to take a call immediately. I think that pressure or what they call FOMO, fear of missing out, that is what is a big, big factor, which leads to successful fundraising outcomes.
00:21:09
Speaker
And I think founders can do a few things to create that promo, which obviously includes a large market, a good team, good traction, but trying to be conscious about it and trying to run your fundraising process in a certain way will have a clear impact on you having better outcomes. Did the idea for velocity come because you understood that lending space deeply and like SMB lending space deeply, and you saw a gap here and you thought that there is no one who's come to me to pitch this. So let me build it myself. Was that how it happened?
00:21:39
Speaker
So, it was definitely one of the factors, I think. So, it didn't happen immediately. I left SAF towards the end of 2019. Towards the end of 2018, actually. 2017, 2018, I was at SAF, and then end of 2018, I had left it. Then, I think 2019 was a gap year for me, in which I was... I was clear that investing is not something which I would be excited about in the long term. I had already tasted blood once, building my own company.
00:21:59
Speaker
And I think that was something which I really liked. I think the dynamism of building a company, the closeness that you have to solving a problem and actually seeing the impact of your work, that's not a kick that you get if you are an investor. You are further away from all the action. That was a clear realization which I had. So I left that and in 2019, I was clear that fintech is an area which I understand well. And I had some three, four high level ideas that I wanted to test out. And the idea which became velocity was also one of them.
00:22:23
Speaker
But I think it was more of a process in which I gave it time. I didn't really jump into an idea this time. I wanted to ensure that I'm doing proper research. I'm talking to customers. I'm building about a few on the market, on existing players. I'm able to test out with some small experiments. And I think that was 2019 for me, in which I went through four ideas, which are different ideas, and then eventually finalized this one. And then 2020 is when Velocity finally started.
00:22:44
Speaker
Okay. What were those ideas? And like, did you execute also? They were just like planning stages. I did execute also a fair bit of them. And I think while it was fintech heavy, it was not fintech only. I've been a journalist in my life. I've been a consultant. I've been a B-school guy before that, et cetera.
00:23:00
Speaker
And I think the curse of being a journalist is that you believe that you can do anything. So you believe you have one idea in tech, you have one idea in health tech. Okay, you understand fintech well, you understand financial services, you would have some ideas there also. But then the list of ideas will get across the board. So I think on the fintech side, one of the ideas that that we tried out was
00:23:18
Speaker
to start with a simple invoicing app because I understood the bottom of the pyramid SME problems well and we wanted to ensure that obviously mobile penetration was rising and we thought that you can build a very simple invoicing app which will be the primary invoicing app they use to send their invoices. You will capture their data and then eventually you will monetize it based upon giving out financial support, loans, etc.
00:23:37
Speaker
Okay. Which again, there are multiple startups going that route. There was like, say FlowBiz. They were just getting started. So when FlowBiz was just getting started, we'd also launched an app, which might be still out there, which is an app called BMO. Bills on mobile, B-I-M-O. So it was an app that we'd launched, which, which got good traction initially, you are able to easily get downloads and DAUs in that business. But then eventually we decided to not pursue it.
00:23:59
Speaker
Like what was the flaw you saw in it? Like you must have seen. So we are clear that this is the business that we are going to pick, which is going to be the next 10 years of our life. Right. So I think we are clear that it has to be a business, which has a clear business model, which makes money and which can become a really valuable company over time. And I think we were very clear that the monetization through of an app like this can happen only through credit. If you're able to give financing based upon that rate.
00:24:22
Speaker
We were a little concerned about the depth of data that we were able to capture. We did have people who would use us sporadically for generating a couple of invoices. But a business which is, for example, doing 10 lakhs of revenue every month, they would generate invoices worth $50,000 or $60,000 on the app. That data is not good enough for me to figure out what's the...
00:24:39
Speaker
qualified credit limit of the company, right? In fact, we also went a step further there. We, as you mentioned, there were a bunch of other apps which are more mature than us. And I think the app, which was like, I think eight or 10 times bigger than us was an app called Jimbooks, which is still there. So they are a company which is in Raipur and they have built an app, which is being used by a lot of, a lot of these small SMBs. This is like GST invoicing. That is the focus there or just invoicing? GST invoicing. GST invoicing. GST invoicing.
00:25:05
Speaker
So basically to test out the credit hypothesis, we said that what we are doing will probably have the depth of data that these guys have if we keep on doing this well for two years. So let's go and do a credit pilot with them. Let's basically try to see if we can give like credit to the customers that they are working with. Let's partner with them and explore
Launching Velocity: A New Financial Model
00:25:20
Speaker
that.
00:25:20
Speaker
So we actually flew down to Raipur, we partnered with them, we figured out their customer base, we tried to figure out if you can use your data to give some financing. And again, it was the same gap there. The data was not deep enough for us to be able to extend financing in a less risky kind of a way. So that's what gave us the belief that it is not something which is going to be very easy to monetize.
00:25:40
Speaker
That's a good segue into what eventually became Velocity also, because this company at that time, Jim Books, it was a company which was bootstrapped completely. It was a company which was generating healthy revenue because they were charging people for the invoicing app. And they had a very clear and transparent online business model. They had a CAC of 1000 rupees. They had a subscription value of 2000 rupees. And they wanted capital for marketing. And we said that there are a lot of these digital first companies which are getting started, which are being run by new age founders, which are getting a lot of their payments online, which have revenues that even transparently
00:26:10
Speaker
track completely digitally, right? And that's a segment which I knew banks don't really understand the segment. And VCs will potentially look for very large outcomes, kind of a thing which only they'll be able to back, right? Yeah, then only back if they think this will become a unicorn. Absolutely. So then Jimbooks actually became our first customer. So as we started Velocity, Jimbooks became the customer that we had extended some financing to, which they use for marketing, grew the business and paid us back as a percentage of their revenues, which was a core business model.
00:26:35
Speaker
How did you fund Jimbox? Like your own capital or you did an NBFC tie up? So we did an NBFC tie up. To do the financing business, you have to be an NBFC. And so we partnered with NBFCs. Because of my time as an investor, I had a lot of NBFCs whose founders were good friends now. And I think one of those founders became the first partner that we had on the NBFC side. And I think that's how the business started. Yeah.
00:26:57
Speaker
What is the product here? So in Taskbar, we had an app which was an aggregated product. So what is the product at Velocity? So the product at Velocity is basically revenue based financing. That's the first product that we started with. So the gap that we identified was that a lot of these businesses were being run by new age and ambitious founders. They're looking for growth. But the biggest constraint to their growth was access to capital. Most of these people are building their businesses in a bootstrap kind of a fashion.
00:27:21
Speaker
That is obviously a constraint source because you do have some savings, you have some money from friends and family, but you are not really able to grow the business as fast as you would like. And hence, that was a big problem statement that we started with, that can we bridge this gap of access to capital for them, which will help them grow. So the core product that we offer is a product called revenue-based financing in which the customer can just securely connect their digital data with the velocity platform. We have built our credit models, which will give them an answer very quickly. What is the kind of financing we can provide to you? What's the kind of fees that we'll charge on top of that?
00:27:50
Speaker
And what is the revenue share that you agree with? So I think one innovation here is that instead of a typical term loan product, which comes with the six GMI every month, we agree on a revenue share. So we keep track of their monthly revenues through our API integrations. And we keep on taking a percentage share of their revenues until the time they've paid us back the principal and a fixed fee. So try to take an example to, to explain this product, whether it's a, it's a new idea per se, right? I would, I'll talk about an average case. Let's say we're talking about an e-commerce company.
00:28:14
Speaker
Let's say a T2C brand, which is selling these t-shirts on their own website and on Amazon. So to a business like that, we will build integrations into Shopify to understand their website performance. And we have integrations into Amazon to understand their marketplace sales also. And let's say we extend the financing of 50 lakhs to them. We'll typically charge a 6% fixed fee, which basically means that we'll deploy 50 lakhs and we'll collect back a total of 53 lakhs. That fee is basically our revenue under transaction. And the way we collect that 53 lakhs back is through a fixed revenue share that we'll have.
00:28:41
Speaker
If you agree on a 10% revenue share, that means that we'll keep on taking 10% of their revenues until the time they've paid us back a total of 53 lakhs. That's when the financing is completely repaid and they can get more financing from us after that. Your profitability depends on your ability to predict that payback period then. That's definitely one of the core factors. Because the NBFC would not do it like this, right? They would charge you like per month.
00:29:04
Speaker
If you are getting paid back in 30 months instead of 25 months, what do you anticipate? So that five-month interest that is eating away your profit. Absolutely. So I think the good thing about revenue-based financing, I think that's a feature and not a bug, is that I believe that financial services has a problem of incentive alignment.
Velocity's Revenue-Based Financing Model
00:29:20
Speaker
When you take a loan from a bank, the bank doesn't really care about your business or your growth. A bank is going to get a fixed GMI irrespective of whether your business is doing well or not.
00:29:28
Speaker
and if you're not able to pay it well because your business is not doing well, then you will be a defaulter, then they'll attach your personal assets and all of that. I think the fundamental premise of revenue-based financing is that the financier also has a skin in the game to support your growth. If these customers grow, it directly benefits me. I have a commercial incentive to support their growth through my partnerships, through my capital, through a bunch of other analytics support that we provide, etc. But that leads to a very strong reinforcing cycle because I firstly
00:29:54
Speaker
I identify companies which are poised for growth. That's a core part of my analysis also. I fund their growth by funding their marketing and inventory. And I also basically support their growth across multiple avenues. And finally, I also benefit from their growth. And based upon that, I can offer them more capital to keep on supporting a growing company.
00:30:11
Speaker
Okay, so first of all, how good are you at predicting the payback period? Because that will determine your profitability. So how good are you there? Are you like 10 on 10 in terms of a self rating? Are you like seven on 10? Are you five on 10? How would you rate yourself in that? I think we are seven on 10 right now. So I was just still good, which basically means that more often than not, we are right. And instead of portfolio level, it is all good. But we do have, I think 20, 25% of the companies which don't really end up growing as projected. That is more than made up for the companies who do end up growing
00:30:39
Speaker
as planned and beyond that also. But you do have 25 billion companies which don't really grow as we planned. And that is perfectly fine. So I think we believe that businesses fundamentally will go through ups and downs. You will have seasonalities, you will have uncertainties, you will have stockouts and all of that, which will have a short-term impact on your business. But we provide for that. We don't really charge people extra for that. And we absorb that risk overall.
00:30:59
Speaker
Yeah, because it's a portfolio risk for you. So like, in some places, you will make extra profit in some places, it will be a loss, but then they'll make up. Okay. And what does that algorithm which does the prediction, what does that do? Like what all data does it look at? How did you build that intelligence to predict? Did you have to begin an example?
00:31:19
Speaker
Yeah, absolutely. I think it got built over time. I think initially when we started, we were fairly slow in terms of acquiring new customers. We wanted to work more deeply with a few customers and build our data and create models from there, right? We spent the initial four to six months going deep into the data of e-commerce, for example.
00:31:34
Speaker
to understand seasonality is to understand sector wise nuances, to understand the correlation between marketing and a top line growth and things like that. And all of those are factors that we built into our models. That was the first version of the model, which we have constantly been iterating, improving, based upon new data, based upon new information. And I think that has been improving a lot. So I think initially when we started, we would have been five on 10. Now I would say we are seven on 10, but we are working towards ensuring that we get to eight or nine on 10 by the end of this year.
00:32:01
Speaker
But tell me what does the algorithm look at? If you're comfortable sharing, I would love to learn how that prediction happens. And like, I'm a little bit of a geek in that sense. Sure. So see, I think it's a, I'll talk about one example and explain that. So let's talk about an e-commerce business. Now, an e-commerce business would have certain percentage of repeating customers based upon the category that they have. So if it's a furniture category, the repeat will be very low. If it's a personal care category or healthcare supplement category, the repeat rate will be high.
00:32:28
Speaker
the model is that high velocity use versus infrequent use. So basically that based upon the historical repeat rates, based upon the category wise repeat behavior, you can model what is the kind of repeat customer base that would be transacting with you over the next few months. That is one part of the model.
00:32:44
Speaker
The second part of the modeling is on new customer acquisition, which is basically to figure out the correlation between your marketing spends and the kind of customer base that you're able to acquire based upon that. And we are able to build a point of view based upon that because we fund their marketing. We know that we are giving you 20 lakh rupees for marketing. Historically, we have seen that you're operating at a marketing ROAS of let's say 2.5x or 3x. And hence we believe that ROAS is written on ad spend. Absolutely. So every dollar that you're spending in marketing, what's the kind of revenue that you're able to generate based upon historical data, we are able to estimate and model that also.
00:33:14
Speaker
Obviously, we'll build in some buffers, we'll try to bake in some other resumptions as well. But that is the second core part of the modeling exercise. The third part is marketplace sales. In case, for example, we have brands selling on marketplaces like Amazon, and they have over time built a good organic presence there. They have a lot of reviews, their products are showing on top of the search pages, etc.
00:33:32
Speaker
That will lead to some inflow of new customers, irrespective of your marketing spend also. And I think that's the third big section to model and build for. You take that and you also overlay seasonality on top of that. You know, you, you do have, Apple as a business will peak during your festive season and then it'll sort of fall down after that. You don't want to send sector by sector seasonality. And then based upon that, you, you have some semblance of what the outcomes
Data Integration and Business Insights at Velocity
00:33:55
Speaker
would look like.
00:33:55
Speaker
And how does this data which you need to read would reside across many different sources, right? Like maybe they would have a Google AdWords account where you would get data of ad spend. Maybe they would have a Shopify account for organic sales and Amazon seller console. How do you collate so much data and get it into a format where you are able to do analysis on it?
00:34:18
Speaker
So see, that's a difficult part of building this business in our opinion, because I think unlike the first segment, which I talked about it, which is the bottom of the pyramid, SME segment, the invoicing app segment, which you talked about, this segment is extremely data rich. This is one segment where you can build a near complete point of view on the health of the business, primarily based upon the digital data that you're able to capture. But building these platform by platform integration that is completely distributed across so many different platforms right now, that's what is time consuming. And I think that's where a good part of our tech team is also focused on.
00:34:47
Speaker
Basically figure out the platforms, figure out integrations, figure out how to read the data consistently across platforms. What is net sales on Shopify, could be total sales on Amazon and things like that. And based upon that, building a very granular and clear view of the business of the company based upon that data. That's a problem which I think our tech team has solved.
00:35:06
Speaker
How have you say, for example, Amazon sales? How does that happen? Does Amazon do an API? Does it support API integration for you to get that data? Or how do you get that? So Amazon does provide API, which we can access with customers' consent. And I think that's a part of our approach. When anyone wants to apply for financing with us, we have built a dashboard in which people can just come and people can give us a few clicks. They can give us access to a few online data sources that we look at, which is basically Amazon, Shopify, Google, Facebook, WooCommerce, et cetera, and then build a database upon that.
00:35:35
Speaker
So the Google Ads Console also, the customer can give you an API integration so you can read how much is the ad spend and the click-through rates and all of that data. Exactly. So how much do you need to spend on tech? Is tech a very heavy expense for you? Because a lot of lending companies for them, it's more about customer acquisition and underwriting and those kind of things which are heavy expenses for them.
00:36:01
Speaker
And of course, the cost of funds, what is it like for you? So tech is a big area of focus for us. And I think it's both for our current needs as well as on a bunch of things that we are working on for future. So I think on the current part of the business, which is revenue based financing, let's talk about that. So see ice.
00:36:16
Speaker
I firmly believe that and I've seen a lot of intake journeys and I think particularly when it comes to SMB financing, a lot of the process is manual because you don't really have digital data. You cannot really build logic based upon that. A lot of underwriting is still based upon touch and feel. You have to go to a shop, figure out whether there is inventory or not, figure out whether customers are working on it or not and build your comfort based upon that.
00:36:37
Speaker
I think that is what is very different for the digital first business segment that they're going after because you do have a lot of data, which is entirely digital based upon which you can build a digital and near complete point of view on their business. So I strongly believe that if underwriting can be automated, it can be automated for this segment first. And I think that's what we're working towards. So the entire data model, entire logic layer on top of that can be automated.
00:37:00
Speaker
Which will deliver a very smooth and fast experience to our customers. Already we are able to do the end-to-end process within four days, but you want to bring it down to four hours. And I think that is possible here because experience should be that they are just connecting these sources. We have the logic layer on top of that and they get an instant offer. They can plan for deployment immediately after that.
00:37:16
Speaker
So that's the kind of journey which I think we're investing in, which we believe we'll get to. What happens in these four days when somebody signs up in the platform? What is happening at the back end in those four days? See, I think once we get the data access, the first part of the logic is already automated. We do have a system generated output, which comes in based upon certain conditions that we have, based upon certain rules that we have. This is the kind of risk that we see. And hence the case needs to be analyzed whether or not that call can be taken based upon entirely the system data.
00:37:43
Speaker
So there's like a level one screening that is automated. Level one screening is being done by the tech right now, right? The level two right now, because we do provide substantial financing, we already provide financing up to four codes for customers. So we do have a manual underwriter also who would basically look at the system deviations, who would
00:37:58
Speaker
would slice and dice the data in more detail to understand more nuances, who would then prepare a list of questions. And we'll do one personal discussion also with the customer, typically over a Zoom call. In that call, which is like a 45 minute call, we clarify all the open questions. And it's the scheduling of that call, which takes more time than the analysis part of it. But after the call is done, we finalize the offer and we propose the offer to the customer. And then the customer will negotiate a little bit and then we can close it after that and we can plan for deployment.
00:38:25
Speaker
This manual underwriter seems like a very niche talent because you need somebody who understands credit and understands digital marketing and understands e-commerce. This would not be something you can hire, right? You'd probably need to create. So we do train people also on our underwriting method, but I was the first underwriter in the company, right? So I was the one who
00:38:47
Speaker
was involved in the first hundred cases that we did. I was the one who was basically building the models, building the approach, defining the parameters.
Training and Growth at Velocity
00:38:54
Speaker
And I think they're having that VC lens also helps a little bit. Our, our interacting process is a mix of what a traditional debt provider will look for. And also what a VC looks for in terms of your marketplace performance or marketing performance, your CTR and things like that. Right. So our interacting approach is a mix of the two worlds. That's it.
00:39:12
Speaker
So do you hire, say, an IT grad who's able to do analytics and then train him to be an underwriter? Or do you hire, say, a CA who understands finance and train him to be an underwriter? Like, how do you build these underwriters? Until now, I think the latter approach has worked better for us. Like a CA or someone from finance? We basically get CA's who also have exposure to new age businesses. So they do understand that this is new and different from what they might have been doing earlier. And they're open to that. But then I think that part can be trained
00:39:39
Speaker
over the course of the next few months, right? It's more difficult to train a non-finance guy on the traditional finance metrics, which are also important. Let's talk about from Jimbooks to where you are today in terms of how many startups have you onboarded? What kind of disbursement do you do? So yeah, we onboarded Jimbooks as the first customer in May 2020. And I think initially we are fairly slow and conservative, right? We were trying to build a point of view on what kind of businesses are there in the digital first world? What are their requirements? What is their data? And it's time to build a point of view on that, right?
00:40:08
Speaker
So if you got that there are multiple sub segments within the broader gamut of online businesses, you obviously have mobile apps, which was a starting point for us with Jim books, but you would have me to be SAS companies. You could have mobile gaming companies. You would have edtech companies. You would have e-commerce and DTC firms as well.
00:40:23
Speaker
And initially, I think for the first four months, we were working with companies across the entire gamma tray, and we would work with them. We would spend a lot of time to understand their business, understand the data sources that they have, and build models based upon that. What is secret based upon that were two things. First, we understood that the concept of revenue-based financing applies to all of them uniformly. Because finally, what we need is a transparent way to track their revenues. If you can track their revenues, then we can structure a product around it.
00:40:49
Speaker
The second thing that we learned was that you do require that the credit model and your data integrations are built sub-segment by segment. The kind of data sources that you would need for an Amazon and a Shopify business would be very different from a mobile app, would be very different from a B2B, SaaS company, etc. And hence we decided that we should pick up one segment and build a much better product experience for that. And that segment turned out to be D2C and e-commerce.
00:41:10
Speaker
It was obviously postcode period, so the segment was booming. It's already deep enough in India, there are already close to one lakh companies in the segment. And we figured that we can build the integrations out there, and we can create a very fast and seamless experience, at least for the segment to start with. That call had taken around, I think, November, December 2020. And I think for the last one and a half years or so, we have been completely focused on the segment of D2C and e-commerce. We have a portfolio of over 350 companies now.
00:41:37
Speaker
All of these are e-commerce businesses in India. And to work with these 350 companies, we would have evaluated close to 1,000 companies. We would have spoken to close to 2,500 companies. That's the kind of sales funnel that we have already. And we are actively growing. We're growing very fast every month. Give me some names, like some of the bigger names. So some of the bigger names, for example, Power Gummies is a healthcare supplements provider. There is Gummies based products.
00:42:01
Speaker
Then we work with a brand called Itsy Bitsy, which is like a craft chain here in Bangalore only. Then we work with a personal care brand called Bella Vita. We work with an apparel brand called Berry Lush. So see, a lot of these businesses are operating at a sizable scale, right? They could be doing a few crores of revenues every month. And what I did not realize...
00:42:20
Speaker
Also coming from the VC world was that a vast majority of these businesses are actually bootstrapped. They are being built and run in a bootstrapped fashion. The founder and their friends and family might have put some money and then they're organically scaling it beyond that. That's, I think 99% of the market that we have mapped out is essentially bootstrapped founders and they are the ones actually constrained for capital and they are the ones who are actually much more capital efficient also than the VC funded startups that you see out there.
00:42:45
Speaker
So that's the segment that we are primarily focused on. Asking on behalf of a D2C founder, when is the right time to look at revenue-based financing as opposed to going to VCs for fundraising? As a founder, how would one decide, okay, for this stage, for this requirement of money, I should do revenue-based financing versus VC funding?
00:43:06
Speaker
I have had the benefit of looking at multiple D2C founders' journeys from very close quarters. See, I would split the founder's journey into three phases in my opinion. First is what I would call the initial phase or the pre-product market switch phase. They are figuring out their product, they're figuring out their marketing. It may not be very efficient. They're figuring out their supplier cycle in terms of what is the kind of trade period. Are these the right suppliers or not? Is this the right packaging or not? Etc. That's an initial trial in another kind of a period. That is best done either with your bootstrap capital, or you can probably raise some angel money for that.
00:43:36
Speaker
to essentially allow you to build a product, figure out marketing, figure out your working capital cycles, and have that playbook increased. That can take anywhere from initial one year to a few years also based upon the segment that you're focused on. But once you have that repeatable playbook sorted, that's when what D2C founders need is that they need to add what's real to the fire. They have marketing which is working for every dollar being spent in marketing. They are generating positive ROAS. They have their working capital cycles which have become more predictable over time. And hence, they need capital for marketing and inventory.
00:44:03
Speaker
That I think is the ideal time for revenue based financing to come in because we understand the historical cycles and we can fund their growth based upon their projected and future revenues.
When to Use Revenue-Based Financing
00:44:12
Speaker
We also believe that equity is in fact not a good use if it is deployed for the inventory and marketing purposes because it's a very predictable part of your business now. It is not really risky so you should not dilute equity
00:44:24
Speaker
which is more risk capital, which is more expensive in the longer term towards end users like this. What about the size of companies that you fund? For example, say if you look at the mattress space, you have Wakefit and Sleepycat. Probably Sleepycat is 10-20% of Wakefit size. Wakefit, I believe, is like 500-2000 CR top line in that range. Which of these two companies would be a sweeter spot for you to fund?
00:44:46
Speaker
So we work with companies which would be doing as low as like 10 lakhs of monthly revenue. And at the upper end, we do work with companies which are doing 15, 20 crores of monthly revenue also. So that's the zone. Over time, what we have seen in this business exchange is that we are working with larger and larger players because the stability of revenue is much higher.
00:45:03
Speaker
The use case and the need gap is still there, right? We do work with companies, which would be at an early stage, they're doing only 10 lakhs monthly, but at the upper end, technically at RL, there's no upper limit, but a bigger company may not need the capital that we have to offer because they would have equity funding available or something else. And I think that's the reason why at the upper end, we worked with something that you're doing 15, 20 crores monthly.
00:45:21
Speaker
Maybe at the bigger end, they would also have access to funding from banks and like those would be lower costs for them. I'm guessing that's also true. That's also true. And we just talk about the bank also as a potential source of capital. I think the good part there is that obviously cost of capital is lower than what we can offer as of now.
00:45:38
Speaker
But the bad part is that it's also cumbersome. It is offline. It is a lot of the traditional way of dealing with customers, which is what we're trying to change. So we believe that the newest founders don't really want, don't really have the patience for that. And hence it's not that we see a lot of banks taking away our business.
00:45:54
Speaker
How do you source customers? You said you source about 3000 leads till date. How did you do that? I was not even aware there are 3000 need to see companies in India. Oh, it's been growing like crazy. So it was a revelation for me also. But okay, so let's only look at the independently owned e-commerce stores in India, which is basically people who are selling some products on Shopify and WooCommerce. So as of today, there are close to 1 lakhs such businesses in India, which are based in India and selling some product on their own Shopify or WooCommerce stores.
00:46:22
Speaker
And that number, by the way, increased 3x in the last two years. Two years back, when we started the business at number of 35,000, that has tripled. So that is like 70% year-on-year growth. So that segment is just booming. The way we reach out to them is through a mix of inbound and outbound. Over time, as the brand has been built, people are talking about velocity as a good scalable source of capital for them. We are getting a good inbound flow of reach also. Initially, when we started, it was primarily outbound. We were, we have
00:46:45
Speaker
built our own scoring engine based upon which we prioritize, which companies you reach out to, which could be like at a phase where they can use our capital. And then we have sales team, which actively reaches out to them. Additionally, we also do a lot of ecosystem partnerships, but you to see brands, for example, would be working with some payment gateway, they'll be working with some shipment service provider, they'll be working with some marketing agencies, and we partner with all of them. That's one more source of leads for us. Okay. Why do you need to raise funds?
Lessons from Taskbob and Added Value at Velocity
00:47:08
Speaker
I believe you just raised, I think a $20 million round. Yeah.
00:47:12
Speaker
So what is the need for fundraise? Because you're not lending from your books, right? Like you're essentially lending through NBFC partners. So what is the need for funds? I also reflect upon my journey at task work, right? Because I think at task work, we were first-time founders, we were very idealistic, that you should raise capital only when you really have the need, otherwise you should not raise. We had that mindset.
00:47:34
Speaker
A lot of good VCs were knocking on our door. We had raised like 1.2 million and we thought carry the board pass, I would like build at the right time we go out and raise, but the market sentiment turned within a year. And I think that was the reason why even though we think at our end things are going as for plan, we are improving, we're iterating, but when we needed capital, the market had dried up. And I think that has been one key learning for me that you should raise funds when it is available, which may not entirely tie with when you actually need it. At our end, as you correctly said, our burn is not very high.
00:48:02
Speaker
We have been building the company in a very capital efficient way and we have good supportive investors also. And at the time that we raised this round, we had enough capital in the bank to keep on running the business for a few years, even without it. But the capital was available from good investors at good terms and to primarily ensure that we don't have to depend upon or we don't send the risk of the market turning when we actually do need to raise it or it's a good call to raise it right now.
00:48:24
Speaker
Considering that you're focused on online sellers, is there a way in which you are able to add value to them? For example, you may be able to look at seasonality and give them advice and stuff like that. How do you add value beyond just money? Money is one way in which you add value, but beyond that, what are the other ways in which you add value?
00:48:42
Speaker
No, absolutely. I think one of the reasons why I like the concept of revenue based financing is because as a financier, our incentives are aligned with the growth of the business. We benefit automatically when the business ends up growing because increase in revenue means faster payback for us, which is like a better return on my capital.
00:48:59
Speaker
Unlike a typical bank, for example, which doesn't really care whether your business is growing or not, we are financially incentivized to support the growth. And in that sense, we do multiple things. To start with, we have built multiple ecosystem partnerships and we have got the best offers because what we figured was that if a brand is small, they will not really be able to negotiate and get the kind of terms and offers which a bigger company can get. But we have the benefit of aggregation and scale across all the ecosystem players, D2C enablers, because we are negotiating as a growth.
00:49:26
Speaker
We have been able to get the best offers across everything that they need, which we basically offer to our customers. That's one. So this would be like say cloud services and logistic services. Absolutely. All of that. So cloud services, logistic services, payment gateway, ad agency, celebrity endorsement connects, all of that. So.
00:49:44
Speaker
everything that a D2C model needs. It's like a D2C stack that we have created that way to make it plug and play for them. And this is human serviced or is it like self-service like you just have a portal where you can access this or how do founders access it? Oh, we have a portal. We have like a menu card which they can choose from and then it can be initiated and they can avail the service of the need. So that is one. Second, we also believe that data is a big
00:50:05
Speaker
So I think e-commerce, the best companies that I had seen even as a VC were leveraging their data very effectively. I mean, the best founders are always on top of their numbers. And we believe that is cumbersome right now for D2C founders because data is distributed and they don't really have the team bandwidth, et cetera, to create like an integrated summary for them. And I think that's what led to us launching a product called Velocity Insights. Because the idea was that can we use the data that e-commerce founders have to empower them and allow them to take better decisions?
00:50:32
Speaker
My data could be on, it is segregated across Amazon, Flipkart, Shopify, Google, Facebook, and each of them provide their own dashboards, right? But as a founder, you care about what the integrated somebody is, what are the key decisions that you need to take, and overall, how your business is doing put together across all of them. That's a platform that we had built because we, at RnVed, anyway, does the difficult job of building each of these integrations, even for the financing product. And that we have now opened up to the customers.
00:50:57
Speaker
as a free product called Velocity Insights that we offer right now. That's amazing. Essentially that same core technology is just being packaged in a different way for founders to also access what your credit underwriting team access is, the founder also accesses that same thing, but in a different packaging. Absolutely. And do you think that
00:51:15
Speaker
Your way forward is more towards tech or more towards NBFC. You could have one of these paths as you grow. You could apply for an NBFC license and then become an NBFC and grow that path. Or you could look at a tech-based path and continue to do more innovations along different kinds of products. So what is the way forward?
00:51:34
Speaker
I think that's a fair question actually because until now that's the architecture of the world, right? That you have to either categorize yourself as a financial services company or a tech company. But I think the financial services companies of future will be tech companies. So the idea or the future that we are building towards is a combination of both.
00:51:51
Speaker
Even in terms of the product roadmap that we have right now, right? We already have one financing business, which is heavily enabled by technology. We have velocity insights, which is take only kind of a platform. We're actively working on a cards for example, which is again, an innovative spin on the typical corporate. And.
00:52:06
Speaker
And we have a few other products across payments, etc., which would be a good overlap of tech as well as financial services. So we are not constrained by that bucketing right now, but we want to ensure that across what we can deliver, across the data that we have, across the distribution that we have, how can we enable the growth of the founders that we work with? That's a broader problem statement. It will have a bunch of tech-only solutions and it will have a bunch of index solutions.
00:52:28
Speaker
And we are going to work across all of that. Okay. Tell me more about these two, the cards and the payment product. So this is like a one year roadmap for these two products. Yeah. Yes. All the work is going on that. So God basically we figured that for DTC founders, they are heavy credit card users, right? Because they have to do digital marketing. They have to use a bunch of SAS tools.
00:52:47
Speaker
Obviously they'll have some spent across travel and expenses also. We figured that the founders right now have to use their own personal credit card and the personal credit card may not have a good enough limit for them to be able to scale their business, right? So it's a big pain point for founder right now to keep on topping up their thought. I've seen founders who have to spend like 25 lakhs in a month and the credit card limit is five lakhs.
00:53:06
Speaker
Every seven days, every six days, they have to top up their part again. And then they have to spend in like cohorts of five lakhs each, right? That we believe can be replaced by the tech that we have because we believe that if the business is generating revenue, they can be on credit limit. And hence we have introduced a card which will offer them much higher credit limit entirely on the company's flow of revenues, which they can use to keep on growing their business. So it is, I think, one of the first flow based or revenue based credit card that we're launching in the market. That's a product that we're working towards, right?
00:53:31
Speaker
So you're saying the credit limit of this card will be dynamic based on what is your revenue like every month that limit will keep going. That's the idea. And the card payment will be linked to the money they're taking from you as a loan. Is it linked to that or it's a separate product altogether? No, both are separate products. It's a separate part. So it's possible for people to opt for both of them individually.
00:53:55
Speaker
But both products are being designed to operate independently as well. Okay, okay. And for this, you will need a bank partner, right? To issue a credit card. We already have a bank partner. We have partnered with SVM bank for this. And the cards are already live. We are doing like private beta testing there with a bunch of customers. And we are working to like refine and improve the product. But what you're doing is higher credit limit than what we're doing, guys. We can offer a much higher credit. Do you want to say anything? What companies have typically done?
00:54:19
Speaker
I think CODO and Carbon and Cash are building good companies. But the obvious way to give credit limit is to give it based upon bank balance. If a company has bank balance and you have a CH mandate on the bank, then you can give a credit limit. But the unique thing that I have observed about the customers that we work with is that they have a lot of flows, but they do not really keep a lot of cash in their bank. If they're getting some money, they'll pay off some vendors, they'll keep some inventory.
00:54:42
Speaker
All of that will keep on deploying the money in the business. The typical bank balance-based trade limit is not going to work for this segment. That's the core realization. And hence, we believe that this revenue-based limit is going to be the right answer for this segment. And tell me about the payments product. We have already built a payments kind of a product in which people can use our financing limit to make payments.
00:55:01
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to this show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in this show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.