How Capchase Built a Unicorn in 2 Years with Miguel Fernandez

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We have been very thoughtful about not growing ahead of our skis. You should hire only when your team is so stretched that actually like dropping the ball on some things. And the reason why that works is because if people are stretched, that's when they started like focusing on the things that have the highest leverage. I think that prioritization is not only things that you choose to do is actually everything they choose not to do. Right. So constraint of resources actually make you focus a bunch more. We've been able to do that by one hiring really good people and then being very conscious about every additional hire. It needs to be somebody to do something forever. Making sure that when you hire people like you do it for the long run has helped us to stay lean. I need some traction. You need some traction. Let's get some traction.

Hey, what's up innovators, entrepreneurs, visionaries and disruptors. This is your Traction podcast host, Lloyd Lobo. We're a community of over 100,000 people just like yourself on a mission to help you get the methods, the money and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio, Asana and many more. Excited to host Miguel Fernandez, co founder and CEO of Capchase, a provider of non dilutive growth capital for recurring revenue companies. Basically helping companies grow without giving up that precious equity you took so long to build. Miguel, welcome to Traction. Thank you so much for joining us.

Hey Lloyd, thank you so much for having me. It's great to be here. Yeah, I'm very excited to share more.

I'm excited to get into your backstory. So let's kick this off. How did you come together with your founders? Why Capchase? What else did you consider? From what I understood, you're a first time founder. It's like you hit a home run out of the park, out of the gates. I love it, man. That's a rarity.

It's this. Day one. The home run never counts until the game is over, right? Basically we are four co founders and it's funny because we've all met through, first as friends and then as co founders. There's three of us that work together at the same SaaS company in Spain. So we all joined when it was very early. I joined as the first person in sales and the other two people joined as the product managers basically. And we see the company from zero to a few million ARR over three years. And then we left at the same time roughly. I went to business school, another one went to business school and the other one went to do a stint in VC with the goal of going to business school afterwards. So when I go to business school I got into Harvard and I was very excited about it. My whole goal was to go there to learn more about how to become a founder and then hopefully launch something upon graduation. And the one that I landed there, I was researching already an idea with one of these co founders and it was a fintech idea. It had nothing to do or very little to do with what we're doing now. That was the beginning of the journey. And the beginning of the journey. The insight that we had was that hey there, in certain verticals there are a lot of sequential payments and circular payments between companies. And right now you just have to wait for that sequence to develop or just nobody simplifying those circular payments. So we thought about, hey, why don't we do something similar to a split wise or companies in verticals such as fried or logistics or construction have a ton of parties that have to wait for different payments like they're all involved in one way or another. So imagine you have a platform and then you have company A owes Co. B$100 and Co. B owes Co. C$100. In reality, with this platform, what would happen is that company a would pay 100 to a platform, company B0. They would pay 0 or receive 0 and then company C would get a hundred dollars. So when we were talking to large companies, they all loved it, but it was the typical cold start problem. I'm like, hey, this is great when everybody's in the platform, but until then it's really hard to get people to do anything. So it was all about hey, how do we get more data? How can we kickstart this platform without using the platform to start with? So it was all about getting more data. And to get more data we got to two conclusions is like we either get data through offering an analytics tool, our workflow tool, or we offer a financing. We offer financing and we get the data or people give us data in order to get financing. We started doing that like exploring more and more. And then what we saw is that we KNEW More about SaaS than anything else. We were really interested in fintech and specifically in financing. And like we would look at different modes, different verticals and so on for two weeks at a time. If we found enough stuff, we would go for two more weeks. If we didn't, would cut it. And then in January 2020, we had the idea, which is funny, of offering these SaaS companies a tool so they could extend terms to the customers but always get the cash up front. So we're solving a financing pain that SaaS companies have, which is they have upfront costs to acquire customers and then they get paid month of a month, right? So to avoid that cash gap that every SaaS company faces and that we faced in the past, in their previous experience, the goal was to give them a tool so they could say to the customer, hey, look, the price is 100 per year and if you want to pay monthly, great use captchase. And then founders love that. They were like, hey guys, this is amazing. This is the holy grail of SaaS. Because I have to do this comes so my ACV increases and I can close sales faster because I'm offering flexible payment terms. So it's like the holy grail. You increase acv, you decrease sales cycle. Usually it's like a trade off. And then the next thing they said was like, hey, why don't I do this for all my customer base instead of for every new customer that I get? So why don't I do this for my 300 customers instead of doing it for the 10 new customers I get month over month? So then we saw what they wanted was to convert their ARR or the customer base into upfront financing to be less dependent on equity. As I said at the beginning, yeah, that was when we said, okay, this is where we're going to start with and then we're going to learn so much that we're going to do the rest afterwards. And that's when the fourth co founder joined was a friend at hbs. And then, man, we started working on it like crazy and dropped out.

What is your long term vision? So it started with you landed on this, hey, you're sitting on ar. We know the company's churn, we know the company's retention, gross margins, etc. So I can take their ARR and lend them upfront X times x ARR or times x mrr. But what is the long term vision of the company?

So for us it's all around SaaS companies, right? Like we only work with SaaS companies deliberately, right? So we resisted the urge to go and work with financing with any vertical. We only work with SaaS. So our goal is to develop multiple products for SaaS. So we start with financing and it's great because companies really count on us, we really like a partner and we help them to not just get financing, but grow better in a more efficient way. And through that we're finding opportunities to expand in the transaction of a SaaS product. Right? So from all the way from negotiating pricing to enabling the signature to enabling the transaction, financing the transaction and then managing the revenue flow, both collections, reconciliation, recognition and eventually maybe even revenue management. Right? So that's what we're starting to do now. And also we had our Amazon Web Services moment where we are now selling our infrastructure to other financial players. And I'm saying Amazon Web Services moment because I'm sure you're right, but like to refresh the idea for other people in the audience, right? Amazon, when they were running the warehouses, they were like, hey, this is so complex. We need to get software to run these warehouses. And then they went out there and they were like, hey, there's nobody that can solve this problem for us. Let's solve it ourselves. So they built all the cloud infrastructure to serve their warehouses from a centralized point of view. And then they said, hey, this is actually a really good infrastructure for other people and other complex problems. And they started selling it and they started making a ton of money off of it. And that is the most profitable part of the business. So we did the same thing. We're like, okay, we spent two years building the most complex and sophisticated data, connectivity, underwriting, monitoring, backend for SaaS companies. And now every financial company, every financial entity wants to work with SaaS companies because they're so attractive, but they have no idea how to do it and they're doing it paper based. So now we're selling them the service and it's going really well.

I firmly believe if you look at it, the first wave of technology was what the Internet, right? Then came the cloud, then came mobile, then came AI. And now everyone's embedding, financing, tech products, right? Payments, lending, insurance. And like we don't say It's a Web 2.0 company or it's an Internet company, or cloud company, or mobile company, or social company. Eventually every company will have some component of fintech embedded into their products. And we won't say it's a fintech company either. So you're sitting on this great thing. How big is the company today? How much in money have you deployed how many employees?

Yeah, so let's see. I think the last time we did the analysis and I can get back to you on this, but like we had made available over $2 billion to like more than 3,000 companies. That's grown a lot since then. That was back in the summer. There's 110 people in the team distributed mostly across North America, Europe and Latam. And yeah, we're present in 11 countries. So North America again, US and Canada and then most of the European Union and the uk. So yeah, it's going to like pretty big scale. I think that we're going to stay around that geographic coverage for now as we launch more products because it's all about going deeper and deeper in this as a go system as opposed to broader in terms of geographies. So yeah, it's a good moment.

That's the beauty of it, right. If you look at it, Starbucks has the second most used payments application in the United States. They're not a bank. Shopify's payments revenue is going to grow like crazy. Toast, the restaurant management platform, they launched Toast Capital, even QuickBooks launched QuickBooks Capital because they're sitting on all this data. And so it only makes sense and what you're saying, I love it so much because you've deployed close to 2 billion in capital, the infra to make it all happen near risk free with the underwriting and the deployment and the data collection and the security.

So.

Well, why not make that infra available to smaller institutions so they can deploy capital faster. And the other thing you can do, and maybe you're thinking about it, is why not also give them the capital?

Exactly, exactly. Yeah.

Lending as a lending API, basically, yeah.

Banks have deposits, right. So they have very low cost of capital. So customers would get the best of both worlds. But other financial institutions, other fintechs, they don't. Right. So then we can actually work with them to provide them both the infrastructure and the financing until they get to scale. And then one other thing that we are really exploring now is that there's still something broken in transaction of a SaaS product. Right. So if a SaaS company offers annual payment terms to a customer, they usually have to give a discount. So then the discount to get all the money up front in reality is the SaaS company financing the buyer. Right. Because they say, look, you give me the cash up front but I'll give you a large discount. Right. For something that I'm going to give you service through the rest of the year. So the SaaS company is financing the buyer at a very high cost. The SaaS company is offering a discount. The customer is financing the SaaS company. If the SaaS company is offering flexible payment terms, the SaaS company is financing the customers and SAS companies. Man, we need to raise money, right? Like we need to raise money to grow. So you don't want to finance your customers. So there's something there where financing that transaction can get the best of both worlds. So we are doing something there. We'll probably announce it in a couple months. I see it. Yeah, I love it. Yeah. So you made a transaction of a SaaS product much more smoothly with less friction. And both customer and the vendor get the best of both worlds.

There was this company called honey which PayPal acquired for 2 billion. It was a browser extension where in browser would tell you about all the discounts and everything else. Then I did with Citibank and said, hey, at point of sale, why don't you put the option that do you want to finance this purchase?

Dude, that's exactly, exactly.

As soon as you were saying, so that point of sale, finance it. You're right. A SaaS company should never offer discounts to finance their customers payments to them. Yeah, it should be the other way around. They should pay you annual and, and they should finance it themselves. And so it's almost like a credit card. At point of sale. I love it, man. That is fantastic. When did you guys launch the company, by the way?

We launched it in May 2020. That's when we incorporated. We have been working on it since January 2020. And then when we were sending our first customer, they were like, hey, okay, so can we sign an NDA? We send them an NDA and it was our student email. They were like, hey, sorry, can you send us from the corporate email? So he said, shit. Like we need to incorporate a company, get a domain, get an email and then do it. So that's how we.

I love the scrappiness. You know, when we started Traction, it was a side project. Now it's a big community. A hundred thousand subscribers, three million views on YouTube. But when we started traction, the first event we did, my co founders were like, man, it's something on the side. Let's see if it drives leads to boast or not, but you're getting no budget. So I emailed all these unicorn CEOs and people didn't know us. They're like, oh, we're not coming. One person said, we're interested. I took that, I'm interested, reached out to everyone Somebody thought they confirmed and then a whole bunch of people confirmed over the weekend. I build a website on Squarespace. The website of Traction is still that Squarespace website that I. And we blast blasted everyone with the ticket sales. We sold 50,000 in tickets. And then the co founders were like, oh, I think we need to go and get a venue. And so the first conference, we held it in a big nightclub because we couldn't get a venue. So that's. I love that. I love that. We had a stripper pole. We had to hide the backstage. Almost went on fire because we had a smoke machine to keep people on time that ran out of water. It was chaos.

My God, that's so good. But that's the only way, man. Like, that's the only way. If you don't do it that way, then you're adding so many barriers towards the development of a new product or a new conference that it's impossible. You have to drag a massive boat to make it happen. And if you're really scrappy, then things just work much easier. Allows you to pivot much faster. Even now with new products, man, it's like a pot of two people working 247 on that thing without having to carry the weight of 100 people. Organization. And it's the only way, I think.

How many people are you guys now?

110.

110. Yeah. So even with both, right. So we're in similar spaces. Our vision was the same thing. We wanted to create a new asset class out of R and D. So we look at the R and D and we create a funding product to lend. But people wouldn't give us their data. So the best way is to give them money and do these tax credit claims. But the first customers are all manual. Pick up the phone, dial for dollars, as crappy as possible. Right. And so I'm curious to know, how did you get your first customers in the early days?

So very funny. We were students, right? So the good thing about COVID for us, besides like every entrepreneur getting loans from the government so that people got more comfortable with debt, the good thing is that everybody was sitting at home. So when we wanted kind of like feedback or idea validation or conversations, we were just calling and emailing our professors at HBS and also a bunch of CEOs of companies that alumni from HBS and so on. And everybody said yes. Everybody was like, yeah, I have nothing to do. Let's have a call whenever you want. I'm sitting at home. So then that meant that we started getting like a network of referrals going on. And even one of our professors at HBS introduced us to a couple of portfolio companies of his. This guy is Microberge. He was the CRO at HubSpot and he has his own VC fund Knuckles Stage 2, which is very focused on go to market. And he was like, look, I think that this solves an amazing pain as a revenue leader. This would be amazing. So he introduced us to three people and one of them became our first customer. And it was tiny, man. I think it was like we gave them 25k, I think in July 2020.

And then money in the bank though feels really good. Somebody paid you for a product.

I honestly think that they made us a favor because it was so small. 25k, man. But it did serve a purpose for them and for us. And then I don't know, man, like now we're doing millions every day. So it was, it's been such a journey just to see how it's grown. But our first customer was an introduction and so scrappy. Everything was manual, man. Like the front end was a very basic front end. And then all the data connectivity to Stripe to platforms, there were no data pipelines. We're just getting a raw Excel file and we're doing the underwriting ourselves. Trying to model the performance of a company by looking at financial transactions. So it was very manual. But then like we quickly as we started building a team, then you see the progress and now like we have the most sophisticated data and underwriting platform for SaaS companies in the world by far.

We're similar in that sense in both. We did everything wizard of Oz, right? Customers want an outcome, they don't want software. Get them the outcome, any means possible and do it and then iterate and scale from there. Did you have a glorious launch or anything or just grew from there?

We had a tech runs article, man. Like we had taken article. I think you could call that a great launch. I remember perfectly where I was when it went live. I'd gone to Spain for my sister's wedding. I was sitting in my living room. And then he went live. And then I started to see the forms and the inbound trickling in and we had 200 leads in a day. I was like, this is crazy. And then like now we've had a lot of like big launches but like we never did a, an event or anything like that. It was just all like tech crunch.

No, no product hunt, nothing, none of that sort of thing.

We did pray hunt once but we failed. We're not Good at it. I don't think we cracked the code.

So when all else fails, TechCrunch will get you that initial rush. But then at what point you felt you had a product market fit? Was that. What was the feeling like? At what point you said, huh, this can be a business. We're in the game now, man.

It was like all those conversations with customers and we were like, wow, like, this is the holy grail of SaaS. If you do this, I'm using it tomorrow. And now when we're launching this new product that we talked about, it's the exact same feel, man. People are like, you do a 20 minute call, they're like, I want to try this, I really want to try this. And then, okay, there's something here that people want. It was all through conversations. And then once we took it to market, then it was like conversion rates of cold leads or like semicol leads to customers were really high. And then what we saw is that customers, when they would. If founders know about one thing, it's about how to grow a business, right? So then like, usually the limiting factor is the funds. So when they start getting funds and they start deploying them and they start growing, that hunger for growth never ends. Because the bigger you are, the more you want to grow the big, the more money you need to grow at the same percentage. So then what we saw is that when we started working with funders, they would start drawing more and more often and bigger amounts. So they were making this financing part of the operating model. And that's when you say that, when you see that, okay, it's not just the initial conversion, it's the lifetime value that you get from these customers and how excited they are about it and how they start referring to their friends. You have to check this shit out. That's when you know that you have prime market fit.

Did you incentivize referrals or was it just happening organically? Did you do anything to prompt them to refer or any of those referral tactics, Ma'?

Am. So we tried and we saw that if you try to incentivize it. I'm sorry, the way to incentivize is, hey, you refer me friends, you're going to get like a commission or like a gift or whatever. But then we saw that to be able to track that, we had to deploy technology and make introductions less personal.

Yeah.

And then finally they did less. They were like, I don't want to send a link to my friend. I want to tell my friend in an email to you, you gotta check this out because it's amazing. So we haven't yet been able to productize that personal touch of an introduction so that it doesn't feel like I ref. Like a Groupon code. Hey, say this code out.

It does feel mechanical and it takes away from the I'm doing it out of my love versus I'm doing it to get something. But on the flip side, what you can do proactively is you get those intros, you get those referrals, and then you can add some love to their account because you know where it came from. They said, oh, this founder referred me. That's amazing, man. I love that kind of story. But you know what, the amazing thing about CAPTCHASE at 2 billion valuation and all this crazy growth, deploying millions a day, you're still 110 people. And I firmly believe as companies grow, the more people they add, it becomes harder and harder to be nimble. So how do you stay nimble and move your company quickly as you get larger and more and more people are involved?

Yeah.

Like basically, how do you grow fast without growing old?

Yeah. So a caveat, like, our valuation is not 2 billion. It's slightly lower than 1 billion. But there's been a lot of, like, hypothesis in the market and so on. It's not that high, but still, like, we have been very thoughtful about not growing ahead of our skis. You should hire only when your team is so stretched that they're actually like, dropping the ball on some things. And the reason why that works is because if people are stretched, that's when they start, like, focusing on the things that have the highest leverage. I think that prioritization is not only the things that you choose to do, it's actually everything that you choose not to do. Right. So constraint of resources actually make you focus a bunch more. We've been able to do that by one, hiring really good people and then being very conscious about every additional hire. It needs to be somebody to do something forever. Making sure that when you hire people like you do it for the long run has helped us to stay lean. And then we haven't had to do any layoffs or anything in this environment, which a lot of companies have done. I think partly because of that, because it's so common in SaaS companies or in tech companies in general to over hire. And then I've talked to so many founders that say, look, we have 3,000 people in the team and I think that we could get along with 50% of the team, but we just don't know which 50% it is. So the way you avoid that trap is by being very conscious about when you hire and when are people really at the limit. And yeah, not just hiring for hiring sake and not allowing leaders to think that their worth is proportional to the number of people that report to them. It's 100. Outcome and impact.

I love that focus on outcome and impact. And also having leaders having that individual contributor mentality. Roll up your sleeves versus hiring people. People who hire more people do things right. As you make that journey from sort of idea to validation, product, market fit and scale, you gotta hire people in proportion. When you have a bloated organization, rich people get lazy basically.

Yeah, exactly. And man, another thing is that people want to own stuff and they want to feel the impact as well. Right? So then if you have too many people and that ownership is diluted is bad for the business because it's obvious, like we just talked about it, but it's bad for people as well. And they will probably leave at some point because they're not challenged enough. Right? So you want to give people space and ownership. And man, like when you do that, the people surprise you. It's amazing. We have some incredible people on the team that are doing things that we would have never thought possible. Maybe even they wouldn't have thought possible, but they just do it because they have the space and the agency. So it's great.

Yeah, yeah, definitely. Now let's shift to Cap Chase. And funding the media skews our idea of success and makes us feel like there's a single path to building a startup.

Right.

Find a co founder, raise money, get written up on TechCrunch, tell everyone you're killing it, then raise more money and repeat. But there's another path, there's many other paths. Or you can bootstrap with customer money, you can take non dilutive capital from Cap Chase, or you can raise capital. What's your take on this whole bootstrap versus venture backed debate here?

Man, it is a very good question. Something that I think about a lot. Right. So it is true that the idea that people have of being a founder is like raising money, right? And it's almost like when you tell people that you're a founder, they're like, oh, what stage are you at? And that stage is always linked to fundraisers, right? And honestly, until now, until very recently, it was the only way like you could either choose between fundraising and then like building a company, like going all or nothing, going big or going home, or bootstrapping but then you would know that it was going to be like a long journey because you could only reinvest into growth your excess cash flow, right? So much, much, much slower growth rate now with captures, it's just. It's not the same choice. You can actually bootstrap and get excess capital to grow a little bit faster, but still, like, you can grow way faster if you raise money from third parties, right? But the thing is that it's not you can grow faster. It's you have to grow faster. Because the moment that you raise money, like, it's a different race because then your investors have their own expected returns and their own fiduciary duties, and they want you to grow and grow. It's really a choice between what do you want? Do you want to make a lifestyle business? And do you want to be the full owner not only of the equity, but of your destiny? Or is it almost like a Russian roulette? You're going to take a shot at making a huge business knowing that it's going to be a race that's not going to stop until you sell your IPO and, like, the goals just keep moving and everything just keeps getting harder and more complex. So I think about what I would do in the next one, right? And I think that in captives, we've been extremely lucky with our investors because everybody's amazing and our board is amazing. They have very different profiles. So everybody has value on different areas, which is something that is just a huge advantage. But then again, like, we are in that race, right? Like, we just need to keep growing at a very fast clip, and you can't stop. So when I think about what we do in the next one, maybe I would bootstrap for a little bit and then use catches, you know, then to get diluted a bit less and grab it faster than just purely bootstrapping and then maybe raise from very specific parties that I really like for very specific reasons. And only after you have, like, your operating model figured out, money can mask anything. Like, with money, you can mask a poor product market fit. You can just shove things down your customer's throats. But when you have an operating model figured out, if I invest x amount of money, I'm gonna get y amount of revenue for so many months with a certain retention. When you have that figured out, you can go and raise money and say, look, if you give me $5 million, I'm gonna turn $5 million into 6 million. ARR. If you give me $50 million, I'm going to turn into 60 million ARR. Then you're like an owner of your destiny and you have the levers as opposed to having to figure out all at once which is becomes tricky.

100 like money is both overrated and underrated. It's underrated because people make light of it, right? And then they think they spend frivolously, right? They think oh, money is always going to be there. And then you enter a market like this where it's not in abundance and now you're forced to cut spend, cut marketing and everything. And overrated because you can only mask a cracked product for so long with money. Eventually you need a product that customers love and want to pay for and want to keep coming back because eventually it'll fail. And you've seen examples here on both end. So as you talk to customers and other founders, how should companies think about non dilutive funding and different forms of financing? What kind of advice do you share with them?

Yeah, so I think it's twofold, right? So one is you can use this financing to run your business and again to more detail. And two is you can use this financing to solve a specific use case, right? So maybe with the second one it's easier. But like SaaS companies, specifically SaaS companies, they have a massive working capital problem, right? They have a big upfront cost when signing customers and that upfront cost gets repaid month over month, right? So then imagine you have a customer and the cost of customer acquisition and the salaries and implementation, whatever. Imagine that the total CAC is $10,000 and the customer pays a thousand dollars a month. You're going to be losing money for 10 months until you break even and then you make money, right? But what happens if you close 10 customers? Then you're losing a ton of money and if you close 100 customers, you're losing even more money, right? So then that specific use case that people use it, that people use capsis and other financing for is recovering that CAC immediately so that the faster you grow, the more money you have and not the faster you grow, the less money you have. Which perpetuates that race of raising money to deploy and to growth. But then you run out of money and you do it, you need to do it again. That's one use case. And then most of our customers, they use captchase and non deleted financing in combination with other forms of funds like their own funds or equity VC money and so on, right? So the way they do this is people say like all money is green and that's true, but not totally true. Basically every SaaS company has different use of funds. They have use of funds that are very long term in nature and some that are very short term in nature. At the same time you have different sources of funds. You have long term in nature like VC money, you never need to return the money until an exit, right? And then you have short term in nature like debt. So then until now people used equity money for everything. For long term activities, for short term activities, with activities that can scale a lot and consume a lot of resources. And then that's when you run out of money quickly and you need to raise money again. And what funders are doing now is that they're aligning sources of funds with uses of funds both in terms of returns and in terms of length. So for example, things like R and D, like new products, new geographies, new markets, bets that if they work out, they have an insane return. And they don't work out, they don't, they have a zero return, they use equity for that. And it's very similar because it's very similar to the way that equity works. If VC money, if you hit a winner, you're going to make 100x. If you hit a loser, you're going to lose. So you're going to make a zero. So then by using equity and longer term capital for longer term debt, for longer term initiatives, all that is aligned. If the initiative doesn't work out, you have to return the money. And then for shorter term initiatives that can scale a lot, you want to use short term capital that scales a lot. And that's where debt and undiluted capital like Captchase comes into play. And then you see the best companies use VC money for only R and D so that their Runway becomes VC in the bank divided by R and D costs as opposed to visiting the bank divided by burn. And they use non negative capital that scales with revenue to fund growth and short term activities. And like the faster the company grows, the more money they have.

That makes complete sense. That's a good way to put it. What is the most ideal customer for you? Like revenue range type of SaaS company?

Yeah, so any SaaS company, any type of SaaS company, we can connect the data and analyze them in less than 24 hours. In terms of revenue, I think our sweet spot is below 20 million ARR. So we have customers from $75,000 ARR all the way to 120 million ARR. But a sweet spot is between 75k to 20 million ARR for our core financing Product. And then for the new products that we are launching and we have a few customers, they are more or less around 10 to 100 million arrangements. Cool.

So keeping to the core financing, the SaaS financing, let's call it the recurring revenue financing product. And what sort of metrics are you looking for from this company? You can't be funding companies that are churning 50% of their customers kind of thing. What are the key metrics people need to stay on top of?

I think that for founders, for SaaS companies. I'm going to share a bit of information from a report that we did on SaaS companies and like what the best companies look like. The most important things are growth rate, gross margin and retention. As you said, all those three are probably the biggest drivers of valuation for SaaS companies. It's what everybody looks for because they're the most important thing to determine the health of SaaS business. So gross margin is really important for two reasons. On the one hand, it defines scalability. So the higher the gross margin, the better the company is going to scale. And then in this environment, if a company needs to increase their cash flows, if they have a high gross margin, they can just slow down a little bit the rate of growth and they start making money. So it's very important. Growth rate is obvious. Like growth rate compounds everything. It compounds the people you can attract. They work better, they work faster than everybody else, the company grows even faster. And then last of all, retention. That is going to determine how efficient your growth is. Because if you have more than 100% net retention, then you know you're just going to grow with your current customer book. Right. So that's also very important. We look at the combination of all those.

What are the minimums in each for you guys? Because it's a very high Benchmark to achieve 100% net revenue retention with 100% growth rate and an 80% gross margin, like best in classes hard, right? What are the minimum requirements to get funding from you guys?

Yes, it's really a combination of factors. So we connect to banking data, revenue data and accounting data. There's really no minimums. Right. Because it's a combination of different variables. Like what we're interested is and what we give to customers is a forecast of the business for the next 12 months and then how the business reacts to certain levers. So for example, what's better, a company that has a CAC payback of 16 months but a very high net retention, or a company has a CAC payback of one month and A poor CAC retention.

Oh, that's a hard one.

You don't know, right? So you need to look at the forecast. Hey, what happens if this company gets a million dollars? What's it going to turn into? So then it's almost like you really need to look at the combination of all of them and at the model of the company in order to make these decisions. And that's how we do it, to be honest.

So you create a score and then based on that you give them some amount of money. And usually how much money, maximum or minimum, do you give? What is the max? What is the min? Let's say this is a company that's doing, keep it simple, a hundred thousand monthly recurring revenue. What's the maximum? Can you fund them?

So that's 1.2 million ARR. They could be getting anywhere between 10% to 70% of the arrival. So that's from 120k all the way to 840k of financing. But the product is designed to take the money bit by bit. So if that company, for example, if they were to get 840k, they were to get the max of the max, assuming that their score is perfect, that money inevitably would sit in the balance sheet and the bank account for a while until they use it all. So they will be paying money, they'll be paying a cost for something that they're not using. So instead of doing that, our product is designed so the SaaS company only takes the right amount every month. If they want, they can take everything. But like we tell them, look, it's better for you to take maybe 100k this month because that's how much you're spending into growth. And the following month take 120k and the following month take 80k because you have a few payments coming in instead of taking the whole amount up front and then paying interest for something that you're not going to use for a while. Because we were trying to get the minimum dollar figure that these SaaS companies will pay for the financing because the less money they pay for it, the more money they're going to have to grow the business in an efficient way.

Makes sense. Now what is the fee structure and what is the payback period and is it the same for all companies or is it different based on the company?

The same. Like in some companies, depending on the goal of each company. That really changes a lot. If a company wants the lowest dollar figure, then what you really want to do is align the term with their payback terms because then what you're doing is you're taking money for the least amount of time and the least amount of money, so then you're paying less in dollars. Some companies really want very long term paybacks because they actually want to invest in longer term initiatives. So that can go all the way to 24, 30 months. I would say that most companies are looking for something in between. So between 6 months to 18 months usually aligned with their payback period. Oh, and the rates, I think you mentioned the fees. The fees vary, man. In this environment with rates increasing so rapidly at both sides of the Atlantic, the rates go from anywhere between 6 to 10% per year. In some cases they go lower, in some cases they go a bit higher. But like that would be, let's say the normal distribution makes sense.

And I like one thing you said, I think early on, and maybe I misunderstood or what, but what you had said was if you have high risk bets, use your VC money and if you have skill bets, use non dilutive capital because you won't have to pay back the money that you lose. So I like that. Now let's dive a little more into the process. What documents does a company need to show? What are the necessary steps? How long does it take to get the funding?

Yeah, so it takes very short, takes between 24 to 48 hours depending on the documents and depending on the data. And to make that data exchange process very quickly, very quick and very frictionless. We have data connectivity to pretty much every billing platform to understand the revenue and the quality of the revenue to every bank to understand the funds and to reconcile the revenue with the money that goes in the bank. And then last of all the accounting so that we can also understand how the balance sheet looks like any other debt in the stack and so on. So the process that would take eight weeks with a bank to share all the Excels and all the like models and so on, like with capture takes 24 to 48 hours. From the moment you connect your data, all that gets automated. It gets put into a beautiful forecast, into an analytics machine and then the customer gets all of that 48 hours later. And if they want to go ahead with the recommended amount, click of a button and you have the money in your bank account.

Cool. That is extremely fast. That is unbelievably fast. And then how do you maintain that relationship? What sort of maintenance is required?

The connectivity is done by API, right? So you maintain access. And the beauty of that is that like you can do the same thing week over week, month of a month, not have to do the full process again. So why I'm saying this is a lot of companies use this for growth, right. For customer acquisition. So then what they do is they pull part of the ARR. We had an amazing case. A company that went from $70,000 air to $13 million in seven months. And the way they did this is that out of those initial 70k they had. It took $20,000 out. Imagine this on a Monday. They reinvested that into Facebook ads and TikTok ads and so on. And they had it really figured out. And they tenders 20k into something like 30k ARR. And then they had 100k ARR. And then they did it again the following week and again. And they started to make this snowball where every additional dollar of ARR that they brought in, they would take out immediately through captures to reinvest into more growth. And that's noble. Turned into 70k to 13 million ARR in 9 months.

Wow. And what was the channel they were investing in?

Marketing channel, Facebook, Google, TikTok, Instagram. It was consumer cards and consumer subscriptions. So they really nailed it. Yeah, yeah.

That's when you. That's when you know you not only have product market fit, but you have product channel fit. You have a repeatable, scalable channel. I'm going to put fuel, it's going to turn into fire, it's going to explode. I love it, man. And those are the companies you probably want all day long. So why can't traditional banks do what you guys do?

On the one hand, banks cannot work with companies that burn money. If you have negative ebitda, the bank risk model is going to cut you off. It's binary. It's like you have positive EBITDA, maybe you do a process, you have negative EBITDA, you're out. So mostly every single SaaS company doesn't have positive EBITDA. And the ones that do have positive EBITDA, like bootstrap companies, they have no assets. So the bank is like, what the hell am I going to finance? There's no assets here. They don't understand recurring revenue streams. So then that is impossible. And then if you add on top of that the friction of spending like four to six months sharing data and answering questions from somebody that doesn't understand your business. The hurdle is very high for a fund to take money from a bank. So then that's why, however, banks do have one thing. They have low cost of capital. Right. And that's why we are now deploying our technology into Banks so that founders get the best of both worlds. They get the cheapest cost of capital, driven by deposits in the world and they get data connectivity, the underwriting and the UX of a best in class company. So, man, yeah, I think that's the way that's going to be moving forward.

That is genius, man. Now a lot of companies though are popping up, doing what you guys do, right? There's a lot of recurring revenue companies popping up all over. I've seen like the news. You have seen the news. What would you say sets you guys apart from everyone else? Or do you even know, need to set yourself up apart from others. Infinite amount of companies, you guys have a lot of capital.

Yeah, I think that this one fundamental thing that sets us apart, which is that we're really focused on SaaS. So a lot of these companies said, hey, we can do this for SaaS, we can do this for E commerce, we can do this for crypto companies and whatever. And then what happens is that in a bull market everything works and nothing matters in a bear market then like you actually have to have a solid model or you're dead. So then what we did is we decided to focus just on SaaS. And what this has meant for us is one that we understand SAS companies better than anybody else. And then this set up a flywheel which was we work with SaaS companies, we understand them better than anybody else, so we can go be very aggressive with the best companies. Working with the best companies has the best performance and the best credit performance drives the lowest cost of capital. And then that accelerates the flywheel indefinitely. So there are a ton of copycats, right? But what we see inevitably is that every time, and there are a lot of like local copycats, like playing subscale in certain geographies. What happens, what we see all the time, is that whenever we enter a new market, the local player calls us. Two months later, hey guys, how's it going? Do you want to catch up? Hey, would it make sense to join forces? And so on, right? So it has happened seven or eight times already. And then everybody else that's still trying to launch a copying is negatively selected. And the reason why is two things. They don't have enough data to understand companies very well, so they understand the risk they're taking. And two, they have no performance, so the cost of capital is more expensive. So they also can't take the best companies. So what happens is that we get a ton of deal flow, we get the best companies and the companies that we can't work with. They go and get money from somebody else that doesn't understand the risk, and then that somebody else eventually blows up and disappears. And yet that has happened three or four times as well. So I think that we're lucky to start in a moment where this was very new. We created the market and we built a ton of performance that allowed us to get an advantage that is really, really high to bridge now.

Definitely, man. Definitely now, in growing this company in a very short amount of time, I would say breakneck speed, right? Zero to near a billion deployed 2 billion in capital. But we're going through a very tough time, right? Markets are down, valuations are down, interest rates are up. What are some leadership principles you've instituted maybe to lead your team during this stressful time? So they're optimistic and they're still moving forward with a strong mindset, man.

Yeah, you cross it, right? It is not the best time to work in tech, right? Like, the mood is not the best. Like, everybody's going through this, and like, every fund I talk to is going through this. Like, how do you tell your team, like, guys, like, the market out there is, like, scary, but at the same time keep everybody motivated, right? So the way that we do it is one being very transparent and giving a lot of context. So every time there's something in the news, you just share it. If a competitor blows up, you share why, like, being telegraphing our strategy and our vision to the whole company very clearly. And then that's from, like, a communication point of view, from the empowerment point of view. Like, you just want people to enjoy what they're doing and to feel the impact. So the reason how you can get over any slump in performance in the market and anything is by having a team that's used to solving problems together in a very efficient way, right? So you need to build that before you actually hit a slump, because building that performance when you're at a slump is really tough. So then how we've tried to do that at Captis is on the one hand, by being very direct with each other and having discussions to try to come up with the best solution and the best decision, and then committing to those things. And then it's almost, look, you commit to this. Go figure it out. And then we would hold each other accountable to those commitments. But the only thing that matters really are, like, results. So then that actually empowers people to go and solve things autonomously with a high degree of autonomy, with a bunch of agency, and then you don't get Overwhelmed, because that decision making is very distributed and people are very used to solving problems independently and within teams. So then the leadership team is not trying to solve every problem in the company, because that's impossible and that's on scale. So I guess that is probably what has helped us to grow so quickly and maintaining a lean team because you don't have to add people to solve problems. You just have to give those products to people and they will figure it out.

People crave autonomy, they crave mastery, they crave purpose, and they crave recognition. A lot is said about how do you motivate the team, how do you give love to the team and drive them to stay positive in tough times? But nobody talks about the founders, right? Founders have no friends, really. Our circle is always crushing it until we're crushed, right? And if you look at it, the biggest outcomes on the planet are founder led, Shopify, Airbnb, Dropbox, et cetera. When the founder goes, usually things don't go so well. So it's really important to stay in top shape mentally. What are some things you do to stay on top of your game, to stay on positive side of things, to keep going and going for the moon?

Man. I read this post from a guy called Ohad Same, who is the founder of I think True Accord, which is a pretty large SaaS company. And he talked about, he called it bad monkey, right? What he does about bad monkey is that being a founder is almost like having a monkey sitting your shoulder on your shoulder, screaming the whole day. And he was driving the comparison between having a monkey and screaming the whole day. Because as a founder, inevitably half your brain is always switched on the company and you can never turn that off. Right? So then how. And the way that he described that he was getting over that to avoid being crushed by the permanence of being distracted by the company, was doing a lot of creativity things. He's a really good writer. So he wrote the way that I kind of like avoid getting crushed by being a founder is by again, like doing things that have nothing to do with being a founder. So I read a lot of nonfiction for learning, but then I also read a lot of fiction for disconnecting and just thinking about other stuff. And then I do a lot of sports, so I used to a lot of sports. Then I started capsizing. I didn't do anything for two years. And then at some point I was like, shit, I'm feeling like crap, like I need to do sports again. And then I started doing sports and I built into my Routine every morning. And then it's so much better, I can't believe it. I didn't do it for so long. And then that helps me to like, I guess all the endorphins, all the hormones that you release that allows me to be much more focused, much more centered. And then, man, at some point you just see, look like nothing is too big. You can just solve it with a good team. And distributing decision making allows you to be way less crushed. Because at some point it's okay, they will figure this out, I don't need to think about it. And then you just focus on a few key things. And in my case it's mostly new products, culture, effective teams.

I think that, and that's good advice. Like exercise, especially first thing in the morning, always releases endorphins in your brains and create reduces the feeling of stress. And it's also like you're achieving something. Sometimes you feel like ah, things that work are not going well, but you can always in the gym maybe increase the weight and you're like, oh, I achieved something or you can run five seconds faster and I achieved something. And that creates a sense of achievement. Right. And it sparks your brain faster for sure. From a culture perspective, what do you think are the top one or two things that make a great culture?

One that is real, like it cannot be just values on the wall. Like you need to live by it, hire by it, fire by not it. But like people that just don't meet the culture and the values and then promote people and reward people for being culture carriers and culture examples. So in our case we have three values. They're very simple. It's service, attitudes, builders, courageous spirits and being a builder. Right. So those two things what we look for in people and we have the anti values too. Which means that out of those three values, if you only do two of them, that's an anti value. Because then like for example, if you are very courageous and you are have a service attitude, then you're just a talker because yeah, you'll start to have people, you're not going to build it. So that's an anti value. So having values and anti values very clearly laid out and then talking about them, rewarding people for it and then living them, that's it's pretty simple to say and it's really hard to do because it never ever stops. You're always working in the culture. If you're not working in the culture, you're working against the culture.

Man, this has been great. As you look back at Your journey, what was the toughest or lowest point and how did you navigate it? And it could be personal or it could be business. It could be anything.

I think the toughest time was maybe between Q1 and Q2 this year, because the whole market was crashing and we didn't know how that was going to impact Captchis, our customers, and so on. At the same time, we had grown very rapidly in terms of people, and I wasn't getting used to how my role was changing then. I've always measured myself, my effectiveness, by how many things I get done at some point. It's not how many things you get done is how many things your team does. So those transitions, both outside the company and inside the company, in my role, happening at the same time, and that was really tough. And then you just learn how to do things. You adapt to a market and you rationalize, like, okay, what is under our control, why it's outside of our control, that gives you a lot of power, right? Because what's outside of your control, the best thing you can do is react to it, plan different scenarios, but you can't change it. So stop thinking about it. And then what's under your control, that's what you own, and that's what you hold yourself accountable to. And then having a very good leadership team can help you to distribute that responsibility and then be much better at doing what's under your control. So I think that's how I solved it.

Have you ever been in a situation where you said, I made a mistake hiring this leader? How do you solve that? Sometimes you realize within the first 30, 45 days, what do you do that happened to us?

You fire them. Like, you just have to get rid of them as quickly as possible for them and for you. Right? Because an executive that is not the right fit is going to cost you a ton of time, a ton of money, and can potentially kill the company. So the way that you realize they made a mistake, you got to own it and move on. Like, it is very hard to change somebody that's been doing something for 20 years. Right? So then it's like your mistake. Sure. But, like, now you just have to move, look forward, not look back. And it sounds really tough, but it's the only way. Right. Another way would be like, hey, let them do whatever they want. But then you are probably gonna have to go at some point, like yourself as a founder, because you weren't able to run your company when it happens. And the results, you can feel the results months down the line as well, but you can also know that you would be way worse off if you didn't pull the trigger.

You know, the individual contributors are like the rowers and the execs are like the captains, a rower, individual rower. If there's a mistake, it can't push your boat too far off because there are many roars. But on the captain at the front, they could steer your ship in a completely different direction and you could be going somewhere else.

Yeah, at a certain level, nobody does a point of view. Knowing when executive is good versus when executed is great, which can make the difference for your company is really tough because those people always do good interviews. So then that's when you have to really rely on your investors and then on actually working with them together. And you can do that until you hire them. So the way that we do it is give them prompts that are current problems. This is exactly what we're facing. And you know how you have approached it and you know how you would solve it. And then if the person surprises you by how to solve your problem, that's a really good sign. If they're going to give you like a cookie cutter answer that sounds great on paper, but they could give to solve any other problem in any other company, then that's not bullshit. That's what we learned 100%, man.

That is some great advice. Because my question to you was going to be what's one piece of unconventional advice founders typically ignore but shouldn't? But then I asked you this in reverse because what happens is most founders, they go and they gung ho hire this expensive executives, they make all this press release and they realize a month later, holy shit, I made a mistake. Now what the hell do I do? I'm going to look really bad internally, externally. And the right answer is you gotta cut them. As soon as you realize, man, this has been a great session where we could chat for hours. If you're ever in Dubai, I recently moved to Dubai. We'll hang out and when I come to New York, I will ping you for sure. Where can we follow you? What social media are you active on? Where can we follow captchase?

I'm most active on LinkedIn, to be honest. That's where I post most things. And my name is Miguel Fernandez at Capsis and if anybody needs any help, my email is miguel capsis.com so it's actually there in the screen. But yeah, more than happy to help any other founder. I love it and I usually do it on the weekends, so anything, man. And of course, if you come to New York, hit me up. I'll hit you up if I'm in Dubai. For sure.

Definitely. And folks, if you're listening, check out caps capchase.com and apply for non dilutive capital. If you are a recurring revenue business. If you're a SaaS business, there's no better way to fund your company than Cap Chase because you're not giving up equity to drive growth. Miguel, thank you so much for joining us, man. Wishing you great success. Love and thank you so much.

Thank you life.

Thank you for listening and we hope you enjoyed this week's episode of the Channel Traction Podcast. If you enjoyed the show, please leave us a five star review and you can find all the information mentioned in today's episode. Attractioncough IO that's T R A C T I o n C O n F dot IO.