Startup Finance AMA with Grasshopper Bank’s Robert Burnett

We work with entrepreneurs all around the world and we see what some of the deficiencies are, what some of the skill set deficiencies are when entrepreneurs are really starting the process and kind of the financial literacy part in understanding the banking basics, understanding how to manage cash flow and all of those different things are almost always ranked at the very highest for areas of need for the people that come into our startup programs. And I think that's why being able to work with a bank such as Grasshopper Bank, which is a digital-first bank, you know, it's not some big bank that's kind of serving everybody. You know, they're very focused, they focus on the innovation economy, they understand startups, they work with startups all the time, a lot, they are a startup. I don't know, do you guys still consider yourself a startup, Robert?

Yeah, that's a good question. Probably not quite so much anymore. We're a little bit in escape velocity, but, uh, we certainly act like it and we try to hire like it, for sure.

Yep, for sure. So, um, Grasshopper Bank has been, has been a great partner, uh, of the Founder Institute. We'll put a link in there. Highly recommend it to anybody, um, who's, uh, starting their business or any entrepreneurs or small businesses, really. They, they specifically, um, understand that market and are able to work with people in a flexible way that a lot of other bigger banks are not. And today we have the Director of Startup Banking at Grasshopper Bank, Robert Burnett, who's going to bring us through some of these banking basics and answer some of your questions. So, Robert, you've been an entrepreneur. You helped build a— it was a marketplace for fundraising for startups and small businesses. Right?

Yeah, that's right. Yeah. And John, thanks, thanks for the great intro. I'm happy to dive in unless there's anything else you want to—

Yeah, no, no, that's pretty much it. But I just wanted to point out that Robert, you know, in addition to just working at, at, at Grasshopper Bank, you know, has, has seen— he's lived it, right? He's been an entrepreneur, he's been through the financing side, he's helped founders raise financing, worked with a bunch of startups, and now is is within a bank to help startups work with the bank. So I think it's a really interesting perspective.

No, really, really appreciate it. Yeah, so for everyone from all over the world, welcome. I'm currently sitting in Oxford in the UK, so that's where I'm joining from. I didn't get a chance to put that in the chat. I did notice in the chat that they posted my LinkedIn link. Please feel free to add me. It's a great way to learn about me, connect with me. If you do connect with me, just shoot me a note saying where you met me on the Founders Institute webinar. Always good to know. There's a lot of you out there and I get a lot of requests. So always great to know where you came from and I'll make sure I accept that request and we can chat there if you ever need to. But like Jonathan said, you know, who, just a quick introduction on me. As I said, I'm Rob Burnett. I'm the director of startup banking at Grasshopper Bank. I've been in this role about 7, 8 months now. My job is to help all the entrepreneurs of every size basically who come to Grasshopper Bank with all their banking needs and to just generally be a resource for them as they grow their business. Again, as Jonathan said, my background is I've sat in basically every seat in a startup that you can sit in besides technical roles. I can't write code. But my last startup, I joined as employee number 5-ish. Well, we were 5 people, I should say. I might have been one of the first employees after the founders. I joined as a business development rep, ended up sitting in a bunch of different seats in that organization and eventually becoming CEO. I also have a law degree and I was a founder myself on a couple businesses early in my career. So I kind of experienced a lot of things that you all have experienced, and I'm hopeful that I can impart some knowledge and be a resource to you all as, as you think about, you know, all things with your business, but specifically around the finance and kind of the money management of your business. So what I'm going to do is I'm going to go through a really high-level overview of just some things you should be thinking about as you put together your business, as you think about what banking partner you might want, things like that. So I'll share my screen here in a second. But as always, you know, please ask questions, throw them into the chat. I'd much rather kind of chat with you all than work through a PowerPoint. So, you know, please, you know, chat, ask questions, let me know what you're interested in, let me know what you want to dive deeper on. And then also, you know, as a kind of caveat as we go into this, I know a lot of you are based outside the US. Some of this information might be really relevant. Some of it might be a little different based on the banking system in your host country or in your home country. You know, apologies, I can't cover all of it. And then also, you know, to be upfront, I come from Grasshopper Bank. I think we've got a great product. I'd like to work with all of you, but sometimes there's going to be other products too that are a good fit. I'll try to give— do my very, very best to be as neutral as possible and give you just the information. And be a resource to make sure you're getting the most out of it. So with that, I'm going to get started here and talk about how you can unlock your financial efficiency. So like I said, I gave my introduction. I won't do that again. So today I'm going to walk through a couple of things. I'm going to walk through— sorry, what is startup banking? What should, what should you be thinking about? You know, what are the different options for startups as they think about a banking partner? Some of you, you know, this might be a key consideration as you put your business together. For others, you might not be thinking about it much at all. Some of you might be fintech companies that want to not only use a bank to collect revenues and pay your staff, but you might also want to partner with banks. Banks might be a customer for you. So these are all considerations to think about as you grow your business. Then I'll talk a little bit about budget, financial management, and best practices. I'll try to keep this pretty high level, give you some food for thought to start with as you kind of think about your business, but feel free to ask any specific questions as we go. And then I'm going to talk a little bit about kind of why you should think about banking as a core function in your business and why you should start building a relationship with your bank early and often. And at the end, you know, we'll have a chance to chat as a group and obviously do Q&A at the end. But again, please ask questions as we go along here. So let's just dive in. I think it's important to understand that these days there are 3 big kind of buckets of financial institutions that you can consider working with as any business, but certainly as a startup. And understanding the pros and cons of each of these buckets is a really good first step in understanding, you know, this is going to lay the foundation for your financial stack, for your financial systems and processes as you move forward in your business. So as a quick overview, The first bucket is the traditional bucket. This is most of the banking that's available to most of you. Traditional tends to fall into two subcategories. There's the big banks and there's the small banks. Big banks are the Bank of Americas, Wells Fargos of the world, JPMorgans. There's some real advantages to those big banks. They're often considered too big to fail. No one will ever question you for holding your money in a big bank. The downsides can often be that you're a small fish in a very large pond. You might not get the personalized service you need, and sometimes their systems and processes are a little bit slower than you might need as an entrepreneur. The, the inverse of that is the local bank, your small bank. Those tend to be quite safe as well. They tend, but they tend to be small, so you can often get personalized service, but you might not have the bleeding edge on systems online systems, internet banking, things like that. They might also have expertise in your, your industry. They might not if it's a small, you know, local credit union or things like that. And so understanding the limitations of those, uh, if you want to go local, uh, understanding the limitations of those banks and what they're comfortable with, it'll be important to determining whether or not you want to do that or if you prefer to go with a larger institution or something more modern. On the other end of the spectrum, you've got what we'll call fintechs. Fintechs are not actually banks. Fintechs are usually software companies that are linking with banks to help you manage your money. You know, the really famous ones here are Mercury, Brex, things like that, Meow. These can be great options. These are often venture-backed companies that have spent a lot of time and energy thinking about how to make the user experience really smooth and easy. So as a founder, you know, your time is important, and being able to move quickly and easily through your finances, pay bills, run payroll, do things like that, can be a real advantage. Time is money, especially for a busy founder. So working with a fintech can be a really great option. The one thing to keep in mind though is fintechs are not banks. They don't follow the same rules and regulations as banks. They're not regular, you know, they don't fall into the same jurisdiction of the regulators as banks do. And often they rely on other third parties to connect their software systems with the actual banks where your money is held. Those systems can fail. And it's, you know, there's been some high-profile instances of that in the past. So it's just something to think about as you, um, as you think about your kind of features versus risk, uh, balance. And every entrepreneur, uh, needs to decide for themselves what they feel comfortable with. One thing I do see a lot of companies do is pair a fintech, uh, and keep a little bit of money there to do their payment processing, uh, with a more traditional banking partner to hold the majority of their funds, say after they do a fundraiser, complete a round. And then I'll just speak briefly about something in the middle, which is digital banking. Grasshopper falls squarely in this category. So this is where we live. But digital banks like Grasshopper, we are relatively new. And I'll do— I will spend a second here talking about Grasshopper Bank. So we've been around about 6 years. We are a nationally chartered bank. So we are an actual financial institution. We're regulated. We are a bank. But we're built entirely on modern fintech rails. We don't have any branches, everything's online. And there are other fintech-leaning banks like us out there. And what this allows us to do is offer a really digital-forward platform with slick features and typically good pricing, but also with the safety and security that we are the regulated institution and we're the bank. So, you know, as you— if you're a founder, who is in the early stages of putting their business together, maybe you haven't even incorporated yet, or maybe you have and you've maybe not hit revenue or not raised around yet, so you don't have a lot of money flowing through your banking partner. Now is a great time to look at these different options and think about which one's right for me. And I'll talk a little bit later about what are some other considerations you should be thinking about as you move forward. So some of these considerations, you know, I'd say there's 4 real considerations. Especially when you're early on. Fees and interest rates are some of the brass tacks stuff that you should understand as a founder. Are there fees associated with your account? Money is everything when you're an early stage founder, when you're pre-revenue, when you haven't raised a round yet, or even when you have raised a round, but you gotta stretch your burn rate. And then interest rates is, especially after you've raised a little bit of capital, well, how are you gonna make that money work for you? I've worked with a lot of entrepreneurs where the fees are high and interest rates are low, and switching to an institution that has low fees and high interest rates, you can see a really big swing in your, basically in your monthly cash flow based on those two factors alone. So definitely keep that in mind. And if any of you out there have been lucky enough to raise in the 6 or 7 figures, this is especially around interest rates, you need to be thinking about that and you need to be thinking about the cash management in your business as you go forward. The other two things to keep in mind are payments. One thing you're gonna spend a lot of time doing as a founder when you're in those early stages is paying, paying a lot of people, whether it's payroll or vendors or even collecting cash from customers, beta customers, pilot programs, things like that. Making sure your payments processing is easy and easy to track is— it's a, it's a subtle but important piece of this puzzle. If you have to spend a ton of time in your bank trying to figure out how to pay or get paid, That is one, just a distraction, and two, you can lose credibility in your business, or you could delay getting money that you need again for payroll or other things. Now, for most of you, debt isn't going to be a viable option early on. Uh, you know, most of us here work in startups, or many of you are pre-revenue. Um, many of you are really looking at equity investment or bootstrapping, but As you grow, debt financing might end up being a really great option. Debt can be a really useful tool for things like inventory, for capital investments, like building out a new factory or opening a new office. And so debt is very different than equity, which you might all be a little more used to talking about, because debt is much more about track record. It's much more about financials. It's much more about proving that you've got the cash flow to sustain any debt you take on. It's much less about the story of your business and how great it's going to be and how big you think you're going to grow. And so building a long-term relationship with a bank where you know them for 2, 3, 4 years before you ever ask them for debt, that can, I can tell you from experience, that can have a real impact on how easy it is to get through an underwriting process. Or what options are available to you at a bank for debt solutions as you grow. Many of you are probably not thinking about that right now, but it's certainly something I'd just lay the foundation for so that you can take advantage of it when the time comes. If you need debt in a year or two and you haven't started working on it now, you're just going to be caught flat-footed and that can really slow you down. I did see a question that came in. I will answer it just as we go here. So from a jurisdiction perspective, where can Grasshopper do business? It's a great question. So we focus on the US market. So if you're outside the US, apologies, we're not really gonna be banking you unless, unless you want to open up a subsidiary or come start to open in the US market. If any of you are looking to enter the US market, thinking about building a US entity and do things like that, You know, happy to chat. We've got partners that help the entity formation process, and we work with plenty of businesses that are headquartered somewhere else and open up a subsidiary in the U.S. So James, thanks, thanks for that question. Feel free to keep them coming if anyone has any more. So like I said, I think this is an underutilized and underthought about advantage for a lot of entrepreneurs as they start building up their financial stack and just kind of laying the foundation for their business. A lot of you are probably rightly really concerned about building relationships with investors, building networks of investors and investor groups, and fellow entrepreneurs as well, because, you know, a lot of us in the startup world are focused on where's— how can we raise our next round, how can we get our next injection of capital. It doesn't take much to build a really strong relationship with your bank. You only have to check in a couple of times a year. You only have to just make sure that you're taking good care of your cash, that you're keeping good records. But building that over time, like I said, I spoke about debt just a second ago. Doing a little bit of work now can pay a lot of dividends as you move forward. So let's talk about financial management and best practices for a second. So once you've picked your bank, the next thing you're going to want to do is just keep track of the money flowing in and out of said bank. So there's going to be a couple of really quick and easy things that really every entrepreneur should think about as you start to work through the early stages of your financial management. And again, I'm speaking about this, you know, assuming that you're, you're in the early stages of putting your business together. This still applies if you're, you know, well into the road, well post-revenue, you may even be profitable. These are all things you should really consider doing. But obviously the earlier you can do any of these, the better off you're gonna be. So the first thing you should do, and even if you're, you know, a lot of founders I think might be uncomfortable, you know, I am not an expert at QuickBooks for sure. A lot of founders might not be used to closing the books, doing their financials, things like that. But many accounts, including Grasshopper accounts, but many banks, you can connect directly to an accounting software, usually QuickBooks Online. I can't emphasize enough how important it is to just do that early and start keeping track of your books and start keeping track of your numbers. It's important for two reasons. The first, more practically, is down the line, again, if you need debt, if you need to raise capital, if you are going through due diligence from investors, having a clean set of books going back to the beginning, or even when trying to pay your taxes, it just makes life way easier. Having those things and not having to go back and try to figure them out or create them after the fact will inevitably save you a major headache if you can just do it now and do it early and connect those things automatically. So at least you're recording the transactions. But then more fundamentally, you know, if I, again, if all of you are founders, CEOs, members of executive teams, one of your number one jobs is to know your numbers. And so building the muscle, you know, kind of building the habit of checking your accounting software, closing your books, doing those things early and often, even if you only have, you know, $100 coming in and $100 going out, those are habits that are easy to build early and hard to build late. And inevitably, when you really need to know those things, you'll need to know them on the spot, i.e., in an investor call or when you're trying to close a round. And so doing these things early is a really low lift way to set yourself up for success over the long run. The other thing that's really popular right now, uh, especially if you're in the US, but really anywhere, is hire a bookkeeper or fractional CFO. There are a plethora of services now where you can hire very inexpensive part-time fractional bookkeepers, people just to come in once a month and clean up the books, often for as little as a couple hundred dollars a month. Some of you, that still might be very expensive, and you might need to, you know, hold off on that until you generate a little revenue or raise a little bit of capital. But my recommendation is this being one of the first things you do once you have a little bit of cash to spend. And again, there's two good reasons for this. One is When someone's spending their time on the books, they tend to get them right. They're an expert. You know, as a CEO, you don't really need to be an expert on bookkeeping. You need to be an expert on a lot of other things. So thinking about how to make sure that your books are up to date and you know your numbers, that's really useful. The second thing that's really an underrated benefit to this is the time it saves you as a CEO. You know, often as CEOs, as founders, we're trying to do everything at once. And we're trying to pinch pennies. But ultimately, at some point, one of the things you really need to do is start to focus on building the business and cutting out all of the administrative work that takes up your time so you can really focus on the highest value-add items for your business. One of the easiest things you can cut from your day is working on the bookkeeping, and bringing in a fractional bookkeeper to do that can open up a ton of time in your day, as well as make sure that the books are even done even better than maybe you would do them yourselves. And then the final little piece of advice right now is open a corporate card and start using it. Grasshopper, we partner with a card company called Ramp. They're a great fintech company, but there's a whole bunch of products on the market right now that allow you to spend and allow your employees to spend as needed in a really controlled and monitored way. These cards now have a lot of spending controls and really sophisticated reporting software. So you can see where your money's being spent, how it's being spent, and put good limits on it, all while typically earning some cash back. And again, as entrepreneurs, we know that every penny matters. And so getting your teams in the habit of spending money responsibly, getting in the habit early of tracking those expenses and understanding where your money's going, and all while doing it in a somewhat responsible way by building credit and getting cash back— really low-lift way to make sure that you're getting the most out of your out of your early days of, you know, kind of corporate kind of financial setup. I'll take a pause here for a second just to make sure if there's anyone who's got any questions, I'd be more than happy to dive in and answer them. So I'll take a pause here for a second and then we'll move on to the next thing in a second.

I did have a question. I mean, specifically here from the from the chat, um, you know, regarding the, the card, right? Um, Hisham was asking, if you don't have any employees at the moment, is, is there a point in getting a corporate card, um, if you already do have a bank account?

Yeah, yeah, really good, great question. So I think there's two things to keep in mind. So one is, you know, you got to spend your money somehow. Um, you can send money out via ACH, you can send money out via wire, You might not have many expenses, in which case, you know, spend your time as wisely as you see fit. But if you have expenses, if even if you are just spending money, sometimes that 1 or 2 or 3% cashback can make a meaningful difference depending on the level of expenditure. Also, building that credit history can be a useful tool in and of itself for both individuals and for businesses. So those are a couple of good reasons to do it. And also as a founder, if you plan to add employees and you plan to have them using corporate cards, getting comfortable with the system before you do that can be useful. But I guess what I would say is if you have very little expenses, don't plan to hire employees anytime soon, and, you know, don't need to build your own credit at the moment, that's probably low on the list. But certainly worth at least looking into.

For sure. And yeah, I mean, Yao was asking kind of along the same lines, right? Like, what, when would you recommend, and I know every business is different, right? But like, you know, at what point in the business would you recommend then going, you know, and getting that bank account? You know, is there, is there like a specific trigger that you guys kind of typically see? That sets that off, or—

yeah, really good question. So I think there's, there's probably two hinge points, right? So the first is really, you know, one, one problem I see entrepreneurs make sometimes is they just continue to use their personal bank accounts after they've incorporated their business for business expenses. My recommendation is as soon as you incorporate your business, the next thing you do is open a bank account for that business. So really, you You should be doing it from day one, even if you have no money coming in and out for sometimes, you know, months or even years. The second time to really think about it is either when you hit revenue or hit an investment milestone, like you get your first round of investment. You know, a local credit union might be great when you've got, you know, $100 coming in and out, but if you raise a couple million dollars, you probably need an institution that can handle that. It's gonna give you a good interest rate, all those things. Often it's a really good idea, you know, if you're about to close a round or you're about to, you know, set up Stripe so you can start collecting payments from customers, it's a really good time to take a, just take a beat and say, what, who am I banking with and what am I getting out of it? And should I be changing? And changing before, right before you start hitting revenue or right before you raise around, a good time to do it because then you won't have to try to switch midstream. You can kind of set everything up on that new system before you really hit an inflection point.

Yep, that makes sense. And from my perspective, I 100% agree, like, on the incorporation side, right? Like, if you're still kind of testing out the business, trying to figure out, you know, whether you're actually going to launch it or not, you know, like doing some customer development, that kind of stuff, then, you know, don't go through the trouble of incorporating and setting up the bank account. But once you're ready to kind of make that leap and you set up that incorporation, I mean, that's the time that you sort of need to get those things just kind of separated from yourself personally, right, for liability purposes. But even just to keep things clean as you go, if you're still doing things out of your personal bank account, using your personal card and stuff like that, it just, it makes things messy. So if right from the beginning, if you just kind of create the kind of separation of church and state, so to speak, right, it makes things a lot easier down the line. And I know there were a lot of questions about financing as well. As well, and I'd love to get to those at the end of the talk here. But, you know, to your point before, Robert, building that relationship with the bank is super important, right? And, you know, from a bank's perspective, it's, it's— if you're going to be asking them, you know, for a loan and things like that, the longer that they've worked with you, the longer that you've had the relationship, then the lower in their eyes you're going to present a risk. Right. So again, you know, building those relationships early are important. So it's definitely something that I would do right at that, at that point of incorporation.

Exactly. And actually, it'd be good. Well, let's take a second, actually. Let's, let's dive into— I didn't prepare a slide on it, but I think it's worth discussing a little bit about this financing. So, and loan options. So, you know, loans are increasingly important tool in a startup's toolbox. You know, we're seeing a shift away from, you know, the early kind of, I call it boom days of startup world, where you were searching for growth, uh, at all costs and pour gas on the fire and just raise, raise, raise, raise, raise. There's been a real shift towards, is your business profitable? Are you making money? Are you able to, you know, churn out sustainable long-term growth? And as soon as you get hit profitability and have sustainable long-term growth, debt becomes a much more viable and much more interesting option. For any founder. So I think the first thing though to really understand is, if you're a founder, about this— there's a switch in mindset from equity investors to debt investors. Equity investors are looking for upside. They're looking for— they're looking for you to tell your story and, and show them the moon, right? That you're gonna get there. And what equity investors are usually willing to do is place lots of bets and have some of those bets go to zero. Actually, maybe most of those bets go to zero in the hopes that just one or two or a handful of those really take off. And so all of you and the whole startup ecosystem, and this isn't a bad thing, it's just an important thing to know, is the whole startup ecosystem is set up around the pitch, the discussion, the high growth, the, the I'm going for it, I'm gonna be the next big thing. And I see a lot of entrepreneurs walk into banks and they're in that mindset of, let me show you how great I'm going to be. I know I don't make any money right now, but trust me, I'm gonna be great. And a bank and any loan, uh, you know, any loan provider has the complete opposite mindset. Their upside is capped at whatever rate they're going to charge you— 5, 10, 15% interest. So what they're— what they are really protecting is downside risk. They just want to make sure you're not going to go to zero. They need you to pay it back. They can't really afford for almost any of their loans to go to zero, right? And so as you approach debt, you need to keep that in mind, right? So if you're just approaching a bank or any kind of loan provider with the promise that, trust me, we're going to figure it out next year, we're totally on the cusp of being profitable, it's going to be an uphill battle. And that's where building that relationship early will build you the credibility to say, okay, we've seen your revenues grow, we understand it's up and down, we might be able to do something for you, right?

So, and it's— and, and I would say here too, it's perfect because Logan was asking a question, Ryan. It was, what is your opinion on startups using banks for financing instead of or in addition to venture capital? And, you know, really in the beginning Um, you know, a lot of those cases, yeah, if you're selling a dream or something like that, it's going to be much more, um, on the equity side, you know, probably angel investors or an accelerator or something like that. Um, you know, but once you start to look a little less risky, which means, you know, you probably have some kind of recurring revenue, and it doesn't need to be millions of dollars, right? Yeah. Um, but it's just, you know, what would be some of the You know, people are asking here, I don't know if you, if you would look at it from like a ratio perspective, right? But it would be, um, you know, inventory, um, recurring revenue, right? If you're like a SaaS business or something like that, um, you know, to a bank or to anybody really, investors love it too, right? They love to see SaaS businesses and just have that recurring revenue just because it's a little bit more predictable. What would be some of the other elements?

Yeah, so there's a lot to think about here, right? So the first thing you want to understand is what type of loan are you going after? And I'll just throw out some big buckets real quick because loans are not just one size fits all, right? There's a lot of different options and I'm just going to scratch the surface, but there is venture debt, which is basically a loan on top of financing from venture capitalists. It's basically backed by their money. And it just allows you to tack a little bit extra on year round. We won't go too deep into that. If you're in the position to get venture debt, what a great problem to have. You're in a good spot. But then when we think about more traditional loans, there's a couple that I'll hit on. So one that's an underutilized tool for entrepreneurs is SBA loans. So SBA is the Small Business Administration. These are government-backed loans. It's up to $5 million. There's a bunch of well-publicized criteria, but these are really interesting loans because you can often get them if you're not in the strongest financial position. You still typically need profitability, but there's a lot of optionality there, and a lot of founders can get those loans. Then there's term loans where, you know, you're given a loan, like a mortgage is a term loan, right? You're given a loan and you pay it back over time. There's lines of credit, which is, you know, or revolvers where You have access to money and you can spend it, but then you pay it back on a rolling basis. And then there's all these interesting financing options around any kind of recurring revenue. So whether you're a SaaS company, I know someone asked about that. If you're, if you're maybe a CPG company or you're a company that relies heavily on inventory, there's often ways to finance those aspects of your business. Whether it's, I've got an invoice outstanding and I've got to wait 90 days for them to pay me because it's a government contract. Someone will maybe pay you upfront and take a percentage. If, you know, I need to order my next round of hats for my hat business, someone will buy them for you and then charge you interest rates. The thing to think about is, you know, what tool are you using as an entrepreneur to secure that loan, to show whoever's loaning you that money that they're going to get their money back, right? Is it, it's an inventory loan or it's a SaaS contract? Okay, I've got a contract. I will get paid this money in 90 days. I feel confident about it. Right. Okay, great. Here's my history of selling hats. I sell out every month.

Okay.

I feel confident that if I buy them for you, you'll be able to pay me back because you'll sell out your hats. For most loans, it's going to be just have you reached profitability? And now there's a whole bunch of financial magic that you can work to, you know, am I profitable on an EBITDA basis? Am I profitable on a cash basis? There's all kinds of fine, you know, kind of accounting wizardry you can do to make yourself look more or less profitable. But I think it's important as a startup founder to understand what you're going for, right? And, and we're talking about debt and these things, but the larger question ultimately is when— once you're on an equity track, right, once you're accepting capital for— in exchange for equity in your business, you're really on a trajectory where you need to grow fast. Those investors are looking for outsized returns on their investments. So they're looking for you to burn that cash, spend it, grow quickly. That's really exciting. It's a hell of a ride, but it often means too that you have to grow, and if you can't grow, you might completely fail. Uh, it often means that you have to sell your business at some point. You're not holding on to it forever. You have to usually fairly quickly— 3, 5, 7 years, 10 years after you start it— you have to turn around and sell it, and, and it's gone. And that might be amazing. You might be happy and retire, But you might find that you didn't wanna do that. And it also means that you can't really level the plane and just turn it into a profitable cash flowing business. Sometimes you can pull that off, but it's real rare. So if you're an entrepreneur who says, actually, I really like this lifestyle, I really just wanna be profitable and take profits. I really wanna run this business for the long term because I care about the people or because I care about the business or 'cause it's in my hometown. You know, thinking more strategically about how do I get this to profitability so that I can control my own destiny. Maybe it's slower, maybe it's smaller, but maybe I own the whole thing. Um, I feel like I'm ranting a little bit here, but it's a, it's a real question you should be thinking about as entrepreneurs. Do I want the roller coaster ride? Do I want to shoot for the moon, um, and have maybe more polarized, uh, outcomes where it's either really big exit or nothing? Or do I want to have a more steady— do I want to get to a profitable business that, you know, might be slower chugging along but maybe more sustainable over the long run? In which case, that's where debt starts to become a much more interesting option for those types of businesses.

For sure. It's, it's a really important distinction to make, guys. And, and we recommend that all founders bootstrap in the beginning, okay? Um, literally just because not only is it just a better and more efficient use of your time in the beginning, um, but it is a way, you know, for you to actually prove out the business And then at that point, when you start to prove out the business, then you can make a much more informed decision to say, okay, you know what, I like this business. I like working with these types of customers. I like the things that I'm doing right now. You know, then you can make a choice. Okay, is this something that you're gonna try to build into a billion-dollar business, right? Really, really quickly where something like equity investment, you know, angels, VCs might make sense. Or is it something that you wanna kind of build slowly, sustainably, you know, over time. And then in that respect, you know, then maybe going something in the non-dilutive financing, banks, grants, things like that might be a little bit more, you know, more specific. And somebody did have a question here, you know, in terms of, you know, the nonprofit side of things, right? So, yeah, generally speaking, equity investors aren't going to to invest in a nonprofit. Now, there are things like B Corps and stuff like that that are positioned to kind of be a little bit of a meld of— it's a benefit corporation, right? So it's a for-profit company, but it does have specific reporting requirements and stuff to make sure that it's very mission-aligned. But, you know, from a banking perspective, is there a dichotomy at all between the for-profit and the nonprofit?

Yeah, it's a really good question. So we're actually building out a nonprofit product. We can work with nonprofits right now, but we're building a specific product for them. It's really interesting because as a nonprofit, like you said, you really can't take on equity investment. Even debt doesn't really make sense for most nonprofits. You might be able to if you have a consistent donor base, or if you're a nonprofit that happens to sell some product, it's still, you're still a business, but you're just a nonprofit business. But one thing we definitely see is that a lot of nonprofits don't pay— because they're a nonprofit, they don't think about things like cash management. So all the things I spoke about earlier about connecting QuickBooks, having a corporate card, making sure you're maximizing your interest rate and minimizing your fees. I see a lot of nonprofits that don't do any of that because they're just not in that mindset. And the reality is they're leaving money on the table and not able to pursue their mission to the fullest extent because they've got $1 million sitting in a bank account earning 0 interest rate when they should be earning 3%, 4%. They don't have corporate cards earning points, you know, so, and all those things. So if you're a nonprofit, like, just 'cause you're not, just 'cause you're an organization that's not driven by profit doesn't mean that money isn't important to that organization. In fact, money's super important for nonprofits 'cause they're usually doing really important work. So take care of your cash. Um, make sure, at the bare minimum, make sure it's earning your interest for sure.

Yeah, and, and don't, don't discount the points either, guys. Um, the points are, are a godsend, honestly. Um, you know, especially if you, if you, you pick the right card and you, you know, whenever you have really big, um, charges and stuff, you know, if you're able to put that on the card, I mean, it's essentially free money if you, if you play it the right way. Um, and it's, it's free money that just, that goes towards your expenses, right? So, um, we did have this here. This is a super interesting question. I'm going to put this on the, on the stage here. So this is from, this is from Alessa, and, you know, so as you consider equity versus debt, it seems that like when the hard times hit, an equity investor will try to get you back to winning, where a bank will focus on their elections, i.e., make a bad situation worse. Is there a myth or a misunderstanding here? I mean, I have an answer to this question, but maybe Robert, if you—

No, Jonathan, you start. I've got one too, but you go for it.

I mean, I would just say, and look, this isn't what's better, a bank or an investor, right? An equity investor. It's, they're two different options. And as Robert said before, a lot of times, and We just had a founder do this, right? It was a pretty capital-intensive business, and they raised a round of funding. Um, this was in Mexico City, actually. And as part of that round of funding, they also raised venture debt, right? Because at that point, you know, a bank will know and say, okay, well, you're, you're about to have $5 million hit your bank account, right? So you are a little bit less risky, right? So it's not an either-or, it's a combination. And some, sometimes it's right for some people, sometimes it's or not. But I would just say in terms of that, I wouldn't necessarily assume that an equity investor, when hard times hit, are going to try to get you back to winning. Okay, I mean, I've seen it myself with equity investors. A lot of times, you know, they're— Robert mentioned this, right? The vast majority of their investments are going to fail. You know, they operate very much kind of looking at things almost like a casino. right? Where it's, they're going to put a lot of bets down and they know that, let's say in any fund, let's say they invest in 10 companies, typically one of those companies is going to return the entire fund, right? It was probably going to be like 10x or something. One of those companies maybe will like, you know, break even on the investment and then the rest will fail, right? And, and that's kind of the math of something called power law. So, um, I bring that up here because it's actually much more common, you know, if you're not on a track to be that like rock star of the current fund or that investor, it's actually a lot more common for them to sort of let you die, um, right, than, than to really roll up their sleeves, uh, just because again they're looking at from a portfolio perspective, right, and their portfolio perspective is not necessarily, hey, let's break even on 10 investments. It's, no, let's double, triple, quadruple, quintuple down on that one or two investments that they made that they think can really, really, you know, go, uh, you know, go to the moon, so to speak. And look, I'm saying this not to put investors down, and obviously a lot of— some investors are better than others, right? And they'll really roll up their sleeves and help you. But that's just sort of the reality of Yeah.

And the other thing I would add to that, and I think this really doesn't matter if you're talking about an equity investor or a debt provider, it matters who you take money from. You know, some people just aren't that nice. Some people don't care about you. Some people don't have systems in place to even be able to begin to help even if they wanted to. So I think really understanding, it's why building relationships is so important and it's why often as an entrepreneur, beggars can't be choosers, right? Like someone offers you cash, it's hard to turn it down, but it's important to understand kind of who you're figuratively getting into bed with. I think someone used to say, someone I couldn't attribute the quote, but basically like the average venture investment lasts longer than the average marriage. Like, these are real long-term commitments, um, and these are people you're going to deal with and work with a lot. So whether it's, you know, your debt provider, your bank, where, you know, you're checking in every quarter making sure you're making your debt payments, or it's an equity investor who's looking for that upside, in both cases, when things are going bad, some people are going to run or be a real pain in the butt, and some people are gonna roll up their sleeves with you. Um, and understanding and maybe asking those questions like What happens when, you know, the shit hits the fan, proverbially? Like, what are you going to do about it? And understanding, um, and just, you know, adding that into your consideration as you decide to take money from people. Because I really do think in this case you can find debt providers who will totally run you over with a truck if things are going poorly, and you'll have debt providers that will do everything in their power to refinance, hold off, figure out how to get you back to even, because ultimately they, they want poop their money. And same thing with equity investors— people who will, you know, leave you for dead, or people who will dive in and help you fix your business. Um, it's really about ultimately more about the character of people you take, take your money from, take money from, for sure.

Yeah, the— and it's, uh, Hisham here in the chat was also saying, yeah, in, in some cases they'll, they'll— an investor could use it as a way to take advantage of, of a, of a founder, you know, as well.

Right? Yeah.

So, and, and just, I, I Googled just because what you said was, was fascinating, right? Is that the average, or just an equity investment, you know, venture funds typically work on their 15-year funds, right? It's typically what you see these days. Uh, so that doesn't mean that necessarily, you know, you might be their first investment. Okay, well then it's about a 14-year thing where they're gonna, you know, start to close down. But I just looked it up here. Yeah, in the US at least, the average marriage is approximately 8 years.

Yep. So there you go. So the average investor investment is about double that. So it's interesting. You should be cautious.

Yeah. And again, yeah, there's going to be some banks that maybe don't act with the most decorum in the same way that there may be investors in the same management, right? So somebody brought up something here too, and it's specifically around GovTech, but I understand the sentiment, right? So SP was asking, you know, a lot of GovTech startups, and we work with a lot of governments too, SP, you know, long payment cycles from public sector clients. So obviously, you know, one big part of the banking equation is managing cash flow, right? Is understanding, okay, well, look, I have contracts and I'm going to be collecting this much money, you know, contractually throughout the rest of the year, but You know, when it comes to fulfilling your payroll at the end of the month, you know, those commitments that don't come till November or whatever aren't super helpful. So, you know, any tips for founders in managing those cash flow issues, right? And trust me, you're going to run into those issues. It happens to everybody almost. And then number 2, like, you know, is there, you know, how does Grasshopper um, you know, help people with that?

Yeah, all great questions, right? So first things first, right? Understanding your cash conversion cycle is just so important, right? So if you, if you're getting into that line of business, like, you need to understand, and you, you need to raise money, you need to structure your business in a way that you could handle those peaks and troughs. Um, and, and the first thing you need to do is figure out, yeah, how can I, you know, can I pay rent at a different interval to make sure I, I line up my rent with my checks, things like that. You know, payroll, obviously it's harder to move stuff around, but really thinking hard about how do I align my expenses with my incoming before you ever—

Your credit card payments for, you know, in particular, right? Usually at least now you can kind of choose what day of the month, right? So yeah, aligning those things is super important.

Super important, right? So before you ever get to a place where like I need a line of credit because I'm not going to make payroll, like do all that stuff first, right? But then, you know, I'll be a broken record here, but it really is true. Like the more track record you can build, the farther you can get in your business before you have to ask for that line of credit. And then the deeper relationship you have with the bank when you're asking for it. I'm working with a client right now, longstanding client of the bank, been with us for a very long time. They work on government contracts. They know they're going to get paid, but the conversion cycle is really long. And they basically asked us for kind of a line of credit or some overdraft protection because they need to make payroll and they know the money's coming. And it's much easier for us to talk to a, you know, if it had been a client who walked in off the street, the answer is pretty much no. But because this client's been with us for, you know, 5 or 6 years, which for us is an eternity, it's much easier for us to kind of look through it and say, all right, well, we've, you know, we've worked with them for a really long time. What can we do? We might not, you know, we can't, You can't bend physics. You can't— if you're not gonna be able to repay the loan, we can't make the loan. But you can take a lot of, you know, you can stretch things a lot when you have a good long-term relationship with a client.

Yep. And then here, we're coming up to the end of the webinar here, guys. So there's been a lot of great questions. So thank you guys so much for that. But if you do have other questions, now is the time. Time to, to throw them in before we wrap up. Um, I'll get to— uh, Hala was asking, and this is an interesting one too, uh, you know, what if I have already started the business for a year and a half? This whole time I haven't, I haven't managed my finances correctly, right? This is something we see a lot as well, right? What would be, you know, kind of your recommendation at that point, right? So probably my guess, Hala, is that Hey, you know, total mixing of personal and professional expenses, total, you know, books that are probably either nonexistent or, you know, very incomplete, right? You know, what would be some of your recommendations there to get back on the right track?

Yeah, it's never too late to start. You know, start working on that. I think I would give you two pieces of advice. So the first is, I would— this is going to sound a little more like a therapist maybe than a financial advisor, but think about why it's taking you that long, right? And I actually kind of mean this pretty seriously. Like, why have you done it? Is it you don't have the time? Is it because you don't have the expertise? Is it because the business is moving slowly and so it doesn't feel like it matters? Pinpointing why you haven't done it is important because then you can work on a solution. If it's 'cause I don't have time, I'm too busy, you can hire. If it's 'cause I don't have, you know, if I don't have the expertise, okay, I can find an expert to help me. Um, but pinpointing why that's the case, and it's, there's no judgment about you, there's plenty of things people leave alone, but understanding why you did that, um, is really important. And then, you know, if you've got some cash in the business, if you're, if you're, you're doing some good revenue, again, I can't emphasize enough how many good relatively inexpensive options there are right now for bookkeepers, virtual people to keep, you know, keep track of your books, things like that. It's a really good investment as a business. Hire someone to come in, you know, once a week or whatever to just clean up the books, have them go backwards. Um, I just, I just can't recommend it enough. And from there, you know, get a connected bank account, start connecting it to QuickBooks, start running those reports. Just keep, just keep track of everything you can going forward.

And that bookkeeper, I mean, I haven't checked, but there's probably a ton of startups that just provide that on demand. But even something like an Upwork or something, you know, you know, like an online freelancer. And I've seen it too with a lot of bookkeepers. Most of them have seen some stuff, right? So like, you know, they've seen, they understand that not everybody, you know, is this financially literate as they are. So they're used to kind of, you know, that's kind of their job in a lot of cases, okay? It's like, take this mess, start to make some sense out of it to get to the point where now we can have a QuickBooks or something like that, right? And then once you have that, then you can connect it to things like Grasshopper and, and actually, you know, kind of be on a good path moving forward. So don't be, don't be ashamed, I'd say, with the, with— it's like, it's like, don't be ashamed going to a dentist because you have a cavity, right? It's like, look, this is their job. This is what they see, so don't be ashamed with the bookkeeper either. Okay, well, I think that's all the questions that we had. So Robert, thank you so much. Just to reiterate everybody, and let's throw Robert's LinkedIn in the chat there as well. And I think we did put in the link to Grasshopper Bank as well. I highly recommend Grasshopper Bank, guys. A lot of our founders use it. They've been a great supportive partner of ours. And, you know, I'll just mention too, just, you know, when you are working with the bank, a lot of them just don't understand and don't get the startup space. Right. And, you know, there is this distinction too, I should mention, between like startups and small businesses. Right. It's a pretty big distinction. You may have a lot of banks that are good small business banks, but a small business is very different than a startup. Right? A startup is kind of fast growth, that kind of stuff, whereas a small business is a little bit different, right? That could be like a neighborhood deli or something, or like, you know, just any kind of store, retail shop. But Grasshopper is really great at understanding both of those things. And, you know, from my experience, definitely the startup side, which is something that a lot of traditional banks, you know, don't specialize in. So Thank you so much, Robert. Have a good rest of the night, and thank you everybody for joining.

Yeah, thanks everybody. Really appreciate it. Thanks, Jonathan, for hosting.

All right, take care everyone. Bye.

Take care everybody.