Alternative Financing in Today’s Market

Watch a panel discussion around risk, underwriting, and alternative financing in today’s market. We dive into the latest trends, best practices for startups, the financing tech stack, how leading fintech companies are thinking about risk modeling, and more. Panelists are from leading fintech companies like Capchase, Modern Treasury, and Rutter.

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Agenda:

The alternative financing market in the US is set to grow by over $175 billion by 2025.

This is an opportunity not only for companies looking to raise fresh funds in turbulent markets, but also an opportunity for companies looking to build novel lending products.

Watch this webinar with experts from Rutter, Capchase, and Modern Treasury to discuss:

• Best practices for companies looking for revenue-based financing
• The technology stack required to build an alternative lending service
• How to shore up cash positions in turbulent markets

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Trasncript:

Cool. Let's get started. Thank you so much everyone for joining us. Today's panel is about alternative financing options to traditional VC. As we've seen this historic tech bear market interest rates rising. Wanted to put together a panel to talk about some other solutions for startups as well is for companies looking to do lending. So it's my honor to be joined today by three product managers at companies that help in this situation.

So we'll start with Sri at Capchase critique at Rutter and Ani at Modern Treasury. I myself am also at Modern Treasury on the growth team. And with that, let's kick it off. So, would love to get started with asking each of you to give a brief overview of what your company does and we'll get into more detail in a minute and then what your role is. Perfect. Hi everyone, my name is Sri. Really great to be here.

I'm excited to chat with you all so I can give a quick overview of CapChase, which is where I work. Capchase is a founder friendly financing solution that makes it easy for startups to access capital for both growth and preserving your runway. And so we do this by partnering with SaaS companies and offering a non diluted financing option. And so you're able to essentially get value out of your future cash flows and then be able to recover costs for acquisition costs or provide sales commissions or even operating costs all while you're able to extend your runway. And so I am currently a product lead under our lending team and I most recently led the launch of our analytics product where we enable our customers to be able to get automated insights into their business and financial metrics so that you can make more critical business decisions faster. Yeah, I can go next. Great to see everyone here.

My name is Prathik, I'm a product lead here at Rutter. So at Rutter we've built the universal API for commerce and business financial data. It's the easiest way for financing companies to considerably improve their risk and underwriting models with data from e commerce platforms, accounting systems and payment processors. So super excited to share a little bit more about the market and what we're seeing as well from a lot of the customers that we work with. Cool. And everyone. I'm Ani Narayan at Modern treasury.

I'm a product manager on the payments team. Modern Treasury is a payment operating system for companies that want to move money programmatically as part of the products that they build. So what does this mean? It includes a direct integration with several banks in the US and internationally to offer a single clean API for all payment types like ACH wires, RTP checks and other various international rails. And in addition to all of this, we've built tools to manage the general payment operations workflows that a company would need in order to manage payments as part of their products and this includes sort of automatic reconciliation, creating and managing approvals and roles, managing a double entry ledger and ongoing compliance. Super excited to chat today and also good friends with the other panelists here. Yeah, I'll kick it back to you, Ben. Awesome.

Thank you all for the introduction and a quick logistics note. So this will be primarily for the next 30 minutes, q and A for me, but then we'll open it up to audience Q and A for the last ten minutes. So if you have any questions, please feel free to enter them in the Q and A chat. Cool. So now that we've got a high level introduction of what each of you do, would be great to understand if you were in the small company, small business looking for financing today, what are some of the main options for you to consider? Yeah, I can maybe talk about it sort of at a high level, and then I can pass it over to Sri to talk about captcha specifically, I think there's in general, three or maybe four big models here. The first is going direct to your banks. Usually it's where you have your bank account, but it could be any of the other banking institutions out there.

And that's been the traditional sort of model. And that works, but it often requires really high collateral. It's generally at a higher interest rate, so the cost of borrowing is much higher. And banks will also require a longer business history in order to underwrite your company and your business. So generally, that underwriting is more stringent. There are companies like Cabbage that also act as loan brokers to help you access cheaper debt from institutions and from various traditional financing institutions. So that exists as well.

There is another model, which is the embedded lending model, kind of like what Parafin is doing. And this allows companies like DoorDash to offer credit to their customers. So it's great for marketplaces, and we're very fortunate to be able to power Parafin in their payment operations to offer this product as well. And then lastly, there's the nondilutive revenue based financing, which is really interesting, and what Capchase does. And I'll pass it over to Sri to tell us a little bit more about that. Yeah, perfect. So Capchase has really pioneered revenue based financing, where we essentially underwrite companies based on their future recurring revenue streams that they might be making in the future.

And so we do this without any warrants, no collateral. You just get a total discount rate on the total capital that you're about to raise, and you get that capital immediately available as soon as you connect your data sources. So, as an example, say you're a soft company. You have 100 customers that pay you monthly, rather than having to wait every month to collect that cash. Based on these subscriptions, we essentially will be able to underwrite you so that you're able to access that upfront rather than having to wait for that recurring stream over time. And so revenue financing is especially useful for startups that are perhaps earlier in their life or don't maybe have as many assets where going through the venture debt route requires an amazing personal credit score or you need to offer a collateral, there might be even warrants and there are lots of other aspects that you need to be able to consider. Versus with CapChase.

For example, as soon as you connect all your data sources we can offer you an offer within a day and you're able to have this in a non dilutive manner. So if you're, for example, worried about losing equity, if you had gone through the venture equity process, Capchase essentially enables you to extend your runway, especially in the current environment and continue your growth without sort of having to give up that equity. And so we are super excited to be able to continue working with SaaS companies. We just had closed actually a 400 million dollar raise that enables us to continue lending to SaaS companies and so we're able to essentially ensure that this amount of money is being able to commit it to lending to startups. Amazing. Well, congratulations on your raise and glad to hear that things are running smoothly there at CapChase. So Tree, if you could help us understand a bit more about the user journey.

So I'm a startup considering a number of financing options. What does it look like to work with CapChase? What are the underwriters looking for? Do the rates change, are they constant? What factors are involved? Would love to get an overview. Yes, of course. So it essentially starts with just coming to CapChase.com and registering and that involves just giving brief details in terms of what your company is, how much you're expecting to raise, what your revenue growth looks like right now. And then as soon as you register we'll be able to partner you with one of our Go to market team members who then walks you through and understands whether or not Capchase is a good fit. And so from your perspective, if you're considering CapChase, we look for companies that have at least 100K in arr, have at least six months in runway and we are able to lend up to $10 million but as little as $25,000. And so we're able to essentially provide a percentage of your arr back to you as that capital over time.

So as soon as you for example, have this conversation with our Go to market member, all you need to do is connect your data sources. We connect with banking, billing as well as accounting data and if you don't have those integrations you can also provide this on an ad hoc manner and we'd be able to underwrite you. And as long as you are able to provide all that data to us, we can provide an offer to you within a day. And then that kicks off sort of the process that you can work with us. And typically we encourage our customers, once they get an offer, to be able to draw programmatically. So rather than, for example, taking out 1 million in one go, we recommend that you take it out so that you have, like, for example, twelve K this month. Twelve K next month, so that you're able to really plan out your expenses and your runway planning without being able to overextend yourself and having to maybe incur all that money in one go.

Yeah. And just to jump in there as well. I think one of the interesting points that you made that we're seeing here at Rutter as well, is this really common trend in alternative financing towards the faster decision making and faster offers to small businesses. And so, typically, a lot of traditional financing involves collecting a ton of paperwork, pulling outdated credit reports, and using information. They may not be the best indicators of the business financial health. And so companies like Capchase and many others in the revenue based financing space are starting to, in some sense, consumerize the actual application flow. Right.

And it's interesting, a lot of these businesses have this increased expectation of applying for loans and having a very seamless and fast application and approval process. And a core component of that is getting the data that you need, automating that underwriting process, and making a decision as quickly as possible while also ensuring that the terms are favorable for small businesses, especially in this environment. Exactly. Totally agree. Yeah. So that's a great point about a trend to decrease time to disbursement. Curious.

Either one of you can jump in. What is the right timeline expectation, typically to onboard? And then, I assume, once you've onboarded, how does that change over time? And let's say if you want to add an additional loan, how does that change over time? Yeah, I would say it definitely varies across different types of products or credit products that you can offer, which Annie kind of highlighted earlier. I would say one of the interesting things that we're seeing from a lot of our customers as well is that speed is important. In particular, getting a decision to a small business within 24 hours has been a very common SLA that we see across the board. And so what this means is the moment a business signs up, submits their information, connects their commerce, accounting or banking products, and then on the financing side, ingesting all that information, getting the data you need, processing it, and calculating a risk score to ultimately give an offer, all of that happens within 24 hours. And it's pretty incredible, right? Because you can imagine signing up in the morning and then the next day you have an offer to get capital for your business and grow. And so that's definitely something we're seeing, especially on the speed front.

Is getting the information you need and then decision within hours. I'll just add one more point to that in that many of our customers don't just work with us once, they work with us over a long period of time. And because we are connected with data sources that enable us to see into your billing, banking and accounting data, we're able to essentially underwrite you constantly. And so it ends up being a much more programmatic approach where you're able to take out how much you need in that moment versus having to kind of sit on a million dollars or $10 million similar to perhaps if you were to partner with the venture debt partner. Yeah. No, that's a great overview and wow, 24 hours lending expectations have certainly changed. So curious.

On that last note on venture Debt tree.

Anyone can jump in here. But as we think about the broader macro environment, whether it's VC liquidity or we're thinking about interest rates rising and rates on traditional bank loans rising, what should startups think about? What trends are you noticing? And what should startups think about in light of the current macro environment when considering these options? I can start and then pass it on to Ani or Prathik. I think right now obviously interest rates are going up. I think the Fed is announcing today or has it announced meanwhile, like, I think the heyday of COVID was very much free capital or easy capital and we're not seeing as much crossover funds or hedge funds investing and making venture equity much more appealing and easy to get. And so I think one thing that we're noticing especially is that a lot of these startups are not thinking about how to extend your runway with this sort of recession potentially looming before us. And so why cap chase is super useful is that we are able to partner with companies that maybe have already raised money or thinking about raising but doing so in a nondilutive manner. And one thing that's different about venture debt is that because we already have about 600 million or so to be able to lend to startups, we are not changing or seeing differences in the interest rates that we're offering between, for example December 21 to even May 22.

And so this enables us to kind of have the security with our companies that we work with that we'd be able to continue lending to you irrespective of sort of like how things might be changing in the macro level. And another aspect is that we are different in that as compared to venture debt. Venture debt might perhaps incur. Venture debt typically has warrants where you essentially have to have debt that might convert into equity and that ends up being really expensive. So for example, 1% warrant might cost a company up to millions. And so rather than, for example, taking the venture debt approach again revenue based financing is non dilutive. You pay this discount rate and then you're done with it versus having maybe other sort of lock ins or constraints that either venture equity or venture debt provides.

Which is I think interesting and why a lot of our companies really enjoy working with Capchase. Yeah. And also, just to add on to that, I think especially with the increasing trend towards less of an inclination on the VC side to invest in certain industries or certain types of businesses, a lot of these business owners, they still, for example, need to either sustain the downturn, continue to invest in their business. They want to do this right, and a lot of times they're using this capital to pay payroll or hire more employees to grow their business or grow their operations by inventory, for example. And so while I think the macro might suggest that things are taking a turn, I think that a lot of what both Capchase syncs likewise with Rutter as well is that there definitely still is sustained inclination to get debt capital and ultimately finance those businesses. Because a lot of these expenses are standard and necessary and something that these business owners need. Right? And so again, having kind of these systems to make it super easy to actually get that financing in a way that one doesn't involve a lot of friction, doesn't involve giving up a stake in their business, makes it really compelling as an alternative.

Yeah, and just quickly on that last note, curious are you individually seeing trends in your companies? Is there more appetite for this than before or less? How does this correlate to what's happening in the venture debt, venture equity market? Yeah, I would say at least on Rutter side and curious to get your take on this as well, but on Rutter side, we're not seeing a huge change in kind of our customers appetite to, for example, work with Rutter, get alternative data in order to underwrite more effectively. If anything, especially in this environment, they're definitely becoming more conscious about risk and actually making sure that the terms that they give for those businesses are accurate both and incompetent for the businesses, but also for the lenders themselves. Right, and so that's I think a piece where we're seeing where getting the rich data from accounting systems, your invoices your financial statements or sales data from commerce and payment processors ends up becoming pretty interesting and valuable aside from just pulling standard credit reports. That's typically done in the financing world. So yeah, ben is interesting, not a lot of change, which is something that I think a lot of people are surprised by. Obviously we're excited about to continue helping the businesses that we work with growth. I agree with that.

I think Capchase is seeing something similar where not a lot of things have changed actually since sort of like the expectation of a recession. Like for example, as I mentioned before, product and terms haven't actually been changing since December 21 versus May 22. And so you can see that despite sort of these expectations things are sort of still looking the same. And that's because I think Capchase takes a very diligent approach about underwriting the companies that we work with so that we encourage our companies, irrespective of the macro market, that they're focusing on the fundamentals where you have good. Unit economics, sustainable growth. You're having disciplined spending, and then you're able to kind of focus in on what your product is building versus kind of being distracted by the noise in the market. And so I think that's what we encourage and I think it's what lots of others, whether it's debt partners or venture equity partners, that's sort of the advice that I think a lot of folks are giving regardless.

And so I encourage you if you're a SaaS company or just to start up building in the space. Now a lot of great companies are built in downturn and so I think there's still an opportunity for great companies to be built. And so just focusing on sort of like what is the goal of trying to find product market fit as quickly as possible is really important. Yeah. Ana, you actually probably have some thoughts on this. I'm super curious about the payments piece that Modern Treasury is seeing. So I think the unique perspective that I can provide in addition to sort of the underwriting importance of strong underwriting and the cost of capital that you all talked about is this increased focus across the board, across sort of startup and just generally all larger companies as well, this increased focus on unit economics and profitability.

So the perspective or the view that we have is because we've powered so many lending providers across sort of settle, Parafin, Capchase, and other providers, what we're noticing is that now to run a lending program, there's an increased importance in operational efficiency. And that's where Modern Treasury can really come in and help out, where we can help automate a lot of the operational workflows required to run a program where you don't need to be having a bunch of your engineers. Or a big portion of your engineering building the tools and infrastructure internally in a highly bespoke way to manage that lending program both sort of in the US. Internationally. And then also we ideally are building the tools for you to not have to hire or manage a large operational team to be able to track down reconciliation, to be able to manage all of the workflows and approvals required to make payouts and disbursements. So as generally as companies are focusing more on profitability automation and running a program more efficiently is where Modern Treasury can help. And that's sort of the trend that we're noticing across various lenders.

Yeah and Ani, you had mentioned a number of customers that we're working with and so curious if you could tell us a bit more about that. Two things number one, what does their tech stack typically look like, these fintech alternative lender type companies? And then curious, how do they manage fraud? And that could be open to anyone. Yeah, absolutely. So I think there's a few elements to this. They definitely work with companies like Rutter to provide data into sort of the revenue of the company and maybe additional providers like Basis that provide some richer bank data as well for cash flow data. Basically all of the various data sources that you can collect in order to make that underwriting decision more robust, much faster, more instant to that 24 hours point that Tree mentioned. So that's definitely one piece to it.

The next piece is sort of managing the payments and the operations. This is where Modern Treasury comes in, sort of being able to disperse money, collect, do your collections in an automated fashion via any of the rails of the US and internationally. Having a single plane API and an automated tech stack for that is super important. And then companies that are also lending need to be able to ensure that the people that they're lending to are not fraudulent or various transactions are not fraudulent. And this is a product that Modern Treasury is now building to help various lenders manage compliance programs. So to do KYC KYB on their counterparties, ongoing transaction monitoring and AML. So to be able to detect fraud before it has a large negative impact on your business or on your payback periods or on your ability to collect on debt and to be able to understand the returns and the various reasons for returns on payments.

And this has generally been an issue for some lenders where they noticed that when they do intend to collect on payments, those payments that they initiate are often returned. The Modern Treasury provides additional richer data because we sit directly on top of the bank, we have visibility into the counterparties and their past history. We're able to provide information on sort of why a payment was returned. Help inform your team on how to provide a more sort of operationally robust program where you're lending to the right counterparties and ensure that when you are intending to collect on that debt, those payments are collected and are not returned. So your return rates can go way down and you're not paying those sort of large fees to banks which can make which again, to the point about unit economics, can have a negative impact on that. Yeah, and I think if you look at the underwriting stack overall, there's obviously a ton of different components to it. But the three big ones are step one is that fraud piece that Annie was talking about.

So KYC KYB determining if the business is legit and if they're actually a good business to actually return back your money. The second piece is really around like data and decisioning. So that's kind of the underwriting component and the final piece is that all that payment operations work, which of course Modern Treasury helps with around actually servicing the loan once that decision has been made and the terms are actually given to one of your customers with business in this case. And the way I see it is that especially in kind of that middle piece or the first two layers of fraud and underwriting, it's honestly like a lot of detective work, right? If you're an underwriter, you're basically getting all of these different pieces which are effectively signals of a business, right? So it's a ton of different data sources around what's their accounting look like, what are their transactions look like, are there any issues with those transactions or their sales data and so on. And so the ultimate goal is to really stitch all of this together to get this full financial picture of who that business is and their ability to actually pay for the loans that a financing company would be giving out. And so I think all of these different parts of the underwriting stack are super critical and work very cohesively in order to ensure that any lending company is operating smoothly. And of course doing this in a way that is providing the best possible experience for the businesses that are actually applying.

Awesome. And just out of curiosity, so critique, you had mentioned that often you're seeing lenders get back to businesses in 24 hours. What does the disbursement look like? So how long after that does it take for startups to, let's say, with Capchase. Street receive the funds in their bank account? Yeah, well, I would say especially nowadays when a lot of these financing companies are moving to these really cool fintech products like Modern Treasury, where payments can actually be run really quickly and very efficiently embedded into the stack, this is done pretty smoothly. And so I think one of the trends that we're super excited about overall is that a lot of the kind of current workflows that might involve a lot of human back and forth manual analysis of literal PDF documents. To make decisions and then another set of back and forth to actually go and collect money. Oftentimes like sending, for example, bank account information via email can be entirely automated through basically these a nice set of APIs.

Whether it's for getting the data that you need, automating the underwriting through really interesting decisioning models through your tech stack, and then actually running the payments, all with an API. And so I think as part of kind of the trend towards more of these fintech products that enable these alternative financing companies to really build out these end to end experiences that are entirely automated, I think that's definitely something that we're seeing in a place where I would say lending is definitely changing for the better going forward. Awesome. Cool. And quick logistic check. So we'll do about five more minutes of my Q and A and then leave the last few minutes for audience Q and A. So please, if you have questions, feel free to type them in the chat.

Cool. So, a couple more things on my mind as companies are considering. So we talked a bit about the model where companies go to cap chase for their financing needs. What about companies that want to offer financing solutions to other startups? Whether this is Marketplaces and the embedded lending model or it's other future cap chase type companies, what should they consider with build versus buy? What are all the parts of stack that they need to think about? And what are some of the considerations on which they should own in house versus which they should partner with vendors? Yeah, happy to kick this off. So I think, again, like the components of the lending stack, there's that fraud KYB Piece, there's the data and underwriting Piece, and then there's the actual payment operations piece. So obviously, Rutter operates kind of in those first two layers of helping businesses determine fraud and enable underwriting. What we see is that a lot of a lot of companies want to do the decisioning workflows like in house, right? It's part of their secret sauce.

It's something that makes them special. But in order to enable those decisioning workflows to operate to their full potential, you actually need alternative data sources to essentially parse that, get your analytics and then make the best possible risk decision. And so it's funny because before even starting a runner, I was working on some side projects. And one of them involved making integrations into a lot of these different platforms. And it's such a pain. And the reason is because all of these APIs look completely different. The data is not standardized.

And so when you think about building out a lot of these integrations in house, one of the biggest challenges is having the engineering team not just to go build them out and understand all of these different APIs, each of which have their own quirks and rate limits and so on. But then you also have to maintain those integrations, right? And so you have that same team that went and build it out, continue to maintain it over time. That's probably not the most efficient use of resources, especially for these financing companies, where their edge comes from the decisioning and the user experience they provide to the businesses. Not from, you know, aggregating normalizing and getting like the initial set of alternative data sources. And so at least from that, you know, fraud and underwriting Piece. What we found is that where companies like Rutter, for example, are really interesting, is that we can help you get a lot of this information very seamlessly right off the bat. It's already standardized, it's normalized, it's easy to parse across accounting, payment processors and ecommerce integrations.

And of course, important to that is the infrastructure that powers it. And so reliability and developer experience are our. Top priorities. We want to work with a lot of these financing companies that are excited about getting that automation really together and help them just focus on what makes them special. The businesses experience and the actual decisioning workflows makes sense. Do you have anything to add there? Yeah, it's sort of really plus one to everything at the extent and sort of mirror that to managing a payment operations workflow as well. It's exactly true, right? Building integrations with multiple banks that you need to work with both in the US and internationally is quite painful.

It requires significant engineering resources to not only build but also maintain and sort of standardize all of the data that's coming in across various files based systems APIs. To be able to then sort of standardize all of that in house and then manage reconciliation returns on an ongoing basis is quite challenging to build in house. And so we believe that it's definitely beneficial for companies to own for lending providers to do what they do best, which is sort of making that underwriting decision, acquiring that cost of capital, doing finding the rights that our customers to lend to and ensuring that that lending program is run efficiently and then everything else that is involved in managing that operations for payments at least is done easily through Modern Treasury on a single platform. One interesting trend that we see is there's demand for nondilutive financing not just in the US but also in international regions, europe, Nordics, there are startups or companies, small and medium sized businesses internationally that require nondilutive financing and in regions generally, historically where access to venture and sort of venture debt has been quite scarce. So for lenders trying to manage a program from day one both in the US and he set out for international growth and opportunities, Modern Treasury can really sort of help out there to build out those workflows and companies like Capchase sort of understood this really early on and built their business on Modern treasury. So we're sort of really grateful and excited to partner and sort of help power. That perfect.

And then to wrap up my section would love to hear each of you for about a minute. What are your respective companies doing looking forward to continue supporting this space and maybe Sri, we can start with you. Sure. We're continuing to obviously service our companies more and more effectively. We actually just launched an analytics product with the data that we're connected with. For example partners with Butter or other partners like from our billing and banking and accounting data we can actually resurface these analytics back to our customers. And so this is offered to customers that are not just Capchase financing customers.

So even if you're just interested in tracking your churn or retention over time or want to understand how your cohorts or cohorts are performing over time, you can just sync your data and then you will have a dashboard ready for you. And so we essentially just want to enable our customers to be the best performing that they can. And whether that's with insights that we provide with financing or the community that you can join as part of the Capchase's community, we just want to service you as much as possible. And so obviously, always an opportunity to get involved with Capchase irrespective of what you're looking for in the moment right now. Yeah, I can go next.

I think for us at Rutter, looking forward, of course, as a company, we're really excited to continue working with some incredible financing and lending customers.

We have some amazing ones already today. Parafin, Mercury, a ton of these revenue based financing, revenge of financing companies that are out there today. So that's the name of the game for us, just continue working with these incredible partners and provide them these alternative data sources to enable better and more accurate underwriting decisions. And I think separately, from a product and engineering side, one of the big things that we're investing in is continuing to expand our coverage. Tons of new integrations in the pipeline and being launched really soon. I'm super excited about a variety of new products that we're launching to really enable these customers that we work with to make these better decisions with our data. And of course, something that we'll always be investing in and have been, is in our infrastructure.

And so data quality and reliability are the name of the game in this space and we have a whole team dedicated to that. And that's something that we're really excited about. Continuing to improve for a lot of our customers who rely on Rutter as core infrastructure to power their underwriting models. Yes, on our side, and Modern Treasury, continuing to build out the integrations with banking partners and Railz both in the US and internationally, we are now seeing customers or lenders ask for additional Rails for faster payments. So deeply investing in RTP and the equivalents of that both in the US and internationally. Building out our double entry ledger product, which is super powerful to help manage repayments repayment schedules and sort of all the loans that lenders have provided to their customers and investing a lot more in our compliance program and compliance product to help ensure that those underwriting we provide enough information, all the information that we can to help power that underwriting decision and also ensure that on an ongoing basis, the compliance programs that companies run are effective where they're able to detect fraud, money laundering with the counterparties that they interface with. Awesome.

Thanks so much for giving us a preview of what's to come. So now we'll move on to audience Q and A. I'll just read the questions as they come.

So the first one is what are the pros and cons of using different types of data? So bank data versus commerce, data versus accounting would be curious, especially from the rhetoric and capture perspective. Obviously more data is better. But which do you prioritize, if any? And what are some of the pros and cons? Yes, totally, it's a great question. And the way we think about it is that all of these different sources of data are incredibly important in their own way to capturing this complete financial picture of a business. So, banking data is great because it's effectively ground truth information. It's hard to mess around and fake bank data. But the downside of banking data is that it's very sparse, right? So you get these individual transactions on a transaction level.

And so it's actually hard to derive useful insights about a business other than just their kind of high level balance or expenses or revenue, but to actually get down to specific details like what exactly are those expenses that they're spending on? Or what does their revenue breakdown actually look like? That's where it becomes pretty challenging. And so where commerce and accounting come in, is to provide that richer, more granular data about the actual and true kind of financial health of the business beyond just the individual transactions that you might see in a bank statement. And so with commerce, what we find is that a lot of our customers use that information to basically capture very specific details about revenue or sales. About, for example, ecommerce merchants, right? So with Rutter, we'll be able to tell you not just overall all the transactions that are happening, but specifically the orders, the products associated with those orders, the statuses, are there refunds, are there payment failures, really granular details else that help a business actually underwrite and understand where is the revenue actually coming from these ecommerce channels. And then on the accounting side, what's really interesting is that we not only get additional pieces of information on revenue, but we also get cost data, right? So the categorized information of the money out, that's going out of business. So we can tell you, for example, that a business is spending x amount of dollars on advertising or what are their operating expenses, how much they're paying on payroll, what are the invoices that they're actually paying and what are the line items within those invoices. And so all of that information is super interesting and very valuable because now you're actually getting down to a skew and customer level and really understanding not just how much a business is spending or how much a business is making, but exactly why they're making that much or what they are spending on.

And those questions are something that typically hasn't really been included in these traditional financing models, but from a lot of our customers. What we realize is that this information is actually materially making a difference in risk and underwriting. And so again, all of these different data sources are incredibly useful in their own way. And the key is really stitching it together and combining them to really inform a better risk score for any of the businesses that financing companies underwriting. And from a captchas perspective, we always prefer our customers to definitely try to connect their accounting and commerce or banking billing data, not just, for example, there's so much more value to being able to have that complete financial picture versus perhaps just your banking data. And so we always encourage our customers to try to connect their billing accounting data and if not, then trying to share it even from an ad hoc manual file perspective, so we can really understand how those transactions are looking versus perhaps kind of not having that distinction through the banking data itself. Really interesting point critique that you'd made about expenses.

So it's called revenue based financing, but obviously you want a whole picture and curious tree if you could talk a bit more about how does Capchase evaluate things like unit economics and is it a simple one time, just give us your bank data or are there iterations back and forth as well? Yeah, so in the best case scenario, we sync our data with the data provider so that we essentially are seeing the same data versus, for example, like a customer sharing a file and then having to go back and forth. And so we always try to encourage our customers to sync their data so we get that real time picture, and then we're able to kind of work with that baseline. And we calculate these metrics automatically by syncing. For example, with a billing provider or banking provider or accounting provider, we can calculate metrics like Ltd. CAC, gross margin, all these different types of unit economics that are kind of tricky to calculate. But because we do this and then also provide these insights back to you, in our analytics product, we have sort of this same page that we're working off of versus having to kind of go back and forth or having been a VC before. Also kind of like looking through a customer file and trying to calculate these metrics on your own is really tricky.

And so by having it be super automated and with partners like Rutter Modern Treasury, we'd be able to essentially get to that 24 hours turnaround as fast as possible. Awesome. Yeah, no, certainly, as you were mentioning, all the analysis you do in your dashboard sounds like the job of a lot of PC associates, I guess. On that note, curious, another question from the audience is why haven't some of the traditional players, the incumbents large financial services companies, maybe even banks, adopted some of these new methodologies and these practices? For example, I'm not sure that the typical bank underwriting process involves pulling Shopify data directly. So curious what your take is on why this shift is occurring now and maybe what the next gen of these fintech Modern lenders will do differently. Yeah. I would say a lot of this is rooted in the incredible amount of growth that we saw in a lot of these industries like ecommerce, but just small businesses overall, especially kind of the mid to post COVID time.

Frame over the past couple of years where you saw much more capital going to these businesses. You kind of saw them weathering out the storm and figuring out how to invest in their business. And so I think that's definitely part of it. And it's a very recent trend, right, and so this has only been happening over the past, I would say two to three years or so in terms of this incredible amount of growth. I think that's definitely something that's new that a lot of these traditional financing companies are starting to adapt to also. Secondly, it's definitely challenging, right? And only recently have there been products like Rutter or Modern Treasury that exists to help power different parts of the financing stack. And so we're definitely seeing a lot of these traditional financing companies starting to move towards this model following suit from more of these like tech forward or VC backed financing startups and start to adopt, for example, integrating Rutter.

Data to help power or experiment with some of these underwriting workflows, and then realizing that, oh, wow, we could actually use this, and it makes the experience a lot better. Right? And so I think there's definitely this realization of the value of this data, but it's just now starting to happen as the industry trends towards these alternative financing approaches as well as using these different types of data sources. Following suit, of course, from some of these tech forward companies that initially started and kicked off a lot of this trend right now. So I think definitely like a technological advancement that's occurred from a lot of these companies that enable this to happen alongside a lot of the market shifts that are existing that happened over the past couple of years makes sense. So we now have a lively audience, Q and A with some follow up questions. So I'll combine two of them. One is what happens do you find that small business records aren't up to date? What happens if kind of the data is a little bit older? And that was the second question of how old can the company data be? I know Sri, you'd mentioned ideally real time, but there's the ideal case versus the practically, what are you seeing? So yeah, what's your take on data quality? Anyone can answer this.

Yeah, I can start and then she definitely curious to get your take of how you guys synthesize all this. I mean, on our side, one of the things that we really focus on at Rutter is again, like normalizing and structuring all of this data in a way that's able to be parsed out and understandable by everyone. And again, this is across any of our platforms, right? We have one data model for all of commerce and all of accounting that standardizes those workflows and so in terms of the question of kind of completeness of data, of course, I think that's definitely something that's interesting. And one thing again that we do at Rutter is really think about how do we enable our customers to capture this full financial picture of a business on our side? Structure this data across all of these different data types to make it super easy to actually parse and understand and normalize. So it's consistent and easy to actually be fed in into these underwriting models. Right? And so there's always going to be some of these gaps. And one thing that we've done, especially given that we've seen so many different businesses and all of these different edge cases, that we're really good at ensuring that we can catch some of these issues and keep kind of incredibly high data quality and integrity when we're delivering these responses to our customers.

And then from just a catchy's perspective, just given that it's something that we deal with day to day and it's very much a first real world problem that we face, I think that, as you said, Ben, it definitely is. Ideally, in the best case scenario that we have this data synced so we can capture that data without having to go through this back and forth process and kind of like following up. But we actually try to get our data with our customers with on like a quarterly basis. So we're essentially able to get quarterly data to understand whether or not they're sort of performing in the way that they intended and so that we'd be able to essentially provide that programmatic funding in the future as well. But we continue to monitor so that they're able to meet the ideal client performance level. So that, for example, they have at least six months of runway. They have projections of recurring revenue in the future.

Awesome. Cool. And I think we have a couple time for a couple more questions.

So I'll name two that I see here. The first is, as you think about financing cost, obviously these are very case by case dependent. But for a typical start up, can you help quantify what the benefits might be of going to someone like a cap chase versus a traditional lender, let's say a bank? Do you have a target rate that you try to be cheaper than or is it mostly about the speed? Can you talk about some of the benefits and compare contrast to traditional? Yeah, of course. So just like from a discount rate perspective, our discount rate typically is in single digits, so 5%. And as you mentioned, speed is another sort of factor where we'd be able to get you an offer within a day if you have all your data sources connected or shared versus typically venture debt might take up to four weeks even. We also don't take warrants. For those who might not be aware of warrants, warrants is essentially a debt that converts into equity.

And so a venture debt provider might offer or might have this constraint of a warrant that then turns into equity. And so if you're concerned about losing dilution, that is a concern that you should take into account versus with Capchase, we don't have warrants. And so I think those are the sort of immediate benefits. But then that's just from a financing perspective. And as I mentioned, we are continuing to partner with our companies longer down the path as well. And so as soon as you become a Capchase customer, you have a dedicated growth advisor that works with you. So that you're ensuring essentially it's like a personal financial advisor that is essentially ensuring that you're hitting your targets and you'd be able to access Capchase programmatically in the future.

We have these insights that we provide through our analytics product and other sort of recommendations that we provide in tandem with our growth advisors. And then as I mentioned before, you get to be a part of the captures community where similar to, for example, if you're in a VC portfolio, you have this community of other founders you can work with. That's something that we also provide where you'd be able to connect with other founders that are sort of in the similar SaaS world as you. And so I think that those are some of the benefits that perhaps venture debt doesn't provide in that same way. Awesome. And then last question, there's a question about it's kind of a scary time in the world. We're seeing layoffs, we're seeing kind of the spare market.

So how are you guys preparing each of the companies for the recession? How are you helping your customers navigate through that? Totally, I can kick this off. I would say one of the big things that we really think about at Rutter and our mission is to really empower businesses with the best financial experiences that they can possibly have. And so with that in mind and with the small businesses in mind, we really work with a lot of these financing companies to ensure that they're getting up and running smoothly. We can really collaborate with them very closely. We have an incredible relationship with all of our customers, both existing ones and even new ones that are coming in as well. And our model is to just have that one to one relationship, get our customers on, boarded, activated, ready to go, understand what they're building and how we can help them, whether it's with Rutter's product or just in general. And so I think building that relationship, especially in these times, is something that Rutter really takes seriously and it's something that especially it's core to our support team and our engineering team as well.

We want our customers to have the best experience and figure out the right way to kind of build these products, especially during these times. And I think our kind of main objective is, again, let's kind of figure out how we can build the best products so small businesses can thrive and at the same time, ensure that our customers, which are these financing companies that are building these experiences, can get through and really be successful over the coming years. Yeah, in sort of a very similar vein, we think about it very similarly. We want to ensure that our customers are running their programs and their payment operations really efficiently. So it's just understanding where else they're spending a lot of their time, what's taking away the brain calories, what are issues that they're facing with their payments to ensure that we're able to automate that and to be able to provide the tools and workflows to be able to manage that really efficiently and be the sort of advisor to companies in how they should build their payments program and sort of set it up for scale and set it up such that it can run in an automated fashion. So their focus on unit economics is taken care of as well. And they're not focused with a bunch of time and effort on just managing their payment products and ensure that they're running their businesses and what their core offerings in the best way that they can.

And I think just from a Capchase's perspective, it's just ensuring that our customers are set up in the right way so that they can continue to work with Capchase in the future. So we try to really be proactive and ensuring that, as I mentioned before, it's programmatic versus taking this out in a lump sum. And so with the expectation that the recession might be a long one or I don't there's just a lot of sort of uncertainty. I think that the best that we can help with our customers is just making sure that you are really prioritizing for ensuring that you have as much runway as possible. Amazing. And I think that'll be a great place to close off. So, once again, thank you, Ani, Prathik and Sri for for joining.

It's a great partnership between all of us. And thank you to everyone who took time out of their third Thursday afternoon to join us. Two logistics notes. We'll have this recording up online on our respective websites and you can expect a summary to follow as well. So thanks a ton. Please feel free to reach out if you have further questions to any of us. Thank you.

Thanks, everyone. Thanks, Ben, for hosting. Thank you, everyone. Thanks, everyone. Thanks, Ben. Awesome. Thank you.

Bye.

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