On the podcast: How non-dilutive financing could reshape VC

Miguel Fernandez, co-founder and CEO of Capchase, and Matt Burton, partner at QED Investors, discuss the growing number of options for founders to raise capital outside of traditional VC and venture debt. Plus, Hilary Wiek joins to share findings from the 2021 Sustainable Investment Survey (with more to be shared in our upcoming webinar).

Listen to all of Season 4 and subscribe to get future episodes of “In Visible Capital” on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at podcast@pitchbook.com.

Transcript

Marina: Hi, Miguel and Matt. Thanks for coming on the “In Visible Capital” podcast. I’m very excited to talk to you both today because Capchase and other offerings have been making a lot of waves in the venture capital world over the last year, year and a half. I want to understand more what it is that you do and how you offer alternative financing to founders. Capchase, I understand, provides non-dilutive capital to startups with predictable recurring revenue. Since launching last year, Capchase raised more than $470 million in debt and equity, and now commands a valuation of $175 million, and that’s according to PitchBook data.

The offering could be considered an alternative to venture debt and even possibly to venture capital. This is why, in addition to speaking to the founder of Capchase, Miguel, I have Matt Burton here, who led the company’s Series A investments from QED Investors. Miguel, let’s start with you. I understand that you were a student in an MBA program at Harvard Business School when you came up with the idea for Capchase, and you had so much interest in the company that you decided to drop out. Could you talk a little bit about that and how you came up with the idea of launching Capchase?

Miguel: Sure. […] Before HBS, I was working in a SaaS company with two co-founders. […] We took it from zero to a few million ARR. We just experiment in most of the pains that we’re trying to solve right now. How to manage cash in a fast-growing company. We were only using VC money as the only tool to grow. It was really, really important to get cash upfront from customers to grow and not tap so much into VC.

A lot of the problems [are what] we’re trying to solve right now for our customers. Then when we all left that company, we were going each to one different MBA program. We had always talked about launching something upon graduation. It had to be very deliberate about where to start [in] five years. Basically, we started to look into the intersection between what we knew and what we liked. We knew B2B, SaaS, really liked fintech.

We started looking into that, and after a few months of research and conversations with founders and potential customers, we came up with the idea in January 2020, and then we developed an NDP, we got our first couple of customers. Then we raised a pre-seed in the summer in July 2020, which was more or less when we finished our first year at the business school. Then we launched the product at the end of August last year, and it exploded. It became almost like an instant hit, and then we subsequently dropped out.

Marina: Explain, how does your funding work? How do you vet companies?

Miguel: Funding works through the process of enabling companies to tap into revenues before they actually come in through the door. Imagine a company with $10 million in annual recurring revenue. Instead of having to wait for 12 months to get those $10 million through the door, they can just connect to Capchase, and then they can access immediately with $3 to $6 or $7 million to invest into growth today. Then as those $10 million grow, they turn to $50 million ARR to $20 million ARR. The availability just [comes] in time without having to renegotiate and go through another long process to draw capital.

How the process looks like from first learning about Capchase until getting money in the bank, that can be as quick as a couple of days. I’m just going to process this. First, they have to log in, they have to connect the data in three clicks, which is literally as easy as logging in to Facebook three times, and then we get the data necessary to value the company, and the following day, they have an offer with what percentage of the ARR they can tap into and the rates.

Marina: You basically lend them based on their next 12 months ARR discounted to a certain rate, and then you give them all the money upfront, or is that released over the time period? How’s that structured?

Miguel: They can choose. We saw that making customers choose was great, but also there was a little bit of burden of choice. Sometimes it’s not clear how much money they should be taking as a business at any given time. Then we have developed tools to help them understand when they should be tapping into their financing. If you think about it, the right choice is not always to get all the cash upfront, especially if you’re not going to use it immediately, because then you end up paying for capital that is left unused. With Capchase, they can understand how much money they should be getting every month in the future.

Marina: What you’re offering is an alternative to venture debt. Then we’ll get to how this is possibly an alternative to venture capital. First, if you can explain how this is an alternative to venture debt and why this is a superior option for founders.

Miguel: Sure. Let’s go through the dimension in which we are superior to venture debt, [in] which Capchase is relevant to that. That is, the time and effort it takes to get started. Then the scalability. Then also, let’s talk a little bit about the return on investment. Venture debt usually takes between six to eight weeks to get set up. … It involves multiple processes of pitching the company, sharing data, and then sharing more data, and then going through another committee. It feels a lot like raising a round of equity, but it is even more intensive for funding. It’s a process that nobody likes.

Then the difference with Capchase is that you can do all that process in 24 hours, and you don’t have to pitch to anybody. It’s all purely data-driven. The firms are going to save tons of hours doing this. Then the next thing, there’s going to be scalability. If you go and raise a venture debt round, then you’re going to get, let’s say, between four to six months of MRR of availability, but then that’s all. Once you use that money, if you want to upsize the facility, then you need to go and do the whole process again. Imagine a company with $10 million ARR, they would get $2 or $3 million or $3 to $4 million of venture debt.

Then if a company grows to $20 million, they are still going to have the same $3 to $4 million, and then they will have to go and renegotiate and do the full process again at some [year-ends] and things like that. In that sense, with Capchase, the availability scales linearly with ARR. A company with $10 million ARR, they can tap into, let’s say, $6 million—double the size. The availability doubles in size as well without having to do anything or any documentation or anything at all. Then the last dimension that we talked about, the ROI, we ventured that you’re going to end up paying interest for three to five years, you’re paying opening fees, you’re paying warrants, which essentially is a little bit of dilution.

All in all, the total fees with respect to the capital deployed can end up being between 30% to 50% of the capital deployed. If you take $1 million in venture debt, between opening fees, the interest rates for the following five years, the war zone, you’re going to end up paying almost about half a million dollars in fees. With Capchase, given that you can deploy when you actually need, you can draw when you actually need to deploy the money, the ROI is perfectly timed. Then you end up paying only between 3% to 8% of the total capital deployed. It is way, way, way better in terms of ROI than any alternative.

Marina: The cost of capital is a lot lower with Capchase than would be with venture debt and possibly with venture capital, but that also depends on how quickly the company is growing, I imagine. Matt, it sounds like there was a lot of interest from venture capitalists and Capchase. You did their Series A, which was earlier this year. If you can tell me a little bit about why you decided to back this company and where you see the opportunity with this complete new alternative for financing, for startup financing.

Matt: First off, what drew me to the Capchase model was, before I joined QED as a partner, I was an entrepreneur myself and worked in the fintech space and actually looked at taking on venture debt multiple times when I ran a company called Orchard. I was aware of how much friction was there and just how difficult it was to work with those players in the market and how really inflexible they are. I don’t think I can stress it enough where it’s a black box process where you don’t know what’s going on, and it’s really hard to compare one venture term sheet, venture debt term sheet to another venture debt term sheet just because of the way that they write the contracts.

That was the first thing that just got me pretty excited about this idea of, hey, we can use data, and we can use modern systems to create a better user experience. We can time the capital to arrive just in time, just when the companies need it, not forcing it onto the bank schedule. Then the last piece was getting to spend time with Miguel and the team and realizing that culturally, we were very aligned on this [being] a big opportunity to build a massive business and really improve outcomes for founders, which I think is just an amazing opportunity. Those are some of the reasons that I was drawn to the opportunity and decided to join the journey.

Marina: I understand that venture has been growing just like every other aspect of venture capital lately. I’m also wondering if you think that this could be an alternative to venture capital itself.

Matt: Yes, I think it just depends on the business type, right? If you have a startup that has very predictable revenue, then this is going to be a great alternative to raising either other sorts of debt or even potentially equity. If the business is pre-revenue or doesn’t have network effects yet or it hasn’t proven out the business model and the reccurring nature of it, then I think you’re going to find that the venture capital is still going to be a much better option there.

The other last piece, too, is that when you’re raising money, it’s not always about the money. A lot of times companies are raising because they want to build out their board and they want to bring in some expertise or they want to build new products. I still think that there’s a role for the venture capital players to play. I think at QED, we stress that we try to be more than money when we join a cap table and join boards. I still think there’ll be a place for that, but I think especially for the later-stage VC money for these businesses that are doing $20, $30, $40, $50 million in revenue, there’s a path where they probably don’t need to raise money on the equity side to fund their growth on a go-forward basis. That’s exciting. That means the founder, as well as more of their company’s employees, will own more of the companies and they’ll be more capital-efficient in getting to IPO.

Marina: Right. That’s what I really meant is like this middle stage of development like round B through D—this is the area of the venture capital ecosystem that’s getting extremely competitive as-is. We have a lot of the Tiger Globals of the world coming in and offering a lot of capital at really high valuations. Now we have models like Capchase, that are saying you don’t even need to dilute your ownership. We can offer you a fairly inexpensive capital, and it’s structured as a loan. If I understand it correctly, you never take any equity from the companies which you lend to, right?

Miguel: Never.

Marina: That part of the market is seeing a lot of friction and a lot of competition all around. It’s going to be very interesting to see what is going to happen there. What is your prediction to mid-stage VCs? Are they seeing a lot more competition, and is that really an increasingly difficult market for them to participate in now?

Matt: Yes, I think they’re getting squeezed right now. I think it’s a very difficult place to be, and … in those mid-stage, I think there was, you’re already seeing the strategies change, right? SoftBank just backed a seed-stage company. If SoftBank is having to go to seed-stage, that just tells you what opportunities they’re feeling squeezed on in the middle, because that’s not their natural place to invest. I think Tiger recently did a series there.

Marina: They did a seed-stage as well at one point.

Matt: Exactly. They’ve done a seed-stage as well. These types of options are just pushing everyone to go earlier and earlier and earlier. I think the biggest impact that I see is just that because of this competition, there’s not as many friendly party rounds where lots of VCs will team up to invest in a company. It’s like people have sharper elbows because everyone’s trying to hit their ownership targets and because the companies are raising fewer rounds or raising them later in their cycle when they’re worth more.

The good part of that is that the founders and the teams own more of these companies. The bad part is the pie, the remaining piece that’s left for the VCs is smaller, leading all these guys, all the VCs to have to fight over that pie. While it might have been super easy for a traditional big fund like a Sequoia or even an upstart like Andreessen to get 20% in the past, it’s proving harder to get to ownership targets that people had. To the point you see some VCs say, “I don’t have ownership targets anymore as a result of this new environment.”

For me, it’s like, I’ve been in the startup world my entire career and I’ve never seen a time in my career that’s been so favorable to founders. You have all these options which are amazing. All your cost inputs have gone down from AWS and all the software tools have made it easier to run a business and […] all these amazing things. It’s like, for me, I just tell people this is the time to start businesses. This is a golden age of being a founder.

Marina: With mid-stage investors getting squeezed out so much, what can they do to stand out more with founders?

Matt: I honestly think that it’s a good trend that VCs have to be more clear about their value add besides money. I think that in my career, through multiple startups, I dealt with a lot of VCs that I really enjoyed the experience with and had a great time, but I also dealt with some VCs that literally wrote the check and then never responded to an email afterward. I think it’s actually healthy for the ecosystem. I think venture capital has not had enough competition over the past decade and hasn’t kept up with the level of innovation that’s going on within startups.

Just look at how much VCs complain about Y Combinator, right? You see that they’re—we’re—in a very privileged position. Maybe I only have this outlook because I’m a former operator, and I worked at QED where all of the partners are ex-operators, and we’ve all run businesses and been on the other side. Now that I’ve seen both sides, I think VC should have more competition. I think that’s good. That’s good and healthy.

Marina: Well, what do you think about Tiger? It seems that having them on the cap table is some sort of a marketing thing, like it used to be with SoftBank? It shows that you’re a strong company if Tiger wants to invest in you. Even though Tiger doesn’t add any value […] per se.

Matt: Yes, I think Tiger has been pretty clear that they’re like, “Look, we invest in companies that have great management teams and boards already in place, and because they’re already in place then I feel comfortable being able to invest at really high valuations where I’m not involved.” It’s almost the pre-IPO strategy. It’ll be interesting to see if Tiger is able to continue to be successful when they’re doing seed investments or [early] series there. My guess is that when some of those businesses go sideways and then the founders start looking to Tiger to help them to fix the businesses—this is startup, so it happens regularly—I think that that’s when you watching their strategy will be really interesting, right? I think Tiger writing a $300 million check into a very mature company—I think that’s a great sign. It means that that company is on a great path. Tiger writing a check into a seed-stage company—I’m not sure what that means anything from my perspective because they don’t have a track record of being good at that stage, and they don’t honestly have the bandwidth to help their companies.

Marina: Miguel or Matt, either, or jump in, if you can talk a little bit about what is your typical customer, what is their ARR, and are they primarily SaaS?

Miguel: We have companies from a few hundred thousand dollars of revenue to a few hundred million dollars of annual recurring revenue. We have public companies, we have [companies] in 11 different countries, so many different flavors, but all of them have one thing in common, which is that they have predictable revenues. They don’t have to purely be SaaS, but they have to have like a predictable revenue stream, which means that we can predict what’s the value of each additional customer over time. That customer needs to do repeat purchases with some predictable frequency.

It can be every day, it can be every week, every month, every quarter, or every year but SaaS naturally falls there, but as you said, it doesn’t have to be contractual revenue, as long as we can predict it, we can work together. In terms of our ideal sales customer, that is a company around probably late seeds to Series C, roughly, that’s where we find the bulk of our customers.

Marina: Are the majority of them venture-backed, or do some of them have other sources of financing, or are they bootstrapped?

Miguel: Yes, I would say it is around 80-20 between venture-backed and bootstrapped companies.

Marina: In this environment, something we just talked about with Matt, they have a lot of these companies that are growing and have predictable revenue, have their option of financing, and they come to you because they don’t want to get diluted further and also because they want, from what I understand, extend the time frame between funding rounds. Is that the majority of their impetus for taking capital from Capchase?

Miguel: Yes. Well, not only that, I think it’s more geared towards growth. These companies want to grow faster. It’s all about top line, so they want to grow faster, and they don’t want to necessarily have to raise money faster. They don’t want to go through subsequent equity runs from after the other, just because they want to sustain those growth rates. What they do is they just focus on growing the top line and then that growth converts into more ARR, so then they can go and convert that ARR into upfront financing to then reinvest into growth or more salespeople, acquisition. Then that investment leads to more ARR, and [they] do it again, and it’s like a cycle that accelerates more and more with time. It’s more about the growth than the runway. We would like to say that companies when they tap into Capchase, they go into offense mode, and they really focus on accelerating growth without using equity money, as opposed to just extending runway.

What we’re seeing is that the most successful companies that use Capchase start using Capchase right after a round because they understand how expensive it is to dilute themselves, and they have just sold a bunch of the company for a few million dollars. Then they start using Capchase right after there is a round, so that that equity money can go for much longer instead of 12 [to] 24 months. It can go for 40 [to] 60 months without [the] need to raise again.

Marina: Are they at the same time—I don’t know if you learn about this, but imagine in some cases you do, getting a lot of interest from venture capitalists who want to fund their next round, who are seeing that these companies are growing really fast and they want to be part of the action. Are they basically telling venture capitalists, “We found a new financing solution that works for us at our growth rate and we want to prolong as long as possible not taking VC money.”

Miguel: Well, sometimes that’s the case, but what’s mostly the case is that the VCs that are invested in those companies get very excited about how they have to [give less] … because if you think about it, VCs, just to maintain the position, they need to pour more and more money into the same companies. The existing VCs get very excited that these companies can grow faster without needing to raise money again. Then they start referring Capchase to other companies as well within their portfolio.

Marina: That’s a part of your flywheel. I’m wondering, Matt, do you think they learn about the company from having their own portfolio companies do really well by taking money from Capchase? Is there an exponential growth here because of that?

Matt: Yes, I think so. As Miguel just said, the investors who love Capchase the most are the early-stage investors because instead of having to rely on a SoftBank or a Tiger, these investors to come in and continue to fund their businesses, they can basically access debt on favorable terms and they can grow their way into it, using their own revenues to fund the growth. What you see is the early-stage investors like myself. I invest very early. Normally, I’m one of the first in institutional investors on a cap table for majority of my companies who love this option and recommend it to all of my companies and all of my friends who run companies.

Then you see the later-stage investors who are not as excited about this, because it means that there’s less opportunities for them to put capital to work. In an environment in which billions and billions and billions seem to be announced every day on new funds, there’s a lot of money chasing fewer opportunities. That’s the environment that we exist in at the moment because founders have all these great options and don’t have to take the big hundred-million-dollar check from one of the later-stage investors.

Marina: And I understand that there are two other very buzzy companies that are playing in the same area. One is Clearco, which was previously Clearbanc; another is Pipe. Miguel, can you explain what they do is different because I understand there are some differences between your business models.

Miguel: Yes, let me have a go at it. Let’s see. First of all, Clearco is focused on [a] totally different industry. They’re focused on ecommerce […] and then with Pipe, Matt, do you want to add anything?

Matt: Yes, I was just going to add. I’m very familiar with the Clearco model. We have another portfolio company called Wayflyer in that space as well, and as Miguel says, like underwriting an ecommerce business is just a totally different equation and a whole totally different process. You have to have a deep understanding of where is their inventory being stored? Where are they sourcing from? What are the margins? What is their return on Facebook ad spend? I think it’s [that] they’re both alternatives and they’re both providing companies with alternatives to venture debt, and as well as in some cases, venture capital, but I think it’s a very unique segment that’s different than where Capchase is headed today.

Marina: You don’t think that maybe at some point Clearco will say we’re doing something similar but for different industry, we will start going after Capchase’s customers and vice versa. In theory, Miguel, you can start developing expertise and running data that can go after the ecommerce customers that Clearco caters to, so they’re not necessarily, even though right now, they’re separate in theory, they can all start catering to the whole slew of customer companies that have some sort of a predictable revenue stream.

Matt: Yes. Well, ecommerce doesn’t really have the same predictable revenue streams, so you can’t use the same data set. You have to use a different data set, and, yes, you’re right like they could wake up and decide that they want to shift a core portion of their business, but it would be the equivalent of like, “Hey, I’m running startup A and now I want to build startup B inside under the same brand,” but there’s not much synergies that are going to apply between the two, from my experience. In the lending business—and QED has a lot of experience with lenders, going back to Nigel, who’s the co-founder of Capital One—it’s like, you really want to be world-class at the one thing that you do best, because as soon as you start to split your focus, a lot of times that’s when you end up getting negatively selected, where somebody else who actually has a better underwriting algorithm is taking all the best credits and leaving you with all of the not so great credits, and then all of a sudden when we have it go through a credit cycle, it basically very quickly can force you into bankruptcy. I’m a big [fan] of just like, be good, really, really world-class and amazing at one thing and not try to dilute and try to do a lot of things mediocre, is my view. But Miguel, what else would you add?

Miguel: I totally agree. If we decided to go into ecommerce, we probably have to start from scratch and develop expertise and go down the learning curve and all that effort. I think that you could leave us in the position with that bad mention where we would be negatively selected and if we apply all that effort to go in deeper and deeper into digital revenues, which is what we understand, and we’re good at, developing more products, better products, faster and so on. The return is just way higher. We focus on what we understand.

Marina: Yes. Okay. That makes sense. Well, what about Pipe? Pipe I understand is a marketplace, can you explain how they work compared to how you work?

Miguel: There’s only one little part that’s similar, which is the fact that they turned feature revenues into current funding, but then everything from the onboarding process to the actual dynamics to the actual product is different. In a marketplace, they have to, I think that they’re charging fees on both sides, so they’re charging a fee to, for the startup for just getting access to the marketplace and then for trading the marketplace and then a fee to the investors. Then there’s multiple fees there, and then they have to wait for marketplace dynamics to appear, which means that, a startup, if they want funding today, they have to get this in the marketplace and they have to wait for bids to happen.

That is an additional step in the process, and then the difference that we have with them is that even if we have capital for many different parties in the back end, we are just one single entity that can make a decision within it. We are second, basically whether we want to work with a company or not. Then that’s much more predictable. A company knows that they’re going to get the funding today and in the following months with us, and then also in terms of products, we are helping these companies on the long term, it’s not just one transaction to close a deal.

… We are working with them for months and years on end to get them from point A to point B always with the same party. We have tools to help them understand, how the company’s going to perform over the following months and then how much funding they should take over the following months, and how different changes and different metrics can affect all of that growth rates, runway valuation, and all of that. It’s more like a partnership, a long-term focus than just focus on one trade today.

Marina: Do you think we’ll have more offerings like Capchase going after other industries? I understand that SaaS and ecommerce are probably the lowest-hanging fruit here, but are there industries where you can theoretically replicate a similar model, I understand it won’t be maybe as robust because it’s not as predictable, but still for instance, could you do this for fintech?

Matt: This all falls in what we call our vertical bank thesis. Which is banking, if you go back 50 years ago, every bank catered to the local community. If you were a local bank in Michigan, you were probably catering towards the auto industry and manufacturing. If you were a local bank in Los Angeles, you were probably connected to the entertainment industry. Then over time, we lost that. Now technology is allowing us to rebuild the customization of products around specific needs. If you’re a SaaS founder, you have very specific needs.

Your revenues come in slowly over time. You have a cash flow issue. A debt product is actually very important to you. Being able to time your cash flows is very important.

If you’re an ecommerce business, your issue is financing, your marketing spend, and financing your inventory. Those are your two major issues that you’re kind dealing with. If you want to take it to a new category, like, let’s just do the entertainment industry because I just mentioned to that, there’s a lot of people who are working on building out vertical banking solutions for Instagram influencers or YouTube stars or any of these people.

They have a very unique set of needs. They have unique cash flows, and there’s not really any products that work for them in the same way. I think the future is that every major business type that has unique needs will have its own vertical fintech offering that specialized to it. There’s a lot, I mean there’s more examples we could do a whole 30 minutes just on this topic.

Marina: Who would you say are your biggest competitors?

Miguel: I think our biggest competitors are, as probably every company, every startup, the status quo. Just like not doing anything, like founders have never have access to alternative financing, so there’s like some education needed. If there are around 50,000 companies that we can be working with and we are in the thousands of customers, so there’s a lot of way to travel that until we working with all of them. Then I guess that the other—the incumbent here would be venture debt as we discuss at the beginning of the call where they have traditionally been the ones providing alternative financing to founders and now, there’s a different, a better new product out there, which is Capchase for sure.

Marina: Right. Matt, do you think this is going to turn into its own asset class, or will this be just a part of lending options that are available to startups and founders?

Matt: Asset classes tend to be like much more macro, high-up pieces, like you have mortgages in asset class and you have secured lending against stocks and others. I think what this is in its core, this is middle-market lending on the corporate side. Which is a subset of a larger commercial asset class. I think the big change that’s gone on here is that you just, you traditionally had a very manual bank process for originating these loans where the major venture debt players had built out relationships with the VCs. That as soon as around was be being done, they called up whoever their favorite venture debt provider was, and then because the referral had come through the BC who was leading the round, the founder took it seriously and went through the pain and the headaches to get it done.

I think, we’re inverting that, which is, we’re saying, “Hey, you don’t have to raise debt only when you’re raising your equity round, you can raise it at any time. You can re-underwrite yourself at any time and you can have access to these credit facilities in a very dynamic way.” For me, it’s just like, we’re not reinventing the product, we’re reinventing the process, the way that people access this, the cost of how they access it, taking away a lot of the friction, and that’s what’s exciting because I think that a lot of the more traditional old-school banking world process for anyone who’s had to deal with it is horrible. It’s hard to explain to somebody who hasn’t gone through it before to understand how painful those processes are.

Marina: Right, so the data-driven, AI-driven algorithms. This is what really is expediting the process for everyone, and it’s what’s attracting, sounds like, pretty fast revenue growth for you, Miguel. A lot of quick growth. I think the last time we talked, you and I, which was, I believe it was April, you said there were 400 customers and now you just said there were a thousand customers. I guess my very last question would be about what is going to happen to this type of offering in a down market?

Miguel: How would you classify a down market? Is it just like growing interest rates, like a recession?

Marina: Well, I think it’s when it’s harder for startups to get funding overall.

Matt: Yes. Real quick on my perspective, one of the big reasons that we were so excited about Capchase, and not as excited about Pipe was because what we’ve seen in the marketplace model is as soon as the conditions tighten, and there’s some downturn, your marketplace disappears. The buyers and sellers can’t clear. Whereas if you’re a direct lender, and it’s you the one who’s extending that credit, and you’ve done a good job of diversifying your funding sources on the backend, directly into Capchase, you can keep lending in the moment that your customers need you the most.

That’s been the whole thing, is like in order to survive cycles as a lender, you have to be resilient and be able to serve your customers, regardless of the economic conditions that exist on that side and so I think that that’s when we’ll see a lot of these newer companies really get tested is in these down markets, and did they really build their businesses in a way that has a strong foundation that they can go through these cycles, because that’s where the model matters a lot. … What is your relationship with your customers, and how embedded are you in their day-to-day, and have you prepared for those scenarios, because it’s unfortunately like lending is a cyclical business. That’s just how it is.

Marina: Is there anything else you would like to add that I didn’t ask you?

Matt: The other big trend that you didn’t bring up today was just the rise of the crypto space where you see a lot of startups raise a seed round, and then because they do a token offering, they never raise again. That’s just another thing that’s putting pressure on the VCs. … Solana is great, which is in the news right now, there was a seed round 18 months ago. I didn’t look at the latest valuation—it’s in the billions of dollars, and like Solana will never raise again. It’s just forcing the VCs to go earlier to have conviction, to be clear about their value-add, and all of these macro trends are changing the landscape in a really interesting way.

Marina: Excellent. Thank you, everyone. This was very informative.

In this episode

Miguel Fernandez is the co-founder and CEO of Capchase, a provider of non-dilutive growth capital for recurring-revenue companies. Prior to founding Capchase, Miguel was a student at Harvard Business School and played a pivotal role in the growth of Geoblink, a location intelligence company based in Madrid. Miguel is also the founder of HeyDey Brands and was a strategy consultant for Monitor Deloitte. Originally from Madrid, he has also lived in Munich and London.

Matt Burton is a partner at QED Investors. He has spent his career creating technologies and businesses that have transformed industries. In digital advertising he helped build, scale and optimize the Internet’s top advertising exchanges at Google, Admeld and LiveRail, which collectively handled trillions of transactions. As employee No. 7 at AdMeld (which was acquired by Google for $400 million in 2011), Matt played a central role in all aspects of the company, from product development to sales to operations. After Google, Burton joined LiveRail (which was acquired by Facebook for $500 million in 2014) where he continued to focus on programmatic exchanges.

After transforming online advertising, Matt changed his focused to lending. In 2013, he founded Orchard Platform, where he and his co-founders combined their expertise in auction dynamics and bidding behaviors, extensive knowledge in credit risk and underwriting analytics to reimagine the future of credit. Orchard was sold to Kabbage in April 2018. Kabbage was sold to Amex in 2020.