hero image

Unprepared Ep 49 - How to Get a Capital to Scale an Ecommerce Brand with Aleksander Koenig

 

Timestamps

  • [00:00] - Sponsor: Rewind

  • [00:40] - Intro
  • [01:27] - Getting capital to scale your brand
  • [03:17] - Why is the capital solution expensive? 
  • [05:00] - Traditional route of getting capital
  • [07:35] - How Settle help brands
  • [09:05] - Summary of getting a capital 
  • [09:34] - Where to find Aleksander

    Resources

     Keypoints

    • Aleksander was the head of a credit firm for 4 years and got to know how Ecommerce brands work and understand their economics.
    • Compared to straight capital, Settle is an account payable platform. Basically, they pay your vendors through the platform to make it easy for you. 
    • Settle connects with your bank account so they can do payments on your behalf.
    • Settle can also record the transactions to lessen the work for businesses, especially during month/year-end. This gives rich data about your company. 
    • Settle does not put cash into your hands, they're just paying the vendors which makes it a less risky option.
    • Settle is looking if you have a reputable business to give you a more effective capital. 
    • Business owners often raise venture capital which takes a long time and is costly一you're giving ownership of your company. 
    • Capital becomes costly because they are underwriting based on your revenue data. For instance, Shopify capital can see your sales and approves you but they don't get the full picture of your company. 
    • Capital solutions are expensive because they form a financial product that’s called a merchant cash advance. It takes 20 to 40 percent of your daily revenue as repayment until you pay the loan and the fees.
    • Traditional routes of getting capital are a great option since they are cheaper, but this is hard to get. 
    • Not every business can wait for the 30-day process, especially for growing companies. 
    • Establishing a relationship with your bank early is a good idea. 
    • Getting to know Ecommerce brands and understand their economics and nature, taking a very novel brush underwriting with these companies is a way to help the company get capital. 

        Transcript

        Chase Clymer   

        Unprepared isn't scripted or edited. There are no redos and when we screw up, it's going live. This works for our show, but it is no way to run your Ecommerce business. 

        Our partner Rewind is here to help. They will help you backup your Shopify store with automated backups of your most important data. Rewind should be the first app you install on your store to protect it from human error misbehaving apps or collaborators gone bad. 

        It's like having your very own magic undo button. It's trusted by over 70,000 retailers from side hustles to the biggest online stores like Gymshark, Gatorade and Movement Watches. 

        Best of all, if you reply to any of their welcome series mentioned in Unprepared, you can get your first month free. 

        Alright everybody, welcome back to another episode Unprepared. Happy New Year to everyone though this is probably not going to come out for like two or three weeks. 

        Today, Welcoming to the show...Today we're gonna talk about capital for Ecommerce brands and how to scale and we're welcoming Alek from Settle

        Welcome. How you doin'?

        Aleksander Koenig   

        Good. How are you doing?

        Chase Clymer  

        I'm doing fantastic just yelling at my nice camera, as you pointed out. 

        So yeah, I think that this is going to be a topic that a lot of people will have questions about and I don't really want to jump in with my not so deep knowledge field.

        So I'm definitely gonna pass it over to you now and let you give people a crash course in the options of how to get capital to scale an e-commerce brand? And then I'll probably have a few follow up questions.

        Aleksander Koenig    

        Yeah, absolutely. There's definitely a lot of options out there. I think first, look at what a lot of brands do is raise venture capital. It's not easy to raise as the people have tried to know. 

        It takes a long time. But I think the most important part is that it's expensive. You know, you're giving up ownership in your company.

        So for doing things, for providing capital that might be repeatable like sales, it might not make too much sense. It's probably better suited for growing employees, building technology, and things of that nature. 

        Then you have other options like Stripe capital, Shopify capital, you know, if you're integrated to those platforms it is fairly easy to get. But do look at the cost of that capital. It's quite expensive. So just make sure you know what you're getting yourself into. 

        And then you have other players like Clearbank, Wayflyer and things of that nature.

        And then we started this company because of that reason in November of last year, just trying to find an easier way, less friction, a little cheaper cost of capital to give working capital to these brands.

        So we launched in June, with just a few companies. And since then it's really been growing like a weed mostly through word of mouth. 

        So I'm very appreciative of the companies that we work with. So we're currently working with 160 brands and it's ramping quickly.

        And I think the one thing that differentiates us than just straight capital is that we're an accounts payable platform.

        So we'll pay your vendors through the platform to make it easy for you. And then if you want to get capital from that, then we're effectively financing your payables. So we'll pay your vendor and you can pay us back, you know, 30 to 90 days later.

        Chase Clymer   

        Awesome. So let's talk about some of those more traditional models out there. 

        The first you said was getting through like the venture route, and you said that was expensive.

        And then you also said, going through  the Shopify capital, Stripe capital, there's PayPal capital, every financing anything that deals with banking has their own capital solution these days.

        And you said they're expensive. Beak that down and make a really dumb for me to understand, like, why is that expensive money?

        Aleksander Koenig  

        Yeah, the main reason I think is because they're underwriting based on your revenue data. So let's say Shopify, for example, they see your sales. 

        So they're effectively just looking at your sales and saying, okay, we'll approve you. But they don't really understand the full picture of the company. A company's more than revenue, it's the whole cost structure of it. 

        So because they don't understand the full risk of the company, they have to charge a high APR. And they're really going after these smaller brands, because what I think it's smart to do, because, you know, they can help the smaller brands, and that's gonna help Shopify in the long run. 

        So that's one of the main reasons it's expensive and they form it in this financial product that's called a merchant cash advance. 

        So they're basically going to take 20 to 40% of your daily revenue as repayment until you repay the loan and the fees.

        So when you really look at the APR, those loans in the high 20s, low 30s that could be good for an early brand, but if you have a repeatable process, then you don't really want to give up a big portion of your revenue to these companies. 

        Chase Clymer 

        I mean, 20 to 30% in fees is outrageous. You know, even if you're talking about, well, I guess this even lead to my next question is: what about just going the traditional route and just go into your local bank or, whoever you're banking with?

        Aleksander Koenig

        Definitely a great option, given the cost of capital because they have a bunch of deposits they're trying to put to work.

        So usually the costs of those loans will be cheap, but it's very hard to get. And if you do get it, it's probably a 30 day process at best. So that could put you in a bind, especially, you know, when you're trying to spend time on growing your company. 

        You don't really want to be spending 30 days to get a loan. But I think the main issue there is they don't really understand how to underwrite Ecommerce companies. So they'll mostly look at how much cash you have in your bank. 

        And you know, when you have these Ecommerce companies and even make inventory purchases, and then turn that into revenue, you're gonna have cash flow gaps, so you definitely, unless you have just a lot of money in your bank, it's gonna be really hard to get.

        So that's why a lot of companies until they really had like 100 million in revenue, that's not really an option for them. 

        Chase Clymer  

        I mean, I asked the question I kinda knew the answer on purpose. But I know, so just did you take anything out of this? I want you to take this to heart is, you need to establish a relationship with your bank early when you don't need money. 

        Because of exactly what Alek just said there, it could take up to 30 days, it doesn't matter what it is just get a line of credit established, let them know what you're up to. 

        But another thing that I see all the time, not even just Ecommerce brands, which are young small businesses in general, is it takes like up to two years for them literally looking at your tax records for them to be like, oh okay, we trust that you're a real business. 

        If you're, you know, just getting started out 30, 45 days in, I think the best you can hope for is a credit card with no interest, which is not financial advice at all. 

        But I mean, those have high interest rates, when you fail to deliver on that type of thing. But like, if you're talking about actual cheap money, which is a concept that definitely comes into play further down the business roadmap as you will or the longevity of your company, it's establishing how to grow with cheap money, I'm having a relationship started with a local bank is definitely a really good idea. 

        But if that's not an option, let's talk about the third or fourth option, I guess, that was on the table, you know, venture capital bad option, you're just literally giving up a percentage of your business. Going with some of those, like more hard money, lenders is what I would compare them to, you know, the chapters by capital and stuff like that. 

        It's expensive, but you know, it is a little bit quicker. Where do you guys come into play? I know, you said a little bit on it earlier, but I just want to dive a bit more in there, like, how do you help solve that problem? And how can you give people access to capital for cheaper without losing your shirt? I mean, you guys are in this business as well, you gotta make some money.

        Aleksander Koenig 

        Yeah, absolutely. So we're usually working with brands that are doing, like 500K and monthly revenue. So you know, they've proved out, they're able to turn inventory and sales with a healthy gross margin. So the one of the unique things for us is because we're the accounts payable platform, we're connecting with your bank accounts, so we can facilitate payments on your behalf. 

        And we're connecting with your accounting software. So we record these transactions into there, just to lessen the work for you at month end or year end. So that gives us a rich data source to underwrite from, so we get a really good picture of the company. And the other good thing is because we're not putting cash into your hands, we're just paying your vendors, there's less risk there as well. 

        So, you know, my background is I used to be the head of credit at a firm for four years. So I just really got to know these Ecommerce brands that we work with, and understand their economics and things of that nature. 

        So we're just taking a very novel brush underwriting these companies that like, we're not looking at your bank balance to see if you're going to repay us. So we're really just looking at, okay, you have a repeatable business here, we're making a bet on you that, you know, by giving you this effectively more capital, you'll be able to scale and you know, create more revenue and thus become more profitable.

        Chase Clymer   

        Cool. So talking about you guys being that in between that accounts receivable, and you paying their vendors for them. So essentially, you're helping them get more inventory, so they can then sell it again. And that makes it safer for you guys as a company to be able to offer cheaper money.

        Aleksander Koenig  

        100% That's exactly right.

        Chase Clymer  

        Awesome. So if any of this resonates with anybody watching this show, or listening to it, how do they get ahold of you? What are the next steps? What should I do?

        Aleksander Koenig   

        Yeah. Easiest Way probably just got our website settle.co. Hopefully, we'll have a.com pretty soon. But you know, in due time. There's a button there scheduled demo, but also just feel free to reach out to me. Alek, alek@settle.co very responsive, and we'll be in touch.

        Chase Clymer  

        Cool. Thank you so much. 

        Aleksander Koenig  

        All right. Thank you. Have a good one.