Debt funding without drama | Velocity

Mar 06, 2023

We love watching Shark Tank! It’s a delicious mix of emotional drama and suspense- you are always on the edge of your seat. Will they get funded or not?!

But the reality is that in today’s world, startups are no longer dependent on investors to survive and succeed. One can now fund their growing startup through the route of revenue-based financing.

Revenue-based financing works like a business loan, except that repayment of the loan is not via a fixed EMI but rather as a percentage of the revenue for a fixed period of time.

Velocity aims to become the easiest and fastest way for new-age businesses to raise growth capital.

Abhiroop has worn the hat of a VC for a long time. He shares his insights from his experience as a serial entrepreneur and VC.

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Some of the things he shared:-

Timing fundraisers without requirements
Core product offering
Equity is not a good use if deployed for inventory and marketing
Future roadmap

Additional readings:-

Read the text version of the episode here:

[00:00:00] Abhiroop Medhekar: Hi everyone. My name is Abhiroop. I am the founder and CEO of Velocity. It's a pleasure to be here and to talk to all of you about my journey.

[00:00:06] So I did have an offer to join Google at the end of my under graduation. After IIT I could've joined Google. I would've had a very different life. I'll probably be somewhere in the West coast right now, writing code and like building teams and all of that, building products. But I think I just gave CAT just like that.

[00:01:39] I didn't even prepare for it much, got into it, and then that was a choice to be made. After IIM, I I joined McKinsey and Company as a management consultant. So it's a top tier consulting firm in India. I joined them in 2010, and I was there from 2010 to 2015 for close to five years.

[00:01:55] Akshay Datt: So that, that must have been like five years crash course on solving business problems and solving problems of large businesses.

[00:02:03] Abhiroop Medhekar: Absolutely. I didn't join thinking that I'll end up spending five years there. As I was joining, I thought that I'll maybe spend two years, get some like work experience also and then after that, I'll take the plunge. But I think McKenzie was great because you again got to work with really smart people.

[00:02:15] You got to work on problems which are large and important for the organizations you're working with. And it also trains you very well in terms of building a structured approach towards problem solving, right?

[00:02:24] Akshay Datt: So this is where your first stint of entrepreneurship happened, right? So tell me the, the thought process of how you thought through quitting a job and, what was the idea you identified and what was your go-to market journey like?

[00:02:37] Abhiroop Medhekar: Sure. So see, I think the thought process behind quitting the job was, or do you I mean if you really fast forward five years, is this what you want to do? Or are there like alternatives that you want to explore? The decision to leave McKenzie came up like that.

[00:02:48] Now what to do next. That was basically a more organic process, so two big ,questions before starting up. Anything is what do you want to work on and who do you want to build it with, right? And the initial team as well as the core idea or the area that you want to work on. So I was like very methodical about the area, per se, right?

[00:03:04] I had a, I had been maintaining a long list of problem statements that I have. I have myself felt and that I think I've been maintaining since college days. Statements, just maintain that list. So I opened up that list, , it was a list of some, I think 58 or 60 ideas, something like that . So *laughs* that was a backup list that I been maintaining.

[00:03:21] And this the company that I eventually ended up starting was a company called Task Bob, aggregating local services providers, and then delivering a very high quality and reliable home service to customers. Pretty similar to Urban Clap, which most of the people would've heard of now. So that was the company which we started in early 2015.

[00:03:35] And that was coming from a very personal pain point also, right? That, we, I was always working in fairly hectic jobs. You do have a lot of housework, which sort of gets deprioritized. You don't really have time for that. And it's, it was a pain to deal with the working professionals who were not really showing up on time, who need multiple follow ups, who would haggle with you for price and all of that, right?

[00:03:53] So basically that was a pain point, and I think the team was also great. Another close friend from undergrad was also looking to start at that time. And then that's when we decided to join hands, and then we started task work.

[00:04:02] Akshay Datt: Okay. Did you like what was your go-to market? Did you want to raise funds first or did you want to build an MVP and get traction and then go out and raise funds?

[00:04:11] Did you want to do one specific geographical area? Tell me about that whole journey.

[00:04:16] Abhiroop Medhekar: Sure thing. So see, I think the business that I'm talking about was a hyper local business, right? It's about you deliver customer delight when people get a high quality service at a time when they need, right?

[00:04:25] And hence, you need to build concentration at a hyper local level. We had in fact started with the Powai locality of Mumbai which is I think a 10 square kilometer kind of an area, right? And that was the initial market. We had built an app for that. We had done a lot of local publicity to ensure that multiple households in that locality knew of us.

[00:04:40] And that was the initial proof of concept that we had built even before we raised the first round. So basically we had a functioning app in place. We had a bunch of service providers. We had that initial traction going, right? And that's when we went out in the market to raise our first round of capital, which was a seed round of close to a million dollars.

[00:04:55] Akshay Datt: Okay. What traction did you have before you raised, like how many aggregators? How many?

[00:04:59] Abhiroop Medhekar: So I think in terms of the number of service providers, we would be working with some 15 or 20 service providers in the Powai micro locality. And I think the number of orders per day would be 25 or 30 per day.

[00:05:10] Yeah.

[00:05:10] Akshay Datt: Okay. And uh, they book through the app, pay through the app?

[00:05:13] Abhiroop Medhekar: So the initial version of the app was also an mvp. We didn't have payments built in. It was a very simple app through which people could just choose a time slot and make a booking, and then the service provider would show up initially, the transaction would happen outside of the app. Over time we integrated payment gateway and other things but the initial proof of content was just a booking app, which we publicized. And then we had this initial traction going.

[00:05:31] Akshay Datt: The hard problem here would have been two, I think one would be pricing that how do you ensure transparent pricing for the customer? I think that's one of the biggest complaints as a customer. You never know what you'll end up getting charged.

[00:05:44] Abhiroop Medhekar: Yeah.

[00:05:45] Akshay Datt: And the service provider would have valid reasons for changing the price because when you see some problem, you might decide to because you have to diagnose and then price it and, so that upfront, transparent pricing would be hard to achieve.

[00:05:57] Second would be how do you get your service providers to be committed, turn up on time, things like that. Then third is how do you keep the payment flowing through you and they don't bypass you? All those problems which Uber would've faced in those early years. So I'd love to learn how you fixed these issues.

[00:06:15] Abhiroop Medhekar: Well, Lots of challenges, so I think so overall lots of learnings from our experience building that company also. But I think absolutely agree with the kind of problem statements that you're talking about it. And I think even by building the company, we really used to look up to Uber as the gold class of how to build a scalable hyperlocal kind of a company, on demand services, hyper local services were booming at that time, and I think Uber had solved a lot of problems which we were talking about.

[00:06:36] Akshay Datt: But uh, Urban Clap also launched around the same time, right? Like around you only.

[00:06:39] Abhiroop Medhekar: Urban Clap launched I think one month before us.

[00:06:42] Akshay Datt: Okay. And I think there was one or two more also, no, like House Joys or something.

[00:06:46] Abhiroop Medhekar: there were 48 more. There were like a total of 50 companies, which got started in 2015 in the same space. Out of those 50, I think close to a dozen got funded, which are all competing for the same slice of the pie. And I think that was that was part of the problem in terms of what didn't work out eventually. Right? Too much competition was like causing a lot of issues

[00:07:02] Akshay Datt: So yeah, tell me about the challenges and how you fixed those challenges.

[00:07:06] Abhiroop Medhekar: See, I think obviously the objective of the company was to ensure that the customers get a very high quality and reliable and transparently priced kind of an experience that requires you to to have a good amount of influence on the supply side.

[00:07:19] It can't be a loose model that you just pass on the lead and then people will coordinate and manage themselves.

[00:07:23] Akshay Datt: it can't be a Just Dial model,

[00:07:25] Abhiroop Medhekar: It can't be a Just Dial model because that was a problem actually, that, you can pass on the lead, but the customer experience would still be broken.

[00:07:30] We were clear that we need to build a full stack kind of a in which we are trying to control the entire cycle end to end, which had a pricing component which had a reliability or an operations kind of a component, and which also had a big component around supplier training and supplier management or an ongoing basis, What we again figured was that it's all a function of network density. If you pick, if for example, you've taken the approach that we will launch pan Mumbai on day one, right? And we obviously won't have order volume, but we have, we would have supplier spread across all the areas then it was difficult to ensure a good quality customer experience in terms of timeliness, et cetera.

[00:08:00] It would also have been difficult to ensure that the suppliers are getting a good number of orders per day, right? Because you get to exercise influence on them when you are actually making a meaningful dent on their livelihood. If an electrician is getting five orders per day from you, that's three x more than what he typically gets.

[00:08:14] And then you can tell him that, boss, you have to show up on time. I'm going to keep track of this. You have to ensure that the transaction gets completed through the app. You have to care about your ratings from the customer side and all of that, right? So that focus on building density at a hyper local level was very inherent to our approach.

[00:08:29] And I think that worked well. So the entire scale up also that we did after that in Mumbai, it was also locality by locality initially in Peri, then in Andheri West, then in Bandra, then South Bombay, et cetera.

[00:08:38] Akshay Datt: What all services were you offering in your initial phase?

[00:08:41] Abhiroop Medhekar: It was a lot of these blue collared services. So electrician, carpenter, plumber we had home cleaning, we had appliance repair. We eventually launched car cleaning also. And then we also launched a sub-brand for beauty services for women, which is called Myra.

[00:08:54] Akshay Datt: Yeah when you would launch a new locality, then you would first what, go to the local electrical good shops and the plumbing, the hardware stores, because generally you find plumbers there only na, like near a hardware store.

[00:09:05] Abhiroop Medhekar: To, first of all, for the supply side, you have to first go to hyper locality figure out who are the good servicemen in that level. I would also talk to customers and Watchmen, for example, would be a source of leads for us because watchmen would maintain, who are the electricians or Plumbers who are actually visiting into a society, right. then based upon that, we'll talk to those people. We'll, I'll tell them we are a new platform, et cetera, and we'll aggregate the supply side first. Then we'll do more demand generation initiatives, which should again, be more hyper locality based. We'll do like weekend camps in societies. We would do activations in malls and all of that to ensure that more people in that locality get to know of Task Bob.

[00:09:35] Like once the funding came in, then how did the trajectory change? What was the, like by the time you covered whole of Mumbai, what number of supply side providers, number of customers transactions?

[00:09:46] Akshay Datt: I think both the numbers increase between 10 to 20 times. We scaled to almost the entire of Mumbai.

[00:09:52] Abhiroop Medhekar: We had, I think 300 odd suppliers on the platform. And I think the order volume used to be close to 800 or 1000 per day. That's the kind of order volume that we reached Mumbai itself. So yeah.

[00:10:02] Akshay Datt: So 15 you lost right? When was the seed round?

[00:10:06] The $2 million,

[00:10:07] Abhiroop Medhekar: so seed round was in early 15, seed round happened in the month of March or April around that time.

[00:10:13] Akshay Datt: And then and when did you cover full of Mumbai?

[00:10:15] Abhiroop Medhekar: So we covered full of Mumbai by the end of the year. So it was a period of rapid growth for us. 2015 was the year of expansion. And I think by end of 2015, early 2016, we had the entire Mumbai covered. O- obviously, while we had it covered, we had a lot of problems also to solve.

[00:10:29] We had our tech platform was not fully developed yet. Our operations processes were not set. All of these problems that you talk about, about the supplier churn happening around competition, around CACs not being sustainable, all of that. So I think that was the phase that we were dealing with towards the end of 2015, early 2016.

[00:10:45] Akshay Datt: Okay. Okay. How did you fix CAC? Or how did you fix churn or I'd love to learn these fixes that you.

[00:10:51] Abhiroop Medhekar: So see, I think honestly we're not able to fix it completely. I would say we did learn that it's a business of acquiring customer once, but then trying to retain the customers across multiple orders and multiple services, right?

[00:11:02] So you, you do need to have a bunch of high frequency services, which will increase your customer LTV because our CACs used to be around, even optimized CACs, used to be around 500 or 600 rupees per transacting customer. And then that would break even on the third transaction. Typically, if the transacted does three times, that's when our take rate would be good enough to justify that CAC right?

[00:11:19] Akshay Datt: Okay. So something like an electrician is not high velocity, but a beauty service is high velocity?

[00:11:24] Abhiroop Medhekar: Beauty service is high velocity. Absolutely.

[00:11:26] Akshay Datt: Ah, okay.

[00:11:27] Abhiroop Medhekar: So basically that therefore became a parameter to decide that which services should we get into based on the frequency of usage.

[00:11:32] Akshay Datt: But you were able to earn 503 transactions. That's sounds high to me.

[00:11:36] Abhiroop Medhekar: No. So the average ticket size used to be close to 500 rupees, and our take rate used to be 25, 30%. So that would,

[00:11:43] Akshay Datt: yeah, and 500 for what a plumbing job or a electrical job or stuff like,

[00:11:47] Abhiroop Medhekar: so it was a mix of low ticket size and high ticket size items. Electrician would be low ticket size, typically a carpenter would be high ticket size. Home cleaning would be high ticket size. Beauty would be high ticket size on every, I think 500 600 used to be the weighted average order value for transaction.

[00:12:00] Akshay Datt: And how did you solve churn?

[00:12:01] Abhiroop Medhekar: Churn at a customer level or?

[00:12:02] Akshay Datt: For the vendors on a supply side?

[00:12:05] Abhiroop Medhekar: So vendors, yaar, see, I think we, we always were clear that we are not going to scale the vendor side until, so it was broadly in line with the scale up ride. We had a very hyperlocal approach in which we would pick up a locality, pick up suppliers in that area. And then the target for the teams used to be to ensure that these vendors are getting at least three orders per day on an average.

[00:12:23] So basically supply chain for us was not very high. It was not really a big problem to be solved because our approach always was to not spray and prey, but to try and handpick the best suppliers from that locality and then ensure that they are dependent upon your platform for their day-to-day work.

[00:12:37] Akshay Datt: Okay. Okay. About customer churn, was that a problem?

[00:12:39] Abhiroop Medhekar: Customer churn was a problem uh, but customer churn was also a bit unknown to us because we were not very clear , and I don't believe there is any way to find out that, are the customers not transacting with you because they don't have a requirement at all, or because they don't like a service and therefore they're churn, right?

[00:12:53] Because the frequency of usage for some of these things is unpredictable. You don't really know that, is there an electrical carpenter plumbing issue out there or not, right? So we were initially quite worried about it in terms of how to think about it. Should we look at churn at a monthly level, at a quarterly level, at a half yearly level?

[00:13:08] What is the right frequency? Or which if you don't get any transaction, then that should be booked as churn. But I think churn eventually on the customer side, it became clear to us, also became a function of competition. Initially we were the early one in Mumbai, urban Clap had started in Delhi NCR region as they also expanded to Mumbai, and as a bunch of other options also came in, people obviously started giving deep discounts that you get first service free. You get like one pay, one free and things like that. And that obviously causes churn on the customer side and that also increases your CAC. So I think that became the challenge because of the intensive funded competition in that space.

[00:13:39] Akshay Datt: So how long did that 2 million last you?

[00:13:41] Abhiroop Medhekar: So it was 1 million that we had raised. And then we had raised two and a half million after that also. So this we raised in early 2016. And the burn was sort of going up primarily because of marketing and a bit because of team also. So I think that was a phase. It lasted us till the end of 2016, early 2017. Huh and it was it was a time when other players were investing heavily in burning to grow. Urban clap in the same period had at least $25 million. And it was like 10 x more capital than we had. And if you remember, 2016 was also a time in which this entire hyper local market went through a down phase.

[00:14:12] In generalizing VC funding was slow in 2016. So the exuberance of 2015 got turned in in 20 16, 20 17. And hence we found it very difficult to raise our next round which is what eventually led to the company not working out.

[00:14:25] Akshay Datt: Because obviously investors would've thought that when you have uh, hyper funded competitors, then the chance of

[00:14:31] Abhiroop Medhekar: exactly.

[00:14:32] That becomes a barrier for sure. I think, overall also, so this hyper-local services model has not really worked in US. Earlier when we started, there were a few companies like Homejoy and I think there was one more company called Handy which were there but Homejoy shutdown in early 2016.

[00:14:46] And basically that had further impact on investors, which draw a lot of comfort from like global success stories, right? That was not a parallel available in 2016. And hence, even the investors who were on the fence, they backed out.

[00:14:57] Akshay Datt: What is the experience of shutting down a startup like?

[00:15:00] Abhiroop Medhekar: it was, I think, the most stressful phase of my life. You don't plan for it when you're building a company. You try to get the best people by selling a grand vision, by talking about how it can be like a great outcome for all of them. And then it was a particularly painful time when we realize that, we don't really have enough, and hence this could be a possibility that we have to plan for. But I think we, we managed it really well. we were clear about what is the point at which we have to pull the plug, right? And you do need to ensure that you are planning for a bunch of you are keeping a buffer to plan for a bunch of payments, right?

[00:15:30] You have to clear all your vendor bills. You have to ensure that your employees are getting severance for at least two or three months of notice period so that they can look for a job, and at the same time, you should also work actively to outplace them by opening up your network. And I think we did all of that very well.

[00:15:43] we were, I think, clear that beyond this point, if we're not able to raise, then we have to activate plan B. And I think that's what we did. And I think for that reason, we are still on, on very strong terms with everyone who worked with us in in fact at Velocity, two of my co-founders are people who were a part of my top team at Task Bob earlier, and we do have a lot of people who've joined us in the team as well.

[00:15:59] Akshay Datt: How did you manage to be detached? Most founders will being an entrepreneur, I think one of the requirements is that you have to be insanely optimistic. You have to believe even when everything says , so what how did you manage to take such a dispassionate decision that if by this date I don't raise funds, then we need to wind it up, otherwise people will be left getting unpaid.

[00:16:23] Abhiroop Medhekar: Nahi, you're right in saying, I think that's a good question that, you know as a founder, you do need to be bit irrationally optimistic, right? And that, that is typically anti two decisions like this because you do believe that you'll figure something out. So we had been trying for quite a while, right?

[00:16:37] I think I think one key learning from that period is that we should not really time fundraisers with our requirements. We should time it based upon when the market is good versus not. So 2016 was an exceptionally bad time to be raising for this idea particularly when you had a competitor which had 10 times more.

[00:16:50] You had a business model in which CACs were increasing, the repeats were uncertain and all of that, right? So I think it was across multiple months that it transpired we also wanted to be fair to employees, so we were always clear that this is going to be a decision making framework.

[00:17:02] We need to ensure that by the time our bank balance reduces to x uh, which is a good point to basically ensure that you're taking care of all the liabilities. You need to be very clear about that. And we had taken that call much earlier than being at that time. It happened over a period of time and hence when the time came, it was not like yet (hindi).

[00:17:18] It was like, ki we have already built this framework let's implement it. So Yeah. so then Task Bob we we winded down on the business. We told our customers a lot of customer love poured in which was like very heartening to see because people had really started liking the service a lot which we did not know earlier.

[00:17:32] Right. It was a, typically you only hear the escalations from the customer. You only heard, ki yaar this is not working. This guy didn't show up on time. This guy charged me et cetera. And typically you'd be actually dealing with that. But when we told people that we are not going to be operational anymore, there was a lot of love which came in which was great.

[00:17:46] We outplaced people using our network. A lot of them got good out placement roles, which they were happy with. We took some break in between. I took I think two or three months off to just figure out what next. What to plan for, et cetera. And I think that's when SAIF Partners, which is a top VC fund in the country they were looking to expand their team in India.

[00:18:04] They had not been expanding their team for a few years. And they were actively looking and they had reached out. I've always had a lot of respect for SAIF as a fund. I'd interacted with them earlier also. And I think when that worked out, that seemed like an interesting new thing to explore.

[00:18:16] Akshay Datt: So you were wearing the proper VC hat where startup founders would be pitching to you and you would figure out, should I invest or not?

[00:18:23] Abhiroop Medhekar: Yeah, absolutely. So I think the entire cycle from building a point of view on the space, trying to talk to multiple companies who are building something in that space, figuring out which one is the best team, which one has the best traction, building the investment case, and then also being involved with the company after you make the investment.

[00:18:40] That was a role which I was playing. I was primarily focused on the FinTech and the financial services space at SAIF, so for close to two years, everything, FinTech was me and my team's responsibility. So yeah.

[00:18:49] Akshay Datt: What were some of those interesting startups that you backed, like the more memorable ones and why did you back them?

[00:18:56] Abhiroop Medhekar: See, I think overall this SMB financing was a big area of interest for us, right? It is by far a big need gap in India. I think the market for SMB financing in terms of the untapped need is much bigger in India compared to any other global market also, right? It is some $200 billion market opportunity, which is untapped right now, right?

[00:19:13] And I think people had been approaching that market from multiple sites. We already had a few investments in that space, so we were already investors in capital float, for example. But we did understand like that market very well, and I think that was a good particular area of interest for me also.

[00:19:25] So one of the memorable investments was a company called Zip Loan, which is Delhi based startup which primarily caters to the bottom of the pyramid, SMBs essentially people who would have monthly revenue of less than 5 lakhs. That's the kind of SMBs that you would be getting into.

[00:19:37] Akshay Datt: Like this would be like traders and retail traders?

[00:19:40] Abhiroop Medhekar: Absolutely. You basically go to a local market, traders there. That's the kind of companies that you would be funding. And they had built a new data bank approach to, to identify them. So they had built a very interesting bank based approach to figure out the credit risk here and to build their underwriting models based upon that.

[00:19:54] That was interesting about the company that they had build their own underwriting model by leveraging the banking data, which these people have.

[00:19:59] Akshay Datt: And what did you learn about who gets funded? A lot of people think that you need to be good at networking to get funded. And people have a lot of conceptions, which may or may not be true about who gets funded or how you get funded. What was your learning?

[00:20:13] Abhiroop Medhekar: Who gets funded?

[00:20:14] See even right now I work with a lot of companies and founders that we work with on their equity fundraising also, and I'd be glad to share what I tell them. So I think what most

[00:20:22] people don't realize about fundraising is that it's a game of building. It's a game of matching demand and supply, right?

[00:20:28] You, You have to ensure that you are creating enough demand for investment in your company. You should not expect that it'll happen automatically or you should not approach it sequentially. I think a big part of your focus should be to ensure that you are running a very tight process. You're talking to multiple investors in parallel, you create excitement across at least a few of them, and you have a few offers on the table. That's what will lead to a good outcome for you . If you take a very sequential approach that you are just pitching to one investor, they run a two month long process, you hear a no, then you go to investor number two, then they run a three month process, you hear a no, people will just keep you hanging because there is no pressure for them to take a call immediately.

[00:21:00] I think that pressure, or what they call FOMO right, fear of missing out, that is what is a big big factor, which leads to successful fundraising outcomes. And I think founders can do a few things to, to create that fomo, which obviously includes a large market, a good team, good traction but trying to be conscious about it and trying to run your fundraising process in a certain way will have a clear impact on you having better outcomes.

[00:21:23] Akshay Datt: Did the idea for velocity come because you understood that lending space deeply and like SMB lending space deeply, and you saw a gap here and you thought that there is no one who's come to me to pitch this, so let me build it myself. Was that how it happened?

[00:21:38] Abhiroop Medhekar: So it was definitely one of the factors, I think. So it didn't happen immediately. I left SAIF towards the end of 2019 towards the end of 2018, actually, 20 17, 18 I was at SAIF, and then end of 20 18, I had left it. Then I think 2019 was a gap year for me in which I was, I was clear that investing is not something which I would be excited about in the long term.

[00:21:56] I had already tasted blood once building my own company, and I think that was something which I really liked. I think the dynamism of building a company, the closeness that you have to solving a problem right, and actually seeing the impact of your work, that's not a kick that you get if you are an investor.

[00:22:10] Uh, You're further away from all the action. , and that was a clear realization, which I had. So I left that, and in 2019 I was clear that FinTech is an area which I understand well. And I had some three, four high level ideas that I wanted to test out. And the idea which became Velocity was also one of them.

[00:22:23] But I think it was more of a process in which I gave it time. I didn't really jump into an idea this time. I wanted to ensure that I'm doing proper research. I'm talking to customers, I'm building a point of view on the market, on existing players. I'm able to test out with some small experiments.

[00:22:35] And I think that was 2019 for me in which I went through four ideas, which were different ideas and then eventually finalized this one, and then 2020 is when Velocity finally started.

[00:22:44] Akshay Datt: Okay. What were those ideas like did you execute also, or they were just like planning stages?

[00:22:50] Abhiroop Medhekar: I did execute also a fair bit of them, and I think while it was FinTech heavy, it was not FinTech only.

[00:22:55] I've been a generalist in my life right, I've been a consultant. I've been a B school guy before that, et cetera, right? And I think the curse of being a generalist Akshay is that you believe that you can do anything. So you *laughs* believe you have an idea in EdTech, you have an idea in health tech, okay.

[00:23:08] You understand FinTech well, you understand financial services, so you would've some ideas there also but then the list of ideas fell across the board, right? So I think on the FinTech side, one of the ideas that, that we tried out was to start with a simple invoicing app. Because I understood the bottom of the Pyramid SMB problems well, and we wanted to ensure that obviously mobile penetration was rising.

[00:23:25] And we thought that, you can build a very simple invoicing app, which will be the primary invoicing app they use to, to send their invoices. You will capture their data, and then eventually you'll monetize it based upon giving out financial support loans, et cetera.

[00:23:37] Akshay Datt: Okay. Which again, there are multiple startups going that route.

[00:23:40] There was like Flobiz.

[00:23:42] Abhiroop Medhekar: They were just getting started, so et cetera was just getting started. We'd also launched an app which might be still out there, which is an app called BIMO Bills On Mobile, B-I-M-O. So it was an app that we'd launched, which, which got good traction initially. You were able to easily get downloads and DAUs in that business.

[00:23:57] But then eventually we decided to not pursue it.

[00:23:59] Akshay Datt: like what was the flaw you saw in it? Like you must have seen some

[00:24:02] Abhiroop Medhekar: so we are clear that this is the business that we are going to pick, which is going to be the next 10 years of our life, right? So I think we are clear that it has to be a business which has a clear business model which makes money and which can become a really valuable company over time.

[00:24:14] And I think we are very clear that the monetization through of an app like this can happen only through credit if you're able to give financing based upon that, right? We were a little concerned about the depth of data that we were able to capture, right? We did have people who would use us sporadically for generating a couple of invoices, but a business which is, for example, doing 10 lakhs of revenue every month, they would generate invoices worth 50,000 or 60,000 on the app.

[00:24:36] That data is not good enough for me to figure out what the qualified credit limit of the company, right? In fact, we also went to a step further there. We, as you mentioned, there were a bunch of other apps which are more mature than us, and I think an app, which was like, I think eight or 10 times bigger than us, was an app called GimBooks, which is still there.

[00:24:52] So they're a company based in Raipur and they have built an app which is being used by a lot of a lot of these small SMBs.

[00:24:58] Akshay Datt: And this is like GST invoicing, that is the focus there, Or just invoicing?

[00:25:02] Abhiroop Medhekar: GST invoicing. GST invoicing. Absolutely. GST invoicing. So basically to test out the credit hypothesis, we said that, what we are doing will probably have the depth of data that these guys have if we keep on doing this well for two years, right?

[00:25:13] So let's go and do a credit pilot with them. Let's basically try to see if we can give like, credit to the customers that they're working with. Uh, Let's partner with them and explore that, right? So we actually flew down to Raipur, we partnered with them. We figured out their customer base. We tried to figure out if we can use their data to give some financing.

[00:25:27] And again, it was the same gap there. That data was not deep enough for us to be able to extend financing in a in a less risky kind of a way, right? So that's what gave us the belief that, you know, it is not something which is going to be very easy to monetize. And I think that's a good segue into what eventually became velocity also because this company at that time, GimBooks it it was a company which was bootstrapped completely.

[00:25:47] It was a company which was generating healthy revenue. Beause they were charging people for the invoicing app. And they had a very clear and transparent online business model. They had a CAC of thousand rupees. They had a like subscription value of 2000 rupees. And they wanted capital for marketing.

[00:26:00] And we said that, there are a lot of these digital first companies which are getting started which are being run by new age founders, which are getting a lot of their payments online. Which have revenues that you can transparently track completely digitally, right? And that's a segment which I knew banks don't really understand the segment.

[00:26:14] And VCs will potentially look for very large outcomes kind of a thing, which only they'll be able to back, right?

[00:26:20] Akshay Datt: Yeah. Yeah. They'll only back if they think this will become a unicorn.

[00:26:23] Abhiroop Medhekar: Absolutely. So then GimBooks actually became our first customer. So as we started Velocity, GimBooks became the customer that we had extended some financing to, which they used for marketing, grew the business and paid us back as a percentage of their revenues, which their a core business model.

[00:26:35] Akshay Datt: How did you fund GimBooks? Like you, your own capital or you did an NBFC tie up or ?

[00:26:40] Abhiroop Medhekar: So we did an NBFC tie up, to do the financing business you have to be an NBFC.

[00:26:44] And so we partnered with NBFCs. Uh, Because of my time as an investor, I had a lot of NBFC s whose founders were good friends now, and I think one of those founders became the first partner that we had on the NBFC side, and I think that's how the business started. Yeah.

[00:26:57] Akshay Datt: What is the the product here? So in Task Bob we had an app and which was an aggregator product.

[00:27:02] So what is the product at Velocity?

[00:27:04] Abhiroop Medhekar: So the product at Velocity is basically revenue-based financing. That's the first product that we started with. So the gap that we identified was that a lot of these businesses, were being run by new age and ambitious founders, right? They're looking for growth.

[00:27:15] But the biggest constraint to their growth was access to capital. Most of these people who are building their businesses in a bootstrap kind of a fashion. And that is obviously a constraint source because you do have some savings, you have some money from friends and family but you are not really able to grow the business as fast as you would like.

[00:27:28] And hence that was a big problem statement that we started with, that can we bridge this gap of access to capital for them, which will help them grow? So the core product that we offer is a product called revenue-based financing, in which the customer can just securely connect their digital data with the Velocity platform.

[00:27:42] We have built our credit models, which will give them an answer very quickly what is the kind of financing we can provide to you? What's the kind of fees that we'll charge on top of that, and what is the revenue share that you agree with? So I think one innovation here is that, instead of a typical term loan product, which comes with a fixed EMI every month, We agree on a revenue share.

[00:27:58] So we keep track of their monthly revenues through our API integrations and we keep on taking a percentage share of their revenues until the time they have paid us back. The principle and the fixed fee so I can take an example to, to explain this product because it's a it's a new idea per say, right?

[00:28:11] What I'll talk about an average case, let's say we're talking about an e-commerce company let's say a D2C brand, right? Which is selling these t-shirts on their own website and on Amazon, So to a business like that, we will build integrations into Shopify to understand their website performance.

[00:28:23] And we have integrations into Amazon to understand their marketplace sales also. And let's say we extend a financing of 50 lakhs to them we'll typically charge a 6% fixed fee uh, which basically means that we'll deploy 50 lakhs and we'll collect back a total of 53 lakhs . That three is basically our revenue on the transaction.

[00:28:37] And the way we collect that 53 lakhs back is through a fixed revenue share that we'll have. If you agree on a 10% revenue share, that means that we'll keep on taking 10% of their revenues until the time they have paid us back a total of 53 lakhs. That's when the financing is completely repaid and they can get more financing from us after that.

[00:28:51] Akshay Datt: Your profitability depends on your ability to predict that payback period then?

[00:28:57] Abhiroop Medhekar: That's definitely one of the core factors.

[00:28:59] Akshay Datt: Be- because the NBFC would not do it like this, right? They would charge you like per month. So if you are getting paid back in 30 months instead of 25 months, what you anticipated.

[00:29:09] So that five month interest that is eating away your profit?

[00:29:12] Abhiroop Medhekar: No, No, absolutely. So I think see the good thing about revenue-based financing, I think that's a feature and not a bug is that I believe that financial services has a problem of incentive alignment. When you take a loan from a bank, the bank doesn't really care about your business or your growth, a bank is going to get a fixed EMI irrespective of whether your business is doing well or not, right? And if you're not able to pay it well because your business is not doing well, then you'll be a defaulter, then they'll attach your personal assets and all of that, right? I think the fundamental premise of revenue-based financing is that the financier also has a skin in the game to support your growth.

[00:29:40] If these customers grow, it directly benefits me. I have a commercial incentive to support their growth through my partnerships, through my capital, through a bunch of other analytics support that we provide, et cetera. But that leads to a very strong reinforcing cycle because I firstly identify companies which are poised for growth.

[00:29:56] That's a core part of my analysis also, I fund their growth by funding their marketing and inventory, and I also basically support their growth across multiple revenues. And finally, I also benefit from their growth. And based upon that, I can offer them more capital to, to keep on supporting a growing company.

[00:30:10] Akshay Datt: Okay. So first I wanna understand now, how good are you at predicting the payback period? Because that'll determine your profitability. So how good are you there? Are you like 10 on 10 in terms of a self rating? Are you like seven on 10? Are you five on 10? How would you rate yourself in that?

[00:30:24] Abhiroop Medhekar: I think we are seven on 10 right now, Akshay. So which is still good, which basically means that more often than not we are right, and then at a portfolio level it is all good. But we do have, I think 20, 25% of the companies which don't really end up growing as projected. Uh, That is more than made up for the companies who do end up growing as planned and beyond that also.

[00:30:41] But you do have 20, 25% of the companies, which, which don't really grow as we plan. And that is perfectly fine. So I think we believe that businesses fundamentally will go through ups and downs. You'll have seasonalities, you'll have uncertainties, you'll have stockouts and all of that which will have a short term impact on our business.

[00:30:54] But we provide for that. We don't really charge people extra for that. And we absorb that risk overall.

[00:30:59] Akshay Datt: Yeah. Because it's a portfolio risk for you. So like in some places you'll make extra profit. In some places it'll be a loss, but then they'll make up. Okay. And What does that algorithm, which does the prediction, what does that do?

[00:31:11] Like what all data does it look at and how did you build that intelligence to predict? Did you have to bring in an external, it got built to over time or?

[00:31:19] Abhiroop Medhekar: Yeah, absolutely. So I think it got built to over time. I think initially when we started, we were fairly slow in terms of acquiring new customers.

[00:31:25] We wanted to work more deeply with a few customers and build our data and trade models from there, right? We spent the initial four to six months going deep into the data of e-commerce, for example to understand seasonalities, to understand sector wise nuances, to understand the correlation between marketing and top line growth and things like that.

[00:31:41] And all of those are factors that we have built into our models. That was the first version of the model, which we have constantly been iterating, improving based upon new data, based upon new information. And I think that has been improving a lot. So I think initially when we started, we would've been five on 10.

[00:31:55] Now I would say we are seven on 10, but we are working towards ensuring that we get to eight or nine on 10 by the end of this year.

[00:32:01] Akshay Datt: But tell me what all does the algorithm look at? Like how, if you're comfortable sharing I would love to learn how that prediction happens and, like I'm a little bit of a geek in that sense.

[00:32:10] Abhiroop Medhekar: Sure. So I think it's I'll talk about one example and explain that. So let's talk about an e-commerce business now, an e-commerce business would have certain percentage of repeating customers based upon the category that they have, right? So if it's a furniture category, the repeat will be very low.

[00:32:23] If it's a personal care category or healthcare supplements category, the the repeat rate will be high. So one part of the model is that

[00:32:29] Akshay Datt: so high velocity used versus infrequent use.

[00:32:32] Abhiroop Medhekar: Haan, okay. So basically that based upon the historical repeat rate, based upon the category wise, repeat behavior, you can model what is the kind of repeat customer base that would be transacting with you over the, course of the next few months.

[00:32:43] Right, that is one part of the modeling. uh, the second part of the modeling is on new customer acquisition which is basically to figure out the correlation between your marketing spend and the kind of customer base that you're able to acquire based upon that. And we are able to build a point of view based upon that because we fund their marketing.

[00:32:56] we know that, we are, are giving you 20 lakh rupees for marketing. Historically we have seen that you're operating at a marketing ROAS of let's say 2.5 x or three x, and hence we believe that

[00:33:04] Akshay Datt: ROAS is return on ad spend.

[00:33:06] Abhiroop Medhekar: Absolutely. So every dollar that you're spending in marketing, what's the kind of revenue that you're able to generate?

[00:33:11] Based upon historical data, we are able to estimate and model that. Also, obviously we'll build in some buffers. We'll try to bake in some other assumptions as well. But that is the second core part of the modeling exercise. The third part is marketplace sales. In case, for example, we have brand selling on marketplaces like Amazon, and they have over time built a good organic presence there.

[00:33:28] They have a lot of reviews. Their products are showing on top of the search pages, et cetera. That will lead to some inflow of new customers, irrespective of your marketing spend also. And I think that's the third big section to model and build for. You take that and you also overlay seasonality On top of that build a point of view that, you know, you, you do have Apple as a business will peak during your festive season.

[00:33:48] And then it'll sort of fall down after that. You do understand sector by sector seasonalities. And then based upon that you, you have some semblance of what the outcomes would look like.

[00:33:55] Akshay Datt: And how does the this data, which you need to read would reside across many different sources, right? Like maybe they would have a Google AdWords account where you would get data of ad spend. Maybe they would have a Shopify account for organic sales and Amazon seller consoles. How do you collate so much data and get it into a format where you're able to do analysis on it?

[00:34:18] Abhiroop Medhekar: So see, that's a difficult part of building this business in my opinion, because I think unlike the first segment, which I talked about it, which is the bottom of the pyramid SMB segment, the invoicing app segment, which you talked about, this segment is extremely data rich. This is one segment where you can build a near complete point of view on the health of the business, primarily based upon the digital data that you're able to capture, right?

[00:34:38] But building these platform by platform integration that is completely distributed across so many different platforms right now, that's what is time consuming. And I think that's where a good part of our tech team is also focused on to basically figure out the platforms, figure out integrations figure out how to treat the data consistently across platforms.

[00:34:54] What is net sales on Shopify? Could be total sales on Amazon and things like that, right? And based upon that, building a very granular and and clear view of the business of the company based upon that data, that's a problem, which I think our tech team has solved.

[00:35:06] Akshay Datt: How have you so for example, Amazon sales, how does that happen?

[00:35:09] Does Amazon do an API? Does it support API integration for you to get that data? Or how do you get that?

[00:35:15] Abhiroop Medhekar: So Amazon does provide API, which we can access with customers consent and think that's a part of our approach.

[00:35:20] So when anyone wants to apply for financing with us, we have built a dashboard in which people can just come and people came with a few clicks, they can give us access to a few online data sources that we look at uh, which is basically Amazon, Shopify, Google, Facebook, Woocommerce, et cetera.

[00:35:34] and then build a quantitative based upon that.

[00:35:35] Akshay Datt: So the Google ads console also, you can like the customer can give you an API integration. So you can read how much is the ad spend and the click through rates and all of that data.

[00:35:46] Abhiroop Medhekar: Exactly. Exactly.

[00:35:47] Akshay Datt: Okay. Okay. So how much like how much do you need to spend on tech?

[00:35:50] Is tech a very heavy expense for you? Because a lot of lending companies for them, it's more about customer acquisition and underwriting and those kind of things, which are heavy expenses for them. And of course the cost of funds. What is it like for you?

[00:36:04] Abhiroop Medhekar: So tech is a big area of focus for us. And I think it's both for our current needs as well as on a bunch of things that we are working on for future. So I think on the current part of the business, which is revenue-based financing, let's talk about that first. So see, I strongly believe that, and I've seen a lot of FinTech journeys, and I think particularly when it comes to SMB financing a lot of the process is manual.

[00:36:23] Because you don't really have digital data, you cannot really build logics based upon that. A lot of underwriting is still based upon touch and feel, right? You have to go to a shop, figure out whether there is inventory or not, figure out whether customers are walking in or not, and build your comfort based upon that.

[00:36:37] I think that is what is very different for the digital first business segment that we're going after, because you do have a lot of data, which is entirely digital based upon which you can build a digital and near complete point of view on their business. So I strongly believe that if underwriting can be automated, it can be automated for this segment first.

[00:36:53] And I think that's what we are working towards. So the entire data model, entire entire logic layer on top of that can be automated, which will deliver a very smooth and fast experience to our customers. ALTI, we are able to do the end-to-end process within four days. But you want to bring it down to four hours.

[00:37:07] And I think that is possible here because experience should be that they're just connecting these sources. We have the logic layer on top of that and they get an instant offer. They can plan for deployment immediately after that. So that's the kind of journey which I think we're investing in, which we believe we'll get to.

[00:37:19] Akshay Datt: What happens in these four days when somebody signs up in the platform? What is happening at the backend in those four days?

[00:37:24] Abhiroop Medhekar: See, I think once we get the the data access the first part of the logic is already automated. We do have a system generated output, which comes in based upon certain conditions that we have, based upon certain rules that we have.

[00:37:36] This is the kind of risk that we see, and hence the case needs to be analyzed further or not that call can be taken based upon entirely the system data.

[00:37:43] Akshay Datt: So there's like a level one screening that is automated?

[00:37:46] Abhiroop Medhekar: Level one screening is being done by the tech right now, right? The level two right now, because we do provide substantial financing, we ALTI provides financing up to four crores per customer.

[00:37:54] So we do have a manual underwriter also who would basically look at the system deviations, who would slice and dice the data in more detail to understand more nuances. Who would then prepare a list of questions and we'll do one personal discussion also with the customer, typically over a Zoom call.

[00:38:07] In that call, which is like a 45 minute call, we clarify all the open questions and it's a scheduling of that call, which takes more time, than the analysis part of it. But after the call is done, we finalize the offer and we propose the offer to the customer. And then the customer will negotiate a little bit and then we can close it after that and we can plan for deployment.

[00:38:24] Who's that?

[00:38:24] Akshay Datt: This manual underwriter seems like a, a very niche talent because you need somebody who understands credit and understands digital marketing and understands e-commerce. This would not be something you can hire, right? You'd probably need to create.

[00:38:40] Abhiroop Medhekar: So we do train people also on our underwriting method. But I was the first underwriter in the company, right? So I was the one who was involved in the first hundred cases that we did, I was the one who was basically building the models, building the approach, defining the parameters, and I think there, having that VC lens also helps a little bit because our our underwriting process is a mix of what a traditional debt provider will look for and also what a VC looks for in terms of your marketplace performance, your marketing performance, your CTRs and things like that, right?

[00:39:09] So our underwriting approach is a mix of the two worlds that way.

[00:39:12] Akshay Datt: So do you hire, say an IIT grad who's able to do analytics and then train him to be an underwriter? Or do you have say a CA who understands finance and train him to be an underwriter? Like how do you build these underwriters?

[00:39:24] Abhiroop Medhekar: Until now, I think the latter approach has worked better for us.

[00:39:26] Akshay Datt: Like a CA or a someone from finance?

[00:39:29] Abhiroop Medhekar: Haan, we basically get CAs who also have exposure to new age businesses. So they do understand that, this is new and different from what they might have been doing earlier. And they're open to that.

[00:39:37] But then I think that part can be trained over the course of the next few months, right? It's more difficult to train a non-finance guy on the traditional finance metrics, which are also important.

[00:39:45] Akshay Datt: Let's talk about from GimBooks to where you are today in terms of how many startups have you onboarded? What kind of disbursement do you do?

[00:39:53] Abhiroop Medhekar: So yeah we onboarded GimBooks as the first customer in May, 2020. And I think initially we were fairly slow and conservative, right? We're trying to build a point of view on what kind of businesses are there in the digital first world. What are the requirements? What is their data? Let's try to build a point of view on that, right?

[00:40:08] So if you got that, there are multiple sub-segments within the broader gamut of online businesses. You obviously have mobile apps, which was a starting point for us with GimBooks. But you could have B2B SaaS companies, you could have mobile gaming companies. You would've companies, you would've e-commerce and D2C firms as well.

[00:40:23] And initially, I think, for the first four months, we were working with companies across the entire gamut right? And we would work with them. We would spend a lot of time to understand their business, understand the data sources that they have, and build models based upon that. What we figured based upon that were two things.

[00:40:38] First, we understood that the concept of revenue-based financing applies to all of them uniformly, right? Because finally what we need is a transparent way to track their revenues. If we can track their revenues, then we can structure a product around it, Uh, The second thing that we learned was that you do require that the credit model and your data integrations are built sub segment by segment.

[00:40:56] The kind of data sources that you would need for a Amazon and a Shopify business would be very different from a mobile app, would be very different from a B2B SaaS company, et cetera. And hence, we decided that we should pick up one segment and build like a much better product experience for that. And that segment turned out to be D 2 C and e-commerce.

[00:41:10] It was obviously post Covid period, so the segment was booming. It's already deep enough in India. There are already close to one lakh companies in the segment. And we figured that, we can build the integrations out there and we can create a very fast and seamless experience, at least for this segment to start with. That call, we had taken around, I think November, December, 2020. And I think for the last one and a half years or so, we have been completely focused on the segment of D 2 C and e-commerce. We have a portfolio of over 350 companies now. All of these are e-commerce businesses in India. And to work with these 350 companies, we would've evaluated close to 1000 companies. We would've spoken to close to 2000 2500 companies.

[00:41:47] That's the kind of sales funnel that we have already, and we are actively growing and growing very fast every month.

[00:41:52] Akshay Datt: Give me some names, like some of the bigger names.

[00:41:55] Abhiroop Medhekar: So some of the bigger names, for example, power Gummies is a healthcare supplements provider. They are these gummies based products. Then we work with a brand called Itsybitsy, which is like a craft chain here in Bangalore only.

[00:42:05] Then we work with a personal care brand called Bellavita. We work with an apparel brand called Berry Lush. So see a lot of these businesses are operating at sizable scale, right? They could be doing a few crores of revenues every month. And what I did not realize also coming from the VC world was that a vast majority of these businesses are actually bootstrapped, they are being built and run in a bootstrapped fashion.

[00:42:27] The founder and their friends and family might have put some money, and then they're organically scaling it beyond that, That's, I think 99% of the market that we have mapped out is essentially bootstrapped founders, and they are the ones actually constrained for capital, and they are the ones who are actually much more capital efficient also than the VC funded startups that you see out there, right?

[00:42:45] So that's a segment that we are primarily focused on.

[00:42:47] Akshay Datt: Asking on behalf of a D 2 C founder, when is the right time to look at revenue-based financing as opposed to going to VCs for fundraising? As a founder, how would one decide, okay, for this stage, for this requirement of money, I should do revenue based financing versus VC funding?

[00:43:06] Abhiroop Medhekar: I have had the benefit of looking at multiple D 2 C founders journeys from very close quarters, right? See, I would split the founders journey into three phases, in my opinion, First is what I would call the initial phase or the pre-product market fit phase. They're figuring out their product, they're figuring out their marketing, it'll not be very efficient.

[00:43:22] They're figuring out their supplier cycles in terms of what is the kind of credit period, are these the right suppliers or not? Is this the right packaging or not, et cetera. That's an initial trial, in another kind of a period, right? That is best done either with your bootstrapped capital, or you can probably raise some angel money for that to essentially allow you to build a product, figure out marketing, figure out your working capital cycles and have that playbook in place, right?

[00:43:42] That can take anywhere from initial one year to a few years also based upon the segment that you're focused on. But once you have that repeatable playbook, sorted that's when what D2C founders need is that they need to add more fuel to the fire. They have marketing, which is working for every dollar being spent in marketing they're generating positive ROAS. They have their working capital cycles, which have become more predictable over time, and hence they need capital for marketing and inventory. That I think is the ideal time for revenue waste financing to come in because we understand the historical cycles and we can fund their growth based upon their projected and future revenues.

[00:44:12] We also believe that equity is in fact not a good use if it is deployed for the inventory and marketing purposes because it's a very predictable part of your business. Now, it is not really risky, so you should not dilute equity, which is more risk capital, which is more expensive in the longer term towards end users like this.

[00:44:27] Akshay Datt: What about the size of companies that you fund? For example, say if you look at the mattress space, you have Wake Fit and Sleepy Cat probably Sleepy Cat is 10 20% of Wake Fit size. Wake fit, I believe is like 500 to thousand CR top line in that range. Like which of these two companies would be a sweeter spot for you to fund?

[00:44:45] Abhiroop Medhekar: So we work with companies which would be doing as low as like 10 lakhs of monthly revenue. And at the upper end we do work with companies which are doing 15, 20 crores of monthly revenue also. So that's a zone over time what we have seen in this business Akshay is that we are working with larger and larger players because the stability of revenue is much higher.

[00:45:02] And the use case and the need gap is still there, right? We do work with companies, which could be at an early stage. They're doing only 10 lakhs monthly. But at the upper end, technically there at our end, there is no upper limit. But a bigger company may not need the capital that we have to offer because they could have equity funding available or something else.

[00:45:18] And I think that's the reason why at the upper end, we work with companies that are doing 15, 20 crores monthly .

[00:45:21] Akshay Datt: Maybe at the bigger end they would also have access to funding from banks and like those would be lower costs for them? I'm guessing.

[00:45:28] Abhiroop Medhekar: That's also true. That's also true. And to just talk about the bank also as a potential source of capital.

[00:45:33] I think the good part there is that obviously cost of capital is lower than what we can offer as of now. But the bad part is that it's also cumbersome. It is offline. It is a lot of the traditional way of dealing with customers, which is what we are trying to change. So we believe that the new age founders don't really want, don't really have the patience for that.

[00:45:49] And hence it's not that we see a lot of banks sticking away our business that way.

[00:45:54] Akshay Datt: How do you source customers? You said you source about 3000 leads till date. How did you do that? That's, I was not even aware there are 3000 D 2 C companies in India, .

[00:46:03] Abhiroop Medhekar: Oh. It's been growing like crazy. So it was a revelation for me also. But Okay. So let's only look at the independently owned e-commerce stores in India, which is basically people who are selling some products on Shopify and Woocommerce, right? So as of today, there are close to one lakh such businesses in India, which are based in India and selling some product on their own Shopify or Woocommerce stores.

[00:46:22] And that number by the way, increased three x in the last two years two years back when they started the business, that number was 35,000, that is triple, so that is like 70% year on year growth. So that segment is just booming. The way we we reach out to them is through a mix of inbound and outbound.

[00:46:34] Over time, as the brand has been built, people are talking about velocity as a good scalable source of capital for them. We are getting a good inbound flow of leads also. Initially when we started it was primarily outbound. We were we have built our own scoring engine based upon which we prioritize which companies to reach out to, which could be like at a phase where they can use our capital.

[00:46:52] And then we have sales team, which actively reaches out to them. Additionally, We also do a lot of ecosystem partnerships. A D2C brand for example, would be working with some payment gateway. They'll be working with some shipment service provider. They'll be working with some marketing agencies, and we partner with all of them.

[00:47:04] That's one more source of leads for us.

[00:47:05] Akshay Datt: Okay. Why do you need to raise funds? I believe you just raised I think a $20 million round. Yeah. So what is the need for fundraise? Because you are, you're not lending from your books, right? Like you're,

[00:47:17] Abhiroop Medhekar: correct. Correct.

[00:47:18] Akshay Datt: Essentially lending through NBFC partners. So what is the need for funds?

[00:47:23] Abhiroop Medhekar: I also reflect upon my journey at Task Bob, right? We were, I think at Task Bob we were first time founders. We were very idealistic. But, you should raise capital only when you really have the need. Otherwise you should not raise. We had that mandate. We had a lot of good VCs who are knocking on our door. But we had raised like 1.2 million and we thought like, build, at the right time we'll go out and raise. But the market sentiment turned within a year, right? And I think that was the reason why even though we think at our end things were going as per plan, we were improving, we're iterating but when we needed capital, the market had dried up.

[00:47:51] And I think that has been one key learning for me that, you should raise funds when it is available, which may not entirely tie with when you actually need it, right? At our end, as you correctly said, our burn is not very high. We have been building the company in a very capital efficient way.

[00:48:04] And we have good supportive investors also. But and at a time that we raised this round, we had enough capital in the bank to keep on running the business for a few years even without it, right? But the capital was available from good investors at good terms. And to primarily ensure that we don't have to depend upon or we don't have the risk of the market turning when we actually do need to raise it.

[00:48:23] We thought it's a good call to raise it right now.

[00:48:24] Akshay Datt: Considering that you're focused on online sellers uh, is there a way in which you are able to add value to them? For example, you may be able to look at seasonality and give them advice and stuff like that. how, How do you add value beyond just money? Money is one way in which you add value, but beyond that, what are the other ways in which you add value?

[00:48:42] Abhiroop Medhekar: No, No, absolutely. I think, see, I think one of the reasons why I like the concept of revenue based financing is because as a financier, our incentives are aligned with the growth of the business, right? We benefit automatically when the business ends up growing because increase in revenue means faster payback for us, which is like a better return on my capital, right?

[00:48:59] Unlike a typical bank, for example, which doesn't really care whether your business is growing or not. We are financially incentivized to support their growth. And in that sense, we do multiple things. To start with, we have built multiple ecosystem partnerships, and we have got the best offers because what we figured was that if a brand is small, they will not really be able to negotiate and get the kind of terms and offers, which a bigger company can get.

[00:49:18] But we have the benefit of aggregation and scale. Across all the ecosystem players, B2C enablers because we are negotiating as a group, we have been able to get the best offers across everything that they need, which we basically offer to our customers. That's one.

[00:49:32] Akshay Datt: So this would be like, say cloud services or logistic services and.

[00:49:35] Abhiroop Medhekar: Absolutely all of that.

[00:49:37] So cloud services, logistic services, payment gateway, ad agency, celebrity endorsement connects, all of that. So everything that the D 2 C founder needs, it's like a D2C stack that we have created that way which makes it plug and play for them.

[00:49:49] Akshay Datt: And this is human serviced or is it like self-service?

[00:49:52] Like you just have a portal where you can access this? Or like how, how do founders access it?

[00:49:56] Abhiroop Medhekar: Oh, we have portal uh, we have like a menu card which they can choose from, and then it can be initiated and they can avail the service that they need. So that is one second we also believe that data is a big player, right?

[00:50:05] So I think e-commerce the best companies that I had seen, even as a VC were leveraging their data very effectively. I mean, the best founders are always on top of their numbers and we believe that is cumbersome right now for D2C founders because data is distributed and they don't really have the team bandwidth, et cetera, to create like an integrated summary for them.

[00:50:21] And I think that's what led to us, us launching a product for Velocity Insights because the idea was that can we use the data that e-commerce founders have to empower them and allow them to take better decisions? My data could be on it is segregated across Amazon, Flipkart, Shopify, Google, Facebook, and each of them provide their own dashboards, right?

[00:50:41] But as a founder you care about what they integrated somebody is what are the key decisions that you need to take and overall, how your business is doing put together across all of them. That's a platform that we had built because we, at our end we had anyway done the difficult job of building each of these integrations, even for the financing product.

[00:50:54] And that we have now opened up to, to the customers as a free product called Velocity Insights that we offer right now.

[00:50:59] Akshay Datt: That's amazing. Essentially that same a core technology is just being packaged in a different way for founders to also access what, what your credit underwriting team access is the founder also accesses that same thing, but in a different packaging.

[00:51:12] Abhiroop Medhekar: Absolutely.

[00:51:13] Akshay Datt: And do you think that your way forward is more towards tech or more towards NFBC? You could have one of these paths as you grow, like you could apply for an NBFC license and then become an NBFC and grow that path, or you could look at a tech-based path and continue to do more innovations along different kinds of products.

[00:51:32] So what is the way forward?

[00:51:34] Abhiroop Medhekar: I, that's a fair question Akshay because until now, that's the Archetype which has evolved, right? That you have to either categorize your service as a financial services company or a tech company. But I think the financial services companies of future will be tech companies.

[00:51:46] So the idea or the future that we are building towards is a combination of both, even in terms of the, of the product roadmap that we have right now, right? We already have one financing business, which is heavily enabled by technology. We have Velocity Insights, which is tech only kind of a platform.

[00:52:00] Uh, We are actively working on a cards product, for example, which is again an innovative spin on the typical corporate credit card. And we have like few other products across payments, et cetera, which would be a good overlap of tech as well as financial services. So we are not constrained by that bucketing right now but we want to ensure that across what we can deliver across the data that we have, across the distribution that we have, how can we enable the growth of the founders that we work with?

[00:52:23] That's a broader problem statement. It'll have a bunch of tech only solution and it'll have a bunch of FinTech solutions, and we are going to work across all of that.

[00:52:30] Akshay Datt: Okay. Tell me more about these two, the cards and the payment product. So this is like a one year roadmap for these two products?

[00:52:36] Abhiroop Medhekar: Yeah. Yeah. So, already work is going on on that. So card, basically, we figured that for D 2 C founders they are heavy credit card users, right? Because they have to do digital marketing, they have to use a bunch of SaaS tools. Obviously they'll have some expense across travel and expenses also.

[00:52:50] We figured that the founders right now have to use their own personal credit card and the personal credit card may not have a good enough limit for them to be able to scale their business, right? So it's a big pain point for founder right now to keep on topping up their card. I've seen founders who have to spend like 25 lakhs in a month, and their credit card limit is five lakhs.

[00:53:05] So every seven days, every six days they have to top up their card again, and then they have to spend in like cohorts of 5 lakhs each, right? That we believe can be replaced by the tech that we have because we believe that if the business is generating revenue, they can be given credit limit. And hence we have introduced a card which will offer them much higher credit limit entirely on the company's flow of revenues which they can use to keep on growing their business.

[00:53:25] So it is I think one of the first flow based or revenue based credit card that we are launching in the market. That's a product that we're working towards, right?

[00:53:31] Akshay Datt: So you're saying the credit limit of this card will be dynamic based on what is your revenue like every month that, that limit will keep going?

[00:53:38] Abhiroop Medhekar: That's the idea. That's the idea, yeah.

[00:53:40] Akshay Datt: And the the, like the pay card payment will be like linked to the money they're taking from you as a loan. Is it linked to that or it's a separate product altogether?

[00:53:49] Abhiroop Medhekar: No, both are separate products. It's a separate product. So it's possible for people to opt for both of them individually but both products are being designed to, to operate independently as well.

[00:53:59] Akshay Datt: Okay. Okay. And for this, you'll need a bank partner, right? To issue a credit card?

[00:54:03] Abhiroop Medhekar: We already have bank partner we have partnered with SBM bank for this. And the cards are already live. We are doing like private beta testing there with a bunch of customers. And we are working to like, refine and improve the product.

[00:54:12] Akshay Datt: But what you're doing is higher credit limit, than what Kodo and encash.

[00:54:15] Abhiroop Medhekar: We, we can offer a much higher credit limits. I think what companies have typically done, and I think CODO and Carbon and Cash are building good companies. But the obvious way to give credit limit is to give it based upon bank balance. If a company has bank balance and you have a ECH mandate on the bank, then you can give a credit limit, right?

[00:54:31] But the unique thing that I have observed about the customers that we work with is that they have a lot of flows. But they do not really keep a lot of cash in their bank, right? If they're getting some money, they'll pay off some vendor, they'll keep some inventory, all of that, right? They'll keep on deploying the money in the business.

[00:54:45] The typical bank balance base credit limit is not going to work for the segment. That's a core realization, and hence, we believe that this revenue base limit is going to be the right answer for this segment.

[00:54:53] Akshay Datt: And tell me about the payments product.

[00:54:55] Abhiroop Medhekar: We have already built a payments kind of a product in which people can use our financing limit to make payments.

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The Founder Thesis Podcast | Learn from disruptive founders

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