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Empowering founders with debt | Recur Club
90% of all startups fail. But only 10% of startups fail in the first year, and 80% of them fail after the first year. And one of the most common reasons is the lack of funds.
Recur Club is on a mission to solve the problem of access to funds for startups with predictable revenue streams.
Traditionally, banks and NBFCs don’t lend to loss-making startups. But Recur Club is able to lend to even loss-making startups which have recurring subscription revenue.
Their secret sauce lies in the deep tech integration that they are able to do with the borrowers which allows them to get better data for credit scoring and get hi-velocity repayments.
Eklavya speaks about building Recur Club.
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Eklavya: Hi, everyone. I'm Eklavya Gupta founder, CEO of Record Club. It's a FinTech platform facilitating non-dilutive growth capital for companies with predictable record revenues.
You know, I just developed a great interest in both those fields And I think that led me to do engineering, from Delhi from NSIT in Delhi and when I went there all the lives, I loved engineering. And then I realized, oh, it's probably finance, right. Like after two years even crash in 2008 and that time I was in the middle of my undergrad engineering base, right. That started peaking my interest in finance to understand what's happening that is shaking the entire world, etc.., right. And finances also numbers, at least at the basic level till you go deep into it, right. Like, so really liked it from get go. And I think that was the journey that I took. And post undergrad, actually, I joined a financial investment firm called Nomura was an investment bank that time.
Eklavya: This is a Japanese investment bank. That's correct, yes. So I joined their office in Mumbai,
Akshay: In Nomura, what was your role?
Eklavya: So in Nomura I was working as a trader, a support role. So basically in the global capital markets where I was working on structured credit transactions working on pricing valuations, modeling of trades that would happen was primarily working with apac, anemia, regions there Europe and support primarily with a lot of traders actively do price and value their trades.
Great experience, I think because Nomura had just bought Lehman Brothers their operations after the 2008 prices.
Akshay: Oh, I didn't know that. Nomura brought out that. Okay, interesting.
Eklavya: Yes. Part of the business was bought by Goldman Sachs. Part of the business was bought by Nomura.
So the UK and the APAC region was bought by Nomura right. So whole lot of challenges after that, especially, what they got into right. A mammoth with a lot of problems. So yeah, great learnings for me, right. Because I could see a lot of those trades that were done previously, what went wrong?
How were they, course correcting their ways, etc... And 11, 12 in Europe, there was, Greece crisis. There was a lot of credit crisis in Europe that started to happen, that, that's been stretching since then. So pretty great experience on the structural credit side, on the capital market side, where I was, I was there for two and a half years roughly before I went to do my MBA.
Akshay: So then you went to IIM Calcutta and post that, like where did you join from campus?
Eklavya: So then I went to IIM calcutta did my summer in Bank of America, right. Like at the credit trading test. Coming from a trading experience, right. Like, so I thought, wow, that's great, right. Like, I've done the evaluation part, now I want to be the trader. That's the best life. I did my summer internship and I didn't like it. It's very monotonous at times, right. Like, to be honest it got to me in two months. It started becoming very monotonous. So I thought I reflected back and saying that, do I wanna do this for all my life, right. It's a big decision. But I love finance. I love working with those things. I chose a longer term financial investment I went to Kotak from there.
Eklavya: So I joined the Kotak Alternative Investments team where I was working with structured credit and special situations financial groups. So this was a fund. Structure, right. Like this is was a alternative investment funds, I think great experience.
Akshay: What is structured credit?
Eklavya: So, like if you see about finance, right. Like there is equity, right. Like that you do, there is simple debt or credit as you call it, right. Like, which is a bank loan that, that all of us associate.
But there is a middle kind of an instrument called mezzanine debt or structured debt effectively, which structures your payment flows, right. Like in a bank loan, they will say, I'll give you this, you give a 10% interest rate, right. There are different ways to structure transactions. They will say, I will give you this much a moratorium, I will give you based on your cash flows, I will finance you such that you pay 10% of your shareholding or revenues or whatever, right. Some of the other fancy structures they will put to make the transaction more lucrative. For both the company and the investor right. So, and still you don't give away equity debt. And there could not be any security, right. Like, in a bank loan you will typically take collateral security and other things.
In structured load. There could be, I'm not denying that. There could not, could not be, there could be some kind of security package that comes along, but you know, that's an option that's there. It's not a mandatory thing. It gives you a lot of flexibility basically. So I went there, I was at the desk for around two and a half, three years right. Like, great experience. Got a chance to work with Kotak directly as well in a couple of transactions, right. It was a brilliant experience. I would say. Learned a lot of inherent return of capital. The philosophy that Kotak follows, right, in any financial investment business, return of capital being very important as compared to return on capital, right.
Especially in a credit business. It's not an equity trade. If you have given hundred rupees to someone, right, you should ensure that first, those hundred rupees will come back.
Then see whether you are making 50 rupees on hundred or 20 rupees on hundred, right. So your return off capital is more important as a investor as compared to, you know, what returns you are generating So he runs by the philosophy and I think so, so does Kotak all across,
Akshay: Right. Yeah. Kotak has not got any major exposure to all these, like bank frauds and scabs and big blowups.
Eklavya: They've been very selective. The culture was very different, such a large organization. But I think still the culture was very different from some other funds and organizations that I saw alongside, and Kotak, I moved to a company called Ivanhoé Cambridge. It's a Canadian pension fund. So they manage around three 60 billion of capital globally right across multiple asset classes. Their APAC exposure was small, but growing right. So I was part of the APAC team where I started working with India and some of the Singapore Australia transactions trade experience.
Akshay: So this, now you're on the buy side. Kotak was like a sell side role.
Eklavya: Kotak was also by side. I was the, we were the investors there.
Akshay: Okay. So, You were representing buyers in Kotak
Eklavya: We were the buyers right. Like, so we were the funds.
Akshay: I am sorry, you were giving out money. You were the ones who were lending. And who would be on the sell side? There is investment banks on the sell side also, right. Like these would be banks who represent companies that need money.
Eklavya: A lot of them. JP Morgan City. And a lot of small investment banker running like 10 member shops running so pretty interesting then I moved to CDPQ. right. Like, so It Cambridge basically so CDPQ manages three 60 billion as I was mentioning, right. Our global capital APAC was the primary growth center know, One of the major growth centers for them India team was just starting out, right.
Like, so I was heavily involved. I was the first three members in the India team. There was an MD, there was senior director and myself. It was a startup within such a big fund, right. Got an opportunity to work with who's involved the world, because there was big capital that we were managing.
Akshay: They were also buying structured credit products.
Eklavya: It was equity plus structure credit. Both. Okay right. Like, so even at Kotak I started with structured credit, but then I did both structured credit and private equity equity transactions there. And then in when I moved to CDPQ there, it continued to be both again equity plus structure credit.
So different structures, right. Like an investor. I think how people have started to think in the, in today's world is as long as you can make good returns as proportionate to the risk, right. You should be open to adopting different strategies, right. Because the financial analysis at the core remains the same, right.
What investment structure you put on top of it really demands, how you wanna do it and what are the best instrument to invest in, etc...
Akshay: Okay. Okay, got it. Okay. So, then what, after a CDPQ?
Eklavya: So was there for around four years? Right. Like so Great journey, I think met a lot of global folks.
Understood a lot of global financial investment industry. know, Once again, after Nomura, this was a very enriching experience. We were LPs in Blackstone KKRs Fund, so a lot of big names. Quite Billion plus worth transaction is what I was involved at CDPQ alone in the whole then this idea came up of Record Club that I Co founded, right.
I think in one of my chats and meetings with my batchmates and a very good friend from IIM Calcutta he's more on the product than the tech side. He was working with Gartner and suddenly, I was listening to a podcast and suddenly it stuck me. There are a lot of these early states as companies and recurring revenue companies, right.
Like have access to only equity capital, right. And when I thought about my investment career, my investment experience of working with structured credit funds, you know, and those kinds of things. I said, why is only equity available to them? Bank loan I understand is not available because they don't have any security, but by not any other forms of capital, right.
Like where they have such strength and predictability in their revenues just because they're burning cash because of the low scale, they don't get alternate capital, right. So maybe I thought there was a big time arbitrage, right. Like big arbitrage, which would be exploited, right. And hence to tell little deep and discussed with uh, you know, up founder Record Club about this idea.
And he designated with a problem, right. He was working with a lot of SaaS companies, then said, that's a real problem, right. Cause a lot of them spent on their customer acquisition, marketing, you know, software implementation upfront. But the business model is that in subscription businesses, or revenue businesses you own on a monthly or a quarterly basis, right. So there is an inherent time arbitrage that builds in, in these models, which are, these models are created, these models are growing. Like, you know, they've grown like 20 x in the last five, six years right.
Akshay: So by time arbitrage, you mean that you are spending today, but you're getting the money the return on that spend after three months, six months, whatever. So there is that cash flow has different timings and that can be solved through a credit product.
Eklavya: Exactly and this is not general working capital cycle like in traditional businesses, what used to. You sell off something and then to receive the money there is a payment lag, right. That is a working capital gap. But in these models, what happens is, you spend the money, but even your revenue, will come only after 12 months, in 12 months on a monthly basis. In these business models itself, you add the working capital cycle on top of that working capital cycle is you generate an invoice for a revenue and then your payment is delayed, right. That is suitable for traditional businesses or lot subscription businesses. You get money upfront, in fact. The working capital is not that big a problem, but I. A major problem is inherently the cashflow gap in the business models themselves, right. And these businesses are great, if you'll ask me right. Some of these reckoning revenue businesses. It what it does if you think about it, right.
From a company angle, right. And from an investor angle. Or from the buyer or the seller, so the buyer of the service is a service is able to, our product is able to manage his cash flow as well. Cause they pay out over a period of time,
Akshay: Like this company selling the subscription is actually also selling cash flow or credit here by charging a monthly subscription instead of annual or one time.
Eklavya: Exactly right. Exactly. it helps them A, fast track sales. B, it helps them in long term retention of customers, right. You as a company become very customer focused and customer oriented, Because you have spent hundred dollars to acquire their customer, right. You can't let in pages 10, $20 and go back. So your inherent DNA of the company changes and when you retain customers for a longer time, it helps you to get, larger lifetime value from a customer, right. So hence even for the seller in the long run, it is beneficial, right. And that's why you see all the companies rather these days, right. Most of them shifting towards these models.
So it's a win-win for both buyers and sellers. But I think the problem for sellers is, as you said, right, like cashflow gap that, that gets generated because of that arbitrage that is something that they need to solve for basically which was being solved through equity, By taking equity or by taking deep discount, at times, right. Which hurts them, right. If you think about it, it reduces their valuation, which are linked to revenues these days for these companies. Cause they don't have any positive etc... Like we said that, don't do that guys. what if. There is a platform for you. You come in keep on charging your customers a hundred dollars on a monthly basis, come to us, get it discounted through our platform where you get, you know, money upfront that your customer would've paid you over the next 12 months.
So whatever you would've gotten from a particular customer in the next 12 months, you get a fraction of that upfront, right. So it's basically like your customer has paid you upfront to raise their time. Your operational revenue is funding your operational expenses, right. It matches. It, It is, I think it's a perfect financial sense.
Its Efficient capital stack management to that extent, right. And if you can do that at maybe say 10% discount, 12% discount, 14% discount, right. Which is much lower than what they were doing or trial. They used to give 25, 30, 35% discounts. Whos of the world see subscriptions, they, you've seen them give 30, 40% discounts, right. And here they're getting at a 10, 12% discount through our platform, which is great for them, right. They don't reduce their ARR and hence they don't reduce their evaluations, still, they're able to better manage and bridge their cash flows. Wouldn't have asked for better things, I would say.
Akshay: Right interesting. So, how did you actually get this off the ground? Is this a regulated space? Like do you need to be an NBFC to offer credit in this format or like, tell me about that.
Eklavya: So we don't offer credit. we are a tech platform, right. Like that is facilitating these kinds of financing, right. See, there are multiple banks, multiple NBFCs, multiple credit funds, multiple hedge funds who want to explore new opportunities, right. Which are safe generated, attractive risk adjusted returns.
So there's no point going and becoming one of another finances, right. We want to leverage technology where we serve these transactions, where we un these transactions and where we service these transactions right. On behalf of particular lenders or investors that are there on the platform, right. Okay.
So we smoothen and fasten the process right. Like whatever was being done in 20 days gets done in five days right. Because all inter flow is there. and hence we don't need a license, right. Like, to answer your question.
Akshay: So essentially you're like an aggregator plus digitizing the workflow of making this lending.
Eklavya: Yes. Faster and more intelligent pay right. Like, because traditional financial institutions right. Like we're not investing in this asset club. This is completely new type of companies. So to underwrite them, you need a very different lens to, so to create the tech-based underwriting models and rating models, that's our core, which helps investors understand, what kind of risk return and unlocking them for them in an easy manner. And simultaneously companies get access to that.
Akshay: What is the way in which you do that? Underwriting like that is like the core value proposition of Record Club is that underwriting intelligence, which you provide to the lenders which would make them comfortable to actually lend money. I mean, essentially this is like a supply led challenge, right.
Like you need to build supply first demand will come because it's very compelling. I mean, any company with a subscription product would want to opt for this, but building the supply would be more challenging. So how, what did you build to enable supply?
Eklavya: The product suits so well, it's, it helps companies save, equity and time. Those two things are the most precious things that any founder would have. If you go for a VC round, it takes, at least nine to 12 months, right. If not more end to end, right. Like, cause first you'll prepare for it, you'll create pitch decks, then you'll reach out to particular investors.
Then some of them will do what's on, they will not reward. You'll do hundreds of meetings, something will try and materialize. Then you will try and close with some few of them. Term sheets will get closed. Then DD and documentation starts. You know, It's a long process. It's a very long process, cumbersome process, and there is very limited access as well, right. And work with us. Companies can use the tech platform and get cash in bank within 48 hours at times so we integrate with companies, invoicing, software financial software, right. Financial management software like Tally Global, Then banking data, The company's bank statements or the net banking and other banking data that we get in integrated with.
Akshay: Like, just to zoom in a bit on the, what is the invoicing software that a company uses for recurring, invoices.
Eklavya: A lot of them, right. Like, Zoho is used a lot in India. Like Zero is used a lot in Singapore. So every state every country has different versions. In India, people still use Tally a lot for invoicing. So you know..
Akshay: Tally works for this kind of a use case also, like, to automate recurring or, or they do it manually?
Eklavya: Not optimum. You know, they do, they do a lot of it manually as well. But I think it's also driven by who's doing it, right. Like, people should be comfortable using that software. A lot of CSM financial advisors have been not while using Tally right. So, and hence that comfort. Maybe if it's not the best, but
Akshay: And Tally offers like a API integration, like as a Tally user, I can give you an API key, which will allow you to integrate and get data.
Eklavya: Yeah. Tally is a little different. Uh, Cause there is Tally cloud and some of the tallies are, on-premise. The legacy tally. Yeah, the legacy tally. You have to install a software on-premise effectively, right. So the Tally cloud, you can integrate, but the on-premise tally also you can integrate. But there is, A little extra effort other than just providing the username password if it's on cloud, right. Like there are certain additional keys and etc.., or the user ideas that needs to be entered in for us access.
Akshay: So, and bank statement would be manual because I guess when you started that account aggregator framework was not there, right.
Eklavya: Yeah. Account aggregator framework wasn't there. Account aggregator still in India needs a lot of improvement for personal banking. It is great for corporate banking. It is not the best, right. Like we got anyone who has multiple signatary, etc... That system doesn't work that well right now. I'm sure there were people working on it, and I hope that happens very quickly.
Akshay: So just for a quick 1:1 for our listener. So account aggregator for individual works in this way where as an individual I can authorize a financial institution. Like say I'm taking a loan from Kotak, when I can authorize Kotak to look at my HDFC bank data. And I can revoke that authorization at future data. So, so this for individuals you're saying is pretty smooth, but for corporate this is not the case.
Eklavya: Yeah. For corporates, cause a lot of times there are multiple authorized signataries and I think that is where the system feels right now.
So there needs to be improvement for that. The system hasn't been developed to that level currently. But there are different ways, right. Like you can get access to the net banking, get banking data, so things like that. So there are different ways, not as efficient as account aggregation would be once it's implemented fully. But it's not that bad to be honest.
Akshay: How do you treat all this raw data which you're getting? So you are getting accounting data all transactions happening, be it payroll, be it invoices, income expenses, all of that. And you are also be able to verify it through the bank details like the bank transactions.
What do you do with this raw data? How do you crunch it and what..
Eklavya: I think those are the financial models that that we have made, we have two, three different models that we take into account we score the companies as well as score the customers of the companies right. Because we need to see the recurring nature of their predictability, of their revenues and other things, right. So that is very important for us as business to evaluate.
Akshay: How do you score the customers I mean, you pull up their civil score.
Eklavya: There are multiple ways. I think that's the core that we have built in. We haven't kept it very simple.
Akshay: Like you would pull their financial statement from MCA or something like,
Eklavya: Things like that at times. Plus we see their payment behavior, the size of the customers, the vintage of the customers, the recurring nature of those customers.
Akshay: So how many scores are generated for like you might be generating multiple scorecards for each customer. Like,
Eklavya: Eventually as an output, there will be one rating per customer, right. So there will be one company level rating, and for every company, depending on whoever customers they have, there will be different customer level rating suppose there is a SaaS company, right.
So SaaS company could have a AA rating, like a rating, right. And multiple customers are there, could have triple A, AA, BB, etc... Hence their revenues of AA also a mix of, or an aggregation of all of those. Plus we also go on and see their financial expenses and other cost metrics as well, right.
Like, cause while we finance predictable recurring revenues, but the company should be able to run their company as well, right. Like, it's not that they need to pay only money to us, right. Like, so they need to manage their liquidity, etc... So all of that also comes into account what are the gross margins, receivable cycles, growth rates things like that. Basic financial analysis that we do. Then we do a lot of alternative data switching as well at times, right. Like we scrape alternative data sources like LinkedIn as MCA, SG.
Akshay: So there'd be like a culture rating based on LinkedIn, Glassdoor reviews and all. They would be rating of customers of that company which could get aggregated to a single score.
And then there would be a rating on repayment ability in terms of can they afford to pay that out and still meet their expenses. And then there would be a predictability, like how predictable have the cash flow been like, or maybe the churn, I guess that would also factor in, like you would be looking at.
Eklavya: Yes, the churn is also an important factor. Very important factor. Uh, One of the key factors rather, right. Like, so the growth rate, the gross margin and the churn rates are very important, right. Like in any business to that extent, especially in models directing to models, which becomes the core.
But a lot of other things, right. Like, like PF details for employees, lot of legal, civil, legal cases. If there are that, civil scores everythings that come about, right. Like, so it's a quite comprehensive model considering their financial metrics, their operational metrics, their compliance, legal metrics plus their track record or the past performance plus the cultural, the software, the employees and other things.
Akshay: Tell me about the first deal you did. Which company was it? How many days did it take you to build this kind of a report? And how is that report compared to the report we generate today? And who was the funder for that first deal? You did.
Eklavya: Obviously it is drastically changed in then, right. I think this was last August when we launched. To do end-to-end analysis. So the first transaction that we evaluated that is very interesting, I would say, right. Like all that data is coming in. We, because we are powerly building our financial models, putting in some adoc, I think it took us at least 25, 30 days through that to look at it and reject it, right. Just as an manner. Cause you have to go and check each and everything annually so it was a media tech company, basically, right. Like based out Delhi They had around three and a half million dollars of growing very well. It was venture capital backed, so there was a lot more comfort in terms of their financial positions and an institution backing them, etc.., right. So, it took us 22 days, but I think what the founder said, right, like after we finance them, that, your model is truly amazing because he was looking for equity as well at that point in time, right. And he realized that if we can give them a million dollar, right. Like for example we did not at that point in time, it was a small hundred k, a hundred thousand dollars transaction. But if we could give them like a million dollar as we scale, right. Like based on their business currently on three and a half million dollars, they would love it, right.
They didn't wanna value dilute equity at all at this stage, right. Like maybe when they go to a 10 million is what, when they think about doing equity and it came from them that I am using my operational revenue for spending in my operational expenses. And hence I always use that line till date because, it's come from the first customer who rarely understood and value showed a lot of patience as well, right. With us, to be honest, our were broken. Yeah. My things were broken, so they obviously we didn't charge them anything us our fees, we didn't charge them anything naturally. And that it was building that out. But I think it was a great experience and I think since then, right, like that company has grown from three, 3.2 million ARR to what around 50 gross. So around seven and a half million dollars. So in the last 12, 13 months, they've grown hundred, 20% almost in their era. Without diluting, right.
Like, they have raised an equity around now at reaching seven and a half million because they wanted around 15 million capital, right. So they took 10 million, 10, 12 million of equity and two, $3 million from us because our solution perfectly compliments equity, for certain companies, we are not replacing equity.
I think that is very important to understand and see, because say if your ARR is in this example, 7 million dollars max, our models can fund you with three and a half million dollars, 50% of your ARR.
Akshay: Which also seems very high because for a company to like give out half of its earning each month to pay back the loan would be pretty difficult.
Eklavya: Hundred percent. A hundred percent. And he, it depends on the financial metrics, etc... So theoretically it can be 50%, but it depends on your financial metrics, right. I'm saying, Best case, we can give like a three and a half million dollar to a company, right. Like to a gold mine company that we have, for example, right.
But companies will need more cash for their current expansion. They're entering a new geography, they're entering a new product. They're creating a new product. They need to spend much more today. So hence, and which will always happen with a lot of high growth companies, right. So we say complement equity with our kind of capital, use equity to enter into new geographies, to start a new product, to do more R and D, where the actual payback period is long, or the outcome is uncertain, but where you know your outcomes are certain, you need to spend X rupees on your distribution channels and you generate Y rupees from them, right.
Like using equity right. Like you should not large companies also compliment equity with multiple forms of capital, right. Like, so if that is being made available to you, companies should use it. No, it's a no-brainer, I would say for companies, and I think companies are realizing that, the advantages they get of doing I think a simple example, right. Company today, does their equity round value 20, 25 or percent realizes that they are, 5% in shareholding after four, five rounds, let's say they become. two, 3% in every round, I'm just saying, right. And they delay their evaluation, if they were doing round every two years, they do every three years, right. So a, they save one round over next 10 years, right. Like, or two rounds maybe, and b, they save percentage dilution in every round. So they're broadly saving 15 odd percent of equity, 15 or 20% equity, right.
The company has still become unicorn, and it's the founders shareholder, the network that they save, so hundred 50, 200 million of initial shareholders, founders networth that has been saved because of this. The company has still reached where it had to there is venture debt, or there used to be venture dept.
Akshay: What is the difference what is venture dept? It just, help our listeners understand the various types of debt available to a startup. Like if you could talk about that.
Eklavya: Sure. So I think obviously equity are not, cause equity is the most common form, Then came in venture dept it typically, which was accessible to companies who have raised equity capital. right.
Eklavya: How venture it works is they will charge you a fixed coupon. Plus they will charge you.
Akshay: What do you mean by coupon here?
Eklavya: So they will charge you a fixed rate of interest, let's say for simplicity, right. If they give you a hundred rupees and they charge you 15% rate of interest, they will say, give me 15 rupees, right. Basically plus they will say that 10 to 15% of my investment, which is 10 to 15% of hundred, that's a 12 and a half, right. So 12 and half percent of hundred, which is 12 and a half, give me as equity shares, which are called warrants. So basically what is happening is they're saying, I pay you a hundred, right. Let's assume it's a one year transaction for simplicity sake, right. You pay me 115 back in one year. Yeah. So 15% plus you give me equity worth 12 and a half rupees.
Akshay: Oh, that's over and above.
Eklavya: Those are the kinda returns that you end up paying. But there was no option, right. There was no option to companies. They, and this is only accessible to companies who had raised equity, right. This is not available to every company.
Akshay: Because the valuation discovery has happened. If you've raised equity.
Eklavya: Exactly right.
Akshay: So, when has no use case if revenue-based financing is fairly prevalent and easy to access.
Eklavya: You tell me why, if you know your company is doing well decently well, what good company would wanna take venture debt?
Yeah. And investors don't want to fund bad companies. So there would be no transactions, right. Basically if you think about it.
Akshay: Right. Okay. And did you need funds initially? Because initially you were doing it all manually, right. You may not have needed.
Eklavya: Not that much. Not that much just to build the product parellelly. We wanted some capital, so we had bootstrap, we had put in me and the co-founder of, had put in, some money in the business to grow it, to build the minimum viable product like the MVP that we call, right. To get it up to a particular level in the first three, four months. And by August we were able to do the first transaction. The beauty was we did the first transaction also through the product. A lot of people do it offline and, we feel good about it. And I think thanks to comes from that brand of mind, totally different direction from where I think, right. Like, so it's perfect complimentary solution and skillset that we bring. And we were able to do the first transaction with the proper investor on board. With the company, SaaS company that we wanted detailed financial analysis.
Akshay: How did you source the lending partners, like through like cold calling and using your network and all?
Eklavya: So my network, so I worked on a lot of, like investment industry, so, right, like, so I think I know them firsthand. I just call them up, I call 50 of them, 12 of their short interests, for example, right. Like, and two of them started business, so that's how it works. And people have realized, people have gotten good returns as well, right. Like, it's right, right. Because we are not making significant returns on this transaction because we want to build this as an asset class first, right. Follow as we scale. So it's been I think pretty good at least.
Akshay: And how did you source deals?
Eklavya: I think deals was more of cold calling, LinkedIn, more unbound sales initially right.
Akshay: And and you essentially target SAS companies because like recurring revenue to be equals is there anything else beside SAS?
Eklavya: So SAS is obviously a great business, right. An obvious choice for recurring revenue, but I think there are a lot of other recurring revenue businesses like what is recurring revenue. I think very important to understand something that is predictable and has low churn in their payment behavior because you are predicting a behavior trend right here.
So, which is what subscription businesses do that you see a behavior trend that someone is paying month over month and hence stickiness and hence solid financial sense right.
Akshay: Tech also, I guess because like BYJU's has monthly installments.
Eklavya: Yes. One monthly payments, right. Like a lot of logistic tech platforms, if you think Right. Which get their businesses from Amazons of the world or Flipkarts of the world, right. Month over month, they do.
Akshay: So, like coming back to the product now, like you told me first deal took about 20, 25 days.
And so how has it evolved to today? Like today, how much time does it take and how much research is your data insights that you derive out of it, which you present to the investor? What does the investor see? Does he get like a detailed report or does he get a single score or like, tell me a bit about the product part.
Eklavya: So, I think quickest that we have finances three days end to end the company, right. Like, I think we give them the limits within couple of hours of them syncing the data, right.
Akshay: For, the startup, they would be like a guided journey with a visitor telling them, okay, now integrate with Tally, this is how you do it, and so on, and.
Eklavya: Hundred percent. Hundred percent, right. Plus there is obviously, we are at an early shift, so there is some one, one manual customer support as well, to help them. But we have done it all through with one operations team person, right. Like till date, because we don't want to create manual intervention, manual things. We want to keep it as automated as possible. And then there is certain KYC documents that most of the companies would have ready. They submit that and then, they get the money basically. So I think that
Akshay: Does it like then appear for all the buyers that this opportunity is available?
Eklavya: Once we create that customer profile, right, like, which is a propriety to us that is a base space profile that is shown to different uh, you know, institutional investors on the platform and, there are certain strategies within which they want to lend and invest in. It is shown to relevant investors on the platform and then they bid for it. right. All of them get their best price. So that's why it is an exchange that I call, everyone gives their best price and the company on the other side only sees the best price.
Akshay: And the price here would be the interest rate price.
Eklavya: Here is the discount. Well, what is, okay, right. when you talk about like hundred dollars every month, right. They were giving 25% discount to get $900 here, someone could say 10% discount. So 90 cents to a dollar, or 91 cents to a dollar, or 89 cents to a dollar right. Basically. So if I'm saying 90 cents to a dollar, that means I'm paying 90% into 1200. Which is 1080 today, right. And the balance 1200, which is hundred rupees every month is passed on to the investor on a monthly basis.
Akshay: What parameters do investors see, which would cause them to give a better pricing? Like, they would see one would be a, like a centralized collated score. Like a Recur score.
Eklavya: Yeah, one is a Recur score that, that they see naturally right. Second is their payment history, the collection, the payment track record on the Recur platform. Okay. Things like that. C is the growth rate, the other financial metrics after we have, they have financed what has been the performance, so the company has so many bids at an average price of this then you choose, right. Or the best price current. The best price currently is 90 cents, if you want this deal, pay higher Right. Within a particular window right. Like, so it's basically a live auction that's been created for the investors.
Akshay: Okay. And I'm guessing this would also be done with like a client success manager because I'm sure a lot of these nfcs would not be in the habit of regularly logging in to check what deals are on and all, or..
Eklavya: A hundred percent right. Like, so there are automated test terms that's done not only through client Success Manager, but there are automated systems that's been done. There are notifications that go to them, okay. etc... But there is assistance required, right. Like those guys are, you know, obviously we are very small portion of their entire businesss for large Inverstors.
Akshay: Yeah. Yeah.
Eklavya: So we need to take that into account and be practical and not expect them to do whatever we want them to do, right. Like, at least as of now.
Akshay: And how does the money flow? Is it flows through you or it goes directly to the startup or?
Eklavya: We have created like a payment infrastructure, right. Which facilitates that payment, but it doesn't hit to us, right. It goes directly from the investor to the company. Basically. But it is facilitated by us.
Akshay: How do you collect the payment? Like, that would be through a Nach NACH mandate.
Eklavya: NACH mandates. So there are, payment gateway splits or certain things at times.
Akshay: The repayment is a fixed amount or a percentage of revenue. Like if I borrow a thousand dollars, and or let's say I borrow $900, I got a 90 cents to dollars later and I borrow $900 and I'm supposed to repay, then fixed a hundred dollars every month, or is it a percentage of my revenue every month?
Eklavya: It's a fixed number cause you're financing your customer's cash flow offering at a discount. And hence what it does is the, you are not penalized by your growth if you pay a percentage of revenue. And if you're a fast growing company, imagine, you paying equal into a growth rate as you apr is very high. So this lets the growth be with the companies.
Akshay: Got it. Got it. Okay. Okay. And what is your fees? How do you earn.
Eklavya: So, we charge a small percentage of fee, right. Like from both sides, from the investor and the company for the transaction. Uh, That percentage we raise from transaction volumes and values and things like that.
Akshay: What do you earn? Like maybe what will you earn this year? Would you estimate your, this year revenue will be like, or..
Eklavya: So it's growing very fast. I think so like, give you high level numbers that we have around thousand plus companies registering with us. Currently in the last 12 months we have finance close to around 250 companies via the platform. These companies have accumulative annual recurring revenue of around 450 million dollars. Which is list, which was listed on the platform. Our financing limits on average, were around, 50, not percent. So around 70, 65, 70 million dollars is what, we have financed through the platform. And a small percentage fees, right. Like a couple of percentage points as to give you a order of magnitude.
That is where we are. we are very fortunate to get great supply side partners right. Early on in our journey.
Akshay: Who, who are your supply side partners?
Eklavya: A lot of them. Like Table of Finances in Grid capital couple of other smaller NBFCs. There are people, family offices that we work with, So, there are a lot of different channels to that wanting to add more and more, right. Like more liquid liquidity gets better pricing for companies. It's a win-win for Yeah. Parties, right. Like, so that's the proposition. We act as a financial advisor to them at multiple places. You should not misprice risk. I think that's the biggest learning that I've seen even in my past experiences. Because these are cycles, right. These are macro cycles. Some of them are upcycle down, cycle in down cycle. This hurts badly.
That is really badly if you misprice risk in at the right time.
Akshay: Yeah. This year, how much do you think you'll disperse? Like
Eklavya: So we have deployed close to around $60 million this year till date, I think we'll be close to around 80, 85 million dollars by end of the year.
Akshay: And your earning would be about 2, 3% of this the dispersed amount.
Eklavya: Ballpark, a little lower than that. It's not that high. Like it, it'll be a little lower than that. Yeah.
Akshay: But you don't have significant cost to, because you don't need a big team here. You, because this is purely tech first kind of a product. So you can run with a very lean team and..
Eklavya: Once we run our, or get our GTM in motion, to be honest, right. Like, I think that is where some of the our cost is employee costs, right. We are a tech business. 30% of our cost is our cost. Our 60% of our team is product and tech right right now we have 15 member team, 26, 27 people are product and tech, roughly like almost 5% of the team.
We have two people in operations, as I said right. Like, so it's a very lean team on that side. Yeah. And as we sort out our GTM more and more, right. Like we will not need too many hands on ground to scale this up. And that's the beauty.
Akshay: So, I'm curious about this. Most other revenue based finance companies have raised a lot of money, like 20 to $50 million range. Why is that? And you have raised I think 2 million so far equity.
Eklavya: Yeah. So I think a lot of that is a mix of equity and debt and a lot of people initially did a lot of financing from their equity, they were not able to build that supply side at times, or their thoughts, massive class at times, right. So they a lot of financing through their own equity.
Akshay: But in your case I'm guessing you don't need. Because it's a high margin business. It's you don't really need to burn money to get customers. Like, there's no customer acquisition cost as such, and..
Eklavya: It's very low. There is to some extent obviously, but it's significantly low. So our margins and our cash profits are quite good from that point. And after a point in time, I think. Everything goes well. I think business would be self-sustainable. But obviously we plan to add multiple product lines as well as we grow, right. This is just one stream of product that we have. There are thoughts in place to be like a true one stack financial suite for the companies, right. Like, rather than just being financing, add a lot of other value add features to the companies.
Akshay: Like what's on the roadmap?
Eklavya: Like financial insights helping them manage their financial statements, MIS, etc... Give them primary benchmarking across multiple companies that we see, which can be actionable insights for them, right. Basically.
Akshay: What does that mean? What kind of benchmarking would this be?
Eklavya: So the financial metrics the financial metrics..
Akshay: Like, their margin compared to margin of other..
Eklavya: Other companies in that range, that sector, in that size range and things like that. All of that coming into future.
Akshay: Okay. This is a way to ensure stickiness. Like they don't come to you just for that one time transaction when they need funds, but since you're giving them financial insights they would have a reason to engage on a more regular basis.
Eklavya: Yes. That's correct. That's absolutely correct. Plus, it's like a bank, right. Like you go to a bank, you get hundred things, right. Like you don't need to go to 200 places. I think that's the philosophy with which we'll build this up as we scale.
Akshay: So you wanna launch a credit card also?
Eklavya: Let's see. We way too early, right. Like, while it sounds pretty good, I'll keep on discussing with my team as well, but every small product has own once, right. Like, so we don't want to overdo ourselves as well. We're also very young company, right. Like, so we need to time it right rather than getting into everything at the same time. But if things go well, then why not, right. Like, there's a value added addition that one can get into and we'll probably do it through multiple partnerships, right.
Akshay: A lot of subscription businesses took a big hit when the RBI regulation on recurring payments through credit cards was implemented. And a lot of recurring payments failed. And did you observe those kind of trends with your customers? Like, tell me some of those mega trends, which you might have observed because you work with so many companies in subscription business.
Eklavya: So, yeah. I think there was more D to C driven. There was smaller credit card payments more on auto mode, so there was more B2C business there where we were not, know, working. So our business were not affected but I think a lot of D to C subscription businesses saw a lot of challenges, right. Credit card payments stopped.
Akshay: So a D to C subscription business would be like, say a, like a entertainment,
Eklavya: OTT platform like OTT platform, right. But I think it's catching up. It's catching up for sure.
I've seen a lot of people saying key venture rate is 15%. Yeah. That is so cheap. 14%. But they don't, they miss that warrants part, to be honest. Yeah. Smartest. And the smartest people, you'll just say then do equity only. That's the thing, then only, right. Like we saying so what.
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