[Raised $1.07 billion] Ep.104 - The First 100 with Miguel Fernandez Larrea, the Co-founder of CapChase | Founder-led sales | Runway Calculator | Enterprise Sales

My guest today is Miguel Fernandez Larrea, the CEO and Co-founder of New York-based CapChase, a funding platform that offers founders nondilutive financing alternatives. Capchase offers a variety of tools on its platforms that give founders non-dilutive financing tools to fund their startups. It has two products—Capchase Grow—which enables recurring-revenue companies to access future capital upfront, and Capchase Pay, which is a buy now, pay later solution for B2B SaaS. Capchase has raised $120 million in equity and $950  million in debt from notable investors such as QED, Thomvest Ventures, Tusk Ventures, and many more.

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Transcript

Let's do it. Broadcasting from around the world. You're listening to the first 100. A podcast on how founders acquired their first 100 paying customers. Here's your host, Hadi Rodwan. Miguel, good to have you on the show. How are you doing today? Great, Harry. Thanks so much for having me here. Thank you for stopping by. I love what you guys are doing, but before we start, I'll give a quick introduction for our listeners. My guest today is Miguel Fernandez-Laria, the CEO and co-founder of New York-based Capchase, a funding platform that offers founders non-dilutive financing alternative. You guys have a variety of tools on your platform too. give founders these financing tools. Two of your products on your landing page is CapChase Grow, which enables recurring revenue companies to access future capital upfront. And then you have CapChase Pay, which is a buy now, pay later solution for B2B SaaS. And you've raised today around 120 million in equity and 950 million in debt from notable investors like QED, Thumbvest Nature. and Task Ventures as well. So Miguel, take us back to the founding of HUM moment. How did it all start? Yeah, so it all started a little bit before. I was working at Capsis before we started Capsis because I was running the sales and customer success teams at a SaaS company. And what happened is that in every single deal, when we were about to close, all our customers wanted to pay monthly or quarterly or late, and we as a company... as a VC backed company, we needed the cash upfront because we needed to recover our costs as quickly as possible so that we would not run out of cash. So the only tool we had back then to get all the cash upfront was to give a discount. And discounts are terrible for a few reasons, but mostly they cut your annual contract values, they cut your lifetime value, they cut your gross margin. And we would just do it even though it was bad because we would be able to get the cash upfront because that was super important. Then what happened is that we went to business school, we were looking into different ideas. And what we saw is that if you're a SaaS company, at some point, you start to become pretty predictable. You understand what your CAC is. You understand what your CAC payback is. You understand your lifetime value. You understand everything. At the same time, you're still facing that same cash gap that we faced in our SaaS company, which means that you have all these upfront costs. And then you get paid back over time. it takes you a while to start making money on every single customer. So we said, Hey, like if it's predictable and there's this cash cut, is there any way in which we can predict future cash flows and give access to them today so that, you know, such companies can fund themselves without needing any external capital or in combination with VC money? Oh yeah. And yeah, the answer is the yes. We started to talk to a bunch of founders. They're really excited about the idea and yeah, we started working with them. And yeah, the rest is history. We went to market in the summer of 2020. And since then we've grown to be largest and the best non-alloy financing provider for SaaS companies, both in North America and Europe. I mean, you're spot on as the macro economic environment has become uncertain and a lot of VC funding has slowed. A lot of founders are increasingly looking for financing to diversify their funding and future proof their growth. We have seen multiple companies surface in the past few years doing what you're doing. How do you stand out today? What's your unique selling proposition? Yeah. So I think that it is a few things. One is the access to a platform that we provide. So when a customer is considering any kind of source of fund versus capsize, one difference is that we're offering a platform that has multiple products, right? So we're offering them the revenue-based financing product. We're offering them the buying app later. We're offering them. additional products to handle the revenue better and to improve the cash flows. It's a variety of products that are sometimes financing, sometimes more like software and payments related. The second is that we are very, very cost efficient and we are cheaper per dollar drawn than pretty much anything else in the market. The reason being is that we've had a very, very good credit performance and that's why the cost of capital is lower. weighing whether to take equity or debt, debt is usually always cheaper. And when they're looking at debt, they can look at venture debt or cap chase. Venture debts, typically expect the founders to draw all the money at once. So then you're gonna be paying interest for a lot of money, even if you're using it or not, for a long period of time. With cap chase, you're taking draws only when you need it and only when you can put your money to work, usually to finance. customer acquisition, so to spend the marketing, spending sales and so on. And then you're paying it back as your customers pay you back, you know, as the customer you've signed pay you back. So then it is much more aligned with those repayments. It is shorter term in nature, so you pay less dollars for the outstanding amount. And then also, yeah, you only pay what you use. So you have to draw a bunch of money and have that filling the bank, but costing you money. So there's a lot of listeners that are founders today looking for funding. and they could be hearing you now. Who qualifies for your product? Yeah, you have to have about 100K of AR at least to qualify for Grow. And if you're selling, I mean, if you want to use the buying app a little product, which kind of solves the same pain, but in a different way, then I think that the companies, there's no eligibility minimums, but it works best when the average annual contract ticket. they are selling is above $10,000. Which countries are you currently operating in? Yeah, we're based in New York and we operate in North America, so the US and Canada, and then the UK, Benelux, Nordics, and Spain. So all in all about 11 countries. Amazing, amazing. That's very helpful. So if we look today at when you started, the question is, which target audience do you go after? How did you validate that? This is the type of ideal customer profile that would make sense day one. And how did that change over the next few funding rounds? Yeah, so when we started, we were pretty much talking to anybody that would listen. We were just like, we had the hypothesis that this would work really well for SaaS, because we knew it from our past. And then we started talking to many SaaS companies at different stages, all the way from seed to series C. And those SaaS companies are selling to anybody, to enterprise or to mid-market or to SMBs. So then we start to get some very positive responses and that's how we honed in on who was gonna be the actual ideal customer profile. And then we narrowed it down to companies between seed to series B. So anything less than 20 million ARR, like had contracts that were paid monthly or quarterly or by annually or annually or whatever. But yeah, they have to be based in our eligible geographies. And then another discovery that we did, as we were talking to different executives in those companies, is that for growth, for a growth product, the only buyer personas that we should be interested in and focusing on were the CEO and the person running finance. Everybody else, which is like too far removed from the problem. With cap sales pay, given that it's financing on the point of sale for your buyer, so that if you're selling a large, contract and your buyer wants to pay monthly, but you want to get the cash upfront, you can use Capsis Pay for that. So the vendor is going to get the cash upfront and the buyer gets financing to pay for the SaaS product. In that case, the Capsis Pay product helps to close a deal. So then the person most interested in this is the head of sales or the CRO. And that's also something that we've discovered over time. At one place you need to get money to lend it out essentially to the companies out there. Who did you convince first? Did you convince the lender or the equity and debt holders or the customers? And how did you manage to basically bring in the money and then lend it out and then convince the lenders that their return is higher than what's out there in the market? Yeah, yeah, yeah. Good question. We focused on getting the customers first. We still do it with any single product that we do. Because You can have the perfect product, the perfect structure, have everything in place, but if your customer doesn't want it, it doesn't really matter. So we focused on getting the customers first. And in fact, the first loan that we did was $25,000. So we covered that ourselves with our initial funds. And then we raised around, at the same time, pretty much, like a week later, we raised around $4.6 million a seat round. And then we raised some debt. from high net worth individuals and from family offices, another $5 million. Then we had $10 million to lend pretty much. So we had like four months of ability to lend because we were deploying quickly and growing very, really fast. And in those four months, we closed a credit facility of $50 million to be able to scale without using our equity, which would have been extremely expensive. What was your early acquisition strategy to get those companies to adopt Financing any guerrilla tactics any framers that you view? Yeah, it was all purely like fund-a-let sales for the first few months until we hired our first salesperson So yeah, what we did is, you know We knew that we had such crazy product market fit that we talked to founders and we talked to enough finance people We would sell and grow so one thing that really helped was PR as well so basically what we did is we did two things one is we great pitch book and we downloaded a bunch of companies that were between C to series B states in our key markets. So we were in Boston at the time, in business school, so in Boston, in New York, in San Francisco, London, Madrid, and so on. And then in pitch book, you also have the CEO's email and sometimes they had a finance email. So then we started to text them and talk a little bit about what we're doing and asking for a call for advice and to address it. And then when we raised a seed round, we actually were featured in TechCrunch. So that really helped also to get more eyeballs on the company. And the last thing we did that was really cool was we created a calculator that we put in our website that would calculate how much runway the customers had with a few data points and also how much runway they could get if they were to use Captchaise Grow. traffic, a ton of submissions, and also helped us get a lot of ammunition to drive conversations with those customers. So yeah, like it was a combination of those. And then, you know, once we had our first salesperson, then it was more about creating a predictable sales process, a payable console. If you were to give our listeners a couple of advice on how can you increase your conversion rate in the early days when you're cold emailing or cold outreaching companies, is there anything specific things that worked for you that you used later in the sales playbook? I think it's like focusing on the problem. Nobody cares about your solution unless you make it seem very clear what the problem is. So a lot of emails and a lot of called outreach is focused on the solution. And then that basically it signals a few things. It signals one that you really care about the customer. You're just trying to find a hole for your peg. You know, like this harder. And then also it puts a lot of cognitive load on the buyer of the product to understand, hey, do I have a problem for this solution or not? So in the contrary, you gotta focus much more on the problem. And then once the problem is recognized by everybody and it resonates, then you can focus on the solution. Sometimes you can describe your product, not your product, but actually the solution at a very high level and just ask for a CTA. where you can explain more as opposed to trying to build the effort in describing your solution in a short amount of time. Makes a lot of sense. If you were to start from scratch today and you had a limited amount of funding, where would you invest this to acquire your customers? I would try to not spend any money to acquire customers in the beginning. I think you have to do things that don't scale and things that scale usually cost a lot of money. So things like paid acquisition, that costs a lot of money. So I would focus on, again, like trying to find customers through email, through LinkedIn, through listening, to what they're doing, understanding their pains, but doing it like very, very founder led. So because you know the product more than anybody, you're the founder, so you have like more gravitas to get a call with somebody. And then once you have like eight or 10 customers and you're solving pains, you're solving the same pains for all of them, and you start to understand. what are the pains that resonate the most, you know, and what is the impact if those pains are not solved, then you can start to scale a little bit more, you know, with maybe like LinkedIn, email ads, some banners or some keywords and so on, but those cost a lot of money. So actually, you know, like another thing that you can do with less money, although it's like a little bit like, let's say like slower burn is really talk about the pains, really talk about the impact and write about it. and try to get featured in press, get featured, hack your SEO, ratings and so on, so that people find you. Just, you know, like you start acquiring leads that don't cost you a lot of money, and with evergreen content. That also sometimes really, really helps, and it's very cost effective. And you see, I'm sure you've heard about people building audiences before building products, and a little bit is related to this. You know, where you're talking about a problem that people are searching for, and then, you know, you can offer them the solution. once they became acquainted with you. You know, growing a startup is non-linear. It's not always up, it's not always down. There's ups and downs. Is there a crucible moment in your journey that you could share with us that could have altered the progress of CAPTCHAIN in different ways? Yeah, for sure, for sure. Similar to probably like a bunch of companies out there, when the tech downturn started, in, call it like March, 2022. Yeah, Marcia did too maybe a little bit earlier. We had made the decision three months before, looking at the underlying data that we had from customers that we needed to tighten our credit policies. So then for like three or four months, it seemed like we were the dumbest in the room because some of our competitors were growing pretty fast and like posting how much money they were deploying and things like that. I remember having meetings, having board meetings where the board was like, hey guys, your competitors are growing faster than you guys are. And we're like, Well, I don't know, like, we're not seeing them in so many of the good deals. So I don't know if they are seeing good deals that we are not seeing, or they're actually just like growing due to like deploying in bad deals. What happened is that, yeah, in March, June, July, as the market got progressively worse, our competitors started to die, but we were still having very, very stellar performance, very solid credit performance. Now one year later, one year and a half later, 18 months later, man, sounds like a lot, like a long time ago, but there's virtually no competitors. Everybody died or pivoted or had to get recapped or is doing something else. And we're still, you know, doing this much better than ever. And like we're the leaders in this space. So that was a moment where we had chosen growth at all costs. We have probably made decisions that would have costed as a company. Very interesting. Thank you for sharing this moment with us. How did your leadership style change when you were raising your series, let's say seed round and your latest round? How did your relationship with money now differ? It's true that like we've always been very scrappy and trying to be very lean, but inevitably having access to a bunch of money in the bank just like makes you make decisions that are not optimized, you know. because you can just throw money at people, or throw money at problems to solve them. And they get solved, yeah, but they get solved suboptimally and also in a very expensive way. So that was a big change. Personally, my leadership style, I think that it's still evolving, right? But it's mostly going from working in the business in every detail to working on the business and trying to focus more on the direction of the company on finding the right people for the team. And also on blocking. certain things that are going on in the company, right? Or like dependencies or, you know, like conflicts in the company. So you need to grow to get used to that because it is different. And personally, you know, when before CAPTCIS, a lot of my satisfaction with my work depended on how much how many things I got done and how much stuff I did. And now that's way different, you know, like if you're spending, you know, two hours thinking about something, then maybe it's you know, like before we consider that I had wasted two hours, but now, you know, maybe it's like, hey, like if you get one or two insights, actually like move the needle on a couple of things in those two hours, then you have a real work, you have a big impact. So it just changes how you do things and how you approach work. What is the principle that you live by that has helped you in your journey? So I would say two, they're related, but basically it's like do the hard things as often as you can in life generally. So that's when you actually face hard things, they're not that hard. So I do a lot of sports, I wake up early, I do boxing, I do a bunch of stuff, so that I get used to doing hard things, that then, you know, like when hard things actually hit you, they're not that hard. And then the other one would be that it usually never gets easier, you just go faster. So, you know, I remember complaining a couple of weeks ago, like, oh my God, like the last 18 months, every day has been just a little bit harder, it never gets easier. But in reality, you look at the last 18 months, and every day we've done a little bit more, another little bit less, and not even the same, right? It's always more and more. So basically it's like, yeah, when you get good at something, it never becomes easy. You just do it more or you just go faster. So just get used to it. Thank you for sharing these two principles. You know, not everything on the internet that you read is correct. So based on my research, you appear to have dropped out of Harvard Business School. If that's true, can you walk us through the thought process and how did you navigate that decision? Yeah, no, it is true. It was a simple decision and I explained why. First of all, like I'm the biggest fan of Harvard Business School that you will ever find on the planet, right? Like it changed my life forever. I remember the day that I got in, like my legs were shaking. I just couldn't believe it, right? And then when I went there, I was super lucky because I met my co-founder and then we were really... you know, researching and have the time to, and the access to people to value their ideas. And also, you know, to learn more about what we're trying to do. And then what happened is that when COVID hit, we had a ton of time on our hands, everything was remote. And there was like a lot of the experience of the MBA wasn't happening. So we had a lot of time to work, and then things started to really take off. And then given that all the learning was remote, it was just easier to justify to ourselves that we're multitasking, and we're doing the company and business school at the same time. And then what we saw is that, Cachilas really taking off and it was a train that we would not be able to miss. At the same time, HBS, if you drop out, they let you come back whenever you want for I think for like the next five or 10 years. So then it became very easy to make the decision then. I remember telling my mom like, hey, you know, like we're gonna drop out of business school. I'm from Spain, right? So like I'm an immigrant founder in the US and HBS is like the paradise or like a golden passport, right? In all of places to be honest. It was harder to justify it to others than it was to myself. But I think it was the right decision. And yeah, I'm going to regret it. Maybe I'll go back at some point. As long as it's a door decision, it's good. It's not a one-way door. One last question. What's next for CapChase? So what we're doing at CapChase is we're unifying the whole revenue lifecycle of a SaaS company. We want to help SaaS companies to grow faster, right? And basically, you have two ways to grow faster. One is you get more money. which we've already been solving that, you know, with Capchase Grow. Or the other way is to have frictionless revenue, you know, so to close more revenue and grow more revenue. And that's what we're doing with Capchase Pay and with other upcoming products. So our goal, you know, let's say over the next like 18 to 24 months is to have, to continue to build up a platform so that companies can close, fund and fulfill every single... transaction and automate a bunch of processes that add zero value, but are necessary to get cash through the door and to finance your business. I mean, cash coming from your customers and the financial business. Amazing. Thank you, Miguel, for stopping by. This was an amazing episode. How can people reach you? Yeah, feel free to reach me on LinkedIn. I'm Miguel Fernandez. I do search for Miguel Capchase. You'll find me. And yeah, happy to help in any way. I know that starting a company is... It's really hard and any kind of advice usually goes a long way. So happy chat. Thank you, Miguel. We wish you the best of luck. Have a great day. Thanks so much. Happy. Thank you so much for listening to the first 100. We hope it inspired you in your journey. If you're enjoying the podcast, please subscribe to our podcast on Apple iTunes, Stitcher, Google Play, or Spotify and share it with a friend starting their entrepreneurship journey. Leave us a five-star review. Your support will help spread our podcast to more viewers.