Welcome to Tectastic, where we navigate the intersection of technology and business, uncovering innovations that redefine our world. Ryan Rosette. It's so lovely to have you here. Welcome to its tech casting. Great. Thanks for I appreciate it, and I'm looking forward to having a conversation with you. So, Ryan, you're the founder and CEO of credibly, which is a funding mechanism for early stage startups. Can you tell me a little bit more about how it works?
I mean, I've got a technology startup myself. I have lots of friends in that space, and we had a lot of guests on the show. So there's probably a huge interest in what you're Yep. Absolutely. So, you know, so just just to clarify, so we're, we're a financial technology small business lender So it's, you know, post revenue, you know, just to be clear.
So, you know, some people will come to us pre money and, or pre revenue, and that's not what we do. 6 months in business, is the minimum threshold for us. So it's, you know, small businesses can certainly or new businesses can certainly come to us, seeking working capital. We're effectively a cash flow lender.
We look at a bunch of different data sources and data points to really develop risk model associated with the customer and define what they can afford based on the industry type and how much we can provide them a working capital without, like, impinging on their their cash flow. It's often difficult to establish credit as an early company, even if you've got cash flow. 6 months old is not old in banking terms, right? You're a newbie.
So what are some of the things that you're looking for to help reduce the risk of lending to these early stage or smaller companies? So, you know, it really depends on the industry type. So we have a ton of that we've funded, you know, in excess of $2,500,000,000, I think, you know, close to 50,000 small businesses. So we have a a very vast amount of data that we look at when we make a decision for a small business. Our models are about 60% plus comprised of cash flow.
So we're really starting the bank statements. And then there's also, you know, personal credit. Business credit isn't really play a huge role. We use a scoring mechanisms that are available out there, but it's, it's a much smaller piece of our model. So, you know, we do look at personal credit and attributes some, you know, structured data that goes into our models. We look at, like, inquiries. There's a whole bunch of different things that's weighted. Time and business is important.
Obviously, and Like I said, it's all risk based pricing. So like a younger business, it, it will be more expensive capital because the charge offs will be higher for those. You know, a more established business, a doctor, you know, with 15 years in business and corporate credit, we're gonna give them much better pricing. You said that the funds actually fairly quickly once it's approval. There's a lot of automation clearly involved in that.
But are you working directly with banks, or are you a private lender that's acting on your own? Yeah, so we're acting on our own. We're, we're non balance sheet lender. We do borrow money from banks. So, you know, just to be clear, that you know, that's how we have our funding sources. We we just completed our 3rd asset backed securitization. So we have, like, a, like, a large credit facility with, a regional bank, We fill that up, and then it's a revolving, asset backed securitization.
So we take the assets from the credit facility and then dump it into the the ABS. And that is because it it's constantly turning and changing. So as assets come out, of the asset backed securitization, we're putting new assets into securitization. Anytime that somebody's doing something interesting with the financial spaces is good, I think, for the general economy because liquidity and the ability to move money around so important and early companies have a lot of struggles more on that.
Because, frankly, you just haven't been around long enough for anybody to care. Yeah. You know, in in a, you know, I'd say, Christian, that, like, also when you look at, like, banks today, They're and, you know, the rural, the the macroeconomic environment for small businesses, they're just not blending, to the types of credits. And, you know, that's where our business model sort of fits in. Our average loan size hovers around $70,000, which for a bank is a super small loan.
You know, for us, it's our average. And so that's, you know, that that's where we fit in. We go up to 600,000, but, you know, it's kinda deepens out at a at approximately 70,000 for our Appreciate sites. Do you have inbound interest, or are you actually out prospecting and looking for a customer we have a ton of them down. So we do all the sort of usual marketing strategies, SEO, SEM, PPC, you know, along with many other channels.
And then we also have what we call wholesale channel, which is, through a broker network that are just business loan brokers and, you know, they're, I, I, I sort of compare them to, like, a mortgage banker, you know, that are working with individual small businesses to procure capital for that. So now now I hear the origin story. You're you're the founder and the CEO, and there was some moment in time where you said I've got is what I'm gonna build.
And my assumption is that it evolved over time to a degree too. But what was that moment? Okay. So it goes back to 2009, I was, a partner in a bridge lender backed by secured, by real state. And if you go back to 2009, you know, 2007 to 2009, that you we were in this great recession. And in that period, there were tons in tons of commercial real estate being taken back by banks.
And so we were providing bridge loans to the developers or owners of the property and to buy these assets back at a discount from the banks. And this business sort of came to me as like a different business, certainly a smaller credit contrarian time and, you know, just decided and, you know, really had no experience in small business. Lending and just decided to start the business.
And so I I I do have a partner whose name's Eden King, and the 2 he had, really good experience on the underwriting side. He was in a, the wholesale mortgage business before. And so it was, it was a good match because I I sort of am more on the revenue in South side, and he's more on the underwriting and ops side. And so the 2 of us complimented each other's skills.
And neither one of us because what often happens I find in in technology startups is that, the technologists tend to get excited by the technology. Something new came into the world blockchain. Ai, whatever it was. What can I do with this new exciting toy? And what I find with a lot of successful founders is that if they're the technologist, they found that other person that's a lot more, like, hold on. The problem is this. The opportunity is therefore this.
Now how do we use technology to enable that versus the exuberant, you know, I, I'm gonna go do it individual. But, like, it's all the hype in the market tends to be the ones that have said, what can I do with this amazing new technology? Well, we don't know if there's anything there. And so I like stories years because it it's how businesses are actually built. It's not the hype. It's not the technology to coming around and enabling something new.
It's there's an opportunity, and there's a market for it. That's that's exactly right. But the opportunity was that small businesses had zero access to credit at that time. And then we had the wind in our in our back all the way through the pandemic.
But then if you think about what happened during the pandemic, you know, there there was plenty of sleepless nights, because, you know, we had a a very large portfolio of small businesses where, like, every business, 2 thirds of our portfolio called in seeking relief. You know, and this is like pre PPP and, you know, this is like when it evolved and they did a lockdown. So you can imagine the stress that was happening.
And then when government money flowed into small businesses bank accounts, it became sort of like a boon for businesses like us because the losses were so low because there was so much government money in the in the system. So, you know, and now we're back to, you know, what I'll call pre pandemic levels where we're seeing the same, you know, sort of losses. But, you know, I would argue today small businesses are in a recession.
You know, while the general economy may not be worse, we're seeing stress. And, like, you know, we graduated to a more, higher credit quality during sort of this period time, and and we maintained our loss rates, you know, throughout the period. Downturns of the economy that I think that we're looking at the look at the edge of right now, looking right at it.
If you're in the tech sector, if you're a technologist, you've seen the layoffs, you've seen, you know, the companies that are, I think, go a big portion of their staff, and it definitely feels like to me, 2006, 2007, when we were looking at it, or 1999 for 2000 before the dotcom bubble burst. It looks very, very similar. You're seeing a lot of the same types of activity. There's certain roles that tend to get hired for more in that time. The go to market technology sales based roles.
You see a lot more business development opportunity, which is usually bad. In fact, you're doing a lot of hiring and that, that means you're not hitting numbers. Yep. So it's an interesting moment. And this is a time when good businesses actually do exceptionally well because your competition goes away because they're not run well. They don't have a good foundation from which they said.
You said that, during COVID, you saw tons of small is closed, you then saw the PTP relief come in and everybody was able to stabilize. But post that, you saw a lot of closures again, almost immediately afterwards, right, because they couldn't get the labor. They still couldn't get the things that they needed. People were still nervous about going out at the same levels maybe. And I'm not entirely sure all the drivers there, but there was still hesitancy to be out and doing things.
And, now we're kind of in that exuberance after the fact. Everybody's out. Like, I live on a place that's a vacation location, and this summer's not already. It just started, and it's been absolutely crazy. That's great for the small businesses, assuming they solved all the other problems, but, if they're carrying a lot of debt, they're in trouble. Right? Mhmm. That's what I was seeing with a lot of restaurants around town and things like that is they did get through it barely.
Mhmm. And it took on a lot of debt. To do it, and now they're just trying to figure out how to stay alive. And that these wonderful exuberant times at the moment aren't enough. Yep. I I agree. And I I would also just add that, you know, I don't think, you know, the the small business is adjusted to the inflation the same way other has had.
So, you know, while they may have raised their prices by 50¢ or whatever the case may be, it doesn't match what they're buying the goods for, and then how that flows through to labor costs and everything else that sort of like set in on on on the inflation front. Yeah. They they don't feel like they've got any firepower to do it either.
That's that's the real problem for them is even if they did try to adjust the prices to deal with the inflationary problems that they've got, they know that they're competing then with. If they're retail, they're always been competing with Amazon, but they lost their only advantage there. Correct. Right. If you're a restaurant, people are only willing to pay so much to go out often enough to keep you alive.
So it is an interesting time, but this ice, again, ice, the strong survive the ones that had a good foundation are gonna do well.
Yep. And that's, and that's what we, you know, so, you know, we've been investing heavily in, you know, our tech, you know, for the past 5 years, you know, I mean, since we really started, we've been investing heavily, but I'd say we really poured the gasoline on, you know, 5 years ago in really data science, technology, and, you know, in the last year, you know, like everybody is sort of, you know, looking at the generative AI space. So, and we have a a few provisional patents pending.
We have some interesting use cases that that we think will really kinda allow our business to leverage, you know, sort of the largely much models and, in a way that is going to be, it's gonna help us with risk. It will help us with reporting. And, you know, I would say, like, another feature we're really sort of focused on.
It just provides, like, it's like a super human or it's a human assistant that we're able to leverage in the right cases because there there's the difference between lending to a consumer and a small business is that the small business is shielded by an entity. And so you have to sort of, like, get behind that entity and see what is behind the curtains. You don't necessarily always know, but that is, like, a very important part of, like, our underwriting process.
Yeah. That that that ability to to do the superhuman level of research and understand all the details involved in it to to come up with. I imagine your patents are around coming with a score of some variety for them and, and what the risk profile then looks like. Yeah. The patent that we have that's pending really looks at the industry codes, which is like a very important part of, like, developing what is the affordability for the business.
So while that may sound like a very, like, unsexy use of genai, when you look at, like, the Nixis codes, there's, a 1000 plus industry classifications. We use codes to segment industries that is different than a government database. And it gets granular, and we use the LOMs to sort of identify what the business is. And, you know, because Sometimes, for example, it's a, you know, it will be X Y Z plumber. Okay? And are they a plumber? Are they a plumber plumber supply?
You know, do they manufacture plumbing good? Like, so it's not that the names don't always provide enough detail as to what industry they actually are. Yeah. Those industry codes are interesting signal because you can buy sector. You can see how they're doing. You can see what the, for example, if you're investing in them, what's the typical multiplier on revenue or how are they valued. Right?
Margins, you know, like, so, like, you know, I always get, like, a simple example is, like, a restaurant gonna have a higher margin than a grocery store. A grocery store, you know, the revenue might be outsized, but the, the margins at a grocery store are gonna be tiny. Comparatively to like other businesses. So like that, that, so it's really important to get the industry type right so that you can make better risk decisions.
And you can make sort of more attractive offers to businesses that you want to lend into. Now is it your plan to always is credibly always going to be the party lender, or do you guys have plans to start going broader with that? So so, you know, we've had multiple conversations. Like, so, like, banking as a service is, like, It's had, like, a lot of ups and downs. So, like, you know, we haven't seen many businesses really sort of take off.
If you look at the models, the banks will never get comfortable with our model or our underwrite. You know, even though we have all the data to support what it looks like, banks are still going to ultimately say, hey. We have to use our models, which is fine. You know? But it like their models might reject everything that comes in our door. Like, that's the beauty of what we do is, like, we actually we're less focused on the credit of a customer, more focused on the cash flow.
And and we think that is the evolution of lending is, you know, really looking at cash flow. Versus like, you know, this person has a 750 FICO, and we should we should give them money or the profit, for example. We don't we're not I don't care if it's profitable. VeriSign has the same view where they're looking at people that don't have court scores.
Yeah. Because they just never had took on debt, or they never, you know, never had payments or solicited with their parents, but they have tons of income, right? Why wouldn't you lend to that person? Well, because they don't have credit score, but they have revenue in the quick lunch. That's exactly that's exactly right.
Like, we're just, you know, like, if you can get the industry right and you can get the affordability of what they can afford to pay based on the industry, then you're, you know, I I I think we can we can predict the risk or the probability of default fairly well. Yeah. It makes sense. It it's surprising. I think the people outside the financial industry that credit works the way that it does. They're like, but I make so much money like, yeah. But you've never taken debt.
And the the way that your score is entirely based is the, you know, available credit versus So you're better to take out more loans that, but don't don't spend it. Like, just keep it there and take out more credit cards don't use them or use them just enough so that if it gets used to grab. Yep. Because the incentives are wrong. Right? The incentives really set up to track you in a debt cycle. Whereas with what you're providing, you're trying to help with the business do their job better.
You're giving them cash when they need it so that they can continue to generate more cash Laandro. That's exactly right. I mean, so, you know, obviously, like, what we wanna do is be a responsible lender, provide them working capital, that we believe they can afford to, 1st and foremost pay us back. But if they use the money wisely, they should be able to succeed.
So if they use the money, if it's a restaurant to put a patio and get more seating so they can get more revenue, that's a great use of capital. If they're using it for taxes, that's a fine use of capital too. You know, so it's a, there there's, you know, there's a number of ways And, and some people, to be honest, it's it's not that, you know, we, we ask for the, you, the, how they're using their capital.
Once we put the money in their bank account, we don't have a tracker of how that dollar is spent. So you just don't know what they're gonna do with it. We've had people after they've borrowed money from us have said, you know, I, I had my daughter's, you know, wedding, and they're using their business as a, a little bit of a cookie like.
And, you know, it's not like the it's not exactly the desired use that I would want, but, like, on the same token, they have a viable business that support the cash flow and they pay us back, and they were able to use the, the proceeds of the funds to do what they needed to do. Yeah. That always meant waste is like, how there's liability of associated with that, and I hope that they understand what they're doing.
Yes. Well, I'm not, I'm not, I'm not condoning it, but it's, you know, so, just saying that, you know, people, you know, and, and some people are brutally honest too. You know, some people will will will tell you exactly what they're doing. With the funds. So Well, Ryan, we're we're getting short of time, and I just wanna make sure that you've got time. Is there something you wanted to share with the audience that we haven't talked about already?
Yeah. You know, I would just say that, you know, we're we, we continue to innovate incredibly. It's an interesting time in the from a macroeconomic standpoint point, but we continue to improve our process, our user experience. We just launched what's called an online checkout, which basically, once you're approved, we send you a link and in 10 minutes of going through the process, the money gets put your bank account.
So, you know, which is a very cool technology where, you know, we're using biometrics and, you know, it's obviously geo tagging to where the customer's businesses and then it's pulling cash flow from the bank accounts and, but, you know, really seamless, elegant user experience that we think is, you know, sort of best in class that will allow us to continue to grow and in the world of frictionless customer experience that that we're moving in that direction as well.
And that's a wrap for this episode of Tectastic. Wanna thank you personally for joining us, and we'll see you next time. Until then, keep exploring, and stay curious. Thank you for listening. If you are new here and enjoyed the content, please subscribe. It really helps us out. And if you are a regular listener, thanks so much for your continued support. Overwhelmed by tech debt. Discover Vala AI. The solution to tech challenges with the simplicity of a click. No engineering background?
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