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Verix ENGR 245 Lean LaunchPad Stanford 2018
1. Ben
MBA
Bain Capital PE
Yale (Physics)
Intelligent Lending
By Verix
Dan
JD
Goldman, HFA
UChicago (Econ)
David
MBA
Bain, Berkeley CS
Brown (Math)
Soumya
MS&E
Visa
IIT (EE)
Interviews: 107
Existing Market,
Low-Cost Entrant
2.
3. Then and Now...
Start: Cash Mgmt Finish: Loan Processing
Betterment for SMBs
(origin: Ben’s
optimization paper)
Process loan apps for
banks (underwrite in
minutes, not months)
4. Original BMC: Cash management
KEY ACTIVITIES
1) Infer recurring cash
needs from ERP data
2) Know latest rates /
terms for short term
securities universe
3) Recurring portfolio
optimization (first advise,
LT vision invest)
KEY RESOURCES
1) Treasury mgmt & short-
term investing know-
how/domain exp.
2) Data for predictive
analytics / time-series
modeling, optimization
back-end
VALUE
PROPOSITION
Arima offers
sophisticated
outsourced cash
management for
SMBs. Using
predictive analytics to
determine recurring
cash needs (e.g. rent,
payroll, etc), Arima
robo-advises / invests
in an optimized
portfolio of short-term
securities on behalf of
SMB clients.
COST STRUCTURE
Cost Summary: relatively fixed development costs to build product, one-time CAC but
believe low attrition (e.g. Betterment), cost to serve onboarded customer very low (highly
automated)
1) (ST) SW Dev: engineers, web dev tools, hosting, hardware
2) (LT) CAC: one-time to bring customers on platform, low attrit.
4) (LT) Custodian / Banking Back-End Partner: revenue share
agreement (Bment/Wfront -> they are web f-end on bank b-end)
3) (LT) Cust. Svs: some req’d ongoing CS / manual account oversight
PARTNERS
Partners for Near-Term
(Free Robo Cash Mgt
Advice)
1) Securities data
providers (e.g. Bloomberg,
Bankrate)
2) Banks (CD providers)
Partners for Long-Term
(For-Fee Auto Cash Mgt
Investment)
3) Custodian back- end
(e.g. Apex)
4) Securities brokers
REVENUES
Revenue Summary: cash mgmt robo adv. tool low cost in ST, LT vision for %
AUM-based fee on robo-invest platform
1) One-Time App Fee (ST): QuickBooks app store (~$50)
2) Bank Fee (ST): Banks who grow their CD book through Arima, fee size TBD
3) SMB Mgt Fee (LT): 25 bps of AUM per yr. (vs. ~35bps for Wealthfront or
Betterment)
CUSTOMER
RELATIONSHIP
Two Key Tenets to
Customer Rln.
Fiduciary: customers
expect Arima to act in
their financial interest
Seamless: SMBs want
frictionless, auto
experience -> no work
CHANNELS
Delivery Channel:
MVP: Concierge/email
with web app
ST: QuickBooks app store
LT: Independent SaaS
CUSTOMER
SEGMENTS
SMBs
-Allow SMBs to earn more
interest on cash otherwise
in low/zero interest
checking acct.
-Automate any current in-
house solution & free up
that employee’s time
- Early stage tech &
small prof. services
firms
Banks
-Helps banks looking to
grow their CD book /
longer-term financing
sophisticated
outsourced
cash
management
for SMBs.
Early stage tech
& small prof.
services firms
QuickBooks
app store
% Assets Under Management
based fee on robo-invest platform
6. Three Key Pivots
Cash
Mgmt
Loans
SMBs Banks
Intake Process
What market are we competing in?
What customer are
we serving?
What product are we building?
CustomerProductPainPoint
Week 2
7. We tested our cash management MVP, and
customers hated it
“To be honest, we’re not really
interested in any reworking of our
financial processes for what
amounts to small dollars of
incremental interest.”
- COO & Co-Owner @ $50M revenue New
England distributor
Cash Management MVP Week 2 Feedback
8. So we asked ourselves, what are small
businesses actually complaining about?
9. Pain Point Pivot (Week 2): Moved from
a “vitamin” to a “painkiller”
“Getting our first loan was a
nightmare. The paperwork
was endless and the bank
took forever to approve it.”
- Co-Owner @ NYC e-Commerce Co.
Loan Applications MVP Customer Insights
10. Three Key Pivots
Cash
Mgmt
Loans
SMBs Banks
Intake Process
What market are we competing in?
What customer are
we serving?
What product are we building?
CustomerProductPainPoint
Week 5
11. We tried building our “common app for loans” for
SMBs, but ran into a wall...
Customer
Acquisition
Get Data /
Complete App
Processing
Underwriting
Tools
SMB Customer Bank Customer
No Digital Integration of Supply & Demand for Loans
Pivot to building digital intake for banks
12. We learned banks know they have broken tech
and are eager for sol’ns
“We’re not in the business of building every solution
ourselves, nowadays. Startups succeed with UX and
data, banks struggle there. Fintech needs to work with
large banks.”
- EVP of Innovation @ .
14. Three Key Pivots
Cash
Mgmt
Loans
SMBs Banks
Intake Process
What market are we competing in?
What customer are
we serving?
What product are we building?
CustomerProductPainPoint
Week 7
15. Loan intake MVP Week 7 Feedback
Banks liked our loan intake MVP, but no “rip it
out of your hands” moment
1. A “nice to have” but not
biggest pain point
2. Some direct competition
(Mirador)
3. Major software
implementation for bank
16. “I have four analysts sitting in our Palo Alto office who just
do spreading. That’s the bottleneck—I’m waiting for them to
finish the spreads so we can underwrite these loan
applications.”
- Senior Managing Director @ .
(Literally leapt out of his chair to show us this step)
What was the big pain point for lenders? →
Processing
17. We set out to better understand the
spreading process
18. We mapped out competitors to see if anyone
was offering this service
Customer
Acquisition
Get Data /
Complete App
Processing
Underwriting
Tools
SMB Customer Mid-Size Bank Customer
Market Gap
No software products
automating processing for
mid-size banks
19. We built our new MVP to automate the
spreading process
20. We got a 10x better response when we
when mentioned spreading
“Can I send this to my credit analyst friends?”
“We have analysts making $80k a year who sit in an office
in downtown LA just doing this.”
“Of course spreading should be automated.”
“Let me send you the template we use right now.”
22. Business model canvas
VALUE
PROPOSITION
Remove major
process bottleneck
Make credit analysts
more efficient / cost
effective
PARTNERS
3rd party Software
integrations
SMB promoters
REVENUES
Per application fee (fixed $ amount) [e.g. Mirador]
CUSTOMER
RELATIONSHIP
Initial customization and
integration (white label)
Continuous feature
improvement
Long-term support
CHANNELS
Direct salesforce targeting
bank
System integrators (e.g.,
Accenture)
CUSTOMER
SEGMENTS
VP of Small Business
Lending
- Employed at bank with $1-
50B in AUM
-Trying to expand their loan
book
- Non-score based lender
- Banks outside the “top 50”
(outsource SW to many
vendors)
Must oversee underwriting
dept. → not loan officer
Bank Head of IT
(Same bank characteristics
as above)
Remove major
bottleneck in
loan
processing
COST STRUCTURE
1) SW Dev: engineers, web dev tools, hosting, hardware
2) Fintech API partners
3) Cust. Svs: some req’d ongoing CS / manual oversight
KEY ACTIVITIES
Build integrations, be
data intermediary
KEY RESOURCES
OCR expertise
UX design expertise
Banking process domain
knowledge
Direct
Salesforce
Banks $1-50B in
assets
Fixed $ / loan application
24. Spreading is just the beginning
Tax data
processing
All
financial
data
Adv. under-
writing
Year 1 Year 2
SMB loan applications currently take 2 months to process,
underwrite, and close.
We believe it should take hours, or even minutes.
25. Target market is $1.8B; SAM $8B
Target: $1.8B
SAM: $8B
TAM: $30B
TARGET ASSUMPTIONS
3k banks in segment
x
500 commercial loans per bank
x
4 apps/approved loan
x
$300 price/app (spread + UW)
$1.8B PER YEAR
26. Going forward
YES, we ARE continuing, gathering more product feedback and piloting
with an initial bank/credit union partner
• Ben & David will work on this
full time through the summer
• Dan & Soumya are continuing
part time
29. Loan Applications MVP Week 5 Feedback
We couldn’t build our MVP because banks
can’t accept electronic apps
1. Borrowers would love a
“common application” for SMB
loans…
2. ...But banks aren’t
integrated to handle electronic
applications
30. We learned more about the nuances of serving
SMBs versus banks
Customer
Acquisition
Get Data /
Complete App
Intake /
Processing
Underwriting
Tools
SMB Customer Bank Customer
1. Antiquated tech makes
lending slow
2. Expensive to acquire, but
high LTV
1. No bank integration → hard
to scale SMB-facing biz
2. Expensive to acquire, low
LTV
31. We then asked, which of these pain
points is most interesting?
Are SMBs Complaining
About Same Issues?
Are Other Startups Trying
to Solve?
Lending / Credit Similar Complaints Some Competition
Bookkeeping Varied Complaints Some Competition
A/R Collection Similar Complaints Direct Competition
32. Competitor leaf diagram
Internal loan
processing
teams
* Currently only do consumer
mortgages
Lending
front-end
(digital
loan
app)
*
Lending CRM
Underwriting
tools
Data-driven direct
lenders
33. Customer Type Description Interviews
Gov’t / Other SBA, IRS, Industry Assc’ns 4
Competitors Direct Lenders, SW Providers 20
SMBs $250K - $50M in Revenue 27
Small Banks < $10B of Deposits 25
Mid-Size Banks $10 - 250B of Deposits 11
Large Banks > $250B of Deposits 16
Our Interviews This Quarter
103
34. Cost breakdown ($K)
($K) Year 1 Year 2 Year 3 Year 4
Physical Company offices $10 $34 $67 $163
Software
OCR (DocParser) $7 $35 $175 $350
S3 $0 $1 $4 $7
Web hosting $1 $5 $25 $50
Misc. SW $5 $10 $15 $20
Human
Capital
Engineering $300 $600 $1,400 $3,500
Design $- $130 $280 $560
Sales $- $360 $600 $1,500
Total $323 $1,174 $2,566 $6,150
35. Key resources
Physical ● Company offices
Software
● Document processing service (DocParser)
● Cloud document storage (S3)
● Web hosting (Heroku)
Human
● Engineers (2 at first—one frontend UX, one backend)
● Designers (founders only at first)
● Salespeople (founders only at first)
● Mentors / technical advisors (one banking, one general
technology/web)
IP
● Brand/trademark/logo
● Integration expertise (e.g., with LaserPro)
● Spreading software
36. Activities: Product, sales, fundraising
● Work with bank IT team/loan officers to understand inputs and outputs of
bank’s spreading process
● Design and build user experience for loan officer and SMB data input
● Identify API partners (DocParser, QuickBooks) and set up their services
Product
Development
Customer
Development /
Selling
Fundraising
● Identify sources of funding and programs
● Complete applications and manage interview processes
● Create marketing and sales collateral customized to individual banks
● Source leads for sales through LinkedIn and founder networks
● Present (demo) product to bank credit officers and processing managers
● Draft contracts and close
37. Insights: Charge $50 per Loan Application
Benchmark vs. Current
Approach
Test WTP DirectlyMain Value Props
20 minutes per tax return
Assuming no screw ups
x 6 returns per loan app
3 business, 3 personal
______________________________
= 2 hours per tax return
x $50 per hour labor
$70K salary, $30K benefits, 40 h/w
______________________________
= $100 per loan app
Note: Umpqua Bank Example
60 loans per center per month
x 20 centers
x 12 months
x 2 hours per loan
___________________________________________________
_
= 28.8K hours or ~$2.9M labor
(1) Remove Process Bottleneck
“I have a stack of applications on my desk
I can’t review yet because our analysts
haven’t spread the numbers.”
-Senior Loan Officer @ First Republic
“Doesn't matter what bank you go to, they
never hire enough credit analysts. They
are always cranky, they are always
backlogged. They are the only thing
standing between you and the loan
approval.”
Loan Officer @ CDC Finance
(2) Time / Cost Efficiency
“My credit analysts could spend more time
analyzing the financials instead of
transcribing them.”
-Senior Loan Officer @ Heritage Bank
Q: Would your bank pay $500
per loan for this product?
- Goal to start high, test down
- 3 potential buyer banks (mid-
sized)
- (Senior) Loan Officers, no mid-
sized bank CIOs (yet)
Responses:
● (2x) “I don’t know”
● (1x) Mental math of credit
analyst cost of time +
bottleneck pain → $40-50
38. Partnerships
Integration partners SMB promoters
SF Small Business Commission
● The bank’s core system (ex FIS) holds all
of their client and transaction data
● Their spreading program is used to make
underwriting decisions
● Use organizations that help small
businesses
● They connect with existing SMB lenders
and complain about the completion time
(30-60 days) and complexity
39. Products / Services
-Intuitive platform
- Upload applicant tax
return data
-Single view of all tax
returns and spread
financials
-Validate tax return data
Pain relievers
-Less paperwork/emails
-Less manual data
transformation
-Lower risk of
incorrect/fraudulent data
Gains Creators
-Increase number of loan
applications that bank
can process
Value Proposition: Streamlined Loan Application Customer Segment: Commercial Banks
Pains
-Lengthy intake process
-Risk of incorrect data →
invalidates SBA guarantee
Gains
-Low application
abandonment
-High data accuracy at
intake
-Quicker decision cycle
- Auto “spread the
financials”
Customer Jobs
-Intake loan app data
-Process loan app data
(validate all correctly
formatted/valid), request
updated information if
needed
-Underwrite loan (provide
a quote)
-Close loan (final approval
process)
-Send loan data to SBA
Updated Value Proposition
40. Pilot Customer Pipeline: High-impact demos with
management over next 1-2 weeks
Bank Progress Last Week Steps Next Week(s)
Heritage Bank Discussed solution with head of lending
Demo next week w/ CIO, COO,
& CFO
Sterling Bank
Solution validated with SVP SBA
Lending
Demo with EVP, CIO, &
network manager
Torrey Pines
Bank
Demo’ed with from former SVP
Implementing changes, then
demo w/ head of SBA
First Republic Re-engaged with lending SVP Scheduling demo next week
Union Savings Auto spreading inbound
Demo with commercial lending
AVP
41. 18 Q2 18 Q3 18 Q4 19 Q1 19 Q2 19 Q3 19 Q4 20 Q1 20 Q2 20 Q3 20 Q4 2021
Operations & fundraising plan
Customer acquisition
Series A
$ 800KSeed
$ 7M
Product v2.0
launch
Product development
Official product
launch
Prototype Next 3 cust.
Dev.
activities
S&M
activities
Pilot with 1 bank
Sales and Marketing to other mid-sized banks
Scale infra.
Costs
Integration/support
Develop relationships with risk analytics providers
Loan intakeAdv. underwriting
First 100 customers!
Fund-
raising
Editor's Notes
Slides are too wordy use animation
Slides are too wordy use animation
-explain optimization idea
Would make this slide animate… else too much data
What idea did you pivot to - maybe show your mvp
Again animate
Why not
Map this out in a better way, maybe a pedal diagram
The journey’s just starting! It’s a big idea :)
Don’t show this slide as you don’t really understand it.