Keith Harrington On Raising $120 Million In Debt Capital To Build A B2B Hub To Provide Financing To Entrepreneurs

In a recent podcast episode, we delved into the world of non-dilutive capital and entrepreneurial ventures with Keith Harrington, a seasoned investor and co-founder of Novel Capital.

Keith’s journey from a suburban Kansas City upbringing to becoming a key player in the venture capital world is nothing short of inspiring. This blog post captures the highlights and lessons from his remarkable career.

His company, Novel Capital, has raised funding from top-tier investors like Ignia Partners, MatterScale, Gaingels, and Ulu Ventures.

In this episode, you will learn:

• Keith Harrington transitioned from aspiring to be a doctor to a successful entrepreneur and investor after discovering his passion for startups in college.
• Early experiences with startups during the dot-com bubble taught Keith valuable lessons about growth, crisis management, and corporate development.
• Keith’s venture capital career began by focusing on the strengths of entrepreneurial teams rather than just the ideas they pitched.
• Founding Novel Capital, Keith created a unique model for providing non-dilutive funding to B2B software companies based on their data.
• The SVB collapse underscored the importance of stable, non-dilutive funding sources for startups, leading to increased demand for Novel Capital’s services.
• Keith aims to make Novel Capital a comprehensive resource for entrepreneurs, helping them make informed decisions about various funding options.
• Keith’s core advice to entrepreneurs is to take action and learn through experience, emphasizing that perfection is less important than progress.

 

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About Keith Harrington:

Keith Harrington is the Co-Founder & COO of Novel Capital, a fintech funding platform. Keith is also the Founder of RBF Network, connecting and supporting revenue-based investors.

With experience as a Founder, Managing Director at Upstart Partners and various board positions at companies like Health Outcomes Sciences, Inc. and TVAX Biomedical, Inc, Keith has a strong background in venture capital and investment.

Additionally, their education includes a Venture Capital Executive Program from the University of California, Berkeley and an MBA from Indiana University.

Connect with Keith Harrington:

• LinkedIn
• PitchBook
• TheOrg
• Crunchbase

Read the Full Transcription of the Interview:

Alejandro Cremades: All righty. Hello, everyone, and welcome to the Deal Maker Show. So today we have a really exciting founder. you know We’re going to be talking about non-dilutive capital and a bunch of other good stuff, especially when it comes to building, scaling, you know financing, growing, and then you name it, all the good stuff. And and again, you know the um the episode today is going to be packed with adrenaline from you know the meltdown of Silicon Valley Bank and how they were able to help you know people out to how they raised you know literally over $100 million, whether it’s in equity or in debt. And we’re going to be hearing about the difference of one and the other. And then also, you know being able to implement the experience say of being pretty much an investor, um deploying capital for startups before he actually went at it. And he transitioned to the other side of the table. So without further ado, let’s welcome our guest today, Keith Harrington. Welcome to the show.

Keith Harrington: Thank you Alejandro, really excited to be here.

Alejandro Cremades: So originally from Kansas City, the place that has had quite the year where it comes to football, but you know give us a memory, give us a walk through memory lane.

Keith Harrington: Yeah.

Keith Harrington: That’s correct.

Alejandro Cremades: How was life growing up over there?

Keith Harrington: Yeah, well, I’ve been in Kansas City long enough to remember when the football team and the baseball team sucked. I was born here, I grew up here, all the interesting things that I’ve done. I’ve done here in Kansas City, if there are any things that were interesting, I guess. But I remember when the Royals won the World Series in 1985. I was just a kid at the time, but but yeah, I’ve been here all along. um you know i think I didn’t really have a very interesting childhood, to be honest. I had a regular suburban ah childhood, went to school, didn’t get in very much trouble, went to college, got in a little trouble. ah And

Keith Harrington: you know along the way really developed a passion for entrepreneurship and what would eventually become what what we launched at Novel.

Alejandro Cremades: So in your case, I mean, you went up to the um university over there of Kansas City and you thought you were going to be a doctor, but eventually that didn’t turn out the way you had hoped for.

Keith Harrington: Correct. okay yeah yeah i went to no no No, I wasn’t as smart as I thought I was. I went to the University of Kansas. um i I had big designs on being a doctor, and I took a chemistry class that taught me that I wasn’t as smart as I thought I was. um and ended up but over time transitioning to different majors. I ended up majoring in poli sci for a little while, psychology for a little while. I think everybody does that. Eventually wasn’t sure what I wanted to do in school and wasn’t doing a whole lot of school. And so I ended up getting a job at a startup here in Kansas City. And that was kind of the start of my of my trajectory, really.

Keith Harrington: I got a job at ah at a local ISP, which was a thing back in the 90s, an internet service provider for anybody who was under 30, I guess, listening to this.

Alejandro Cremades: Thank

Keith Harrington: um and And that was really cool. I was introduced to the idea of a very small company ah trying to grow and punch above its punch above its weight. I learned a lot there about early stage companies and about building a customer base. And then from there, I actually went to

Alejandro Cremades: you.

Keith Harrington: Another startup here in Kansas City, a startup which at the time in Kansas City was kind of a big deal. It was called Birch Telecom, ah raised just a ton of money from blue chip investors around the country in 1998, 99 and 2000. and then the dot-com bubble burst. And all of us like me who were counting our ah stock options, millions, ah watched them go to zero very, very quickly. We were actually slated to go public, if I remember the date right, April 24th of 2000.

Alejandro Cremades: Thank you.

Keith Harrington: And that ended up getting pulled. And we ended up spending the next three or four years really doing some emergency M and&A, pulling the business out of the, I guess, out of the dirt. a couple of different times. I went through ah an actual Chapter 11 filing, a bankruptcy filing. That was crazy. But ah all through that experience, I happened to be lucky enough to work for a guy who, because I was curious, because I was ambitious, let me do things that I had no business doing, to be honest. Along this path, by the way, I finished my ah my degree in finance is where I ended up landing. But that’s less interesting than the actual experience that I had at Birch.

Keith Harrington: I went from doing working in the technology and engineering group to eventually doing corporate development, ah helping with M and&A, helping with integration of a company or two, um transformative projects that were really cool. and And like I said, I really had no business being involved in those projects, but I pretended like I belonged in those rooms and it seemed to work at the time. ah I thought it was really cool ah when I would sit down and talk to the, i got to I got to be exposed to some different kinds of board members, different kinds of investors at that point. I got to meet some VCs. I didn’t know what venture capital was at the time. This is, you know, 2000, 2001. I had no idea what it was, but I was kind of captivated by the concept and by how those guys thought and the kinds of things that they would make bets on. I just thought that was super cool, very sexy at the time.

Keith Harrington: And I also met some private equity guys, and I didn’t really like them very much. They were you know very focused on spreadsheets and squeezing every dollar they could out of out of the company at the time, and that was their job, so no no harm, no foul. but um You know, I got super entranced by this idea of venture capital. And ah it was kind of a tough place to be in Kansas City in the year 2000, because there wasn’t any venture capital anymore in the in Kansas City in the year 2000. So I thought, well, you know, what better thing to do than maybe go get my MBA and set myself up for someday being qualified to get into that space?

Keith Harrington: So I did that. Eventually, the guy that I worked for at Birch Telecom ah called me in 2009 to tell me he had taken ah a role leading investments for a state-funded ah life sciences fund and asked me if I’d like to come ah do that with him.

Alejandro Cremades: Thank you.

Keith Harrington: And I said, well, I don’t know anything about life sciences or about early stage investing. and he sort of said, well, neither do I, but maybe we can go figure it out. So that was how I got into venture capital. It just happened to be lucky enough to have a guy who believed that I would be able to help him figure it out and believe that I would be able to figure it out along the way. So I was there for oh, six years, made a bunch of ah interesting investments, learned a lot about early stage companies. My whole job was to was to support early stage companies with investment.

Alejandro Cremades: but what What was the biggest biggest lessons? And what were some of those say patterns?

Keith Harrington: Oh.

Alejandro Cremades: and Because six years, you know, gives for a lot.

Keith Harrington: Yeah. Well, I’ll tell you, the big the biggest lesson, the first lesson that I learned was I should not give advice to entrepreneurs because I didn’t have any idea what I was talking about. So that was the first thing that I learned. The second thing that I learned was in early stage investing, The quality of the idea is critical, but it’s really about the people who are going to be doing the implementation. What does that team look like? ah is Is their capability to execute, iterate, and keep going? Do they have the persistence necessary to actually achieve success? That was something that you hear that in the sort of in the ether about, how do VCs think about making investments? um And you know I bet on the bet on the jockey, not the horse.

Keith Harrington: And it sounds interesting, but at the end of the day, it’s actually true. That is exactly how VCs think. And I had to learn how to think that way because when I first started doing ah ah work in early stage investing, I thought a lot about spreadsheets and models and how those would all come out. And nothing ever worked the way that the spreadsheet or the model said it would, right? ah But if you could get aligned with a founder or a team of founders who had grit and capability and persistence and were able to execute, then we were going to see something interesting happen. that That’s the biggest lesson I learned that in venture, it really is about the people. It’s about the team.

Alejandro Cremades: So tell us about meeting your co-founder.

Keith Harrington: Yeah, so after after making a bunch of life sciences investments, I left that that role. um I was a co-founder in another fund ah that focuses on ag tech investments. It’s still here in Kansas City, um and and they’re up and running and doing a great job.

Alejandro Cremades: you

Keith Harrington: But what I realized along the way, fundraising and starting to work on generating deal flow there, was I didn’t really like being a venture capitalist. And it’s because I would sit down and I would talk to an investor or ah to an entrepreneur, and I would listen to their story, and I would hear the dynamics of their business, the metrics of their business. And unless they fit a very narrow slice then there was no way that I would be able to help them. And I spent a lot of my time shrugging my shoulders, saying, I don’t know how to help you. I certainly can’t do anything for you, because maybe, for example, you’re a an entrepreneur with a million dollars in revenue, and you’re growing 30% year over year. Maybe you’re flirting with profitability. That’s not venture-backable, but that was 40%, 50% of the companies that I saw. They had something.

Keith Harrington: they maybe didn’t have a shot at being a unicorn, but they had a real business and they had a real shot at building something meaningful, having an impact on the community around them and building something that that matched their own aspirations. And so I started thinking, if venture doesn’t work, Maybe there’s something else that does. And I started doing some research trying to figure out how do you fund more entrepreneurs more broadly with some kind of tool that’s going to actually help them grow? You know, not like factoring or working capital finance, but something that will actually give them capital that they can use to grow.

Keith Harrington: And just coincidentally, I’m a Kauffman Fellow, ah which happened, I was accepted into that program while I was doing Venture. um And ah coincidentally, the Kauffman Foundation, which has no affiliation with the Kauffman Fellows anymore, invited me to a seminar, a design session day at their headquarters, which is here in Kansas City, to talk about funding small companies. it was ah It was a deal.

Alejandro Cremades: you

Keith Harrington: It was a conversation about microfinance. And the idea was, hey, we want to unlock a trillion dollars of capital for early stage companies and entrepreneurs who don’t typically see you know equity capital. And so at that meeting, I met a couple of people who would change the course of my trajectory. I met a guy at a firm called CIM who funds ah other funders. So he provides capital to lenders and other kinds of capital providers for entrepreneurs. Their whole goal is to create more capital in the ecosystem and new forms that are that are generally non-dilutive. And I also met a couple of entrepreneur entrepreneurs who had taken on a form of financing called revenue-based financing.

Keith Harrington: which I didn’t really know anything about. Once it was described to me, it made sense. I kind of understood it. I got so excited about it though. I left that meeting. and determined to build a revenue-based financing ah ah firm. And so I went out in Kansas City over the next 60 or 75 days, and I had two or three meetings a day with investors, with entrepreneurs, with lawyers, with accountants, with anybody who would talk to me and tell me that the idea was bad or that it would give me something that I could use to refine it. But the general idea was, OK, I’m going to go raise a revenue-based financing fund, and I’m going to fund a bunch of entrepreneurs.

Keith Harrington: Along the way, I sat down with a guy I knew from another program here in Kansas City called Pipeline Entrepreneurs. ah His name is Carlos Antiqueira, and he had recently exited his company, which was an ed tech business that coincidentally, when he was out on the fundraising trail, struggled to really raise money because he was an ed tech business, it wasn’t a very sexy industry, and his growth was solid, but it wasn’t venture growth. So he really struggled to raise capital. He ended up selling the business to VISTA equity partners, so he did very well. And it took him about seven years, I think, to find an equity partner that was that would write a check that was meaningful enough for him ah to to really be ah to help him grow. So we sat down to coffee over coffee one day, and I shared with him the idea. And he said, I totally get it. I would have taken that money in a heartbeat.

Keith Harrington: Because I knew if I pumped a dollar into my ah sales machine, I knew how many dollars I would get out. So if if you’re going to provide a revenue-based financing loan, which would pay back maybe 1.5x or 1.75x or whatever over three or four years, so I would have taken that money in a heartbeat.

Alejandro Cremades: Thank

Keith Harrington: ah Do you want to partner up? And yeah that the truth is I said, eh, I don’t think so.

Alejandro Cremades: you.

Keith Harrington: um I think i’ll I’m just gonna figure this out on my own because I’d had a bunch of people offer that to me. Like, hey, you wanna partner up? And and I thought, oh, I can do this on my own. It’s a good thing I didn’t keep that mindset, by the way. I couldn’t have done it on my own, not even close. But I went home that day and my wife said, she asked me how the meeting was and I told her and she goes, let me get this straight. You have said that you want a partner who’s built something, preferably someone who sold something and someone who isn’t the same as you, right? Like a spreadsheet and a finance and ah and a VC guy. And I said, yeah, that’s right. She’s like, what?

Keith Harrington: why why didn’t you Why didn’t you take him up on his offer? Why didn’t you explore that? And I was like, yeah, good point. So I sent him an email and said, let’s let’s go deeper. And ah we got back together and spent a lot of time working together on what would become novel. And that was the about the middle of 2017, and we we’ve been building ever since.

Alejandro Cremades: So then I guess for the people that are listening what ended up being the business model of Nobel capital. How do you guys make money.

Keith Harrington: Yeah, so I’ll skip the first thing that we did, which was just a standard fund, which really proved to us that the market exists and that we could build something that would serve the need in the market. ah Novel Capital, which we launched in 2021, is really a fintech business. And what we do is we take ah company data and use that to underwrite a business and determine the size of a loan that is useful and appropriate for for companies that come to us. ah So we are essentially a fintech lender. We provide non-dilutive capital to B2B software companies all around the country. um ah The business model is we lend and at the moment we are actually building new tools ah for entrepreneurs because one of the things that we’ve learned is

Keith Harrington: We have a really ah robust view of the companies that we work with. And so we are starting to turn those insights that we see, turn those insights around for the CEOs ah that we loan money to so that they can see what we see and start to make better capital decisions. Because sometimes getting a loan is not the right answer. Uh, just as oftentimes getting equity is not the right answer. So our goal is really to be a one-stop shop for insights and capital. We’re going to help you as a CEO make your capital decisions. And then when it comes to non-dilutive capital, we’ve got what you need.

Alejandro Cremades: So let’s talk about to the capital raising for you guys, because you’ve raised a over $100 million, whether that is a break broken down in debt or in equity.

Keith Harrington: Yeah.

Keith Harrington: Yeah.

Alejandro Cremades: So give us a breakdown of how that looks like, and and also what was the journey of raising both.

Keith Harrington: Oh, man. um Fundraising is hard. and Don’t let anybody tell you different. So, yeah, we’ve raised about $120 million in debt to deploy to the entrepreneurs that we fund. And we’ve raised a little over $15 million in equity for for the for the company itself to support growth and new initiatives, software development and the like. um You know, the the journey is

Alejandro Cremades: you

Keith Harrington: Like any fundraising journey, I think that that any entrepreneur has ever taken on. it’s just a it is It’s hard. And at the end of the day, it is a function of how hard are you going to work to get that fundraising done? i have a pretty And Carlos has a pretty great network ah in fundraising circles. So we know a lot of ECs because we’re both coffin fellows. So we can easily meet and talk to ah most of the investors that we want to meet and talk to on the equity side. um And that’s great, but it doesn’t get any he deals done. So at the end of the day, what always matters is

Keith Harrington: How do the metrics of your business stack up to expectations? um And what does the future look like for your business?

Alejandro Cremades: you

Keith Harrington: So you know we’ve been able to show ah really solid execution since the beginning, really solid growth on the loan side, also really solid ah product development that that we’re releasing you know every couple of months, we’re releasing a new a new feature or a new product. And that’s what got the VCs that invested in our latest round super excited. and ah They see that we’ve got strong credit standards, we’ve got a strong portfolio, we’ve got software coming out, ah we’ve got a business where revenue the revenue flywheel is running now and we’re growing and this is ah this is the right time to get to take on growth capital and really go.

Keith Harrington: um raising the debt capital. So we had neither one of us had ever done anything like that before. um ah That was one of the hardest things. I think that was one of the hardest things I’ve ever done professionally. And it was because i neither one of us, neither carlos Carlos nor I really spoke debt. It’s a totally different language. um And so we had to learn how to be credit guys out on the fundraising tour, how to talk the credit language. um I remember there were times our current lender is going to, I don’t know if they’re going to laugh at this or if it’s going to make them cry, but I remember sitting and in, i was so naive, I remember sitting in fundraising meetings talking to these lenders.

Keith Harrington: And they they would ask me for stuff. And I’d be typing notes into Evernote. I’d be like, yeah, totally. I’m mean i’m absolutely going to send you that. And I wouldn’t have any idea what I just agreed to. like I don’t know what you just asked me for. So I’m typing in a note. And then when I get off the call, I remember looking at Carlos one day and saying, what’s a loan tape? What what does that even mean? And but it was just the basics. We had to learn the basics about how to go raise debt. it was extraordinarily difficult. um But you know it’s one of those things where we learned so much in that process ah that it actually helped us become ah better lenders and a better steward of the capital that we’ve that we’ve been able to raise. So we were naive. I think we’re a little bit less naive these days. um But but that was ah that was a really hard that was a really hard fundraise.

Alejandro Cremades: So what about what about Silicon Valley Bank all that the back going and also how do you think that has shaped the app as well the way that you guys typically engage with the providing non-dilutive capital to companies.

Keith Harrington: Yeah, man, that was that was terrifying when all of that started to happen. i I remember just we were just watching what felt like the world falling apart in that moment. you know In retrospect, I look at it and I’m kind of like, it seems like a blip, but in the moment, there was just sheer panic. ah We did not have any exposure at SVP. We didn’t have cash there. But we had cash at banks that were starting to also ah Falter in that moment. So we had to do a bunch of movement cash movement and cash protection um ah Just to keep just just so that we could not be worried and we were able to do that pretty quickly What was I think?

Keith Harrington: really great about that time was we were able to very quickly engage with companies in our portfolio who did struggle and did have some exposure at SVP and help them ah navigate that crisis, sometimes with ah connections to other banks so that money could be moved, sometimes with capital in the moment.

Alejandro Cremades: you

Keith Harrington: But we did a lot to actually help the companies that we were already working with navigate that crisis and survive it and and then come out the other side. and to thrive. And you know that was tough, but one of the things that I think has been really interesting since then is We have seen demand for non-dilutive capital for early stage software companies just absolutely skyrocket. So, ah you know, SVP melted down. That was bad for a lot of people. um But what we are seeing is, and this has sustained over the last year plus now 15 months, I think, entrepreneurs are very hyper aware now of where can I get capital that, and where can I get it from a source that’s gonna be safe and reliable?

Keith Harrington: And we’ve really benefited from that because we’ve got a strong track record. We’ve got an excellent reputation in the market. We spent a lot of time making sure that we’re always doing right by the entrepreneurs that we serve. And so we’ve seen a significant uptick in demand and a significant uptick in originations as a result. And that’s been sustained over the last 15 months. So um you know I don’t want to say SVP going the way it did was good for us, but but it certainly helped us touch and help more entrepreneurs along the way.

Alejandro Cremades: So imagine you were to go to sleep tonight, hey Keith, and you wake up in a world where the vision of novel capital is fully realized. What does that world look like?

Keith Harrington: Yeah, yeah. Yeah, it’s like it’s an it’s a world where entrepreneurs have a single source to go figure out how to fundraise for their business. So one of the things that I know as as an entrepreneur, which by the way, I just want to say this, being an entrepreneur is way harder than being a venture capitalist. um I just want everybody to know that. I can settle that like can settle that question without equivocation right now. But I think one of the things that um entrepreneurs, one of the one of the key challenges that entrepreneurs have, right? They got to grow their companies. They got so many things to figure out. And then they’ve got this capital question. What kind of capital do I need? When do I need it? How should it be structured? Who should I get it from? What should the terms be? Who’s a good person to take it from? Who’s not a good person to take it from? That is so complicated. And if you don’t have a great network or a whole bunch of mentors who can help you think this through,

Keith Harrington: you’re in trouble because this is hard. And when you make bad decisions about capital, you can actually kill your company. So to me, giving entrepreneurs a single spot, a single source of insights and advice for capital and a place where they can actually get capital at the same time is absolutely critical. It can be game-changing for a company, right? Because what if they make a bad decision? I’ve seen tons of entrepreneurs make bad capital decisions, and I’ve seen them have to shut their companies down as a result. And so that’s the problem that we’re out there solving. We understand that it’s hard. We understand that it’s complicated.

Keith Harrington: But we also understand that it’s not rocket science. It’s not magic. We can actually build the tools that help you as a founder figure out, I need venture now. I need debt over here for this particular purpose. Maybe I need you know a different kind of capital, working capital financing, invoice financing for for this purpose over here. How do I stack this stuff up? How do I make it work for my business and do so while building value? That’s such a hard thing to do if you don’t have the tools at your disposal. Well, we do. So that’s what we’re trying to build.

Alejandro Cremades: So imagine now that you’ve been at it now for close to seven years, you know with Nobel capital. and It’s like a hundred years in the corporate world.

Keith Harrington: Yeah.

Alejandro Cremades: But then let’s say you let’s say you are able to go back in time, right?

Keith Harrington: True. True.

Alejandro Cremades: you know To ah over 2017, where you guys were kicking things off.

Keith Harrington: Yeah.

Alejandro Cremades: And let’s say you’re able to ah have a sit down with that younger self, with that younger Keith, and being able to give your younger self one piece of advice before launching the business.

Keith Harrington: Oh, yeah.

Alejandro Cremades: What would that be and why, given what you know now?

Keith Harrington: Just go. Just go. um that that’s That’s it. ah it’s it’s It’s the simplest advice. one of the things that and This is just a ah feature of my programming. It’s the software that runs in my head. um i will I think a little bit probably too much before acting. and And I think you have to be careful that there’s a balance there, right? But i I spent a lot of time trying to optimize for things that in the end didn’t matter. And it was just a ah function of inexperience and a function of a little bit of fear of failure. And so

Keith Harrington: What I would tell myself, if I could go back and have coffee with myself seven years ago, I would say, just go. You’ll figure it out. you’re not You don’t need to have the answer to every question now, but just go and you’ll figure it out as you go. And that’s that’s the the thing that was most difficult for me starting this journey. And it is also the thing that I enjoy the most about this journey is that I will end up in a predicament that I don’t have an answer to. And now I got to think on my feet and I got to figure it out. And I enjoy that a lot. That’s actually one of the most fun parts of of entrepreneurship.

Alejandro Cremades: So, Keith, for the people that are listening, I would love to reach out and say hi. What is the best way for them to do so?

Keith Harrington: Yeah, you can get me, uh, my email address is keith at novel capital.com. Uh, you can get me on LinkedIn, uh, Keith Harrington. You’ll find me Keith Harrington, novel capital. Uh, those are the two best ways to get me.

Alejandro Cremades: Amazing. Well, easy novel. Keith, thank you so much for being on the Dealmaker show today. It has been an honor to have you with us.

Keith Harrington: Thank you, Alejandro. The honor has been all mine.

*****

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