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Miguel Fernandez’s fintech startup has already raised at least $90M in debt and equity to help more SaaS companies supersize their growth rates. His startup Capchase has raised $90M from top-tier investors like i80 | Group, Ben Orthlieb, ONEVC, and Amara Venture Partners.

In this episode, you will learn:

  • The new normal of cofounding a company with people you never met
  • Capchase’s vision of the future for SaaS businesses
  • The importance of growing faster as a leader than your company
  • Miguel’s top advice for hiring key team members

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Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.

About Miguel Fernandez:

Miguel Fernandez Larrea currently works as Co-founder and Chief Executive Officer of Capchase.

Connect with Miguel Fernandez:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Hello everyone, and welcome to the DealMakers show. So, super excited about the guest that we have today, which is someone that grew up in Spain, just like myself, and also from Madrid, believe it or not, so super, super excited what he’s doing – incredible journey, building scaling financing, you name it, and we’re going to be learning quite a bit today. So without further ado, let’s welcome our guest today. Miguel Fernandez, welcome to the show.

Miguel Fernandez: Hey, Alejandro. Thank you so much for having me here. I’m super excited to be sharing our story with you and to be talking with a fellow Spaniard, also from Madrid.

Alejandro: Absolutely. It’s lovely to have you. So, Miguel, I would like to start here with doing a walk through memory lane, and obviously, born and raised in Spain. How was life growing up in Madrid?

Miguel Fernandez: Yeah, life in Madrid was fine. It was a lot of fun. I remember I liked growing things from the beginning, which I think probably has influenced my life. I remember growing up; I spent most of my time playing Lego and building stuff. I never got into coding as a kid, which is sad for another entrepreneur story, but yeah, building things, mostly Lego sets. I was very curious about how things worked, so I studied engineering in Madrid. I did mechanical engineering, and then I went to Munich, where I lived for a couple of years, where I did energy engineering with a focus on nuclear. Then [0:02:37] engineer, sadly, I worked [0:02:41] for a couple of years doing banking NTT, banking mostly focused on fintech, which is when I first got interested in this space back in 2015. This is memory lane, for sure. I think all the rage in fintech was around B2B, SMB Lending, and also role advisors, which I think are remarkably not sought these days. But anyway, that’s when I fell in love with this space, I tried launching two companies while I was in consulting, and of course, we did all the things that people thought you should do, working part-time and wanting to do R&D with the volatile of the market, so both failed. Then I really decided that I wanted to build things, so I left consulting, and I joined a few revenue SaaS companies in Spain as the ninth employee, roughly, I think. I was the first person in sales. It’s funny because when I joined the position, I joined as a business development associate. Based on all the interviews, I thought I was going to be joining this strategy. Then when I got there, they gave me a phone the first day and said, “You’re going to call people about the product.”

Alejandro: Dial and smile.

Miguel Fernandez: Exactly. Yeah. I was, obviously, not happy. I was very uncomfortable calling people after work. I ended up doing the sales and customer success team, [0:04:07], and run the company very fast. Then I eventually moved to the UK, to London, to open up the local office, build a team, and do the market from scratch. It was quite a ride. In those three years, as we went from zero to a few million in AR, we really got to know the SaaS space and the economics and how SaaS companies grow and their growing pains around fundraising, cash management, revenue reporting, and so on. They were trying to solve it right now. Then we led that company, came to do my MBA at HBS, and spent the first few months. We would see a lot around working capital and cash conversion cycle with different verticals, all with the idea of helping companies with their working cap and their funding needs, basically helping them to pay later or get a bit earlier so they will have more cash in hand to grow. We had different solutions for different verticals. We had factoring. We looked at finance; we looked at trade finance, and we felt that we didn’t add anything to what was in this space currently. So we kept trading and trading, but the more we learned [0:05:15], the more we honed in on the idea, and then eventually that topic of helping companies to get paid earlier clicked together with the pains that we felt operating a SaaS business. We started Capchase in the early 2020s, and since it’s been a ride. I was in the first few months speaking with a ton of founders, understanding beyond the funding needs of a company. I mean, we can later get into details on what Capchase does. We wanted to understand, besides funding, what other pains are around cash management and revenue management were they facing with this current million things. We decided to focus on financing, so helping, most of all, revenue companies to offer flexible payment terms to customers, so paying monthly payments, quarterly payments. But giving them all the cash up front so they would have all that cash to reinvest in growth instead of waiting for it to come in, and then we raised a round in the summer from some of the best investors: Max Levchin, co-founder of PayPal, co-founder of the firm. Then Bling Capital, Caffeinated Capital, and first investors in Valencia, Lyft, [0:06:24], and so on. One left at the end of August, and since then, it has been crazy. Crazy growth.

Alejandro: But before we talk about the crazy growth and the crazy stuff, why don’t we talk about the crazy conversation that you had with your parents when you told them that you were dropping out from Harvard Business School. Coming from Madrid all the way to Boston, doing the Master’s, that’s like a big, big break, a big thing, especially when you’re coming from all the way from Spain. Then after accomplishing all of that, you have to make the phone call and say, “Hey, Mom, Dad, I’m finished here. I’m launching a startup.” What was that conversation like?

Miguel Fernandez: Yeah. That was very crazy as well. I think you nailed it. Coming from Madrid, when you see Harvard on the television, the newspaper as a kid, it’s like a dream. You just want to go there. That was my dream. I never thought it would be possible to go to HBS. Then, I finally got in, and I was so happy. I remember the day they called me. My knees were shaking. To me, it was my biggest accomplishment so far. Then I came here. It was amazing. I already had the doors open and the vision that it was almost like a self-fulfilling prophecy. You’re here, and you’re thinking, “Everybody that comes to HBS is going to be amazing.” Then you have to be amazing and pressing on to something great. It was really good for me that this would be possible to go to HBS. A ton of professors who opened a ton of doors. Then we launched Capchase over the summer of our first year. I originally thought I could do both of these at the same time. You had to stay in a role for one more semester while I got my O-1 Visa because if I had dropped out earlier, I would have had to go back to Spain, and during COVID, it was a bit of a mess. So I stayed in a role trying to do both things, but I would find myself nodding during class and focusing 100% on the company. It was a tough decision to drop out or not, but what I was thinking was, what would I rather drop out of HBS and focus on Capchase or drop out of Capchase and focus on HBS. The opportunity was so huge in Capchase that I couldn’t say no to it. So I called my mom and said, “You know, I’ve been doing this for months. I haven’t been able to spend time at HBS, so I’m thinking of taking a break and see Capchase through.” Then eventually, I could come back in the future, or who knows.

Alejandro: That’s amazing. Obviously, you make the decision of dropping out. You have your group of co-founders, which actually you knew from the business where you used to work before doing the Master’s. Then you guys get together, and what were the early days like? You launched this thing in 2020 right before the world was going down the toilet, so how was that for you? Did you at any point think, “Oh, man! I think I may have made a mistake dropping out of Harvard”?

Miguel Fernandez: Yeah. There are ups and downs in the startup life. In our case, it was a flurry. We never went down in a blur. We were just going so fast, and we had so many things that we were more focused on what is the most immediate part of a niche to get sold as opposed to lingering a little bit on decisions made in the past. I remember it was a journey at the beginning. Our biggest thing was how can we open a bank account in the U.S. without being U.S. citizens. Our biggest problem for the first few weeks was how do we get an SSN to open a bank account. The beginning was a lot of, “How do we position this to customers? How do we get one initial customer to prove the traction and then raise money?” When we raised money and just grow as a person very quickly because the problems just become more complex and the biggest problem becomes who do I need to get on board to get us from where we are right now to where we want to be in the following six months. Then that starts repeating itself all over again. So now the biggest problem is always ting, ting, ting.

Alejandro: You mentioned how to grow as a person very quickly. That’s interesting because sometimes founders underestimate the fact that those hypergrowth companies grow very quickly, and you need to grow at the same pace so that you are not being outpaced by the business, and obviously, you end up being pushed out of business by your board, by your own investors. When you’re saying “how to grow myself quickly,” what does that look like and what were some of the things that you did in order to grow at the same pace with the business?

Miguel Fernandez: I think that is still a challenge, a daily challenge, especially as a team grows. At the beginning, it’s very easy. You know more about the product than anybody. You’re actually doing most everything. We were four co-founders, so we really divided what we needed to between the four of us, and it was very easy. But then, as you start adding people, then you need to do more and more things as a company. You start adding people, and then suddenly, you are not the one solving the problems, but providing input to somebody else to solve the problems. Then you try those people, and you need to onboard them. You need to teach them what the product really is, what the impact is, and support them without being overbearing. It’s like you’re scaling and you’re micromanaging everybody and things scale. It’s learning about how to trust people and how to get them to trust you, and how to leverage your time up with people. I think that is really complex after a while, especially after a number of direct reports grow. I found myself spending time thinking about what should I spend my time on actively, like right now, as opposed to who should I get to do those things? I’m still learning about it. Then when you fundraise, then everything becomes fundraising, and everything else becomes like a secondary priority. So how do you keep in touch with your team to make sure that things are still happening while I’m fundraising? There’s a great article, by the way, that I recommend to anybody listening called Give Away Your Legos, which especially speaks about this problem around a capital blog. Basically, it speaks about a growing company and all the things that you’re doing, and if there’s a company [0:12:53] you need to give them up and get somebody else to do them, and you have to be comfortable with that because otherwise, the company doesn’t grow and [0:12:59] doesn’t grow.

Alejandro: Yeah, I know. That’s amazing. Thank you for sharing that. So, Miguel, in this case, for the people that are listening to really get it, what ended up being the business model of Capchase?

Miguel Fernandez: I think it’s going to start with the problem. The problem that we’re trying to solve is that founders spend a lot of time and a lot of energy fundraising, and fundraising is actually diluted. Imagine the average founder needs to take 30 meetings to get a term sheet. Then when they get a term sheet, it usually involves selling 10% to 20% of the company. If you do this all over again four or five times, as the average company does, by the time of an exit, the average founding team owns 15% of the company. Then, imagine spending 7 to 10 years of your life working on something and then just owning 15%. So there is a better way, which is what we do right now, which is in a company with [13:49] revenue and recurring revenue, you need external funding to get started because there’s no revenue. You need to get started, and you need to hire people. You need to get the ball rolling. But then there comes a time, usually around early Series A, maybe in some companies later than the Series A where your revenue is [14:08], or your ARR has to become significant enough, and it becomes a very big cost opportunity to know that you use ARR to grow the business. That’s where Capchase comes in. What we do is we work with growing companies, and we say, “You have $10 million in ARR or $1 million or whatever. So instead of waiting for 12 months to get that money through the door, you can come to Capchase, and then you can bring the person those payments 10, 11, 12 months from now. So you use those payments now, you can reinvest them in growth, or you can cut your burn as to your runway. Then every month, this company is growing 5% to 10% month-over-month, so every month, they can keep bringing forward more and more of these revenues and turn into growth drivers without getting diluted.

Alejandro: Very cool.

Miguel Fernandez: If you want to put some numbers, instead of a company, let’s say $5 million in recurring revenue. Instead of raising a round of $20 million – $12 million would last them for two years, so $10 million per year. They could be raising a round of $10 million that will last them for two years and then, let’s say, $5 million they spend each year using those future revenues to keep growing and growing faster than if they had raised around double the size with our solution.

Alejandro: How are you guys thinking about M&A? I know that on the M&A side, you guys are also doing some stuff, so why don’t you tell us about what the business model is. How does that work for M&A?

Miguel Fernandez: Yeah. That’s super relevant for the show. Of course. For M&A, we’re seeing a lot of companies in this space doing roll-ups of competitors. The issue is doing an acquisition. It’s tough to find ways to finance it. I mean, you’ve got to find money, but you need to optimize it because of the financing, so buying them with equity money, so it’s a dilemma, which is going to get very expensive. Let’s take a step back. The average SaaS company is sold for 1 multiple of that AR. Why? Because you get all the headlights on the Champaign and so on, and the companies are growing 300% year-over-year, and they trade at 40 multiples of the AR. But the ones that prove to be flat, they’re only sold for one or two or three multiples of the AR. What we’re doing is we’re allowing certain founders, research founders, PE funds, roll-ups, or even like SaaS companies acquiring competitors and buying [16:36] space. We allow them to buy entire companies using those higher companies over feature revenues. Imagine buying a company, let’s say $5 million AR again, to make things easy, so $5 million and 1 multiple of their revenue. You could leverage all of that up with Capchase. Then you buy a company with our revenues and then pay back over a couple of years. You need to spend zero equity acquiring the company.

Alejandro: Got it. Very cool. In this case, Miguel, how much capital have you guys raised to date?

Miguel Fernandez: We’ve raised over $90 million in both debt and equity.

Alejandro: Fantastic. Very cool. Then in terms of the size of the business, obviously, you guys have been growing like crazy. How many employees do you have and any other details that you can share in terms of perhaps the scope of the operation for people to get an idea of how big Capchase is today.

Miguel Fernandez: Yeah. We have worked with thousands of companies so far. It’s great. They’re growing over 100% month-over-month. It’s just exploding because it really is a game-changer for founders. One thing that we see that’s really – what defines what is contending is we see companies growing 5% to 10% month-over-month. These are amazing. It’s like growing to 100% to 150% year-over-year. They come to Capchase; they start pulling those feature revenues, and then they start growing 15% to 20% week-over-week. They focus just on growth while all the time spending and managing cash and understanding what that’s going to look like in the future. All that is taken care of by Capchase automatically, so they just focus on growth. They keep adding ARR, and then they bring that ARR to the present to invest in more growth. Then they repeat the cycle, and it accelerates and accelerates and accelerates. We’ve seen incredible growth stories. This is just the beginning. We think that the world is never going back to a world before where we keep funding every company with diluting financing. Yeah, we move forward. We’ll use VC to start with and then financing with Capchase.

Alejandro: Okay. You guys launched this back in 2020, and you’ve been raising money, and you’ve also been hiring people, but one thing is very interesting here is that you haven’t met most of the people in person. Can you explain to us how you grow a company – I guess this is the new reality, the new normal, or the new world that we’re living in where you go on a hiring spree, and you don’t meet anyone in person. So, tell us how you manage to do that?

Miguel Fernandez: Meeting people in person – funny. Imagine raising a company or building a company in March of last year. During the pandemic, all the country was shutting down, and you couldn’t leave the house. So, on the one hand, you’ve got a ton of time to think and to work, and you get a lot of time in the day to work on this. And then moving forward. We launched the company, and we had two partners and two co-founders in Madrid, and two co-founders in Cambridge. Of course, I was the point in common with all of them. I worked with the two in Madrid and then I was going to HBS with [20:01], the one in Boston, but they never met in person until December, until six months after launching. A year and a half ago, people have told you that it’s possible to have relationships over the internet on Zoom calls and so on. I would never have agreed. But it’s funny because we built the business. When we got to December, there were 20 people on the team. I hadn’t met anybody in person, even the founders. When we did an off-site, we did a hackathon in December. It was just as if I had been working with those people forever, and we only had a relationship online. I guess it’s the new way of doing things. It gets weird a little bit, and some of the things that happen in the office don’t happen online – all the encounters, all the conversations, like in the kitchen, and so on. These are parts I certainly miss, but there are other things that are very effective like synchronous working, more communication that helps to generate more ideas, and so on.

Alejandro: Then, in terms of the business, Capchase has analyzed many, many companies. What are some of the typical patterns that you’ve been able to recognize and interesting insights from analyzing so many companies?

Miguel Fernandez: Very good question. When we get companies, there are some companies that are like VC darlings. They raise a ton of money, and they’re super sexy. Then, when you dig into the actual metrics and you are able to focus on the future, you see that the metrics are not going to hold up. They’re absolutely dependent on VC money funding them forward. In Silicon Valley, it’s easy to go from A to B to C to D to E, just raising valuations. Everybody’s happy, and everybody gets to mark out their portfolios, but then when the push comes to shove, the metrics don’t hold up. We’ve seen that in a couple of cases, and we have decided not to take the risk of funding companies that would depend fully on funding to grow. I know everybody tells a story like, “Oh, no. At scale, the LTV becomes incredible, so the cap to ratio gets to be favorable, but usually, that’s not the case. I guess that’s the single indicator of what makes a good company that we can corollate over the thousands of companies we’ve analyzed. Their LTV to cap ratio. Above 2 is okay. Above 3 is pretty good, and then you can see cases like modest growth, but LTV, so north of 5, 10, or so on, and you’re like these companies are on fire. You know that if you give them $10 million, they will find a way to extend those $10 million into $100 million in growth. Others will look amazing, backed by the best investors, but then you see that the metrics don’t hold up, and there comes a time when they’re fully dependent on our funding to grow, and their funding always touches some point.

Alejandro: Got it. For the people that are listening and watching, LTV stands for Lifetime Value and Cap Customer Acquisition Cost. Let me ask you this, Miguel. Imagine that you’re going to sleep tonight, and you have the snooze of a lifetime. You wake up in a world five years later, and you wake up in a world where the vision of Capchase is fully realized. What does that world look like?

Miguel Fernandez: That world looks like any founder that wants to launch a business and has an idea, they just apply to Capchase, and then they can focus on building a product and shipping the product. Everything else that’s super annoying, like all the financial operations, revenue operations, all that stuff happens automatically through Capchase by connecting third-party apps that are specialists in what they do. And while we’re doing this, if you think about a company and what makes a great company, you have areas in the company that create value and differentiation and parts that maintain value. By maintain, I mean you’re doing really well. The best possible outcome is that nothing happens. So what values that company is the product that you built and how you distribute that product. That’s how huge companies are made. If you don’t nail that, probably you’re not going to make a good company. If you do it really well, then you make a good company, but then you have the areas that maintain value. That means that specifically, let’s focus on everything that’s finance-related – how you track cash, how you track revenue, how you invoice customers, how you reconcile payments coming in with customers, and so on. That part, if you do extremely well, nobody cares, and nothing happens. But if you don’t do it really well, it can kill a great company. The best possible outcome, nothing happens, the potential downside is that it can kill a company. If you [25:07] the gaps where it doesn’t get recognized, or worst, it gets recognized, but it’s not there. So what we’re saying is that these problems, the way you track cash, the way you portray revenue to the outside world to get funding, and so on, this allows room for errors, it takes a lot of space and a lot of month’s space, a lot of focus and usually teams trying to work with similar data sets that get duplicated, and so on as a huge bang. Ideally, we have the data to automate all of that and make it run in the background smoothly, without pain. I think five years from now, that will be how – founders just focusing on building and shipping, and everything else happens automatically with no room for errors.

Alejandro: Very nice. All on autopilot. I love it. Good stuff. Miguel, imagine that you have the opportunity of having a chat with your younger self. Let’s say I put you into a time machine, and you’re going back to that time when you were still in consulting, maybe thinking about launching a business. Basically, you have the opportunity to go back in time and have a chat with your younger self and give your younger self one piece of advice before launching a company. What would that be and why, given what you know now?

Miguel Fernandez: Wow. Yeah. Good question. I think that I would tell myself to spend a lot of time very early on thinking about the people that you want to make part of the team very early on. The founding team, of course, is important. I think that we have the best founding team possible, but I wish we had spent more time thinking in the very beginning what the key people that we want and where can we find these people ahead of time? A great example with the business world is the Collison brothers at Strip, where they spent the first few months just making sure they got the best people for partnerships. The best people for the new banking structure. The best people for new everything, and then when they launched, it was pretty much a home run from the beginning because they had all the amazing team in place. In our case, we have an amazing team. We have the best team in this space, for sure, but it’s always been like hiring and living in arrears like running ahead, and then, “Oh, we need this person. We need this person. Where do we find them, and how do we get them on board?” I wish we had mapped out better and more thoroughly at the beginning like, “This profile is going to be extremely important; let’s get five candidates for this now before we even need it – the same for everything. I guess that is the most important advice I would give myself like, think about who you want onboard why ahead of when you meet them.

Alejandro: I love it. When you actually have to start making the calls, that could be too late when you need that person, so it’s important to build a network before you actually meet that individual. I love that piece of advice, Miguel. For the people that are listening and watching, what is the best way for them to reach out and say hi?

Miguel Fernandez: I love to hear from any founders that are thinking about launching a fintech or any founders that want to keep more of their company. Yeah, feel free to reach out at Miguel@capchase.com. I’d love to help in any way possible.

Alejandro: Amazing, Well, Miguel, thank you so much for being on the DealMakers show today.

Miguel Fernandez: It’s great. Thank you so much. I had so much fun.

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