[HN Gopher] Launch HN: Finley (YC W21) - Debt capital monitoring...
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Launch HN: Finley (YC W21) - Debt capital monitoring and reporting
software
Hey HN! We're Kevin, Jeremy, and Josiah, and we're in the current
YC batch. We're building Finley (https://www.finleycms.com),
software that streamlines the debt capital raise and management
process, starting with compliance monitoring and reporting. Debt
capital is basically a corporate loan of over $20 million used to
fund operations and growth. That's a universal business need, so
it's not surprising that debt capital is huge--add up all the
venture capital investments in 2020 and you'd still be $70 billion
short of debt capital investments over the same period. [1] Debt
capital also comes with rules. Hundreds of pages of them. Here's an
example of a typical credit agreement, which is the type of
contract that borrowers and lenders sign when they agree to a loan:
https://www.sec.gov/Archives/edgar/data/1357204/000119312511...
The credit agreement dictates all the conditions that companies
have to comply with in order to maintain access to their funding.
These conditions are known as covenants. [2] If companies don't
submit the right reports to lenders on a weekly basis that show
they're in compliance, they can lose access to tens of millions of
dollars of their loan. The problem is that borrowers today manage
their credit agreement compliance with some combination of email,
Word, Excel, head knowledge, and Post-it Notes. Today's options for
managing credit agreements are outmoded, error-prone, and end up
costing companies millions in fines and lost access to capital
(Fintech founders often unwittingly discover this after starting
their lending business, as Stilt (W16) co-founder Rohit Mittal has
pointed out. [3]). Our software helps companies automate their
regular reports on debt capital to their lenders. Consistent with
Murphy's law, this seemingly boring task turns out to be quite a
difficult technical problem. It starts with encoding the conditions
of credit agreements into properties that companies can query their
loan data against to monitor and report on in real time. The
process of turning unstructured data from credit agreements into
structured data is challenging, but tractable, and we've been
encouraged by the similarities we've seen across our credit
agreements and excited by what doing this can enable. Jeremy, our
CEO, saw firsthand at Goldman Sachs that keeping track of credit
compliance can require a small army of bankers and lawyers. At
Ironclad (S15), a contract management startup, our COO Josiah
worked on the Collaboration and Negotiation team and helped launch
an in-app contract negotiation tool. [4] And as the first engineer
at Nova Credit (S16), I saw how existing financial systems can be
made much more efficient with modern technologies. [5] What
excites me the most here is the chance to build infrastructure in
the capital markets space, which has ramifications far beyond
reporting. In the longer-term, we'd love to empower companies to
conduct debt capital raises faster and more effectively (the
current process of raising debt capital comes with exorbitant legal
fees and can take 6+ months). Today, we're helping startups manage
hundreds of millions in debt capital and, as you might expect,
building the plane as we fly it. We'd love your thoughts on our
approach, questions about debt capital or fintech infrastructure,
and any other feedback you might have. Thanks! -- Kevin [1] See
full report here:
https://www.mckinsey.com/~/media/mckinsey/industries/private...
[2] https://www.investopedia.com/terms/c/covenant.asp [3]
https://rohitmittal.substack.com/p/a-brief-guide-to-starting...
[4] https://ironcladapp.com/blog/introducing-ironclad-editor/ [5]
https://www.novacredit.com/
Author : suhpreme
Score : 51 points
Date : 2021-03-17 15:12 UTC (7 hours ago)
| yaseer wrote:
| I know little of finance, so let me see if I've understood
| correctly...
|
| Finley's software automates the generation of debt capital
| reports. These reports are a regulatory requirement.
|
| It's really hard because: A) there's lots of unstructured data, &
| B) The reports require real-time data for their credit models.
|
| Is that the right ballpark?
| jeremytsui wrote:
| Hey I'm Jeremy, CEO of Finley. That's exactly right--when I was
| a debt investor at Goldman Sachs (which is on the receiving end
| of these reports), I spent 30% of my week reviewing and
| correcting the reports that came in. All of that happened in
| Excel and required dozens of rounds of back-and-forth with
| borrowers. It's a really tough technical problem given data
| comes from a number of sources depending on a borrower's given
| industry. Given this dynamic, we're focused on fintech and
| proptech first, because that's where real-time data is most
| accessible
| toomuchtodo wrote:
| I have nothing to offer other than "how do I invest"? Best of
| luck, looks like the race car already has, ahem, traction.
| waterside81 wrote:
| This sounds like _exactly_ the right formula for startup success:
|
| 1) People with experience in a given industry
|
| 2) People who have seen the problem over & over again
|
| 3) Large businesses with lots of money but lacking in skill/will
| to automate the solution themselves
|
| 4) Outsider comes and says "hey we can automate that really
| boring problem for you save you money"
|
| Please remember this comment when you get acquired for tons in a
| few years.
| yaseer wrote:
| That's not how this works.
|
| It's a rite of passage for YC companies to be trashed by some
| guy on HN, before going on to become a Unicorn.
|
| Stop encouraging them.
| suhpreme wrote:
| Yeah, this isn't the HN experience I was hoping for... :-).
|
| If I may, the final ingredient I'll add is that this problem is
| one where software not only automates but enhances the
| solution. As a company grows, they'll add additional credit
| facilities and explore other financing options (like forward
| flow arrangements). Each agreement/arrangement comes with their
| custom set of requirements on your various credit products, and
| the lack of a central data store creates all sort of internal
| process complexity.
| mrwnmonm wrote:
| Am I the only one who don't understand a lot of the new YC
| startups?
| festinalente wrote:
| [disclosure: finley co-founder]
|
| no, you're not alone! we've actually had this conversation as a
| team and with yc batchmates as we've gone through yc w21.
|
| to really simplify what we do, we're a reporting tool for
| companies that take out large loans from banks and need to send
| updates to their lender every month.
|
| i think there are a few questions contained in your original
| question, though. among them: has the low-hanging fruit of
| tech/software been picked, such that only esoteric or niche
| ideas (there was a slightly heated conversation about a
| calendar app the other day) get funded? has abundant VC funding
| created a culture of solutions looking for problems? etc.
|
| my hot takes, in order of conviction:
|
| a) "[tech] can only be understood backwards; but it must be
| [created] forwards" (apologies for the misappropriation) --
| another way of stating PG's point that tech startups look like
| niche/low-value toys at first before expanding into larger
| areas. this is a bit tired, but like all good heuristics, even
| if you know it you still fall into the mental trap. so when i
| look around and start to see other yc w21 companies as "toys"
| or inscrutable or bizarre, i try to interrogate that belief.
| easier said than done!
|
| b) this could be a symptom of spiraling complexity in software
| (and the saas ecosystem). all the new yc startups are building
| on top of a few generations of other yc startups (e.g., now
| that everyone has a CRM + ERP, what could you build on top of
| that?). i was previously at a yc-backed enterprise saas company
| whose clients included many other yc-backed enterprise saas
| companies. my brother, a debt investor at a bank, is entering
| tech for the first time. i only bring that up because i have
| been shocked at how high the hurdle is for participating in
| saas conversations re early-stage startups. whether it's "figma
| for finance with a workflow element" or "carta for cap markets
| in the neobank space," the way silicon valley frames
| conversations around new software in terms of slightly less new
| offerings is astounding (it is both positive and negative.
| positive--faster to iterate on familiar concepts. negative--
| keeps other people out of the convo).
|
| c) increasing distance between software greenfield and the
| average consumer. as i look at yc's large fintech companies, it
| seems like they've gone further up the value chain, or perhaps
| further way from the end-user. in fintech, you have stripe,
| which handles payments and which many companies might be
| familiar with (even though overall penetration has a lot of
| room for growth). but the "back-end" solutions like modern
| treasury or finch are not built for the average consumer, even
| if they can provide a ton of utility.
|
| thanks for your comment!
| mring33621 wrote:
| There remains a lot of opportunity in current-day finance and
| banking for automation of manual processes.
| sebmellen wrote:
| Hey Kevin,
|
| Looks fascinating. Could I ask you more about debt capital? I am
| working with an organization considering raising debt capital
| right now, but, as you mention, the associated rules are very
| confusing, and it all feels much less straightforward than
| startup funding.
|
| Do you do any management of the negotiation/set up process (i.e.
| everything that comes up _before_ signing a contract?
|
| It looks like Ironclad is more oriented to those needs... Do you
| plan to occupy that space too?
| suhpreme wrote:
| Great point - it's hard to appreciate just how different debt
| financing is vs equity until you're in it yourself. Unlike
| VC's, debt investors are optimizing for 0% of their investments
| to fail. This makes its way into the contract's negotiation
| process and final structure/requirements.
|
| Our vision is to power the end-to-end debt financing process.
| We're focused today on post-close monitoring/reporting, but our
| next module will be exactly what you're asking: the negotiation
| + close of that contract. We're well aware of this pain-point:
| growing startups can't afford the 6-9 months it takes to get
| their money (after already agreeing to partner with their debt
| investor!).
|
| Fortunately there's strong incentive alignment at this point to
| put that money to work. We also think our current
| reporting/monitoring work will be leveraged to streamline that
| process (a lot of reporting requirements come up during due
| diligence / negotiation). Finally, it's a natural product
| extension since we'll help you close your facility then can
| automate your reporting immediately upon close.
| lintaho wrote:
| Love seeing startups tackle opaque, non-consumer spaces with
| hairy efficiency (and perhaps even structural) problems.
|
| I can't even begin to imagine the universe of problems like this
| that haven't been surfaced yet, and that's extremely exciting.
| Good luck guys!
| suhpreme wrote:
| Thanks! We're excited too. It's always fun building software
| where it needs to exist, then thinking what new things that
| enables.
| [deleted]
| [deleted]
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