Engineer turned consultant, turned investor, turned CEO. Call it a unique journey or call it good timing, Eyal Lifshitz is up to big things for small businesses at BlueVine. Small businesses are culprits of often needing capital to help manage lumpy cash flows, operational expenses, and growth initiatives.
For a group that needs capital often there has historically been limited options to easily obtain financing because small businesses are often considered risky customers in the world of banking. But, what if there was a heavy guarantee that the loan principal would be paid back? Sounds too good to be true right?
Eyal, and his team at BlueVine are doing exactly that through their invoice factoring platform that enables businesses to essentially sell their unpaid invoices and get cash to meet their short term liquidity needs. Essentially, the advance becomes largely de-risked by the fact that the invoice is a note of promise by customers to pay up for rendered services.
SIC is all about finding intuitive solutions to solve a market need. Invoice factoring is a perfect example of that and bringing this type of loan into a tech enabled environment, well I can only say that the opportunity is massive and BlueVine is proving it day in and day out. Check out my discussion with Eyal below.
CL: Eyal, you come from both a consulting background at McKinsey, and then a venture background at Greylock Partners Israel. What was the motivating factor to pursue building BlueVine?
EL: Well it’s funny, I was actually an engineer before I was a consultant, you know when I was actually, doing something productive. But, in all seriousness, it happened gradually and all at once, which I recognize is a contradictory statement, right?
It's something I grappled with a lot internally for a long time. As a VC, I was working with all these great entrepreneurs but I did still feel this element of being on the sidelines. For me, I essentially hit a point in time where I saw an opportunity to do specifically what we're doing today and I said, ‘Hell, let’s find a CEO to run this.” But at some point I really fell in love with the idea and realized that there was such a large opportunity that I would regret not doing it myself.
I felt that Bluevine would be that thing where when I'm on my deathbed I would be saying, “Why the hell did I not do this?” And so, I came to the realization that I needed to pull the trigger. I was all in but getting to that point was very challenging. I told my wife I was going to found BlueVine, and she was not happy. It definitely concerned her because she didn’t know what this would mean for our future. Fortunately, my wife is amazing and she supported me through everything.
Taking this leap of faith at the age of 35, moving back to the US and taking on this immense challenge with two kids and working 80 hours a week, it was tough. At the same time, I knew it was the right choice.
CL: For those who don't know can you define BlueVine as a business?
EL: It's very simple, we provide working capital financing to small businesses online, that's it. Our focus and our goal is to provide everyday financing that is faster, simpler and more flexible than any other solution.
We focus on building products that are meant to be used time and time again and enable us to build a relationship with the customer rather than be a one-time transactional provider. This has driven us to focus into investing only in products where we see an opportunity to provide true differentiation through product and technology. We explicitly do not invest in products where we feel that it comes down to just pricing.
CL: Speaking of differentiated product offerings I would be really interested to hear more about your unique invoice factoring offering. Can you talk a bit about what that is and how your technology is enabling you to offer this service?
EL: Invoice factoring is the founding product of Bluevine and still at the core of our business. That was what got me excited about the opportunity. Invoice factoring is essentially a form of commercial financing where businesses can sell their receivables and tap into expanded capital financing.
The benefit of this form of financing for businesses when they sell their receivables is two-fold. Number one, they can typically ask for more capital, because you are taking advantage of the credit strength of their customers. For instance, if you have outstanding receivables from a set of Fortune 500 firms, you will be eligible for much larger financing based on the fact that your receivables are very likely to be paid back by a credit-worthy organization. Though your company may not have perfect credit or great cash flows you will be provided with an advance that recognizes the likelihood of future cash flows related to your receivables.
This also helps businesses that have customers with long payment cycles and minimal capital on hand. By selling those receivables you're financing is one to one with your cash flow. It is essentially a short-term revolving credit product that services customers when a typical loan just doesn’t make sense for their financial situation.
Where I got excited was in realizing that invoice factoring in its current state is a very manual and paper-based process. There are many firms out there that still make you scan or fax in all of your invoices. We have automated this process and made it an online service, by connecting your accounting software and syncing your invoices so that in a few clicks the whole process can be completed. Where we spend the majority of our time is making this invoice factoring process, underwriting and processing all a whole lot more automated and seamless for our customers.
CL: What does the process look like for BlueVine to be able to take a small business’ invoices and automatically accept payment from their customers?
EL: There are two ways we make this happen. We essentially have a discreet and non-discreet manner of collecting payment. The non-discrete version involves us reaching out to the business’ customers and telling them that your invoices have been assigned to us. In this case, let’s say you’re looking to financing Walmart invoices, BlueVine would make Walmart aware that Joe has assigned his receivables to BlueVine and that money should be sent to BlueVine instead.
In terms of the discrete approach we give our customers an account number to accept payments through a BlueVine account set up in their own name. So for the payer, the process still involves paying our customer although the payments go through us.
CL: What does the vetting and selection process look like for selecting what invoices to buy off a customer’s books?
EL: It’s actually simpler than you think. We generally prefer larger payors (i.e. our customers’ customers), and we are constantly looking at credit reports to get a sense of the how likely a company is to pay us back. If we take a step back, the interesting thing about invoice factoring is that you want to underwrite both the organization we are collecting from and the organization who is our customer. That’s because if I purchase invoices from you and it turns out that you didn’t provide the actual service promised to your customer I will need to be able to collect from you. The need to underwrite two parties is a big reason why this is one of the last frontiers to be provided online.
The additional layer here is you need to verify if the transaction is real and if the services for the invoice have actually been delivered. Detecting for fraud and whether or not it is a real transaction requires very sophisticated underwriting on our end.
Some of the approaches we take to cut down on fraud are we scan the websites of customers and companies that customers are selling to, which enables us to determine if there is actually traffic to the website and whether or not it is actually a legitimate business. We also try detect collusion which occurs in factoring a lot.
It is a complex and sophisticated process but our technology really enables us to have a leg up to the competition, which is most often run things in very manual way.
CL: Is their interest from vendors of invoice factoring that are still paper based to utilize your technology as a private label offering and would you be open to this market opportunity?
EL: The short answer is yes. We have received interest in this type of product, but we haven’t necessarily felt it would fit with the broader strategy of BlueVine. For us, the way we think about providing factoring and lines of credit is that it is just part of the broader story of what we are trying to do. Frankly, we are trying to build the next generation of financial services geared towards small businesses. Factoring and lines of credit has been our entry point to do this but we are more broadly focused on augmenting the services and products we provide to small businesses. Licensing to us feels less relevant to our overall approach.
Some people still consider us to be a factoring company only even though the line of credit business is now becoming a fast growing portion of our business. We're doing very well with our line of credit product. Initially we set out to solve the analytical problem of how do we bring the factoring business online, but as we started to work with customers we came to the simple, but non-trivial realization that it’s not about the specific product. It’s about asking ourselves how do we best serve our customers? That is why we got into providing a line of credit because we realized that factoring wasn’t the best option for all our customers and we needed another option to help them get what they needed.
CL: With limited resources as a startup, how do you decide to invest in certain product features versus others?
EL: It's hard to move on more than one dimension at a time when coming up with a new product. Most important are your assets, core capabilities, and customers. Generally, I like to keep the same customers and channels and move on the product dimension incrementally. That is why you will see in the near term that we will do more credit products because that is close to our core business today and only eventually you will see us migrate to more product offerings. Are we going to do small business insurance tomorrow? no. But in ten years, who knows. Since I'm already underwriting them offering them liability insurance isn’t so far-fetched. I already know the company, their cash flows and the risk they present so that is the idea. We want to leverage the BlueVine platform to provide our customers with more optionality.
CL: What are some of the challenges you have faced in taking BlueVine from an idea on PowerPoint slides to an organization with over 120 employees?
EL: As a founder, you do everything from taking out the garbage to writing code. Moving from that type of dynamic position to running an organization with over hundred employees there has been a realization that I can't do everything myself. It would be detrimental to the business if I tried to do that.
It’s been about learning to understand that it’s not about control but rather about having a strong team beside you to compliment your strengths and to delegate effectively. At the end of the day I need to help drive the culture of the organization and put in place processes to help empower my other executives.
But letting go can be challenging. The key is to be open to change. Having to think about corporate functions like HR, policies and procedures, it’s a totally different skill set. So I have had to adapt and to learn where my strengths are aligned to the business and where they aren’t as well aligned. In those cases, I look to bring on bright people to help me build the business. For instance, I am learning so much from my CRO [chief revenue officer] who came from Square where he managed over 100 people and my HR director who comes from Google and has tons of experience. Bringing in great talent has been key to overcoming challenges we have faced.
Nonetheless, we have war stories from the trenches. In our early days, we had days where we were watching for one or two advances to come through the door. Now we generate more than a million and half dollars a day in funding. The only way to summarize the experience of building something like this is that it is a wild journey with a lot of corky twists and turns.
CL: BlueVine has raised significant funds from VCs like Lightspeed Ventures and debt financing as well. How are you deploying this capital?
EL: Right now we are not excessively burning through our equity capital. We are growing responsibly and effectively. You also have to realize that since we are not a bank we need essentially put up 10-15 cents for every dollar we loan to be contributed in equity. So, if we loan out $100M, we need to have at least $10M in equity to contribute to the book.
That’s why you will see companies like SoFi raising billions of dollars; reality is the more you loan out the larger base of equity you need to have.
These are businesses, which are capital intensive, which is good and bad. It's good in the sense that it creates a high capital barrier to entry. It’s bad for the same reason in that you need to be raising large sums of capital to sustain the building of the business.
CL: After raising over $100M and growing the business so substantially, do you ever think about going public or taking on private equity investments? And do you feel a need to go public to effectively manage the business?
EL: Ultimately, yes, the goal is to go public at some point for a few reasons. First off, it helps you to scale the business more efficiently from a capital markets perspective as you have access to more financing options. Second, going public adds credibility to financial services companies and helps establish a brand with your customer base.
However, being a public company is challenging as you’re always under scrutiny. One element that can be challenging is you need to build predictability into your revenue stream so that you can manage public investor expectations.
We need to get to the point where we have enough scale and also predictability in our model. If, we have both I think we can go public successfully.
The Minute Rundown with Eyal Lifshitz
CL: If you can provide one tip to someone considering starting up what will it be and why?
EL: Make your own mind. I think advice is important, and it can be valuable. But if I had followed everything I was advised to do, I would not have started BlueVine. Even if I had, I would have ended up making a lot of different decisions.
So, listen to everyone, and if you hear something that makes sense for you, great, but make up your own mind. Where you have data use it as much as you can, but ultimately sometimes you will just need to go with your intuition. Understand the data is not always going to be perfect. A lot of it is going to be your intuition and your understanding of the market . Don’t doubt yourself even if others do. Just digest, analyze, synthesize and make up your own mind.
CL: If you can model yourself after a founder who would it be and why?
EL: There are pieces from many founders that I like, but at the same time I'm trying to be my own person. I think what Steve Jobs was able to accomplish, and his relentless pursuit of delivering an amazing product experience and trusting his intuition was incredible.
But there is a long list of other phenomenal entrepreneurs who have accomplished amazing things too. If you look at my career progression, I worked at all sorts of amazing companies like Texas Instruments, McKinsey and Greylock. But, eventually, I began to realize that it’s not about how smart you are or that other people have it figured out better than you.
I respect everybody no matter what they did, which, I think is important but outside of that I want to learn from everybody and ultimately I don't idolize anyone. I respect a lot of people. But there are no Gods among men. There's no reason why you can't be like the next Steve Jobs or accomplish anything you set your mind to.
You don’t need to have every skill to in the world to do this. What I take away from this is that I never want to limit myself and I will push myself to the max. I don't like to think I have a glass ceiling and hopefully any person that has that internal ambition feels the same way. I think in life the more you can make yourself unique and the more you can aggregate new experiences, I think the more valuable you are because you bring in a different perspective.
You can tell from spending time with Eyal that he brings an intensity and a level of care to building BlueVine responsibly that is unmatched to anything I have seen before. This journey has not necessarily been the one he planned for himself, but rather one that he recognized he needed to take.
Having a business be so important to you that the very idea of not taking on the challenge brings up feelings of having regret on your deathbed speaks to the energy and focus Eyal is bringing to building this business.
If I were an investor I would be considering an investment in Eyal because they have found that space on the shelf that has really been left untouched until now. That level of unique differentiation with a high capital barrier to entry will enable them to have a long runway to grow and expand this business. I am also a big believer in focused messaging that enables easier customer acquisition that can be paired with future cross-selling opportunities. Big things are happening at BlueVine, stay tuned…