Finding and funding your way to success with the right type and way of investment; with John Gallagher, CEO of Element Finance

Capital or money is one of, if not the most essential necessity, to scale a business. But what if you have all the plans all set up to get your business noticed and scale it, but don't have enough resources to fund it? In this episode, guest, CEO of Element Finance, John Gallagher, explains how funding lending companies could help you and shares different types of investment options. He also shares how their company, Element Finance, helps companies, like yours, make scaling and growing possible by funding them.

John also shares some processes that both the lenders/investors and the companies undergo when applying and granting funding, sites an idea of what a deal flow looks like, and what are the common things that an applying lendee needs to prepare to apply for funding. And lastly, John shares how funds can help a company #getnoticed.

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Transcript

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Hello, and welcome to this episode of The UnNoticed Entrepreneur with me, Jim James, here in the UK, and John Gallagher in Dublin. And John is the CEO of a company called "Element Finance." And today we're going to be talking about getting noticed by the money people. John, welcome to the show. Thanks, Jim. Thanks for having me. Are you more than welcome, and really excited to hear what does a fund manager, a company like Element Finance, look for inner business to invest? So in the stage that we invest in companies, and companies have got past the initial startup phase, and they have got to the stage where they have customers and revenue, and they're looking to scale that - so they're looking to win more and more customers, so they've done a lot of their product work. Everyone's always has product work to do, but they're looking to scale their business and their customers. So they're looking to scale their sales and marketing team to get out into the market and just get noticed just as you call yourself, you know? And so you run Element Finance, and you could explain a little bit about Element Finance, but what I'd really then love you to do is to explain to my fellow unnoticed entrepreneurs, you know, what do you look for in an approach from this entrepreneur, who's maybe going from six to seven figures, for example, and needs that cash to grow the team, to grow the brand? Sure. Absolutely. So Element Finance is a non-bank lender to mainly SaaS companies, and it's for founders that don't have to venture capital behind them. So it's for founders who've got their company to a certain stage - they've started it, they've won the customers, maybe they've invested some money themselves with their friends and family. But to get to the next stage, they want to, take on some investment, and it doesn't have to be a huge investment. So, you know, we all hear the big VC runs that are done it. It might go into hundreds of millions. It might be 20 million, might be 30 million. But a lot of the time, founders need access to half a million, maybe 2 million, and that number might grow as the company grows, but they don't need huge. So that's what we try and solve for. We try and work with founders to say, "Okay, well, you know, over the next year you probably need half a million to do what you do. And that math works for us." But then we're also in the background, you know, in a year or two, when they get to the next stage and they need another cheque, and they've proven out their strategy to grow, then can we, then, back them again and provide more capital to them? Great John. So you're providing, you know, cash without dilution, right? And how much fund do you have a available for the businesses you're investing in? So we've raised $60 million to date. And we've been around about four years and we're... we've been growing consistently. We're bootstrapped ourselves. So, you know, just like a lot of the companies that we work with— we've lived a similar story— we're growing our team and different teams just like that. Yeah, I think that's, you know, really useful that as a source of funds, you also understand the journey of the entrepreneur. Let's just talk about what you look for in the approach; what works? What doesn't work from companies that have been approaching you? So, what we look for in a company is that they have a product that has been out there— it's been tried and tested— they're winning more customers. The customers that they have are staying with them. So it's a sticky product. And then, how are they growing that business? Like, what are their channels to market? How are they going after those customers? What geography are they in? And how are they going about approaching those geographics? Is it, you know, UK basis? European? Is it global? Because every business is different. And every different scenario then leads to adjust how they approach trying to get that market and get their audience. So we are looking at a lot of the finances behind that and the metrics behind that, that come out of it because that's, that's really where you see the results— in their customer base, their user base, and then, how they think about for every pound, euro or dollar that they're spending into could be digital marketing, SEO, PR advertising, sponsorships, conferences— they're putting dollars into those. How do they track those dollars and the return on the investment from those dollars? And some of that is very trackable and some isn't so trackable, but there should be a... you see a general effect in the business. And that is really the key. So if someone could take more dollars, or pounds, or euros, and build their business further with that based on the metrics that they're seeing and tracking. And once they say something coming off that maybe they pull back a little bit and they try something else. You know, it's that sort of metric-driven approach is really what we like. And I have to say, you know, I'm sure you might agree with this, that when founders are running a company, they're living and breathing the company. So, you know, most founders are tracking everything that they can track to see where they can get the wins and where they should be spending money on where they can save money. Yeah. Well, I think that most founders, though, are probably less metrics-driven. Certainly, I'm guilty of that a more, if you like, vision and, sort of, getting the team and getting the product out. So I'm interested that, as a VC, your primary concern doesn't seem to be the problem the company is solving, but their ability to see the margin and the leverage, and turn the handle, as a VC. It sounds that that's the message you're interested in, not the market opportunity that's been seen. Could you explain that more? Yeah, so we operate differently from a VC. We're in the debt world. So, VCs, what they do is they look for big market opportunities, okay? So they're, they might invest in, say it's 20 companies, they invest in from a fund. They need two or three big winners that are solving big problems that are going to be global businesses, okay? So that means that high proportion of their companies are not going to succeed. So they need to look the product and go, "Okay, this product has been brought into market in the UK, but it's solving a worldwide need. And we can help explode that business into a worldwide company." We're different in a way that we are working with founders who absolutely are solving a product need and we do look at that. But they're looking at it in a way that they don't need the company to be worth 20 billion dollars for it to be a success for them, like a VC would, so that they get the return that covers all of their losses. They want to grow in stages and want to grow so that there's a high rate of success or chance of success of their company being a valuable exit and business for them. So all our companies that we invest in should be winners. We should have a hundred percent, and we do have a hundred percent track record of these companies. Where a VC is different, they need to see that the big market opportunity that means that it's going to be a $10 billion business. Right. Yeah, so the VCs are almost more like record labels, aren't they? A few stars and a lot of people playing in the hotel lounges, John. So with what you are doing, though, just take us through, can you, an example of how you, yourself, get deal flow? Because presumably, as Element Finance, you need companies to be coming to you, and frankly, you're explaining to me how your business works, which is also new to me. So how are you getting deal flow and explaining to potential clients of yours what you can bring to them? So the way I look at our deal flow is that, you know, when you're looking for finance, it's like an enterprise sales process rather than a mass market process that you have to go through. So what we have to do is we have to be backup mind for SaaS companies. Whenever they're looking for funding, they think I remember seeing a good post or reading an article by John at Element Finance or one of his team, you know, and being back of mind constantly that they see you enough that whenever they are going to make that decision, that they send you an email, they get in contact with you, or, you know, through networks, you know, that we're connected somehow. And so, it's really been back of mind. So a lot of that is, you know, conferences, content, PR and advertising. But then simple things like SEO and digital advertising, so that when they go and search for SaaS funding, that we come up on the first page, rather than on page four or five. And there's a myriad of tactics that it takes to get to the first page and get you moved up on different rankings, which I'm not the expert on, but, you know, we do a lot of work on, Yeah, so I can see. Yeah. And then, also, relationships are massively important, and the people involved. So, we get referrals from a lot of other investors, other SaaS companies, clients that have been ours that are in the network of businesses that potentially could use us. Right. So a lot of, if you like almost, sort of, soft in, you say, content- led engagements there, as well, as opposed to broad, broad brush advertising. Can you take us through the process, John? If a company, if an entrepreneur is looking for this kind of finance, kind of almost like a bridging loan, isn't it? It sounds as though it's an intermediate finance solution. What would they need to do? Is it a PowerPoint? Is it a video? Is it just a spreadsheet that you're looking for? Help us with what works because many entrepreneurs, you know, don't deal with finance as a first port of call for them. Yeah, absolutely. And you know, we work with companies of different sizes that look at finance in different ways. And, you know, when you're starting up your business, you don't need a CFO or a finance director— that's not what you need to focus on. You know, you need to focus on products and customers, and that is the most important thing, absolutely. But there are great resources out there for initially just doing your books and keeping track of your customers. There are great resources there, part-time resources, and tech resources that will help you do that. And then as you move along, there are different things like you won't need a full-time CFO or finance director, but there are lots of finance directors and CFOs that do a fraction. They're called "Fractional CFOs," and they're a great resource. They might work with five or six different companies at one time and guide them through until they need a full-time resource. And I agree with your point. You know, founders are very much product-led people usually, and, you know, at the start they absolutely need to do that. But as they go and they develop their company and they're moving from that, you know, five or six figure company into being a seven figure company, it's trying to track the right metrics for the company. And every business is different. But trying to track the right metrics that makes sense so that they can make informed decisions. And that's what we are looking for— how are they tracking their business to make informed decisions? It's not just a, you know, a guess. And not everything can be tracked, and there are some personal feelings and gut feelings about what you should be doing for sure. So finances are very important for us. But we absolutely, you know, a deck explaining your business, who you are, what your product is, what it does, and how it solves the problem for customers. And then some information about the type of customer that you work with, the number of customers, and how sticky your product is. You know, those are the key things that investors are looking for. And John, you obviously run a team of people. If you have a deck or a pitch from a potential, I guess, a client of yours, right? So a company that borrows money. How many people are involved in that? And how many people with that entrepreneur need to convince in order to go through your process? Sure. So it usually starts off with a conversation with myself or one of my associates. We're six people in our, in our business, started off just me. So we've, we're now six, we're growing. And it'll start off with the conversation with one of us, then, if it's not me to start, one of my associates, I will get involved and look to meet the founders. I'm a big believer in, in people and getting to know how they talk about their business. And then, once we're happy with it, then we have to write what is called a"Credit Paper" to our credit committee and they basically just rubber stamp what we are doing that we, we are lending to a business in a way that we said and we set out to for our own investors, who've given us their money to, to lend out. So, that's the really important thing—putting your best foot forward to that credit committee and making sure that we've, we understand everything fully. And how long would that process take, John? It can be very quick. It could be just a couple of weeks but it really depends on how well the business is set up to raise money. The financials that we spoke of, you know, how well are they set up? Are they... can they send you them in a quick enough way that you can turn it around quickly for them? And then, every business is, is slightly different. So, you know, we, we want to get stuck into the revenues and the customer base and just know more about that. So, you know, every business is different and has ebbs and flows. So we just want us, we get on the phone and we'll talk through the ebbs and flows, and the quarter that, you know, was slow. Or the customer, the large customer that left and why they left. So there's, you know, there's a fair bit of work that goes into it to make sure that both we are a, we're a fit for the company and that they're a fit for us. It's a two-way thing really. And, know, it's something that there are two additional points that make there... we see companies that are going out for investment in different ways, and they've prepared really well. So they literally, you know, you get off a phone call with them and they share all data with you, which is fantastic. And for the person that is looking for the investment, and this is really important for founders that they find the right investor for them. And whether it's equity or debt, have the right investor. Because, especially equity, they're going to be with you all the way. Debt you're going to have for two, three years, you know, so it's not just a few months. You're going to be talking to this person for a while and working with them. So find the right person and the right type of investment. You know, there's a lot of short-term debt out there for SaaS companies at the moment, and we have seen it used in the wrong way. I liken it to going out and buying a car on your credit card. You know, you can do it, but you're going to have to end up refinancing it at some stage. It's not really the right use of that credit card. Too, it's a very expensive way to buy a vehicle, right? So final question, John, where do you see the opportunities in MarTech and SaaS? Is it fair to ask you within the MarTech space where you see SaaS sort of impacting entrepreneurs' ability to get noticed? So in MarTech itself, when we've lent to a few marketing technology companies, where they get noticed really depends on a few things: who their customers are, and what their product does, you know. Are they going after SME-type companies? Or are they going after large enterprises? And we've had a couple of customers that have changed from that SME type customer to enterprise, and their whole sales and marketing process had to change as to how they went out and got those customers. And the onboarding of those customers took a lot longer and the whole cycle is different. So you've got to approach it in an analytical type of way that, you know, you're trying to get in front of the right people. And you've set yourself up that, you know, if you want Coca-Cola to be your customer, it's going to take six months or more to try and win them as a customer. It's not going to be a couple of weeks. Yeah, so that's a really good indication then—it's about financing—that if you are going for a different kind of customer, you're going to need a different, sort of, capital structure, aren't you, for your business? For sure, absolutely. John Gallagher, CEO of Element Finance. If people are interested in talking with you about financing for their business, how can they find you? So you can find us at elementfinance.com. You can send us a request and myself, or one of our associates, will reply, or alternatively, LinkedIn, Twitter. Great. So you're really leveraging social media. So thank you so much for giving us an insight into, if you like, the other side of the equation. Because lots of people are always busy thinking about what they need to send to someone who can provide finance. And you've shared with us what people on the finance side looking for, and really much more analytical or much more metric-based than certainly I was aware. So thank you for that. Thank you, Jim. Thanks for having me on. It's been my pleasure. So, thank you for listening my fellow unnoticed entrepreneurs to this episode of the show, talking with John Gallagher in Dublin. Of course, I'll include his details in the show notes. And until we meet again, I wish you the very best. If you like the show, please do forward it to a fellow entrepreneur or even rate it on your player. And until we meet again, I wish you the very best.