Last week I wrote a post about Networks and the Enterprise and I mentioned that we had made two recent investments in networks that engage the enterprise and that I couldn't mention one of them.
Well happily I can talk about the other one today. Pollenware announced yesterday that our firm had led a financing round for their company. Here's the USV blog post on Pollenware.
Pollenware is a really cool kind of funding marketplace. I've mentioned that we like peer to peer lending both for consumers and the enterprise. Pollenware operates a similar but different kind of funding marketplace. It is a marketplace that connects suppliers and their buyers and conducts real-time auctions for accounts payable and accounts receivable payments.
If you are a buyer and want to make a little more money paying your invoices a bit more quickly, visit this link. If you are a supplier and want to get paid more quickly, visit this link.
The thing I like most about this idea is the virality of it. If you are a supplier and you are participating in Pollenware to get paid a bit more quickly, you can invite your suppliers into the marketplace so you can pay them more quickly too. The whole thing trickles down from the biggest buyers to the smallest suppliers. Pollenware has some work to do to make their marketplace scale from the largest to smallest companies but our investment is a signal that we are highly confident they can get there and we plan to help them out along the way with things we've learned working with other marketplaces and funding markets.
Pollenware is located in Kansas City, our second investment in the midwest in less than a year. We are finding lots of interesting networks and marketplaces all around the country and all around the world. The opportunities are certainly not limited to the bay area, boston, and NYC these days.
That is a VERY interesting concept.Spreading the word. 🙂
i find it to be very complicated and i don’t fully understand it. but rebuilding finance and credit markets is a huge opportunity in great depression 2.0.i wonder how the P2P funding market will operate when capital controls are put in, which i regard as highly likely within the next 5 years in the USA. i hope they can expand outside of the US and create an international marketplace with multiple currencies.
I think they are already in. I consulted on strategy a few years back to a P2P marketplace, cannot recall all the details (and most of it is probably confidential anyways), but there were real controls on it. I do not remember if from states, or Comptroller of the Currency, or they were considered money transfer agents (which led to the whole issue with PayPal back in the 90s, read PayPal Wars, great book). But there definitely were lots of controls.
i do need to check out that book — thanks for the tip. yes there are some controls in place and more slowly being added (pretty much impossible for US citizens without a passport from another country to open a bank or brokerage account outside the US) but i think they will only grow tighter, perhaps to the point where international wire transfers will be blocked or restricted to a very low amount.
Great book, reads like a thriller. Here http://www.amazon.com/The-P…No, I don’t think they will be blocked or restricted; just that the reporting requirements will become tighter and tighter, until only large entities can handle them.
Not sure I get it. Let me explain why, help me understand where the value is.Receivables are the direct result of 2-way contracts, between supplier and customer. If I owe someone $1,000 net 30, and I am willing to pay after 15 days in exchange for some small amount of compensation, why would I not simply approach that supplier? How can it be more efficient to have a third-party market in the middle of the transaction?I can see how it works in commoditized securities (securitized commodities?), because there they are tradable, so there are other parties who might want to buy them, and pricing is important (e.g. the move from custom forwards to standardized futures). But for receivables?Further, where is the money? Interest rates are effectively 0 right now, but let’s say 3% annualized for argument’s sake, so 15 days early is half a month, or 1/24th of a year, or 0.125% (ignoring compounding effects), that is $1.25 on that $1,000, minus whatever cut the market takes. The supplier will not pay more than his WACC to get paid early, so he is at most willing to pay the $1.25 here (probably more for most with a higher WACC), and I won’t accept less than my WACC, because if I do, cheaper for me to hold the cash. So is the entire element the spread between buyer and supplier?Or is this an attempt to disrupt the receivables financing market by securitizing them?
i got the impression they are trying to securitize the receivables financing market, although i don’t see how this can be viewed as “risk-free” — i would view it like any other exchange-based market, contingent upon sufficient timing and asset evaluation for success. but perhaps i’m missing something.
No market is risk-free, why would this be any different?
agreed, though they are promoting it as risk-free — so wondering if i’ve misunderstood something along the way.
Ah, I see. Could be that they are willing to assume the risk of nonpayment, become partial counterparty to the deal, or just insure the tx. That is reduced risk – after all, Pollenware themselves could have issues, and in many cases are higher risk than the customers – but that would make sense.
I don’t this see as even breing remotely possible.
I understand the factoring business fairly well. I agree w/most of the posts that I don’t quite understand the concept but again, I don’t understand the business as well. I’m assuming that this company is trying to develop an exchange of sorts.It’s been my experience that almost every large/medium well run company today pays 2%-10.-net 30. If this company is trying to enter that business, they would have to pay less than that. That money I would say is fairly safe as these are well known companies.Anything other than that, yes, a rating system would have to be in place..
There is always counter party risk. The real value proposition might be the trading away of the risk.
“they are promoting it as risk-free”You can name the price. If I can name the terms.
@kidmercury:disqus It’s risk free because you are paying suppliers that you owe money to and will pay anyway. The suppliers are discounting what they are owed (if they want) to get paid early. From my understanding of the concept.
Right. The feed for the C2FO market comes straight out of the approved Accounts Payable base. No question of whether you will pay, just the potential for a dynamic discussion of when you will pay.
adds risk for suppliers, reduces risk for purchasers?
depends on how the suppliers hedge?
” If I owe someone $1,000 net 30, and I am willing to pay after 15 days in exchange for some small amount of compensation, why would I not simply approach that supplier? How can it be more efficient to have a third-party market in the middle of the transaction?”You can still do that.This video does a poor job of explaining (what I believe) is the concept which is essentially “the market clearing event” and comes 1:30 in this video:http://c2fo.com/demo.htmlAll the other things discussed are just distractions that prevent people from understanding what is going on here.The idea is essentially allow vendors to gather and bid against each other for a chance to get paid early on their invoices. (See my other comment).Granted the target audience is not AVC readers but the marketing of this could be greatly improved. It’s a fairly simple concept but they don’t present it well. I would lead with a simplification of the market clearing event (and give it a better name) and then get into the benefits of taking advantage of that event.
They need to read this comment and take your advice LE. They absolutely need to simplify the message.
Fair points and much room for improvement.
i think of this community as free consulting sandy. i learn a ton from them every day. it’s my secret weapon. don’t tell anyone!
We all learn too!!Let’s keep it an “open” secret, in line with yesterday’s post 🙂
I think you follow the O’Reily doctrine 🙂 create more value than you capture
You could put the consultants out of business… and there are a bunch of us on the list!Actually, I get a ton of value from here… often more from the community than the original posts. Heh, how long until we hear about USV funding the avc.com community? 🙂
that’s the “little secret” of AVC
Been a lot of fun reading and responding. Folks here at Pw have enjoyed and learned a bunch too. Fred, thanks for all of this and for the partnership we now have with you and your great firm.
OK, starting to get it, the math financials still don’t fully work out for me, but hopefully Sandy will be able to answer.But, yeah, seriously, marketing needs work. This is a smart bunch in this community; shouldn’t take this group this long to get it.
Great questions. I could answer this but my hope is Sandy will jump in here at some point today and do it himself
I look forward to that.
he did. i a big way.
Sure did. I saw your reply in my email before Sandy’s.disqus’s miserable mobile strategy. If it is building a “discussion” (disqussion?) platform, it needs to think through mobile usage and enable it. I know how, they just need to do it.
mobile is tricky for themfirst step is to get their comments to work right in all the mobile browsers and OSesthen they need to think if there is a better waythey do have a mobile app and they also do the email thing
They have a (fairly poorly rated) management app. But discussions happen because there are hundreds (thousands?) of registered users who have conversations on your site, seeded by your blog posts, but then take off on their own.You can only do that from the mobile or desktop browser, which requires you log in / be logged in, and link from email. Very inefficient, and a barrier to higher adoption.You can do this mobile; the rest of us must do it inefficiently, at the desktop, or disengage.mobile = RSS/feed reader plus disqus interactions, notifications of new posts (like all readers), new comments (configurable) and responses, so it is a conversation.Facebook’s mobile app has a good piece of it (not all). The principles are the same: post leads to discussion.
Avi,Good stuff. See what you think…”why would I not simply approach that supplier? How can it be more efficient to have a third-party market in the middle of the transaction?” — C2FO is a daily live bid/ask environment that can have as many as 1/4 million invoices running thru the market. Tough to make or take calls with all those suppliers and their invoices. And, the price varies from day to day. It is set by the supplier making the offers according to his/her need at that moment. Point to point Synchronous tel conversation is ill-suited to handle.Re commodities, cash is the ultimate fungible commodity, and we pay for that commodity in the form of APR or discount. Imagine a supplier with multiple buyers in the market. C2FO gives that supplier the ability to place a market order (to use your trading analogy) for cash and to fill it across the open markets available to that supplier (his trading partners who are also in C2FO) according to the best rates for that supplier.”The supplier will not pay more than his WACC to get paid early” — usually right, as long as the supplier has access to capital. Advance rates on borrowing secured by AR need to be considered too. And some suppliers participate to move cash receipt forward in order to meet certain other covenants that influence their cost of capital. Increased cash on hand may help reduce borrowing cost across a wide swath of debt, even if the discount paid to get that cash was higher than WACC. “Interest rates are effectively 0 right now, but let’s say 3% annualized for argument’s sake” — you are right on for investors and depositors, but borrowing costs for the average company in the US are considerably higher. Tight credit markets generally constricting availability of capital adds another factor to consider.And, a growing number of participating suppliers in the C2FO market are outside the US and in even higher cost, high constraint countries.
Thanks for taking the time to go through it, let me continue the conversation.BTW, do you really live on a farm in Missouri? Is the company virtual/distributed?- market vs 1:1 transactions: Agreed they are, similar to my earlier comment about forwards vs futures. But when I buy a security, it has a CUSIP, I know exactly which listed company is the entity behind it, which has to have a certain size to even get listed, and strongly influences the price I am willing to pay. In the case of C2FO, which is trading receivables – essentially a zero-coupon very short-term bond – it makes penny stocks look like the Big Board. Will people really build a market in the securities of some corner restaurant or even 5-store chain of frozen yogurt places? I might, but the discount better be huge. Wasn’t that Milken’s master’s thesis at Penn (or maybe I am remembering it wrong), and even there “junk” meant listed companies with below-investment-grade rating. Can we get a market in this without securitization? How do we do that?- interest rates paid/required: good point there, overall companies look at WACC, but in the short-term, there are times when rates above/below can have value, especially when covenants or other contracts that are not honoured can drive up your cost of capital above normal, and make you willing to manage cash elsewhere on a short-term basis, or if the capital is not easily available. Startups are a great example, since they have little access to debt, and equity is expensive. And, yes, receivables factoring can be very expensive.Between my backgrounds in technology, startups, consulting and Wall Street, I am finding this particularly interested.
FYI, if this convo gets too far out of hand for this forum, I am available at avi [at] atomicinc [dot] com
Avi,First the easy stuff, yep live on a farm (but it is in the city). Raise horses, sheep, chickens and a gaggle of kids. Have a wonderful wife who is also an extraordinary mother, daughter-in-law and life counselor, and may be the better entrepreneur in the family, though my oldest daughter talked her way into a job at the corner toy store when she was just 11. She did such great job increasing sales — she demo’d new toys for kids as they waited in line to buy the stuff they had already selected and usually made the incremental sale — that the competition turned the store in for employing a minor… I am pretty sure she is now farther to the right than I am in her political views!” In the case of C2FO, which is trading receivables”… not quite what we do. We are liquifying AR and AP through trading of cash, or more precisely the time value of cash. With regard to your points about junk-bonds and securitization, I would counter by asking why we need a financial system that continues to assess the credit risk of working capital at all. If your AR is someone else’s AP and we can see both sides of the equation (and we do) then the need to underwrite the AR is obviated and we can review the recourse consideration according to the stronger party — In the case of C2FO usually the liquidity maker (the AP holder). The point being: when you pay a supplier early whose invoice you have already approved and is in your AP system, you are actually not investing in the supplier, but rather yourself/your company. Assuming you have at least a clear understanding of your own financial strength, your decision to pay early is a function of your belief that you will not go broke in the next month or so. Average DPE (Days Paid Early) in C2FO is 24 days, so if you have enough info to know that you are not going to “cease to be” before then as a company, then C2FO and the market it facilitates is in fact a risk free market without need of (imperfect and frictional) third party financial intermediation or securitization.
Now Missouri *has* to be somewhere on my travel itineraries. I need to see the farm and the startup that came out of it. I would particularly like to see how you run what really has become a distributed virtualized firm – employees, raising capital, the whole shebang (or hashbang, for those old Unix hands). That is not a discussion for here, mind if I drop a LinkedIn?”we are liquifying AR and AP through trading the time value of cash.” Still not sure I am grasping it. Isn’t the time value already built into the net 30 or net 60 assumption? You seem to be saying that an entirely third party may want to purchase that time value, similar to how some investment firms purchase consumer credit receivables, or even lawsuit claims. Further, you are saying that these can be liquid enough to be traded in a marketplace?I think I am still missing some of the actual dynamics, the “how it works on the ground.”A holds an invoice issued by B, net 30. It is now 5 days in. A will normally wait until day 29 to pay, because there is time value of money, why should A be free banker to B? Now A participates in your market, and A is willing to pay right now (25 days early), because they will be recompensed for it. They would do it only if (a) they reasonably believe they are not going broke in the next 25 days, as you said, and (b) they are recompensed more than alternate uses of (or the cost of, hence WACC) their capital.Now, who is actually compensating them to pay early? Are they posting it like a security on the C2FO market, saying, “I am willing to sell this invoice to anyone who will pay me $x or y% of the face value.” Obviously, B could pay it, but is someone else? And when C does, A then pays C the face value minus the discount, and now we carry a risk that C might not pay A (“go on, take the money and run”, Steve Miller Band).
Avi,You are most welcome on our farm — especially if you don’t mind a bit of farm work!Let’s do please continue the conversation in person. Would love to connect. Sandy
Avi,You are most welcome on the farm – especially if you don’t mind a few farm chores!Let’s do connect and continue the conversation.Sandy
Avi,First the easy stuff, yep live on a farm (but it is in the city). Raise horses, sheep, chickens and a gaggle of kids. Have a wonderful wife who is also an extraordinary mother, daughter-in-law and life counselor, and may be the better entrepreneur in the family, though my oldest daughter talked her way into a job at the corner toy store when she was just 11. She did such great job increasing sales — she demo’d new toys for kids as they waited in line to buy the stuff they had already selected and usually made the incremental sale — that the competition turned the store in for employing a minor… I am pretty sure she is now farther to the right than I am in her political views!” In the case of C2FO, which is trading receivables”… not quite what we do. We are liquifying AR and AP through trading of cash, or more precisely the time value of cash. With regard to your points about junk-bonds and securitization, I would counter by asking why we need a financial system that continues to assess the credit risk of working capital at all. If your AR is someone else’s AP and we can see both sides of the equation (and we do) then the need to underwrite the AR is obviated and we can review the recourse consideration according to the stronger party — In the case of C2FO usually the liquidity maker (the AP holder). The point being: when you pay a supplier early whose invoice you have already approved and is in your AP system, you are actually not investing in the supplier, but rather yourself/your company. Assuming you have at least a clear understanding of your own financial strength, your decision to pay early is a function of your belief that you will not go broke in the next month or so. Average DPE (Days Paid Early) in C2FO is 24 days, so if you have enough info to know that you are not going to “cease to be” before then as a company, then C2FO and the market it facilitates is in fact a risk free market without need of (imperfect and frictional) third party financial intermediation or securitization.0 •Edit•Reply•
Congrats. I am going to look into this as I have an order from Spencer Gifts. Their terms are Net 60 and for flow purposes, I’d like to get paid faster. I wonder if they are clients yet. This is like a factoring service I guess. What percentage would I lose?
Its not factoring but more of a replacement for it
Jill, discounts vary typically according to the Days Paid Early (DPE in Pollenware speak), typical offers are in the 50-70 basis point range. We have a number of suppliers who use C2FO to eliminate their need to factor or to reduce the duration of the cost at factor
The CFO is Mr. Kill.
I totally get the value of this. I used to be an expert consultant on supply chains risk management in my b2b days. Optimizing a supply chain is a on-going priority and a competitive advantage for companies that do it really well. E.g. Dell’s and Apple’s supply chain executions are legendary, but mostly invisible to the consumer.Congrats on this unique investment. It’s definitely adding a b2b nugget to the USV portfolio.
This is about payment, not supply chain, isn’t it? It is the financial side.
There are 2 supply chains: 1) the Physical supply chain, and 2) the Financial supply chain. The financial supply chain is about the movement of funds resulting from the physical supply chain (movement of goods). The Financial supply chain integrates with the physical supply chain at various points with activities largely around payments and loans. In general, it’s the banks that provide these services, and sometimes other agencies are involved. That’s where Pollenware comes in.So, Pollenware directly affects the efficiency of a supply chain. It’s part of the financial engineering and operations of a supply chain.
I can accept that, good point. Usually people think of the supply chain in terms of physical, because that is what most affects the revenue side (and the cost side). But I can see how the finance side can be considered part of the chain.How do you see Pollenware replacing supply chain elements? The financial supply chain usually is wire transfers and checks (and ACH, and PayPal, and Dwolla, and…). Pollenware isn’t saying, “better 1:1 payments”, it is saying, “a marketplace instead of 1:1”.
I’m not sure I can properly answer that last question, but my understanding is that they enable more efficient cash flows which are necessary to fund parts of the supply chain operations.
Has to be more efficient enough for both supplier and customer to attract them in. I agree there are inefficiencies in the financial chain, the question is, are they big enough as individual points – or consolidatable enough so that they are in the aggregate – to make it worth it?
There’s possibly a 3rd: Information supply chain. Information-sharing and uncertainty management within supply networks is currently getting a lot of attention in academia.
Good one! yes.
Every co, big and small has supply chains. But my read of this is that it is not a marketplace layer but a mass market play to get millions of small and larger co using this from a finance and payment perspective.Seems very different from straight supply chain stuff.We may have intersected William when I was doing BizDev and partnerships for Moai who was a dot.com auction technology player in the early marketplace days.
Yeah, I agree on this, not supply chain but finance thereof.But I still don’t see the play. I am a supplier or a customer, what do I get from using this? I can always renegotiate with my counterparties.
A bit out of my domain so I’m going to learn a lot from this thread.I agree though that online payment and transaction systems are still a mess and could use a thorough shaking up.
Actually, my understanding is that the overwhelming majority of B2B transactions are not what we would call “online.” Most are either ACH transfers or even checks. Don’t ask how much time/money I spend as a consultant to get checks from my virtual office into business accounts.
Cool! I wrote papers on supply chain risk management in 2000-2002.
An online factoring market, love it. This would be a big hit here in Brasil.
I was thinking similar thoughts about how this will work in emerging markets such as Brazil and Middle East, etc…
Agree with both opportunities. Need to study a bit more but our initial view (wrt to Middle East) is that what we do is Sharia compliant
you’re not offering loans, there is no interest involved. This is haggling, straight
Hi Adam, we are looking at S America right now and agree with your view.An “online factoring market” isn’t quite what we do, but as mentioned in a few posts here, we can certainly clarify our message on the site to better describe C2FO. Factoring involves the sale of the AR; what we do at C2FO is allow for the liquefaction of the AR — a better solution with less risk than factoring and much lower costs/friction
maybe similar to http://www.receivablesxchan…
lot going on in the midwest. contact me if you want to know more about it. No one has the market cornered on good ideas.
If you are the CFO of a large company, it’s a great idea, it’s another way to squeeze more out of your suppliers. It’s an interesting investment and I like the theory behind the marketplace they are creating.However, If you are a small company supplier, it’s not so great. Why? because it’s the finance department impinging on the supplier relationship and more often than not the finance department will not have a clue what that relationship is and what goodwill is being supplied along with the service or the goods.Finance departments are necessary but if you are a CEO or founder don’t let them become a necessary evil and let the tail wag the dog.As a supplier when you are dealing with a new company make sure you set out your payment terms and try really hard to stick to them and don’t let them slip. You don’t have to accept the payment terms a buyer tries to impose on you, unless you are selling commodity or in a really competitive market.Payment terms should never be the differentiator between you being chosen as a supplier or a competitor.I’d like to see the payments market disrupted so that payment time was minimised as close to zero as possible.
LOL! I have seen that tail wag the dog too many times to count…
I’m still a touch confused as to what’s in it for suppliers with healthy cash flow as it seems they’re actively allowing their clients to shop them for discounts.
I think if you were a supplier you would actively avoid it, unless you needed the cash or had sufficiently bumped up your invoice to take into account the fact that you were going to have to take a discount to get paid in a reasonable timescale.
And companies don’t do that every single day?Every pricing offer includes payment terms, and usually discounts for early payment.
that’s where pollenware does offer the supplier something, those early payment discounts are often taken regardless!
We’re thinking along similar lines. I’d be concerned about being shopped against other suppliers who aren’t even in the same market.
Even suppliers have suppliers. Financial musical chairs.
Yes, but then they’re participating as clients.
that might be the name of markets – all of them are financial musical chair clubs.
“what’s in it for suppliers with healthy cash flow”Nothing. And so they don’t participate in the market event.But given a large diverse group of suppliers all you need is enough of them that do have the cf issues. The others simply don’t participate.
Good observation, but I wouldn’t necessarily say there’s nothing in it for them. Suppliers with healthy cash flows (no need to factor or use SCF) still may not be taking advantage of their own suppliers’ static discount terms (we see a lot of $ left on the table). I.e., they can arbitrage through C2FO at a cost of ~80 bps and take advantage of existing static discounts from their suppliers typically in the 100-300 bps range, capturing a nice low-risk spread without throwing off their balance sheet. C2FO is not just for the cash-hungry suppliers.
There we go, cheers. Congratulations on your business.
Well in theory not much but if their suppliers don’t have good cash flow then there is something in this for them
Sure. It’s potentially great arrangement, although among a certain class of operator that signal is like a red rag to a bull.As an investment I love it — looks like a fine business; hard to beat a clip of the ticket each way.
I think Pollenware takes business away mostly from the banks and other traditional financial intermediaries. They are a new type of financial intermediary.
I agree, cash management shouldn’t be what it is right now – bankers territory This is something that should be much easier to manage in a company, especially so small companies can take advantage of the same set of cash management purposes
But they function differently than banks. Banks are facilitators of 1:1 transactions – you send funds to me. This is a market, very different.If all you are after is simpler, cheaper, more efficient tx, then it should be done in the same method, but better. By the nature of doing it in a market, you are saying something needs to be different about the very model.
” Why? because it’s the finance department impinging on the supplier relationship and more often than not the finance department will not have a clue what that relationship is and what goodwill is being supplied along with the service or the goods.”That’s a good point (when I read it earlier in line at Starbucks w/o knowing the concept at all I liked it) but it doesn’t apply here.This is something that happens after a contract is signed, goods are presumably delivered and invoiced, and strictly relates to getting paid on an invoice early, and only if you want or need to get paid early. It’s doesn’t appear to be targeted at all to bidding in advance of a contract or any money owed. It is totally after the fact.
Exactly, and since it is entirely up to the supplier to offer and participate, the supplier sees this as a benefit, not a penalty. Our Net Promoter Score from suppliers is one of the first things you see on our site. Another huge key metric for us.
wasn’t this the basis of credit cards – to have payment time minimised?
Yep, but at what cost? Interchange fees on transactions that ride the rails of the card systems is waaaay too high — especially when the payor can use the card to pay on the last day of the “payment due terms”, accelerating nothing but still taxing the supplier for the full interchange fee.The fact that interchange fees are increasing is only made more maddening when you note that it is often to fund a rebate to the buyer for gigging the supplier in the first place.
I’m not going to disagree about the cost – however I think it is something about when trying to understand your business model. How are you different than credit cards in this regard? (Other than that, I agree with you)
Biggest diff is cost (as you point out, we are a fraction of typical interchange). Best difference is that the supplier names, and offers, his price, unique to him/her at that moment and established by the liquidity need at that moment. Interchange is buyer forced, static and constant. Three strikes in my book and you are out!
To add one more thing to what @sandykemper:disqus said, another big differentiator is Pollenware is not a creditor or a lender.On scale, taking on a line of credit with an intermediary in order to optimize cash flow is not the optimal solution.Pollenware offers the benefits of optimization without the downsides associated with borrowing.
It is geared specifically to large companies whose cash flows are at-scale to reveal the value proposition.As I said in another comment on this topic, if you’re a little mom and pop restaurant, finding a way to shave off a penny on every batch of french fries you cook up doesn’t mean much. But if you’re McDonalds and you multiply that by all the billions served on the worldwide presence of how many batches of fried per day per location around the globe, you’re now literally talking about millions.So yeah, it is for the tier of customer that is getting similar offers from their bankers and alternative funding sources.
Great investment by USV.. Pollenware seems to be leader with an engaged community, amongst RecievableExchange, Efficient Finance and others. Great to see USV disrupting the enterprise and finance. I love the viral acquisition aspect.
I’ve got to register to download the white papers? Puh-leeze.
I agree that’s not ideal
Fairly common practice but I also agree… it is old school and quickly becoming obsolete.Any good white paper ends with a sales pitch / definitive call to action anyway and contact info. If the paper is compelling and the need is there, the prospect will reach out quite happily.The information should compel them; not a nagging salesperson and/or auto-responder.
A fixed contract between two parties then becomes the reference point of negotiation involving may parties. Real time fluid efficiency across the market.
It looks very interesting and seems true to your investment thesis. I’d love to see what effect it’s had over an entire supply chain, including the bits that opted out, at a systems level.
From a VC investment point of view how is this defensible against competition?
“how is this defensible against competition?”I think once they have signed up a large corporation they have a somewhat secure relationship in that that corporation isn’t going to switch to another entrant in the market.I have no idea (haven’t looked) if there is any competition for this idea.But they certainly have a window of opportunity to sign up all the large usual suspects and gain first mover advantage before anyone can get setup and duplicate the idea. So besides the fact that this could be a different investment thesis this is not something that is easily duplicated by two kids in a dorm room. So it doesn’t need the same, or have the same requirements of, defensiveness. There is some integration required so switching to a new service is not trivial (but possible). Also you suck up to the decision makers, wine and dine them, which makes it more difficult given those personal relationships to switch to a new marketplace. They have a patent applied for (details not revealed) which might afford them some protection (et tu, brute?) If what they charge provides value someone would have to significantly undercut them to steal the account (not even taking into account whatever their contract is for as well. I would imagine it’s stated in a time period and they will monitor the happiness of the account fairly carefully).
first to establish a market often wins.
Network effects and marketplace liquidityHow is kickstarter defensible?
http://www.usv.com/2012/05/…What is this effect?
i am not sure i understand the exact question you are asking
Me neither. The network (bonding) effect, is it based on human psychology?
The network effect that @fredwilson:disqus is talking about refers to the phenomenon in which every single time someone joins the network as a participant, they add value to the network. If another user considers leaving one network to join a copycat service, they have to leave their old network behind. So the network effect is both a barrier of entry (because a newcomer has to open an empty candy store) and it is barrier of departure/means of retention for existing customers (because the buyer has to take all of her transaction partners elsewhere if she is to leave one network to join another).Kickstarter is an interesting comparison because there are clearly a lot of copycats (Indiegogo, crowdfunder, Microventures, etc.) but Kickstarter built a brand identity that gives it the flagship position. You can’t talk about crowdfunding without mentioning Kickstarter and it is still where all the most promising such ventures are born.In terms of Pollenware C2FO, there is an irony in that they’ve made it SO easy to join the system by connecting to existing ERP that it lowers the competitive barrier of entry for copycats to take market share because they can offer the same connectivity. People would be more apt to leave for another network if they could easily move their personal network with them. Here, if all networks were equal, why not just join several networks non-exclusively?That’s why Pollenware needs to move fast right now to add other value to the network itself… things others can’t replicate. And it needs to nail its brand image so that even if there come to be copycats and niche operators, they will be the flagship de facto standard of reference that all have to mention when talking about this category. It still doesn’t need to be exclusive but it should be the market leader and the preferred provider of the category.From Fred’s standpoint, he already sees major traction from existing large players who are actively participating in THIS network so the company has demonstrated in a very empirical way that people want and will pay for a service like this. Plus it seems they have a definite running start and even some patents under their belts on the process.In my view, this barely scratches the surface on what can be done. There are possibilities for adding value to this platform that are simply mind-blowing once you wrap your mind around the basic premise of cash flow optimization.
I just emailed the alias. There is no direct sign up- not clear what to do if you are interested. I’d love to use this for our collections from media buying agencies. Could be of huge value if the four large holding companies adopt it, since they are the primary buyers from all digital media sellers: BuzzFeed, Facebook, Foursquare, Twitter, Aol, etc.From the video demo, it seems to suggest the customer needs to sign up first. But would be cool to make this work for our industry. Alternative is lines of credit or additional financing even for porfitable businesses.
“not clear what to do if you are interested.”I would imagine their time is best served from a sales effort  by signing up large accounts with significant payables and vendor bases. To start at least. By signing up a large company they gain access to all their vendors and that company takes care of legitimizing the idea (although I would imagine they work with pollenware marketing materials). There is probably a somewhat long selling cycle to this that involves identification and schmoozing of the appropriate individuals at that large company. I don’t see this as a hard sell actually. As presented it makes a lot of sense for everyone involved. So they develop their own Glengarry leads.
That’s what I meant in my post about needing to do work to scale this up and down the market
I totally love this concept. As mentioned, it’s use facilitates its spread. It seems like a useful proxy for its success is how far up and down each supply chain this service migrates. The more vertically integrated Pollenware gets, the more social proof of an awesome service.
How big corporate companies who already pay the suppliers with 60-90-day credit period (some even have credit until customer pays for the finished good) will get benefited OR is it aimed at SMEs? (between SMEs and SMEs).
“OR is it aimed at SMEs?”From what I see it depends on adoption by large business with significant vendor bases. Those vendor bases can be companies of any size though. I would imagine that there is definitely a relationship between vendor size and amount owed.Example.Vendor is a 40,000 employee business and has a $5000 invoice. No need to go to the auction not worth the time. Vendor is a 5 man machine shop, probably would go to the auction in order to obtain a possible discount and bid.Vendor is a 40,000 employee business and has a $5,000,000 invoice. Probably would attend the auction.The beauty of the idea (if I understand correctly) is that the auction “market clearing event” puts together a diverse group of vendors (that have agreed in advance and signed up) together and the company has a pot of money they are willing to pay early. The software simply puts together all the data and spits out the best combination of situations which could contain all sizes and invoice amounts due.I really like the idea.
do you think this would work well if instead of corporation, it is government?
Government has both tax payers who owe money to them and vendors who they owe money to.For the vendors it’s really the same thing as a corporation. I used to have municipal accounts (City of Phila) and it took 4 months to get paid iirc. So the city says “here’s a chance to get your money early”.For the taxpayers it’s receivables so essentially it’s the same thing reversed.I can see some whining when dealing with the public but in the case of cash strapped municipalities they’d get over that quickly.The money they raise from the taxpayers early would reduce their borrowing costs. Or it could be used to pay vendors early and earn further discounts. That’s where the algorithm comes in.One of the things that had happened in the past is that a/r accounts would periodically contact us and say they had financial problems and would like to pay off an invoice due on cents on the dollar. In some cases we took the offer not wanting to wait for door number two. All depended on how convincing they were.
“That’s where the algorithm comes in.” Exactly. Done well companies/governments can be both takers and makers of liquidity simultaneously
I like the idea but the website is way to complicated. Maybe because it is complicated in the details.And they should get a Vimeo Pro account for their videos. Commercial videos like product presentations aren’t allowed with the Plus account.
What is the relationship between Pollenware and Paystreamadvisors? The white papers are from Paystreamadvisors.
Isn’t the receivablesexhange out of New Orleans doing this?
TRE is focused on selling the paper to third parties, a good model, but not what we do.
As an ex-finance guy who barely knows the market but understands the problem, sort of ashamed I didn’t think of it. Great idea and solid execution – I’ve often wondered how the banks get dis-intermediated, and seeing Pollenware makes me think that starting out by bringing together market participants, rather than trying to be a different kind of bank or lender, could be the killer wedge. Solid work
So much more to do, but thank you for the ack of what has been done so far. Of course, we agree with your macro observation.
Wow. Also a big departure from 2 kids in a dorm room.Family ties to this company, which Kemper says he was the chairman and CEO of from graduating college in 1987 to 2000 according to linked in:http://www.linkedin.com/pub…https://www.umb.com/AboutUM…
Too old now to go back to school, and definitely too old to have a room mate!Started at UMB in ’87, worked way up to President in ’96 I think then CEO in ’99. Family in the company, but couldn’t convince them to make me CEO right out of school…
fyi, thank you for popping in.
This idea needs to be expanded to local property tax departments. That is, offering smaller municipalities the opportunity to allow people and companies to pay their property taxes early and receive a discount. I would take advantage of that in a heartbeat.
Your post has been captured by our sales folks and is a good one. Between the great suggestions/comments on marketing and your rev gen ideas you have a lot of followers here at Pollenware C2FO
That’s pretty interesting. Their demo video did a good job explaining the premise. Sounds like a ‘conditional’ win-win.
The site doesn’t really communicate the idea that clearly for layman but after watching about 5 minutes of the “buyer client panel discussion” this appears to be a simplification of the idea (if I understand correctly).You are a corporation with excess cash.You have “n” suppliers who are owed money at some future date.You bring them all together and they bid against each other toget that money early (only if they want and have signed up).Example: Costco wants to pay $500,000 of invoices which are due at some future date according to the terms of the original agreement with vendors.Vendor “a” offers to accept payment of a 25,000 invoice at a 5% discount.Vendor “b” offers to accept payment of a 10,000 invoice at a 2% discount.Vendor “c” offers to accept payment of a $400,000 invoice at a 2.3% discount.And so on.The software analyzes all the bids and computes who you should accept early payment from to give you the best yield.A great idea.Added: The software also allows you to increase and change your bid by giving you feedback.
thanks for this excellent explanation. they should hire you to do their marketing.in a way, it seems like they are intermediating trading long-term debt for short-term debt. i like it from a macro perspective.
Perhaps I’m missing something but don’t the suppliers risk self-selecting as cash strapped? If I’m managing purchasing I’m looking long and hard at replacements for a vendor with enough cash issues that they’re willing to give up more than a percent or two for early payment…
“but don’t the suppliers risk self-selecting as cash strapped?”A fair point. But nothing heals like cold steel (cash in this case).Generally if you have a use for the money (and there are reasons you might want to get your money early in order to take advantage of another opportunity which wouldn’t necessarily mean you are “cash strapped” although that could of course be the case) it would probably outweigh the negative of sending such a signal. All depends on the specifics of course.This is already being done anyway obviously by existing payment terms of suppliers offering discounts for early payment. Should the bidding war get up to large percentage points it could of course act as a signal and something to think about. It all depends on the specifics.Along the same lines of your thinking we have some machines in colo and pay monthly for that as billed. I offered to pay the full year for a discount and they said they weren’t interested.This tells me at least three things:a) they don’t need the money enough to offer any discount.b) We have paid them to reliably over the last 8 years the check comes on time every month like clockwork (so why take less, certainly makes sense, right?)c) By offering we are signaling further that we don’t have cash flow issues.I’m a big believer in the psychology behind these things and how people perceive risks that they take. Back in a previous business I was in I used to not pay so quickly as we could so as to build in some leeway in case we got into a cash crunch and would send a signal of a problem by changing our payment pattern. So iirc we might pay in 65 days (which was acceptable) instead of 10 days. That way we had leeway and they wouldn’t note the delta. In general vendors prefer certainty of payment as much as they like timeliness.
The discounts offered typically average less than .8%. Suppliers participate for lots of reasons including need for cash, but most of the time the participants are in the market to lower their cost of borrowing, making them stronger, not weaker. This makes them better partners to their buyers as they are reducing their costs.
Hi Sandy! Do you have any idea of the average payment terms? It would seem to me that a supplier receiving net 30 would have a hard time reducing their WACC by paying a consistent .8% no?Obviously in a higher interest rate environment or longer average payment term it starts to make sense quickly but short of that I’m still having trouble seeing the value to the supplier.
Hi Trevor,Average payment term (DPO) for a company with less than $500mm in rev is now 60 days in the US. We see a bunch of 90 day stuff too.Suppliers participate for many reasons, but one that we are increasingly excited about is the ability to arb the take rate against a make rate. In other words, draw down cash from a buyer to then fund a supplier at a positive spread to the draw down from the buyer.
Sorry to be late to the conversation. Been a busy morning here in Kansas City.Think of it as a market for cash.Some companies (those with liquidity) are looking for yield on their cash and some companies (those with illiquidity) are in need of cash. Pollenware’s C2FO market brings these companies together to find the clearing price that satisfies both parties. We do it in live bid/ask markets where the large buyers allocate pools of cash to satisfy suppliers’ bids for that cash. The supplier decides how to participate and what rates they will offer — usually determined by the cost of, or availability of, their alternative sources of cash at that particular moment.Participation and offers vary daily as the cash needs of companies ebb and flow with time. Similarly, the cost (APR or Discount offered ) of filled orders for cash varies according to the due date of the invoice being paid early. We call this DPE (Days Paid Early) and it is a key metric for us.In a typical live event, the system will handle tens of thousands of invoices and more than 100,000 offers from the suppliers participating. Our job is to find the best clearing price for that supplier, one that is below his or her alternative funding costs (which by the way is unique to each supplier at that moment in time) while simultaneously creating income for the buyer by increasing their gross margin and yield on surplus cash.
It’s a great value proposition for both buyers and suppliers, but what is your business model? Are you taking a cut of the discount value?
Yes, that is the most significant revenue generator for us now. Buyer pays, no fees to suppliers.
I shouldn’t have have watched 10 minutes of video to figure this out.Further, I’m not so clear as to why this is an investment as much as a way of balancing the books.The one thing I want to understand right now though: Cash management is a part of banking business. Why is this not happening (a marketplace for clearing the bills) not happening in the first place?
Site needs work and will receive more attention!Re your question about marketplaces and banks. Probably oil and water, so hard to have them be the place for the market. Margins in markets are too thin given the cost structure of most banks these days. There is a much longer and interesting conversation to be had though as to the efficacy or need for any risk based underwriting ( the bank model ) of working capital at all…
Well, if you ever want to have that conversation – my email is shana dot carp at gmail. I mean in theory investment banks are in part supposed to be market makers, especially for informal markets, which is why I mentioned it.
That’s it. They need to work on their messaging and website as they expand to a broader customer base. We can help them with that
makes me think of skillshare…..a niche idea that grabs traction with a really big market position right behind it (receivables clearinghouse).Nice.
Is their longterm intent to move into distributed pre-financing of production runs?I’m talking through my hat here because I really don’t know much about the complexities of the financial industry.Still in the aggregate disruption plays against the traditional finance industry seem like the mother of all disruption opportunities not just for the players directly involved along the way but for accelerating our inevitable network-economy transition to organic-community based social-commerce in general.
Thanks for post Fred but but I understood the post much better and what Pollenware is trying to do after reading the comments below especially the excellent ones by @domainregistry:disqus
that is why the comments here are almost always better than the posts
Neat idea. Is there a story or relevance behind the name?
what a great comment steve!it should have rendered as a video attachment to the commentnot sure why it didn’t
Interesting concept. It seems to me that the value proposition depends on the fact that short term investment opportunities for companies are currently non-existent. What if that changes? What if interest rates start going up? Will such a secondary market still make sense as an “investment” opportunity for businesses, as it’s presented here?
We believe so, yes. In an up rate market cost to borrow will also move up — usually faster than yields on surplus cash. And, in an inflationary market (usually the cause for up rate markets) businesses will want to turn inventory into cash as quickly as they can because that cash will buy less inventory with every passing day. Getting paid sooner in an inflationary market means getting paid more.
One important point about the value of Pollenware’s product is that many suppliers are chronically short of cash, since they get paid ~60 days after delivering their product/service. So they often need short-term loans to finance their operations, which implies paying high interest rates and origination fees. Factoring is also not cheap, and you need to negotiate. Taking this into consideration, it can be cheaper and much easier to offer a discount on outstanding invoices in exchange for immediate cash without having to deal with a bank.And assuming a buyer ends up getting a 1% discount on a $100k invoice every month, that would translate into something like a 12.7% annualized return. The key aspect of the marketplace is that the buyer doesn’t approach each supplier individually to negotiate, but instead starts an open bidding process among multiple suppliers at the same time.Both parties end up winning.
Exactly. Now imagine if the same supplier could not just be a taker of liquidity, but a maker of liquidity once they satisfied their own needs for cash. Draw down at a relatively low APR from one of their buyers in our market and then arb that rate against a higher APR being offered by one of their own downstream suppliers
that’s where your model gets super interesting Sandy
Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules… You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things… they push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.Steve Jobs
I’m glad to see USV expanding further. I hope USV benefits from this investment.
Here’s great to see you and the team involved in Pollenware – they’ve put together something pretty amazing, and am eager to watch where things head over the coming months.And we’ll continue working to develop more great companies in the Midwest for USV to lead the way on…
Saw John’s post on this yesterday. I like this one, for a few reasons. I like that it’s b-to-b, that it’s based in the Midwest, as you mention, and that, like your other recent Midwest investment, Dwolla, it’s a “schlep” business (to borrow Paul Graham’s term).
that’s a great paulism
Congratulations Sandy and good to see USV is investing in the MidWest. A lot of things are happening in Kansas City!
will be a great when usv does a deal in portland 🙂
it could happen
Fascinating business.I wouldn’t quite call it a lending marketplace. That’s more like Prosper.com’s line of business. This is actually MUCH more interesting than that.Large scale (Fortune 500) type businesses that manage enormous supply chains (hotels, chain restaurants, supermarkets, volume warehouses, etc.) can reap substantial benefits in really modeling and planning out the gap between payments received and their respective Cost of Goods Sold (COGS) payments.There is a real art in managing those cash flows — specifically the gap between Accounts Receivables and their respective Payables. In TOC (Theory of Constraints) business modeling, this practice is known as TA (Throughput Accounting). It is a means to achieving optimal financial performance for the organization so it always has the most possible liquidity and cash-on-hand. These concepts can also be applied to other expenses like CAPEX (Capital Expenditures) on items that become assets and OPEX (Operational Expenditures) that are part of simply keeping the lights on in an organization.Tweaking those variables, across a large scale organization, can yield amazing gains. If you’re a little mom & pop restaurant, shaving a penny off the cost of making one batch of french fries doesn’t mean much. But if you’re McDonalds, that penny-per-batch quickly amounts to MILLIONS when you multiply batches per day per location on operations with a worldwide footprint.Prior to a solution like this, the most popular way to work that gap is known as “aging payables” which, in plain English, is getting paid as soon as possible but then waiting as long as possible to pay suppliers. Banks tend to encourage this practice because banks like it when money stays put for a while. It gives them a chance to play around with other people’s money (which is what banks do best). They will compound interest on it or invest it and generally make a gain on the principal that it tends to keep to itself.But, if you’re a BIG company with millions on deposit, the bank will cut you in on their action. WHY? Because when your average deposits are $50 million instead of $50 bucks there is a hell of a lot more playing around they can do with your money so they don’t want any surprises. If you take out some of the uncertainty for them, they’ll pay you part of their gains. This is leading up to an idea I have for Pollenware.For example, if you have large predictable transactions that come in on a regular basis and corresponding payables that go out in an equally predictable interval, the bank will pay you part of its gain or upside for having had your money to play with for a while. The most customary thing they’ll do is hourly interest… interest literally compounded hourly. Holding the money an extra day or two or a week scaled up like those McDonald french fries again can mean millions.I once negotiated such an arrangement for a large PEO (Professional Employers Organization). That is sort of like a payroll service + group health insurance plan. They already had a one-week spread between when monies were collected from their clients to when corresponding checks (payroll, taxes, and insurance premiums) were paid out. So over and above their service charge, we negotiated with their bank predictable dates-certain that money would go in and agreed that nothing would be drawn against those deposits for one full calendar week each and every time monies were put into a special account designated exactly for this purpose. In exchange, the bank shared a very high interest fee that would be received by the company another 48 hours AFTER the payables went out.Win-win. Well, for the PEO and the bank. In situations like what I just described, only the bank and the banking customer benefit from that cash flow arrangement. Everyone else gets paid LATER not sooner.Pollenware C2FO is sort of the inverse idea. Instead of aging payables to keep cash-on-hand longer to share a private upside with a bank, vendors themselves offer a discount to accept faster payment. Very innovative.But I’m curious Fred, what would happen if some banks were allowed to participate in a Pollenware transaction as well? What if, banks could serve somewhat like escrow agents and instead of sharing the rapid interest with just the buyer, the upside could be shared with everyone involved in the deal?That could be EXTREMELY sexy and make an exchange/platform/marketplace like Pollenware indispensable. Most CFOs prefer FASTER when it comes to getting paid but if they shared in the upside of the aging process, they’d like that too. After all, if you ask most CFO types what they REALLY like above all is PREDICTABLE.P.S., Fred, the company needs a rebranding. Your post and the explanation on the USV blog explained the business better than anything on their entire website.Apologies for the long post. This really got my gears turning. Very interesting, Fred. And bravo USV for looking beyond NYC and SF. Innovation is everywhere.
Great post! And great suggestions. We are in fact working with a handful of banks and other fin institutions to draw them (and their strong customer base) into our ecosystem. Not sure I follow the escrow agent aspect, but clearly the banks can use the C2FO market and income as a boost to their own cash management and investment products for commercial clients who have surplus cash. For those liquidity makers who might not have a huge treasure chest of cash, the banks can also fund the request from the liquidity takers (the suppliers) once the liquidity maker has used up their own cash.Re. your points about predictability, so true. Now to add predictable profit to that equation!And, yes the site needs a ton of work. If there is one common theme for improvement from these posts, that is it. Our guys have been heads down driving the trade platform and bringing on new buy-side clients (they always have a few tech requests…), but no excuses any more, the AVC community has spoken!
Thanks. I can DEFINITELY help you on a number of fronts. Let’s reach out to one another or through Fred. I just dropped you a LinkedIn message to start the ball rolling. Done right, branded right, this concept has off-the-charts potential. Epic. I’m sure you know that, as does Fred, but as you raise the bar now, it is important to fine tune your message, get the identity right, and there are some key things that can be done to the service offering itself that will take you to a whole next level in terms of retention and revenues… and the overall value proposition of the platform.
My eldest brother went to KU. Never got to visit but always keep an eye on the Jayhawks in the news. 🙂
ps. that is some seriously confusing messaging on their website but i’ll assume that’s bc i don’t really get the space their in.
enterprisy lead gen 😀
I agree – it is not everyday that you hear of a NY based VC investing in Kansas. The company does seems to have found a problem worth solving and a market for it