548th 1Mby1M Entrepreneurship Podcast with Lloyed Lobo, Co-Founder of Boast.ai (Part 6)

Sramana Mitra: ARR is now your business model right?

Lloyed Lobo: We look at it as ARR. For every year a company does R&D, they pay us. It’s recurring. Although we take a percentage, it’s very consistent with how much R&D they do. That’s how we model it out. 

Sramana Mitra: How many customers is $10 million ARR for you?

Lloyed Lobo: We’re close to a thousand customers. $20 million would be around 2,000 customers. We’re going more and more upmarket. If you look at our new logos, about 60% was referrals. We have only four sales people. They’re all generating. 

Sramana Mitra: After you raised financing last year, it’s almost coming up to a year that you had money. Talk about how that FinTech business is evolving.

Lloyed Lobo: We’re sitting on this trove of technical and financial data. We’re integrating with the payroll and bookkeeping. We’re able to pull up banking data. The FinTech aspect of that is there is all these R&D credits and incentives that people sit on. They sit on it for more than a year. The FinTech aspect of it is can we lend you the money.

To lend them the money, we need to underwrite a few aspects of it. We need to underwrite, “Does this person qualify for the R&D credit?” Two is if the business is stable. Those are things we figure out. I see huge potential there. A lot of banks are coming to us saying, “You’re sitting on this unique dataset. Can you also offer them other types of lending?” As a founder, you want to minimize your risk. The capital risk is hard. 

Sramana Mitra: Capital risk is very hard. What does that do to the business model?

Lloyed Lobo: Our goal is to not extend it severely, because we’re building more and more automation. Our goal is to figure in that financing within our traditional fees. Maybe it’ll go up a couple of points. It improves our net revenue retention significantly. Even if financing adds a couple of thousand dollars to the ACV, then it improves the NRR. Our NRR is 100%, but we have no upsell product. 

Sramana Mitra: Not only that, this is where you don’t need to take the financing risk. This is something you can bring in financing partners who will provide the capital and take the financing risk. You just act as the facilitator. 

Lloyed Lobo: I’m a big fan of embedded lending. A couple of companies I’ve invested in are in the embedded lending space. There is a thesis by Matt Harris at Bane. The first tech platform was the internet. Then came the cloud which brought intelligence. Then came mobile which made connectivity ubiquitous. Now it’s value exchange. Embedding payments, lending, and insurance is huge. Shopify’s payments revenue is soon going to exceed their subscription revenue. 

Sramana Mitra: Also banks have the facility to do lending. What they lack is proprietary dataset against which to evaluate lending applications. If you bring that to the table, you can easily get a few percentage points with no risk at all.

Lloyed Lobo: Exactly. That’s where we’re thinking. How do you do these facilities where they’re sitting on somebody else’s balance sheet. They’re taking the end-to-end risk. You’re doing the underwriting and you’re getting a few points. 

Sramana Mitra: Wonderful. Thank you for your time.

This segment is part 6 in the series : 548th 1Mby1M Entrepreneurship Podcast with Lloyed Lobo, Co-Founder of Boast.ai
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