Thought Leaders in Financial Technology: Grain CoFounder and COO Carl Memnon (Part 7)

Sramana Mitra: I’m more curious about financial engineering. You have Y Combinator which takes certain equity and gives you a certain amount of cash. After YC, you said you raised a seed round. Then you raised seed extension. As what? Safes, convertible notes, equity financing?

Carl Memnon: We raised primarily on YC safes.

Sramana Mitra: $15 million on safe?

Carl Memnon: Yes.

Sramana Mitra: Who’s funding all this?

Carl Memnon: Primarily venture capital firms and some angels.

Sramana Mitra: Interesting. That’s new actually. The fact that VCs are willing to give you that much safe money. $15 million is a lot of safe.

Carl Memnon: You have to remember while you were ahead of the curve in both remote work and fundamentals focus, that has not been the case for FinTech. A company that focuses on fundamentals and is generating revenue with healthy margins is a different analysis.

Our investors are very astute. That plays a part in them supporting our journey. There are a lot of different types of investors. What I’m finding in the market now is they’re skewing in the direction that you’ve been in and you’ve supported, which is fundamentals. I think that’s why we’ve been able to raise.

Sramana Mitra: I’m actually delighted to hear that you are able to find investors who are thinking along these lines and appreciating the value of these unit-economics-focused, profit-focused, and margin-focused companies. This mad rush for growth, growth, growth, and flushing companies with capital is a very unhealthy way of building companies. What’s happening now is all the belt-tightening is putting these companies that have developed bad habits of overspending into a deep pickle.

Carl Memnon: Absolutely. Nobody has ever thrown a bunch of money at us. From the very beginning, we’ve had to focus on those things. Now it’s just the function of the market. All those companies that developed all those bad habits, some of them are failing and are just continuing to fail. We’re very proud of the fact that we’ve been able to build that infrastructure. We’re ready to go into what is going to be a very tough time for startups.

Sramana Mitra: The thing is, once you figure things out on how to do things in a robust, fundamentals-focused way, it’s not complicated to scale with money. If you know that you put in a million dollars and $5 million is going to come out on the other end, raising is not difficult.

Carl Memnon: That’s exactly right. We’re at a point where we exactly know that number. We’re just now reducing our CAC [customer acquisition cost] payback. What levers can we pull to get our CAC payback as low as possible and reach that point of profitability? It’s something that nobody really talks too much about. That CAC payback is money out the door. How long is it going to take for you to make that back? I’ve read stories of companies with two to three-year payback period.

Sramana Mitra: And when you have that stuff figured out in a reasonable way, investors chase you. Investors literally chase you.

Carl Memnon: It’s been a challenge. We’ve had some success. Going into this market, that’s more palatable.

Sramana Mitra: This was always palatable.

Carl Memnon: For seed stage and Series A, a lot of the conversations have been about hyper-growth. It’s only over the last six months that people are asking us about our revenue growth. It’s a story we love to talk about. Our revenue grew six times last year. We’re probably going to do the same this year. That was not a story that people were interested in prior to 2021. Now, it’s most important.

Sramana Mitra: In the universe that I exist in, I think I can sell the story reasonably well.

Carl Memnon: You would think so. I’m in New York. Our investors are primarily in the Bay Area. The Bay Area is starting to think in a different way. You made the point that I have made. It’s funny to hear you say it. For thousands of years, that’s how businesses were built.

Sramana Mitra: I’ve been around. I’ve seen many cycles. I did my first company as a grad student at MIT in 1994. I did three startups. Then the dot com crash happened. The financial crisis happened. Everything moves in ups and downs. Now is the first down cycle after a long upcycle.

Carl Memnon: You’ve already seen it. That’s why they’re failing because they’re not used to it. They thought those good times would just continue.

Sramana Mitra: Very nice to meet you. Thank you for your time.

This segment is part 7 in the series : Thought Leaders in Financial Technology: Grain CoFounder and COO Carl Memnon
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