Revenue-based financing – E117

Great to chat with Dimitry Gershenson, Co-founder and CEO at Enduring Planet, Enduring Planet offers rapid financing for Climate Entrepreneurs without dilution, personal guarantees, or collateral! We discussed revenue-based financing, the pros and cons of that compared to other forms of financing, how easy is the process like and more!

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James

The unedited podcast transcript is below

James McWalter

Hello today we’re speaking with Dmitry Gershenson co-founder and Ceo at Enduring Planet welcome to the podcast Dimitry great to start. Could you tell us a little bit about enduring planet.

Dimitry Gershenson

Thanks so much for having me James.

Dimitry Gershenson

Sure we provide fast flexible and founder friendly credit products to small businesses and startups that are working to address the climate crisis. So today we offer 2 Non-dilluted funding instruments 1 is a revenuebased financing product for sort of early revenue companies typically in they’ll like you know call it sub ten million a year in revenue range and then we also recently launched a new product to help folks. Ah, bridge the often long timing delays and state or federal grant funding in climate. So we’ll we’ll advance capital against you know state or federal grant funds that have been announced without necessarily dispersed and over time we’ll be adding additional.

Dimitry Gershenson

Credit products. We want to really have a full suite of non dilutive financing options for climate entrepreneurs from basically inception to Ipo.

James McWalter

What And what drove the initial decision to start enduring planet and.

Dimitry Gershenson

Oh man. Ah I think this has been a really long time coming for my co-founder and I we’ve both worked in in climate and catalytic finance. In fact, investing and credit kind of all the things that touch our work today. We’ve been. Doing those things independently for give or take a decade each and I had an opportunity to build a startup out of a venture studio last year a group called during ventures that I’d been working with for a little while and. Sort of presented me this opportunity and I I think I’d always really wanted to build this this business. The the capital gap in climate is is not nearly as often discussed as some of the other elements of the crisis right? So folks talk a lot about carbon removal They talk a lot about carbon offsets they talk a lot about you know tech that needs to be built etc. But I feel like the money side of the problem is not as sexy. That’s fine, but we need about five trillion a year in investment to actually get to two degree c we. Last by last count. It was like less than seven hundred billion that was invested so that’s an almost eight x increase that’s required and the credit side of that capital stack is dramatically like under. It’s just it’s just not happening and so weed up.

Dimitry Gershenson

Whole host of creative flexible like founder Friendly capital instruments in order for this transition to happen in a way that like reduces harm to you know, vulnerable people and really everyone and so we wanted to put a dent in that.

James McWalter

And as you’re thinking through like this scope and scale the problem and yeah, immediately when I hear trillions right? like these are exciting big Tam numbers and so on how do you start to think through what the you know the first set of customers might look like who should you service right? because.

James McWalter

You know it’s always the difficulty when you have these very very large opportunities. It’s like what is our kind of wedge into that opportunity and.

Dimitry Gershenson

Sure? Yeah I think it for us. You know we started with this kind of early revenue buckets or revenue based financing was our first product it in many ways was an ideal first product because it lends itself. Best to automation. Um. You you sort of if you look at the historical kind of alternative financing alternative credit landscape. There’s a lot of rbf lenders in ecommerce and saas and we thought the model would actually apply really well in the context of climate and it would also allow us to. Explore lending to both startups and small businesses which have very unique. They’re often look very different both in terms of the revenue trajectory but also in terms of the systems they use how they manage their accounting etc like there’s there’s a lot of what’s the word I’m looking for There’s just a lot of variability and so the revenue based financing was kind of an an attractive entry point and that meant that you know because we’re sort of on the initial portfolio we have ah a higher end cap on how much money we’re willing to put into any individual company because we don’t want to get overexposed and so. What that means is that we sort of artificially limited our initial customer pool to this sort of folks who have you know north of half a million in trailing twelve month revenue but less than call it 5 to 10000000 in trailing twelve month revenue and

James McWalter

Ah, yeah, yeah.

James McWalter

Yeah, and I’d love to just kind of get into some of the specifics around revenue-based financing you know I think a lot of the listeners will be familiar with traditional venture. They’ll be yeah familiar with even a lot of startups have founded themselves just with.

Dimitry Gershenson

Yeah, go ahead.

Dimitry Gershenson

Sure.

James McWalter

Too many credit cards or you know, ah kind of ah a quick personal loan. Whatever it is just to get something up and running and there’s been a kind of growth in revenue financing one of the big companies pipe and some of these folks have kind of emerged in the last few years so yeah so I’d love to kind of just you know understand a little bit more about revenue financing as a model and. You know the pros and cons of that compared to some other you know, maybe more common forms of financing and.

Dimitry Gershenson

Sure so I think maybe at first you got to split the capital available to entrepreneurs into two buckets diluted versus not so dilutive instruments. That’s you know your equity. Um, some debt can also be diluted because it has warrants or conversion principles that you have to sort of account for um, but that’s that bucket and then in the non-d diluto bucket. You have grants and you have debt those are the only types of capital there are and revenue based financing is a type of debt. It’s just not structured the way that. Think what most folks think of when they think debt base sort of imagine term loans where you sort of pay interest. You have principal payments if you miss payments you’re in default and gets really painful. Well revenue based financing takes a different approach to lending and so. In in our case, we provide a company capital and they give us a fixed percentage of revenue for an estimated term that allows us to like hit our our target returns we actually publish our term sheet on our website. So anybody who is interested in our capital can actually see. All of the dynamics of the product before they even apply. Um, and you know typically we’re lending sort of like less than half a million on the first go around that number will go up next year once we have a larger capital facility ourselves. But today we’re lending up to half a million

Dimitry Gershenson

Generally in exchange for anywhere from like 3 to 7% of top line revenue and typically it’s on like an estimated two year term. So now that capital that comes with with no collateral requirements. No personal guarantee requirements. There are no warrants. There’s no conversion There’s no complicated covenants. It’s like really simple, really fast. It’s you know is it more expensive than a traditional bank loan sure but the bank you know will take your personal. Assets as collateral in case, there’s a default and so if your business goes down the toilet your house is going with it and in our case, we will. We will never do that.

James McWalter

Right? And and even you know even besides those folks who have a house to to lose you know often Banks just won’t engage in technical startups Anyways, right? because they won’t really they already have the prism of what the kind of assets that those kind of companies are building until they’re quite large.

Dimitry Gershenson

That’s right, That’s right.

Dimitry Gershenson

Yeah I mean I think in general banks won’t lend unless there’s yeah 3 years of trailing revenue history. There’s a lot of collateral and even then they still want a personal guarantee and often those.

James McWalter

Have yeah.

Dimitry Gershenson

Multiple factors are like very difficult for a startup or a small business to achieve because even if you’re like you can be profitable and have a lot of history of of performance. But if you go to a bank and you have no collateral on your business balance sheet that you can put up in in order to secure the loan. They generally won’t do it unless you’re very large.

James McWalter

And as I think about yeah, where revenue-based financing might be suitable or not I’d imagine you you have both the type of company in terms of you know what? what’s their product and you know are they climate of course and not E to your your business but then also the business model of the company itself you know are there more.

Dimitry Gershenson

Um, yeah.

James McWalter

Are some business models more suitable for this kind of financing than others right.

Dimitry Gershenson

Sure, yeah, so for for revenue based financing. We typically look at one of sort of 4 models. 1 is pure software so typically Sas another is small. Or smaller hardware where there’s like a higher frequency of purchase and so there’s consistent growing revenue over time and there’s typically higher gross margins because we generally want to see about ah ah at least a 35% gross margin in order for us to do our behalf. Um.

Dimitry Gershenson

We’ll look at recurring services businesses or or services businesses with repeat purchases where maybe they don’t have a long-term contract but the same customers keep coming back and showing that there’s like repeat value and then we’ll also look at a hybrid model of any one of those 3 and so we. You know we kind of push the boundaries of where people historically have applied revenue based financing I think if you look at most of the other alternative finance players in the market they generally stick to saas some of them will do recurring services most of them won’t do hardware and and I think you know to some degree that’s been driven by. A lot of assumptions and sort of concerns about macro risks that in our case, we think climate creates a very unique sort of market opportunity where demand. At ah at a market level from consumers, enterprises, corporates, governments, etc. We kind of only go in one direction and there’s a lot of secondary factors that drive positive trends in the market including you know government incentives things like the ira etc which like don’t. Necessarily exist if you lend across Saas or if you lend an ecommerce and so that’s why we’re we’re comfortable, kind of pushing the bounds and and testing this model out with with businesses that often don’t look like what others will necessarily revenue base finance.

James McWalter

Exactly.

Dimitry Gershenson

Um, you know with our grant advance products we those restrictions don’t apply. We’re very comfortable advancing against grants regardless of the business model as long as it’s in climate and those grants are coming from State or federal sources.

James McWalter

And and just on that I actually have a little bit of personal experience. Um on you know the grant problem so a few years ago. A good friend of mine was involved in an arpe e soil carbon grant it was a 7 figure Grant and they wouldn’t get it for nine months and so they you know are trying to take this particular type of so science and and convert it it into a product right? that is something they can build. It was a piece of hardware. Um, and they had to raise and they went out and they raised a seed and basically it was a very um derisk seed from the seed. Investor’s point of view right.

Dimitry Gershenson

Um, yeah.

James McWalter

Could literally point to there’s going to be a couple million dollars coming into this company in nine months but they needed working capital right? because they didn’t you know the government was slower than startups right? So they needed to kind of get ahead. Want to start building the prototype and all that kind of thing. Um, and so I guess like compared to the type of work that you’re doing.

Dimitry Gershenson

Um, right.

James McWalter

Um, you’re eliminating that early dilution if you if you can avoid it at all.

Dimitry Gershenson

Oh yeah I mean it’s this is like a very common refrain that we hear is that folks will you know they’ll win a Doe Grant Usda grant california energy commission niceerta you name it, you pick an agency and most of them will tell you you’re getting the money. Somewhere in that 6 to nine month range before they actually start reimbursing you for expenses against the grant and that time is really painful and to your point folks will often go and raise equity. Which at that stage is incredibly expensive capital I mean it’s like 10 x more expensive than I think our grand advance on an effective irr basis because folks are you know they’re often getting sort of presee or see prices and they’re expecting a I don’t know hundred x return if they’re vtting at that stage. And so our our terms are very very different and in many ways we’re offering folks a product that I don’t I don’t think anybody else offers today and we’re pretty excited about the response we’re getting from the market.

James McWalter

Why do why? doesn’t it exist. It is actually shocking when because I saw ah you mentioned this you know I follow you of course on Twitter and um I think it was only a few weeks ago when when this is announced and I was like of course like like I literally had this conversation with my friend who was going through this whole thing about a year and a half ago and it never even.

Dimitry Gershenson

Right.

James McWalter

Kind of occurred to us that there was somebody who was doing an upfront loan like immediately both of our minds went to venture right? like that was the default because we didn’t even consider it but it seems just with the amount of money not just in the United States but around the world going into various grant programs. Not just for climate. But for ah other kind of applications.

Dimitry Gershenson

Right.

James McWalter

You know it’s surprising when you have literally a commitment of capital from the government in a sub one year period that no ah other financial institution has taken advantage to that.

Dimitry Gershenson

I I agree we’ve seen we’ve seen sort of boutique Lenders. Do this in limited context but and and and there are folks who do this with certain um tax incentives. So Like. There’s a group that that advances against R and D Tax credits that we’ve seen. But yeah, we’ve never we’ve never seen folks doing this at scale lending against state or Federal Grant funds especially in climate and so yeah I mean look the the opportunity is so vague that. I I would be I would welcome A many folks doesn’t want to come in and do this I think just in the Us It’s north at 30000000000 a year in funds that are dispersed through these mechanisms based on you know our conversations with folks who write these grants manage these grants et cetera and that’s ah, that’s a pretty.

James McWalter

Structure.

Dimitry Gershenson

Large amount.

James McWalter

And you know you have these 2 products now out what does it take to get a financial product live right? It’s you know finance I think it can be often complex people or at least from the outside you hear words like underwriting and like all these different things. You know what What’s the process from going to like. You know, look. We have this c climate round advance just because I’m naming it because it’s the more recent innovation but going from that as an idea through to it going live you know who are the kinds of people that you either have to have your your team or consult with to get to that stage.

Dimitry Gershenson

Um, yeah.

Dimitry Gershenson

So that’s a good question I think there’s a lot of pieces to this right one is that you need to actually have the permission to lend. So maybe we’ll start with compliance. You know these aren’t necessarily in in this order but these are like the key pillars right? so.

James McWalter

And.

Dimitry Gershenson

Need to be able to lend in a lot of the us commercial lending isn’t super regulated as long as you have like a signed contract in place most states allow business to be into business lending without much regulation. There are exceptions the state of California is one. We’re a licensed lender in the state of California that process took a long time is like a very long and painful process which ah it was just under a year I think um.

James McWalter

Yeah, are we saying over year or like just what’s long.

Dimitry Gershenson

Maybe a little less than that. Um, the thing is like you know it kind of depends on where you’re at you can you can technically do 1 or 2 loans in California business to business before you apply for your lending license and if you’ve done transactions. Ah, process is actually longer because they they sort of dig into those as well as the track record of the people who own the business. The people who run the business etc. There’s like a very large amount of diligence that’s done by the ah you know the sort of financial protection agency there. Um, so that’s compliance 2 you you know you need a team that can actually do underwriting who can understand sort of risk in ah in the context of credit who can understand where can a transaction break down with the grant advance. We spent a bit of time talking to um.

Dimitry Gershenson

I Mean one we sort of structured it internally and then we talked to a number of experts externally to sort of nail down the dynamics of the product because there’s there’s a lot of intentionality behind how the fees are charged and when and and sort of how the structure works and then um, you know you have to do ah a pilot transaction.

Dimitry Gershenson

Typically with capital off your balance sheets. You have to take some personal Well personal corporate risk to prove that the product is investible, um and and then you know if you have an outside credit facility. Ah you know or an outside fund or whatever where you have.

James McWalter

Yeah.

Dimitry Gershenson

External investors you have to convince them that that this is a product worth investing with under the mandate that you already have and so in our case, you know we we did 2 pilot deals and then we went to our investors for our first debt facility and we said hey we’d like to incorporate this product into our lending and they all. It’s unanimously approved and then and then we rolled it out. Um, so you know I I would say it was like ah at least a six month process from kind of start to making it public. Um, but there was actually quite a lot of work that happened before that.

Dimitry Gershenson

Where you know we we sort of understood the market. We did the homework we talked to entrepreneurs we tried to understand sort of where people where people’s comforts levels are around pricing and structure and what they what do they actually need in this product and you know frankly I wouldn’t be surprised if in six nine twelve months our grant advance looks very different.

James McWalter

But.

James McWalter

I and I guess that kind of goes to this quarithos I was reading on your website like 1 of the values of during planet is to be very kind of founder first and this is something.

Dimitry Gershenson

And it does today because we’re constantly getting feedback on how we can improve it.

James McWalter

That you know but bo you and I we have raised venture for our our current startups and a lot of people in the venture side right? Everyone’s founder first right? Um, so I guess how do you about you know, making sure that that value is kind of en shr in yeah, the products in the company you’re building.

Dimitry Gershenson

Yeah, yeah.

Dimitry Gershenson

So we I mean we think about the the sort of the impact on on founders and and teams at every step of that sort of customer experience. So one is we have I would say pretty radical transparency when it comes to how we lend and. And what our instruments look like and what the process will look like with revenue based financing. We even built a tool that allows folks to estimate how much money they could raise from us before they even apply they don’t have to like sign up for any marketing. They don’t have to do anything weird. They can just play around with a calculator. Um. We also make the application itself very short and very simple so it takes about 10 minutes to apply for funding with us. It’s I would argue pretty effortless and then we also you know, spend a lot of time thinking about. How we communicate and negotiate throughout the the actual loan process. So once somebody’s applied generally they can expect to see a term she you within a week which is pretty fast that and that time is going to get much shorter as we sort of enshrine some of the automation we’ve been building over the last twelve months and we also are very clear about what we’re looking for and what we need and what’s missing I think a lot of the time you know as you and I probably both experienced raising money when you raise from vcs there is no incentive for good communication and.

Dimitry Gershenson

What it means is that often you will pitch someone and this won’t follow up or they’ll follow up at a random time or they’ll wait for you to get a lead or like you know they might turn you down but they won’t tell you why there’s like all these things that happen when you’re raising venture. Where in our case, we just don’t do that. So if you if you are not a fitter for our financing. We tell you exactly why we set up check-ins to make sure that we are aware of when you hit the mostones that we need to see for you to be sort of investible and like you know we we spend a lot of time. Making sure that founders have a good experience raising money from us and then beyond that we’ve built a pretty robust network like a pretty pretty big community of folks that bring additional value to the companies that we engage with even if they’re not our portfolio Businesses. So.

James McWalter

Yeah.

Dimitry Gershenson

We have a network of over two hundred and fifty vcs so we shared deal flow with and we will connect founders to those vcs whether their portfolio companies ours or not obviously the referral looks different if it’s somebody. We’re invested in but we’re we’re very open to make the introductions and.

Dimitry Gershenson

We’ve also have a network like I think close to 40 partners now that offer discounted services to climate entrepreneurs around pitch Deck design. Yeah fractional cfo bookkeeping and accounting Grant writing you name it. We probably have a resource for you and we’re very Like. We’re not shy about sharing those resources in in our mind climate entrepreneurs should have capital to build the solutions that they’re building at the pace that they are able to absorb that capital whether it’s our money or not because the the world’s on fire.

James McWalter

You Ah absolutely and within that though you also have ah which you might be finding. Ah you know non-climate companies. Did they ever approach you because.

Dimitry Gershenson

We don’t have time to fuck around.

James McWalter

1 of the things we are having um in my own company is. We’ve had some data centers and I won’t get into details of of our own product and my kind of day job startup. But yeah, we had data centers and you know cannabis farms and all these kind of things um, try to use our product and.

Dimitry Gershenson

Sure.

James McWalter

Um, I’m like oh do use renewable energy right? I Do you have some sort of climate peace and and they don’t and so in that case, we actually don’t We won’t work with them as customers um have you had anybody come in and you know say hey you know this this house sounds great. But yeah, we’re not really doing anything in the climate you know, will you make an exception and I guess how do you evaluate that? yeah.

Dimitry Gershenson

Ah, we you know it’s interesting. So our our application form sort of limits. People’s ability to apply unless they can define a climate narrative if if. If we don’t see it. We’ll often. That’s the first check is like hey can you help us understand how you are driving impact around the climate crisis we’re we’re pretty flexible with our definition of what’s sort of in scope or not as long as we see a path towards reducing emissions. Removing carbon out of the atmosphere or supporting adaptation and resilience we’re we’re pretty flexible. Um, and we’ve had to turn companies down in the past that don’t have a strong enough climate story we had at 1 point a business applied that was doing sort of oh god what was it? ah. Like a marketplace for beach related products I think and you know like I get that that sort of coral reefs are threatened as a result of climate change I get that. Um you know, obviously like people’s ability to enjoy the beach. It. Might be impacted by climate change. But if they come to us and said hey you know all the products we sell are 0 carbon and they’re all like friendly towards its coral reef restoration and that’s like a core ethos then they would have been in scope. But if they but because they don’t have that.

Dimitry Gershenson

That to us was not a strong enough link for us to fund So We we spend you know most most of the deals we’d see are very much in scope and we you know we’ll spend time to understand those edge cases so that we can make sure we’re not missing opportunities but also to make sure that we’re like staying true to our mission. Which is to be investing in the space.

James McWalter

And one of the things you kind of mentioned a little bit earlier is you know, being quite public and transparent and you know a lot of folks. Not that many I would say on average but like there’s more and more folks who are what they call building in public right? being very open about their process being very open on their steps.

Dimitry Gershenson

Um, yeah.

26:01.26

James McWalter

Actually you’ve gone to you know a very high degree of this because I know you had a Techcrunch review your a pitch deck and so just and which I read with great interest a few months ago when I came out and I’m sure it’s been really beneficial to a lot of folks to kind of see you know how like you know, basically it’s a critique of your pitch deck.

Dimitry Gershenson

That’s right.

James McWalter

Even though it’s successful in in raising money. It still kind of demystifies. A lot of these elements and so yeah I guess was building in public like this very kind of conscious decision and I guess what are the pros and cons of you know building in that kind of way right.

Dimitry Gershenson

Yeah, yeah.

Dimitry Gershenson

You know I don’t know if we take it to the same degree that I’ve seen other folks do I know there are companies who like make their all their ah financials public through there’s like a service that can sort of link into your banking and accounting and like publish core metrics and um.

Dimitry Gershenson

We don’t We. Don’t go that far I think for us we we feel very strongly about our role as a kind of enabling community-driven player in this ecosystem and whether it’s our capital our network our lessons. We want those things to be available to entrepreneurs who are you know building solutions for climate and I think that in some ways it almost feels like it’s not a choice because the stakes are so high. And I don’t think it actually generally benefits anyone to be super like closed off in this process. The the market is insanely huge. The opportunity is is just so Vast. It’s almost incomprehensible. And so you know even if somebody showed up tomorrow doing what we do I I like I wouldn’t even be worried about I’d want to help them build their business so that we could put more more money in the hands of climate Entrepreneurs. So I think you know one of the things that is has helped us is that it.

Dimitry Gershenson

Sort of cements this brand and and shows people that we’re like we’re we’re not um, we’re We’re not our goal is not to be an extractive actor in this ecosystem but it’s to contribute and to be part of a community and to.

Dimitry Gershenson

Help other people be successful and you know just today somebody approached us for funding and we talked about their model and I was like you shouldn’t take our money like there’s better money for you out. There. Let me connect you to the people who can provide you capital. That’s more aligned with the needs of your business like we could probably make it work but but then it just It’s like not the right capital. It’s not the right structure for what you’re trying to build and I think folks should have the conversations more often like I would love to see vcs who when somebody pitches them for funding. They say oh you’re trying to raise 3000000 but you’re planning to spend 1000000 of that on marketing like.

James McWalter

Now are.

Dimitry Gershenson

Why don’t you just raise 2 and then I’ll help you find some revenue based financing for that extra million so that you’re not taking on crazy expensive dilut of capital to find your business instead. They general like oh cool, more allocation like I’ll take it. But I think if we all sort of took that alternate position I think we would. I’ll be better off.

James McWalter

Yeah, it’s so interesting I mean first on the kind of competitive point. It’s one of the wonderful aspects of being in the climate space is that how helpful everybody is and you know I’ve taken calls with competitors. You know I’ve I’ve been helpful where I can and being very open to like.

Dimitry Gershenson

Um, yeah.

James McWalter

You know, disqualifying potential users. You know if they’re not very core right? So that they can get value elsewhere is is kind of super important and you know and we kind of touch upon at the beginning and I’ve talked I think actually think to 1 or 2 um vcs I’ve had on the podcast in the the past about how there definitely is this lack. Are nearly like a missing middle of financing right? and it’s actually come up more on the project financing side where somebody’s trying to build some piece of infrastructure and they’re using you know venture-backed capital to like build something that is just incredibly expensive, right? You think about like something like a vertical farm right?? um.

Dimitry Gershenson

Event.

Dimitry Gershenson

Jeff.

James McWalter

If you’re building a vertical farm you’re building physical assets in the real world Now you might want to raise venture for your technical team and your software team to manage you know some sort of software that does a certain type of lighting and all this kind of thing but the physical hardware and the physical real estate. Um, it’s very very expensive to use equity-based.

James McWalter

Ah, financing for that and I think a lot of it’s just been you know founders have been exposed and or haven’t been the products and available to actually say okay I’m going to have a slightly more complex Capital Stack. You know 40% of it’s going to be in this bucket 30% in this bucket in the in this other bucket. Um up to now like. I Don’t think people thought in terms of like okay I might have to have a slight more complexity in order to kind of maximize the value and make sure the right book is a capital are being used for the right things.

Dimitry Gershenson

Absolutely you know it’s it’s always really interesting to me when companies spend a lot of time optimizing for their technical stack or their like organizational structure or their yeah, whatever it may be but then when they think about capital they have like a very simplistic view on what’s available how it should be used when it should be raised I can’t tell you the number of times I’ve talked to a founder and I said hey you know we think you’d be a good fit for this product and they’re like oh it’s okay, I’m I’m I’m raising venture right now and I’m like okay, but. You do know that the cost of that bench capital is like 5 x higher than what we’re what we’re offering what any like really anybody would offer for this particular use case and I think you know I think it’s okay, like it’s not It’s not founder’s fault that. In this position I think there’s a lot of sort of weird dogmatic narrative especially in the venture back startup community where like it’s like venture and venture debt. Those are the 2 products that people know and and like venture debt is this kind of like weird instrument that people sort of sometimes talk about but really, it’s about venture and you you know you you raised when you have 6 to nine months of runway and. That’s kind of like the model and it’s it’s it’s actually not geared towards the best outcomes for founders and their teams. It’s that those types of models are way more beneficial to investors who can secure greater allocation greater ownership greater control and so like.

Dimitry Gershenson

There’s nothing wrong with bench capital. You know we’re venturebacked we we have so we we love the folks that invested in us. They’ve been incredibly value additive to our process and like we’re raising around now you know there there is a role for bench capital to play but also. If we funded our entire loan book with venture capital we I don’t like I don’t know if it would even be possible like people just wouldn’t give us the money to do that. Um, and it and we would have to kind of be so be smaller and and still have to grow grow fast if it just be like a total mass and so I think that. Um, one of the things that’s been really exciting over the last few years in climate is that there’s this emergence and sort of explosion of creative financing that is slowly becoming available across the whole sort of gamut of need right? So both on the corporate and. Project finance universe um, but there’s still a lot of gaps I mean look man. You know we talked about the the $5000000000000 gap like a lot of that is actually not because money is available and it’s just not flowing. It’s that like the the products don’t necessarily even exist in the ecosystem they may exist elsewhere in in capital markets. But they’re not being applied to climate for you know, 1 reason or another and so we see a lot of opportunity there and I think other folks are starting to sort of wake up to that as well is that hey if we’re gonna if we’re actually going to try to keep us the two degree. C.

Dimitry Gershenson

And insane amount of money needs to flow into the space and it has to look very different than what it looks like today.

James McWalter

Yeah, and personally you know I think one of the big bright spots in the economy right now is everything to do with climate clean energy in particular with you know and some of the kind of carbon sequestration parts that Ira is funding or helping to ah yeah, yeah, kind of firear means that. You have a ton of traction and growth happening with certain companies but evaluations have been crushed because of the broader market. You know, maybe it’d be nice to be able to delay fundraising and that six to nine months right and so revenue-based financing enables that and it’s actually honestly something we’ll probably you know deeply consider next year we’re kind of running off to our own kind of next round and it’s great to have that as an option.

James McWalter

And again, you know the right tool for the right use and so you still kind of think through all the different options. Um, but you know we’re you’re talking a lot about kind of the opportunities on the financing Side. You’re being exposed to a lot of different types of climate companies doing a lot of cool things. What’s kind of getting you excited and also I guess where you wish there’s more innovation you know where are kind of some. Bots that are being you know I guess underutilized and smart entrepreneurs could kind of focus on it and say oh,, there’s actually a lot of kind of blue space in this particular area.

Dimitry Gershenson

So it’s funny I get this question a lot and I have like maybe the most disappointing answer I can possibly give I am so excited about all of it. We see we see companies every single day that span the gamut from.

James McWalter

That right.

Dimitry Gershenson

You know, really frontier crazy I don’t know refrigeration tack to like compost subscription businesses in major metropolitan areas and they’re equally exciting to me right? I I I see. There’s so much like innovation and growth even in this like small business space and for us the things that matter are like are you did you have you found a customer and is it working right? like like. You know we look at the financial performance of the business. Not necessarily how many tons is it going to eliminate. Not you know um, like how how exciting is the Tam. We’re like oh are you selling a thing are you are you. Doing better this year than you were last year are your are your margins. They’re cool. We can do revenue based financing or oh hey, are you did you win a big grant and you don’t want to wait like cool. We can advance against that grant and I I think for us what What’s awesome is that there’s this really incredible. Universe of entrepreneurs that are building these solutions that come from all sorts of places and all sorts of backgrounds. We prioritize investing in underrepresented founders endeavors teams and I’m proud to say that I think 80% of our portfolio conforms to our like dei criteria and.

Dimitry Gershenson

And think so a similar percentage of our sort of forward looking pipeline does and I’m just like stok to to back these people to build all sorts of different solutions from compostable diapers to you know power system Management hardware and software that. That supports grade resiliency in disasters like those those things are comparable to me in terms of excitement is that Weird. Ah.

James McWalter

And it’s it’s not and and honest see I mean well let’s that’s the inspirational bit right? like there’s there’s a role for everyone. You know, take take the pie take the things you know right? like look around the the problems you see and there’s tons of opportunities. Um, but Demetri just been brilliant. Really enjoyed it before we live. Leave off is there anything I should have asked you about but did not.

Dimitry Gershenson 

Ah, yeah, it’s a good question I mean I think maybe just to say like if people want our kind of capital where should they go. They should go to enduring planet dot com and they can just click apply now and. Put an application takes 10 minutes and they get a termm sheet in a week so if you want some founder friendly flexible, fast non diluted financing. You know where to find us.

James McWalter

Yeah, and we’re going to include in particular the link to the calculator because I think that’s a great first step when I was trying to get ah get a handle. It’s like oh this this is exactly you know you put in your a you know your monthly revenue you put in a couple other numbers and all of a sudden. It’s like okay this is the kind of range I could potentially.

Dimitry Gershenson

Um, yeah, excellent.

Dimitry Gershenson

Or yeah, perfect love that. Thank you so much you too.

James McWalter

Um, utilize and it makes a ton of sense.

James McWalter

Well thank you Dimitry Gershenson is progression.

Title: Revenue-based financing – E117

Great to chat with Dimitry Gershenson, Co-founder and CEO at Enduring Planet, Enduring Planet offers rapid financing for Climate Entrepreneurs without dilution, personal guarantees, or collateral! We discussed revenue-based financing, the pros and cons of that compared to other forms of financing, how easy is the process like and more!

https://carbotnic.com/enduringplanet

Download Podcast Here: https://plinkhq.com/i/1518148418

Calculator: https://enduringplanet.com/resources/calculator 

Remember, If you want to support the podcast please rate and review 5 stars on  Apple, Thanks so much! 

James

The unedited podcast transcript is below

James McWalter

Hello today we’re speaking with Dmitry Gershenson co-founder and Ceo at Enduring Planet welcome to the podcast Dimitry great to start. Could you tell us a little bit about enduring planet.

Dimitry Gershenson

Thanks so much for having me James.

Dimitry Gershenson

Sure we provide fast flexible and founder friendly credit products to small businesses and startups that are working to address the climate crisis. So today we offer 2 Non-dilluted funding instruments 1 is a revenuebased financing product for sort of early revenue companies typically in they’ll like you know call it sub ten million a year in revenue range and then we also recently launched a new product to help folks. Ah, bridge the often long timing delays and state or federal grant funding in climate. So we’ll we’ll advance capital against you know state or federal grant funds that have been announced without necessarily dispersed and over time we’ll be adding additional.

Dimitry Gershenson

Credit products. We want to really have a full suite of non dilutive financing options for climate entrepreneurs from basically inception to Ipo.

James McWalter

What And what drove the initial decision to start enduring planet and.

Dimitry Gershenson

Oh man. Ah I think this has been a really long time coming for my co-founder and I we’ve both worked in in climate and catalytic finance. In fact, investing and credit kind of all the things that touch our work today. We’ve been. Doing those things independently for give or take a decade each and I had an opportunity to build a startup out of a venture studio last year a group called during ventures that I’d been working with for a little while and. Sort of presented me this opportunity and I I think I’d always really wanted to build this this business. The the capital gap in climate is is not nearly as often discussed as some of the other elements of the crisis right? So folks talk a lot about carbon removal They talk a lot about carbon offsets they talk a lot about you know tech that needs to be built etc. But I feel like the money side of the problem is not as sexy. That’s fine, but we need about five trillion a year in investment to actually get to two degree c we. Last by last count. It was like less than seven hundred billion that was invested so that’s an almost eight x increase that’s required and the credit side of that capital stack is dramatically like under. It’s just it’s just not happening and so weed up.

Dimitry Gershenson

Whole host of creative flexible like founder Friendly capital instruments in order for this transition to happen in a way that like reduces harm to you know, vulnerable people and really everyone and so we wanted to put a dent in that.

James McWalter

And as you’re thinking through like this scope and scale the problem and yeah, immediately when I hear trillions right? like these are exciting big Tam numbers and so on how do you start to think through what the you know the first set of customers might look like who should you service right? because.

James McWalter

You know it’s always the difficulty when you have these very very large opportunities. It’s like what is our kind of wedge into that opportunity and.

Dimitry Gershenson

Sure? Yeah I think it for us. You know we started with this kind of early revenue buckets or revenue based financing was our first product it in many ways was an ideal first product because it lends itself. Best to automation. Um. You you sort of if you look at the historical kind of alternative financing alternative credit landscape. There’s a lot of rbf lenders in ecommerce and saas and we thought the model would actually apply really well in the context of climate and it would also allow us to. Explore lending to both startups and small businesses which have very unique. They’re often look very different both in terms of the revenue trajectory but also in terms of the systems they use how they manage their accounting etc like there’s there’s a lot of what’s the word I’m looking for There’s just a lot of variability and so the revenue based financing was kind of an an attractive entry point and that meant that you know because we’re sort of on the initial portfolio we have ah a higher end cap on how much money we’re willing to put into any individual company because we don’t want to get overexposed and so. What that means is that we sort of artificially limited our initial customer pool to this sort of folks who have you know north of half a million in trailing twelve month revenue but less than call it 5 to 10000000 in trailing twelve month revenue and

James McWalter

Ah, yeah, yeah.

James McWalter

Yeah, and I’d love to just kind of get into some of the specifics around revenue-based financing you know I think a lot of the listeners will be familiar with traditional venture. They’ll be yeah familiar with even a lot of startups have founded themselves just with.

Dimitry Gershenson

Yeah, go ahead.

Dimitry Gershenson

Sure.

James McWalter

Too many credit cards or you know, ah kind of ah a quick personal loan. Whatever it is just to get something up and running and there’s been a kind of growth in revenue financing one of the big companies pipe and some of these folks have kind of emerged in the last few years so yeah so I’d love to kind of just you know understand a little bit more about revenue financing as a model and. You know the pros and cons of that compared to some other you know, maybe more common forms of financing and.

Dimitry Gershenson

Sure so I think maybe at first you got to split the capital available to entrepreneurs into two buckets diluted versus not so dilutive instruments. That’s you know your equity. Um, some debt can also be diluted because it has warrants or conversion principles that you have to sort of account for um, but that’s that bucket and then in the non-d diluto bucket. You have grants and you have debt those are the only types of capital there are and revenue based financing is a type of debt. It’s just not structured the way that. Think what most folks think of when they think debt base sort of imagine term loans where you sort of pay interest. You have principal payments if you miss payments you’re in default and gets really painful. Well revenue based financing takes a different approach to lending and so. In in our case, we provide a company capital and they give us a fixed percentage of revenue for an estimated term that allows us to like hit our our target returns we actually publish our term sheet on our website. So anybody who is interested in our capital can actually see. All of the dynamics of the product before they even apply. Um, and you know typically we’re lending sort of like less than half a million on the first go around that number will go up next year once we have a larger capital facility ourselves. But today we’re lending up to half a million

Dimitry Gershenson

Generally in exchange for anywhere from like 3 to 7% of top line revenue and typically it’s on like an estimated two year term. So now that capital that comes with with no collateral requirements. No personal guarantee requirements. There are no warrants. There’s no conversion There’s no complicated covenants. It’s like really simple, really fast. It’s you know is it more expensive than a traditional bank loan sure but the bank you know will take your personal. Assets as collateral in case, there’s a default and so if your business goes down the toilet your house is going with it and in our case, we will. We will never do that.

James McWalter

Right? And and even you know even besides those folks who have a house to to lose you know often Banks just won’t engage in technical startups Anyways, right? because they won’t really they already have the prism of what the kind of assets that those kind of companies are building until they’re quite large.

Dimitry Gershenson

That’s right, That’s right.

Dimitry Gershenson

Yeah I mean I think in general banks won’t lend unless there’s yeah 3 years of trailing revenue history. There’s a lot of collateral and even then they still want a personal guarantee and often those.

James McWalter

Have yeah.

Dimitry Gershenson

Multiple factors are like very difficult for a startup or a small business to achieve because even if you’re like you can be profitable and have a lot of history of of performance. But if you go to a bank and you have no collateral on your business balance sheet that you can put up in in order to secure the loan. They generally won’t do it unless you’re very large.

James McWalter

And as I think about yeah, where revenue-based financing might be suitable or not I’d imagine you you have both the type of company in terms of you know what? what’s their product and you know are they climate of course and not E to your your business but then also the business model of the company itself you know are there more.

Dimitry Gershenson

Um, yeah.

James McWalter

Are some business models more suitable for this kind of financing than others right.

Dimitry Gershenson

Sure, yeah, so for for revenue based financing. We typically look at one of sort of 4 models. 1 is pure software so typically Sas another is small. Or smaller hardware where there’s like a higher frequency of purchase and so there’s consistent growing revenue over time and there’s typically higher gross margins because we generally want to see about ah ah at least a 35% gross margin in order for us to do our behalf. Um.

Dimitry Gershenson

We’ll look at recurring services businesses or or services businesses with repeat purchases where maybe they don’t have a long-term contract but the same customers keep coming back and showing that there’s like repeat value and then we’ll also look at a hybrid model of any one of those 3 and so we. You know we kind of push the boundaries of where people historically have applied revenue based financing I think if you look at most of the other alternative finance players in the market they generally stick to saas some of them will do recurring services most of them won’t do hardware and and I think you know to some degree that’s been driven by. A lot of assumptions and sort of concerns about macro risks that in our case, we think climate creates a very unique sort of market opportunity where demand. At ah at a market level from consumers, enterprises, corporates, governments, etc. We kind of only go in one direction and there’s a lot of secondary factors that drive positive trends in the market including you know government incentives things like the ira etc which like don’t. Necessarily exist if you lend across Saas or if you lend an ecommerce and so that’s why we’re we’re comfortable, kind of pushing the bounds and and testing this model out with with businesses that often don’t look like what others will necessarily revenue base finance.

James McWalter

Exactly.

Dimitry Gershenson

Um, you know with our grant advance products we those restrictions don’t apply. We’re very comfortable advancing against grants regardless of the business model as long as it’s in climate and those grants are coming from State or federal sources.

James McWalter

And and just on that I actually have a little bit of personal experience. Um on you know the grant problem so a few years ago. A good friend of mine was involved in an arpe e soil carbon grant it was a 7 figure Grant and they wouldn’t get it for nine months and so they you know are trying to take this particular type of so science and and convert it it into a product right? that is something they can build. It was a piece of hardware. Um, and they had to raise and they went out and they raised a seed and basically it was a very um derisk seed from the seed. Investor’s point of view right.

Dimitry Gershenson

Um, yeah.

James McWalter

Could literally point to there’s going to be a couple million dollars coming into this company in nine months but they needed working capital right? because they didn’t you know the government was slower than startups right? So they needed to kind of get ahead. Want to start building the prototype and all that kind of thing. Um, and so I guess like compared to the type of work that you’re doing.

Dimitry Gershenson

Um, right.

James McWalter

Um, you’re eliminating that early dilution if you if you can avoid it at all.

Dimitry Gershenson

Oh yeah I mean it’s this is like a very common refrain that we hear is that folks will you know they’ll win a Doe Grant Usda grant california energy commission niceerta you name it, you pick an agency and most of them will tell you you’re getting the money. Somewhere in that 6 to nine month range before they actually start reimbursing you for expenses against the grant and that time is really painful and to your point folks will often go and raise equity. Which at that stage is incredibly expensive capital I mean it’s like 10 x more expensive than I think our grand advance on an effective irr basis because folks are you know they’re often getting sort of presee or see prices and they’re expecting a I don’t know hundred x return if they’re vtting at that stage. And so our our terms are very very different and in many ways we’re offering folks a product that I don’t I don’t think anybody else offers today and we’re pretty excited about the response we’re getting from the market.

James McWalter

Why do why? doesn’t it exist. It is actually shocking when because I saw ah you mentioned this you know I follow you of course on Twitter and um I think it was only a few weeks ago when when this is announced and I was like of course like like I literally had this conversation with my friend who was going through this whole thing about a year and a half ago and it never even.

Dimitry Gershenson

Right.

James McWalter

Kind of occurred to us that there was somebody who was doing an upfront loan like immediately both of our minds went to venture right? like that was the default because we didn’t even consider it but it seems just with the amount of money not just in the United States but around the world going into various grant programs. Not just for climate. But for ah other kind of applications.

Dimitry Gershenson

Right.

James McWalter

You know it’s surprising when you have literally a commitment of capital from the government in a sub one year period that no ah other financial institution has taken advantage to that.

Dimitry Gershenson

I I agree we’ve seen we’ve seen sort of boutique Lenders. Do this in limited context but and and and there are folks who do this with certain um tax incentives. So Like. There’s a group that that advances against R and D Tax credits that we’ve seen. But yeah, we’ve never we’ve never seen folks doing this at scale lending against state or Federal Grant funds especially in climate and so yeah I mean look the the opportunity is so vague that. I I would be I would welcome A many folks doesn’t want to come in and do this I think just in the Us It’s north at 30000000000 a year in funds that are dispersed through these mechanisms based on you know our conversations with folks who write these grants manage these grants et cetera and that’s ah, that’s a pretty.

James McWalter

Structure.

Dimitry Gershenson

Large amount.

James McWalter

And you know you have these 2 products now out what does it take to get a financial product live right? It’s you know finance I think it can be often complex people or at least from the outside you hear words like underwriting and like all these different things. You know what What’s the process from going to like. You know, look. We have this c climate round advance just because I’m naming it because it’s the more recent innovation but going from that as an idea through to it going live you know who are the kinds of people that you either have to have your your team or consult with to get to that stage.

Dimitry Gershenson

Um, yeah.

Dimitry Gershenson

So that’s a good question I think there’s a lot of pieces to this right one is that you need to actually have the permission to lend. So maybe we’ll start with compliance. You know these aren’t necessarily in in this order but these are like the key pillars right? so.

James McWalter

And.

Dimitry Gershenson

Need to be able to lend in a lot of the us commercial lending isn’t super regulated as long as you have like a signed contract in place most states allow business to be into business lending without much regulation. There are exceptions the state of California is one. We’re a licensed lender in the state of California that process took a long time is like a very long and painful process which ah it was just under a year I think um.

James McWalter

Yeah, are we saying over year or like just what’s long.

Dimitry Gershenson

Maybe a little less than that. Um, the thing is like you know it kind of depends on where you’re at you can you can technically do 1 or 2 loans in California business to business before you apply for your lending license and if you’ve done transactions. Ah, process is actually longer because they they sort of dig into those as well as the track record of the people who own the business. The people who run the business etc. There’s like a very large amount of diligence that’s done by the ah you know the sort of financial protection agency there. Um, so that’s compliance 2 you you know you need a team that can actually do underwriting who can understand sort of risk in ah in the context of credit who can understand where can a transaction break down with the grant advance. We spent a bit of time talking to um.

Dimitry Gershenson

I Mean one we sort of structured it internally and then we talked to a number of experts externally to sort of nail down the dynamics of the product because there’s there’s a lot of intentionality behind how the fees are charged and when and and sort of how the structure works and then um, you know you have to do ah a pilot transaction.

Dimitry Gershenson

Typically with capital off your balance sheets. You have to take some personal Well personal corporate risk to prove that the product is investible, um and and then you know if you have an outside credit facility. Ah you know or an outside fund or whatever where you have.

James McWalter

Yeah.

Dimitry Gershenson

External investors you have to convince them that that this is a product worth investing with under the mandate that you already have and so in our case, you know we we did 2 pilot deals and then we went to our investors for our first debt facility and we said hey we’d like to incorporate this product into our lending and they all. It’s unanimously approved and then and then we rolled it out. Um, so you know I I would say it was like ah at least a six month process from kind of start to making it public. Um, but there was actually quite a lot of work that happened before that.

Dimitry Gershenson

Where you know we we sort of understood the market. We did the homework we talked to entrepreneurs we tried to understand sort of where people where people’s comforts levels are around pricing and structure and what they what do they actually need in this product and you know frankly I wouldn’t be surprised if in six nine twelve months our grant advance looks very different.

James McWalter

But.

James McWalter

I and I guess that kind of goes to this quarithos I was reading on your website like 1 of the values of during planet is to be very kind of founder first and this is something.

Dimitry Gershenson

And it does today because we’re constantly getting feedback on how we can improve it.

James McWalter

That you know but bo you and I we have raised venture for our our current startups and a lot of people in the venture side right? Everyone’s founder first right? Um, so I guess how do you about you know, making sure that that value is kind of en shr in yeah, the products in the company you’re building.

Dimitry Gershenson

Yeah, yeah.

Dimitry Gershenson

So we I mean we think about the the sort of the impact on on founders and and teams at every step of that sort of customer experience. So one is we have I would say pretty radical transparency when it comes to how we lend and. And what our instruments look like and what the process will look like with revenue based financing. We even built a tool that allows folks to estimate how much money they could raise from us before they even apply they don’t have to like sign up for any marketing. They don’t have to do anything weird. They can just play around with a calculator. Um. We also make the application itself very short and very simple so it takes about 10 minutes to apply for funding with us. It’s I would argue pretty effortless and then we also you know, spend a lot of time thinking about. How we communicate and negotiate throughout the the actual loan process. So once somebody’s applied generally they can expect to see a term she you within a week which is pretty fast that and that time is going to get much shorter as we sort of enshrine some of the automation we’ve been building over the last twelve months and we also are very clear about what we’re looking for and what we need and what’s missing I think a lot of the time you know as you and I probably both experienced raising money when you raise from vcs there is no incentive for good communication and.

Dimitry Gershenson

What it means is that often you will pitch someone and this won’t follow up or they’ll follow up at a random time or they’ll wait for you to get a lead or like you know they might turn you down but they won’t tell you why there’s like all these things that happen when you’re raising venture. Where in our case, we just don’t do that. So if you if you are not a fitter for our financing. We tell you exactly why we set up check-ins to make sure that we are aware of when you hit the mostones that we need to see for you to be sort of investible and like you know we we spend a lot of time. Making sure that founders have a good experience raising money from us and then beyond that we’ve built a pretty robust network like a pretty pretty big community of folks that bring additional value to the companies that we engage with even if they’re not our portfolio Businesses. So.

James McWalter

Yeah.

Dimitry Gershenson

We have a network of over two hundred and fifty vcs so we shared deal flow with and we will connect founders to those vcs whether their portfolio companies ours or not obviously the referral looks different if it’s somebody. We’re invested in but we’re we’re very open to make the introductions and.

Dimitry Gershenson

We’ve also have a network like I think close to 40 partners now that offer discounted services to climate entrepreneurs around pitch Deck design. Yeah fractional cfo bookkeeping and accounting Grant writing you name it. We probably have a resource for you and we’re very Like. We’re not shy about sharing those resources in in our mind climate entrepreneurs should have capital to build the solutions that they’re building at the pace that they are able to absorb that capital whether it’s our money or not because the the world’s on fire.

James McWalter

You Ah absolutely and within that though you also have ah which you might be finding. Ah you know non-climate companies. Did they ever approach you because.

Dimitry Gershenson

We don’t have time to fuck around.

James McWalter

1 of the things we are having um in my own company is. We’ve had some data centers and I won’t get into details of of our own product and my kind of day job startup. But yeah, we had data centers and you know cannabis farms and all these kind of things um, try to use our product and.

Dimitry Gershenson

Sure.

James McWalter

Um, I’m like oh do use renewable energy right? I Do you have some sort of climate peace and and they don’t and so in that case, we actually don’t We won’t work with them as customers um have you had anybody come in and you know say hey you know this this house sounds great. But yeah, we’re not really doing anything in the climate you know, will you make an exception and I guess how do you evaluate that? yeah.

Dimitry Gershenson

Ah, we you know it’s interesting. So our our application form sort of limits. People’s ability to apply unless they can define a climate narrative if if. If we don’t see it. We’ll often. That’s the first check is like hey can you help us understand how you are driving impact around the climate crisis we’re we’re pretty flexible with our definition of what’s sort of in scope or not as long as we see a path towards reducing emissions. Removing carbon out of the atmosphere or supporting adaptation and resilience we’re we’re pretty flexible. Um, and we’ve had to turn companies down in the past that don’t have a strong enough climate story we had at 1 point a business applied that was doing sort of oh god what was it? ah. Like a marketplace for beach related products I think and you know like I get that that sort of coral reefs are threatened as a result of climate change I get that. Um you know, obviously like people’s ability to enjoy the beach. It. Might be impacted by climate change. But if they come to us and said hey you know all the products we sell are 0 carbon and they’re all like friendly towards its coral reef restoration and that’s like a core ethos then they would have been in scope. But if they but because they don’t have that.

Dimitry Gershenson

That to us was not a strong enough link for us to fund So We we spend you know most most of the deals we’d see are very much in scope and we you know we’ll spend time to understand those edge cases so that we can make sure we’re not missing opportunities but also to make sure that we’re like staying true to our mission. Which is to be investing in the space.

James McWalter

And one of the things you kind of mentioned a little bit earlier is you know, being quite public and transparent and you know a lot of folks. Not that many I would say on average but like there’s more and more folks who are what they call building in public right? being very open about their process being very open on their steps.

Dimitry Gershenson

Um, yeah.

26:01.26

James McWalter

Actually you’ve gone to you know a very high degree of this because I know you had a Techcrunch review your a pitch deck and so just and which I read with great interest a few months ago when I came out and I’m sure it’s been really beneficial to a lot of folks to kind of see you know how like you know, basically it’s a critique of your pitch deck.

Dimitry Gershenson

That’s right.

James McWalter

Even though it’s successful in in raising money. It still kind of demystifies. A lot of these elements and so yeah I guess was building in public like this very kind of conscious decision and I guess what are the pros and cons of you know building in that kind of way right.

Dimitry Gershenson

Yeah, yeah.

Dimitry Gershenson

You know I don’t know if we take it to the same degree that I’ve seen other folks do I know there are companies who like make their all their ah financials public through there’s like a service that can sort of link into your banking and accounting and like publish core metrics and um.

Dimitry Gershenson

We don’t We. Don’t go that far I think for us we we feel very strongly about our role as a kind of enabling community-driven player in this ecosystem and whether it’s our capital our network our lessons. We want those things to be available to entrepreneurs who are you know building solutions for climate and I think that in some ways it almost feels like it’s not a choice because the stakes are so high. And I don’t think it actually generally benefits anyone to be super like closed off in this process. The the market is insanely huge. The opportunity is is just so Vast. It’s almost incomprehensible. And so you know even if somebody showed up tomorrow doing what we do I I like I wouldn’t even be worried about I’d want to help them build their business so that we could put more more money in the hands of climate Entrepreneurs. So I think you know one of the things that is has helped us is that it.

Dimitry Gershenson

Sort of cements this brand and and shows people that we’re like we’re we’re not um, we’re We’re not our goal is not to be an extractive actor in this ecosystem but it’s to contribute and to be part of a community and to.

Dimitry Gershenson

Help other people be successful and you know just today somebody approached us for funding and we talked about their model and I was like you shouldn’t take our money like there’s better money for you out. There. Let me connect you to the people who can provide you capital. That’s more aligned with the needs of your business like we could probably make it work but but then it just It’s like not the right capital. It’s not the right structure for what you’re trying to build and I think folks should have the conversations more often like I would love to see vcs who when somebody pitches them for funding. They say oh you’re trying to raise 3000000 but you’re planning to spend 1000000 of that on marketing like.

James McWalter

Now are.

Dimitry Gershenson

Why don’t you just raise 2 and then I’ll help you find some revenue based financing for that extra million so that you’re not taking on crazy expensive dilut of capital to find your business instead. They general like oh cool, more allocation like I’ll take it. But I think if we all sort of took that alternate position I think we would. I’ll be better off.

James McWalter

Yeah, it’s so interesting I mean first on the kind of competitive point. It’s one of the wonderful aspects of being in the climate space is that how helpful everybody is and you know I’ve taken calls with competitors. You know I’ve I’ve been helpful where I can and being very open to like.

Dimitry Gershenson

Um, yeah.

James McWalter

You know, disqualifying potential users. You know if they’re not very core right? So that they can get value elsewhere is is kind of super important and you know and we kind of touch upon at the beginning and I’ve talked I think actually think to 1 or 2 um vcs I’ve had on the podcast in the the past about how there definitely is this lack. Are nearly like a missing middle of financing right? and it’s actually come up more on the project financing side where somebody’s trying to build some piece of infrastructure and they’re using you know venture-backed capital to like build something that is just incredibly expensive, right? You think about like something like a vertical farm right?? um.

Dimitry Gershenson

Event.

Dimitry Gershenson

Jeff.

James McWalter

If you’re building a vertical farm you’re building physical assets in the real world Now you might want to raise venture for your technical team and your software team to manage you know some sort of software that does a certain type of lighting and all this kind of thing but the physical hardware and the physical real estate. Um, it’s very very expensive to use equity-based.

James McWalter

Ah, financing for that and I think a lot of it’s just been you know founders have been exposed and or haven’t been the products and available to actually say okay I’m going to have a slightly more complex Capital Stack. You know 40% of it’s going to be in this bucket 30% in this bucket in the in this other bucket. Um up to now like. I Don’t think people thought in terms of like okay I might have to have a slight more complexity in order to kind of maximize the value and make sure the right book is a capital are being used for the right things.

Dimitry Gershenson

Absolutely you know it’s it’s always really interesting to me when companies spend a lot of time optimizing for their technical stack or their like organizational structure or their yeah, whatever it may be but then when they think about capital they have like a very simplistic view on what’s available how it should be used when it should be raised I can’t tell you the number of times I’ve talked to a founder and I said hey you know we think you’d be a good fit for this product and they’re like oh it’s okay, I’m I’m I’m raising venture right now and I’m like okay, but. You do know that the cost of that bench capital is like 5 x higher than what we’re what we’re offering what any like really anybody would offer for this particular use case and I think you know I think it’s okay, like it’s not It’s not founder’s fault that. In this position I think there’s a lot of sort of weird dogmatic narrative especially in the venture back startup community where like it’s like venture and venture debt. Those are the 2 products that people know and and like venture debt is this kind of like weird instrument that people sort of sometimes talk about but really, it’s about venture and you you know you you raised when you have 6 to nine months of runway and. That’s kind of like the model and it’s it’s it’s actually not geared towards the best outcomes for founders and their teams. It’s that those types of models are way more beneficial to investors who can secure greater allocation greater ownership greater control and so like.

Dimitry Gershenson

There’s nothing wrong with bench capital. You know we’re venturebacked we we have so we we love the folks that invested in us. They’ve been incredibly value additive to our process and like we’re raising around now you know there there is a role for bench capital to play but also. If we funded our entire loan book with venture capital we I don’t like I don’t know if it would even be possible like people just wouldn’t give us the money to do that. Um, and it and we would have to kind of be so be smaller and and still have to grow grow fast if it just be like a total mass and so I think that. Um, one of the things that’s been really exciting over the last few years in climate is that there’s this emergence and sort of explosion of creative financing that is slowly becoming available across the whole sort of gamut of need right? So both on the corporate and. Project finance universe um, but there’s still a lot of gaps I mean look man. You know we talked about the the $5000000000000 gap like a lot of that is actually not because money is available and it’s just not flowing. It’s that like the the products don’t necessarily even exist in the ecosystem they may exist elsewhere in in capital markets. But they’re not being applied to climate for you know, 1 reason or another and so we see a lot of opportunity there and I think other folks are starting to sort of wake up to that as well is that hey if we’re gonna if we’re actually going to try to keep us the two degree. C.

Dimitry Gershenson

And insane amount of money needs to flow into the space and it has to look very different than what it looks like today.

James McWalter

Yeah, and personally you know I think one of the big bright spots in the economy right now is everything to do with climate clean energy in particular with you know and some of the kind of carbon sequestration parts that Ira is funding or helping to ah yeah, yeah, kind of firear means that. You have a ton of traction and growth happening with certain companies but evaluations have been crushed because of the broader market. You know, maybe it’d be nice to be able to delay fundraising and that six to nine months right and so revenue-based financing enables that and it’s actually honestly something we’ll probably you know deeply consider next year we’re kind of running off to our own kind of next round and it’s great to have that as an option.

James McWalter

And again, you know the right tool for the right use and so you still kind of think through all the different options. Um, but you know we’re you’re talking a lot about kind of the opportunities on the financing Side. You’re being exposed to a lot of different types of climate companies doing a lot of cool things. What’s kind of getting you excited and also I guess where you wish there’s more innovation you know where are kind of some. Bots that are being you know I guess underutilized and smart entrepreneurs could kind of focus on it and say oh,, there’s actually a lot of kind of blue space in this particular area.

Dimitry Gershenson

So it’s funny I get this question a lot and I have like maybe the most disappointing answer I can possibly give I am so excited about all of it. We see we see companies every single day that span the gamut from.

James McWalter

That right.

Dimitry Gershenson

You know, really frontier crazy I don’t know refrigeration tack to like compost subscription businesses in major metropolitan areas and they’re equally exciting to me right? I I I see. There’s so much like innovation and growth even in this like small business space and for us the things that matter are like are you did you have you found a customer and is it working right? like like. You know we look at the financial performance of the business. Not necessarily how many tons is it going to eliminate. Not you know um, like how how exciting is the Tam. We’re like oh are you selling a thing are you are you. Doing better this year than you were last year are your are your margins. They’re cool. We can do revenue based financing or oh hey, are you did you win a big grant and you don’t want to wait like cool. We can advance against that grant and I I think for us what What’s awesome is that there’s this really incredible. Universe of entrepreneurs that are building these solutions that come from all sorts of places and all sorts of backgrounds. We prioritize investing in underrepresented founders endeavors teams and I’m proud to say that I think 80% of our portfolio conforms to our like dei criteria and.

Dimitry Gershenson

And think so a similar percentage of our sort of forward looking pipeline does and I’m just like stok to to back these people to build all sorts of different solutions from compostable diapers to you know power system Management hardware and software that. That supports grade resiliency in disasters like those those things are comparable to me in terms of excitement is that Weird. Ah.

James McWalter

And it’s it’s not and and honest see I mean well let’s that’s the inspirational bit right? like there’s there’s a role for everyone. You know, take take the pie take the things you know right? like look around the the problems you see and there’s tons of opportunities. Um, but Demetri just been brilliant. Really enjoyed it before we live. Leave off is there anything I should have asked you about but did not.

Dimitry Gershenson 

Ah, yeah, it’s a good question I mean I think maybe just to say like if people want our kind of capital where should they go. They should go to enduring planet dot com and they can just click apply now and. Put an application takes 10 minutes and they get a termm sheet in a week so if you want some founder friendly flexible, fast non diluted financing. You know where to find us.

James McWalter

Yeah, and we’re going to include in particular the link to the calculator because I think that’s a great first step when I was trying to get ah get a handle. It’s like oh this this is exactly you know you put in your a you know your monthly revenue you put in a couple other numbers and all of a sudden. It’s like okay this is the kind of range I could potentially.

Dimitry Gershenson

Um, yeah, excellent.

Dimitry Gershenson

Or yeah, perfect love that. Thank you so much you too.

James McWalter

Um, utilize and it makes a ton of sense.

James McWalter

Well thank you Dimitry Gershenson is progression.