Ep. 11: How to recession-proof your financial planning: Tom Lovelace

[00:00:00]

Callum: So today we have Tom Lovelace on, what's your position at Juni. 

Tom: So, I'm a commercial lead for the credit product team. 

Callum: Cool, cool. And what does that mean? 

Tom: So I sit between the product team and the customer facing team. So support success, sales, BD, and I essentially help, I'm the conduit between the two. So, so credit's quite, an esoteric subject, I guess. 

Callum: Yeah. 

Tom: So helping to translate our, our credit risk appetite into marketing messaging. And helping to enable the sales team to be able to talk about the complexities of credit, what people are looking for, why they might be looking for it and develop a bit of a methodology around our sales as well.

Callum: Yeah. 

Tom: And then feeding back as well from those guys. So hearing what they're, what they're coming across on the frontline and making sure we are developing the right products, to help our customers grow. 

Callum: So Juni is a credit card for eCommerce merchant, eCommerce brands. 

Tom: Yeah. First and foremost, we're a, we're a tech platform.

Callum: Yeah. 

Tom: So it it's tech first and, and [00:01:00] the credit card is a part of our offering. So it's what we call a financial companion, for eCommerce companies. So it's, it's a place where you should be able to manage your full finance stack in one place. And alongside that, we've got debit cards, virtual credit cards, credit cards. And so we launched our, our credit offerings back in, mid Feb. And so now people can start using those facilities. 

Callum: How, how long's Juni been going? 

Tom: Just over a year since we, we launched in beta and we came out of beta, about a month ago. 

Callum: Yeah. That's amazing. Amazing. So, I was looking, I was, we was talking about Juni before this podcast started and you guys have raised series A at 75 million.

Tom: Yeah. Started off, it was 20 million initially, and then we got, follow one of, another 50 million dollars afterwards. 

Callum: Wow. So that's huge. Huge. And that was when?

Tom: August last year. 

Callum: Wow. So obviously the market's changed drastically [00:02:00] since then. Yeah. We're in May, 2022 and the, the, you know, lending and so forth is, is, is massively changed. The appetite, of VCs and banks to lend capital out is, is sort of gone away. All of us sort of in the last literally I think probably in the last two weeks. Yeah. You're seeing all these, you know, we're not... VC's pulling out certain rounds and wanting devaluation even Elon Musk is pulling out a Twitter and saying he wants, you know, to see them to verify all the bots that they can't do, but really it's to get a lower price on, on, on what he is paying Twitter for, buying Twitter for. Your, your product helps brands in, in getting capital into the business when they're they're, they're struggling. 

Tom: Yeah, I, I suppose so first and foremost, right? You're an e-commerce company. You are, you've probably got your merchant account with PayPal. Yeah. You, you've probably got a bank account to in the UK.

You might have a, a Wise or Revolut for your FX. You probably have an [00:03:00] Amex for some of your spending as well. And, and then you've got your Facebook ads, Google. So you've got loads of different sort of financial providers. And managing all of those is pretty difficult loads of different platforms to work out how your business is doing.

And so one is, is I suppose, we bring it all into one place and because you can integrate all those in one place, we have really good visibility over your financial health. So we can then work out how much you can afford to borrow how we should be pricing it and make sure that we're not lending to people who are, who are gonna default or who can't afford it.

Yeah. So, so we are there to help address sort of the, the working capital needs. So short-term funding at the moment it's credit cards with about, a sort of 30-day spending period, 30 days to repay. So it's typically it's most commonly used for paid marketing. 

So Google ads, Facebook ads, TikTok. 

Yeah, exactly.

Usual subjects. What about AWS? You can pay AWS with yeah, 

you can. Yeah, yeah, yeah. You can pay for anything with it. The vast majority of our customers are using it for marketing. About [00:04:00] 80% are marketing 10% on inventory for those that have, have pretty fast turnover inventory businesses. Yeah. And then about 10% is on, staff expenses, but primarily it's aimed at, at paid advertising, but then they're sort.

As we acquire more, more wallet, share people. We do rub it out across the, so...

They're giving, you're giving 1% cash back on the all paid marketing spend. Exactly. Well, all spend. Yeah. Which is great for these brands that are spending, you know, big numbers on, on Google ads and Facebook ads. Obviously, some of the brands out there I know are spending hundreds of thousands a month, so they can get a big chunk back each month without, without changing anything. 

Exactly. So we, we, we found a real sweet spot in sort of the VC backed high growth companies or, or, occasionally private equity owned or, or just those, eCommerce companies that found a really nice little niche and have been operating for 10 years, but constantly have to, to advertise.

So they get to improve their, their [00:05:00] return ad spend just be a bit more capital efficient. And then for the smaller, you know, the startups run by one person I in their bedroom. It means you've got better working capital so better payment days. And then again, it's 1% off everything you spend. 

Callum: Yeah. No, it makes sense. It makes sense. How do you see the, the overall market in the minute? Obviously we've gone in we're in precarious times. It is a bit scary. There's a few things that I, I look at and I'm like, okay, something's gotta give here. I look at the likes of Klarna and the the Afterpay and so forth and you know, can these guys survive? Yeah. I mean, what, what's your thought on all of that? 

Tom: It's a really good question. So I, I came from my background was a year working in venture capital focused on, on eCommerce, both DTC brands, but also on tech. And, I think we've seen some pretty surprising valuations for the last couple of years and more money just being thrown at tech companies.

There's clearly a big correction happening at the moment. [00:06:00] I think on the. on the actual sort of DTC brands. Those companies that are, are creating products and selling products, they've always struggled to raise VC money. They've actually always struggled to, to access any sort of capital. So I think they're slightly more immune from, a huge correction in, in that they were never flying at those sky high valuations anyway.

Yeah. But undoubtedly, around other tech, sort of tech providers in the space. I think we might be in for a little bit of a, I dunno, a blood bath, especially on those that providing the, the Buy now pay later because it is, as we said earlier, similar to the, the financial crisis where you've got millions and millions of people taking on a lot of debt without necessarily assessing whether or not they can afford it. And, and encouraging them to buy things that, be before we've assessed, then it seems dangerous to me. 

Callum: The, the "buy now pay later" could become the "buy now never pay". 

Tom: Yeah . 

Callum: Do you know what I mean? Or, well, you know, there's people [00:07:00] using it. I think it gets used incorrectly. The buy now pay like a lot of times, I think it increases return rate, you know, it's not good for sustainability.

I think there's a lot of adverse effects of buy now pay. I know it increases conversion yeah. For brands, but. You know, I don't think they do the credit checks that probably need to be done, on, on some of the people using it. And it's kind of like, I know we spoke about this earlier and it was, it's kind of, kind of like what happened to Wonga, you know, that they were giving money out like crazy and you know, that they didn't think they were breaching the rules until they tried to collect all the money back in and then they were like, oh no, you can't go after that person because you, you, you've not got this document signed. You didn't do this due diligence on this customer. Therefore you over lent to them and so forth. I think, I [00:08:00] think Klarna and After Pay could be caught out by that. Definitely. 

Tom: I, I agree. I think it having said all of it, I don't think by now created rights, very nature is, is wrong or bad. You know, it does say a purpose and, and I think what they're doing at the moment, by not understanding their consumers that they're ending do is the big issue. But as we move more towards embedded finance solutions where people have, I suppose a bit like Juni, where you, where you've got, apps that understand your full, your full credit history, your ability to pay in real time, then you'll probably be able to do something like that where you can, can underwrite a, a user...

Callum: Yeah.

Tom: ...at an instant. But at the moment, I don't think we're quite there and yeah, it does seem to be building up. 

Callum: It is, it is. It's a strange time for those, those companies. I think it's just gonna come to a head. Yeah. I think there's gonna be a point where they're going, actually, we we're really struggling getting this money back.

I mean, you've got it in America with all the car loans, I think car loans now are an all time high in America and it's causing really problems there. You know, people are saying that it won't be a housing crisis [00:09:00] that causes a huge recession. It will be car loans, cuz you know, people are driving around in 70,000 pound cars that really shouldn't be, cuz they can't afford a 70,000 pound car, but they've got these, these loans that they probably shouldn't have been able to take out. Yeah. And I think that that is scary and I've done how the market price is added in. 

Tom: No, and, and it, it is funny having, I suppose it was only 15 years ago, the financial crisis, but once things start to turn, you start becoming much more aware of things and looking at them, thinking, wow, that in hindsight, that valuation seems a little crazy or, you know, that level of, of, of debt seems a little crazy.

And I, I used to work in, for a debt fund back in 2015. And, I remember we started to, so we used to measure, how much debt a business can accommodate by reference to their, their EBITDA. So looking at debt to EBITDA and the multiples we were seeing in 2015 were pretty, pretty punchy and sort of back to pre-pre-crisis levels.

And remember then thinking, wow, [00:10:00] we're already lending quite a lot more money than I think businesses can, can afford. Yeah. I remember being worried then, but seven years later on, oh no, it's only starting to hit. 

Callum: It's gone crazy since then. You're probably looking at a triple, you know, a dual-digit increase since then.

Tom: Yeah.

Callum: You know, do you see valuations that are, especially in the SAS tech space, right? Absolutely astronomical. And I think these companies are gonna be heard pretty bad. I think they, they have no root to profitability. I think when you look at SaaS brands in, in general, I think there is some seriously great solutions which are undervalued there.

They still got massive growth. Yeah. I think that's the key you've gotta, if you've got huge growth and you can carry on that growth you're okay. But if you start to see a slowdown or you are having a slow down now, and your, you need to go back to the markets to raise a huge amount of capital. I think you're gonna struggle and that's [00:11:00] where it's gonna go wrong.

Tom: And, and, and I agree. I think the, the best companies will continue to thrive, right? And in, in the difficult times, the good companies survive, the ones that, you know, I don't have anything behind them are the ones that are gonna hurt the most and bring it back to e-commerce. I think it's exactly the same.

You've got all those companies that are borrowing. We see a lot of them that are borrowing loads and loads of money from, a lot of revenue-based finances or have taken out, bounce-back loans last year. And they're sort of living month-to-month repaying. I think those that have focused on, on unit economics, making sure that they're being capital efficient and things like that.

Yeah. Other ones that are really gonna thrive going forward. 

Callum: Well, the eCommerce suppliers have been squeezed. You've got, they've been squeezed one by supply.

Tom: Mm-hmm. 

Callum: You know, inflation's going through the roof, so they're paying more for their products massively. Shipping's gone up by the power of five, and, and now they've, you know, we're at a lockdown, so, [00:12:00] naturally people by spending as much otherwise, they're being caught out a little bit at the minute they've got, they've got it coming from both sides. So I think e-commerce brands, they they're gonna find it a little bit difficult for the next few months until supply chains get equalled out. And we learn a bit more, whether this is gonna be a recession, whether the, the banks can get central banks can get inflation under control. I dunno whether you, I think it's pretty, pretty scary from where I'm sitting anyway. I think it's, I feel, I feel for them cuz supply chains, nobody expected the supply chains to still be like this after two years.

Tom: Yeah. I think it's the bank of England. It wasn't the governor, but it was one of their members yesterday that, that said that the outcome could be apocalyptic in, in the coming months, which is, a worry. And I, I wouldn't like to be, an eCommerce founder right now, but at the same time, I think it does just, you know, necessity, the mother of all invention.

And you...

Callum: If you can get through it, you're gonna be, you're gonna be on fire. 

Tom: Exactly. 

Callum: Yeah. Yeah, I agree. 

Tom: [00:13:00] And, and I also think. Part of, part of what we do is we serve SMEs and SMEs in, in downturns are well, they are the lifeblood of economies. Yeah. And making sure that we service them and do they can access the capital if they are creditworthy or, or, are able to, to sort of write out the downturn.

Yeah. And that they they're able to become more efficient. And you know, those zombie companies that can't die away, only a good thing. So we, we've gotta make sure that we are servicing those, and helping those that, are good companies to grow and survive through this 

period. 

Callum: Yeah, definitely. Definitely. It, it is such an interesting time. I do, I do have reservations about what we're going in, so I think it might be overplayed by the press a little bit. I think, um,

I, I think they might be talking as, into a, a bit, bit, a bit dig bigger and darker recession than what we, we will have. I think we've still got some great, there's some great factors in eCommerce. There's some great factors in [00:14:00] tech and I think that we shouldn't let the press downplay what we are doing.

I think they they're, they wanna talk with, into, for a recession. Cause that's what sexy and sells papers, sales clicks. And it is scary. What advice would you give for, first-time tech founder starting out? Do you have any advice around, financing? 

Tom: Yeah, for sure. So, so I've been, been writing and, and researching quite a lot around financial planning.

And like you say, the, the recession may be nowhere near as bad as people are making out, but ultimately if you are planning for a downturn yeah, then if it doesn't turn out to be as bad, you you're in a decent position, but, but if you, you know, fail to prepare, prepare to fail. So, so making sure that you've got a financial plan over the next 12 to 24 months, I think is, is the most important thing you can do.

And, and part of that is actually for those that are, well, those that are about to start is, is planning out for those that have already started. It's getting a really good understanding of, of the finances of, of your business. So understanding the unit economics of, of what you're selling, what your [00:15:00] margins are, where money's coming from, where it's going, when it's due to be paid a and then building out a, a financial plan from that, it is the best thing you can do right now, so that you know where you're gonna have.

You know, any cash flow crunches in the, in the coming few months, you're gonna need to fill a gap cause then you can start planning for it. And, and equally, if you're growing, you know, if you're moving into a new warehouse and you need to find half a million pounds to buy a new warehouse, making sure that your front fitted about it and, and able to, plan for it is so important.

Callum: Yeah. I've always found that, you know, whenever you need any banks or you need finance, you can't get it, but then when you don't need it, there's an abundance of it. So sort of, if you, like you say, if you've got the planning there, you can see say, right, I don't need this now, but I need it then. And you can show the banks and they've got way, you know, and the lenders, they've got way more confidence in you as a business.

If you can show a clear path to what you do need when you need it and everything else. Without it, I, I think you're gonna [00:16:00] struggle. 

Tom: Agreed. And on top of that is having a, having a, a diverse source of funds is really important. Yeah. If you've historically been taking loans from HSBC only applying for a loan from Lloyds or, or getting a, a Wayflyer revenue-based financing loan or Outfund or Clearco or credit card helps you start to build the relationship with other suppliers so that if HSBC turn off their taps, you know, you've got Lloyds as a backup, or you might not be able to borrow from way far, but out fund of already know you and, and know your finances.

Yeah. Yeah. So making sure you've got that diverse source of financing is really important, cuz ultimately like you say, you only want to go to the banks when you need cash and if they then can't lend, you need to make sure you've got backup plans in place.

Callum: I 100% agree. I, you know, I, I was. I'm old, old enough and ugly enough to be in the tech industry for a long time, and I've seen a couple of downturns. I, you know, I, I can remember, you know, 2000, [00:17:00] 2001, 2002. And actually, that was a massive, that downturn. That was it, you know, a huge, huge, you know, recession deep and dark. And I did really well in it. I did really well. I really looking back, I really enjoyed those times, cuz I think if you're scrappy and you're willing to wear five different hats and hustle, you can actually take market share away from the big boys.

I wasn't doing REVIEWS.io then, I was actually on the other side of the fence. I, I ran a large, eCommerce platform, eCommerce, retailer, sorry. And yeah, you, it kind of taught me to be really scrappy. I used it as an opportunity to learn several different skill sets. Yeah. And it really helped me and I probably wouldn't have been able to be, do reviews that I own now.

 With, without going through that downturn, without doing those things that I learned in that period, which is mad. And I'm sure that the businesses that [00:18:00] come through this and that come through this well are gonna thrive for the next, you know, five, 10 years. They they're gonna kill it. But it is just gonna be about not losing your head, getting through not panicking. And, and like you say, just doing that, the right financial planning, I think it's just so important. 

Tom: You, you you're right. And, and nothing focuses the mind like survival, right? Know, you have to survive and, and you have to become an expert in finance when, when things are going, going downhill.

So, I, I fully agree. I think there you'll see a lot of companies that sort of go back to their, their core competencies. So really focusing on the narrow thing that they're trying to do really well. And you see e-commerce companies focusing on a smaller set of SKUs rather than trying to stretch out to, I don't know, new markets or new products, or going through a lot of new product development, to ride out the storm whilst they can.

Callum: Yeah.

Tom: Getting themselves ready to then launch from there. So I [00:19:00] think it'll be interesting to see how companies changed their approach.

Callum: Yeah. I think that, I think there will be some layoffs. I think there's gonna be, you know, some of the bigger players are gonna lay people off and I think some of the small that's gonna benefit smaller companies cause they're gonna be able to acquire talent that they probably wouldn't have been able to acquire.

Tom: Yeah.

Callum: In previous periods. So I think that's, that's good. I mean, it's good from your point of view, Juni's growing month on month and you guys are now gonna be able to get some talent maybe that you, you wouldn't have expected. 

Tom: Yeah. Well, we are hiring, at a record rate at the moment. So I think I, I signed back in October when I was employee 83 and we've just signed our 200th employee.

Callum: Wow. 

Tom: In, in may. Growing exceptionally fast, which is great for us. And like I say, we're still serving the, the, the SME space where, you know, particularly from credit cards, we're really focused on those that are creditworthy and, and the good businesses. So we don't anticipate it being a huge issue for us.

We're there to help out and, and make [00:20:00] sure that the. You know, the eCommerce companies we do serve have got access to all the tools they need to, to survive. 

Callum: So that's interesting. So when you talk about those 200 staff, that you've, that that are now with Juni, how are they broken down? Is it because I imagine you have got like loads of data scientists and some really interesting, you know, cuz you guys are collecting so much data, one on the merchants and how they're operating. So how what's the breakdown on those staff? Is it?

Tom: So one, 200 people we're, we're fully remote, so we're across Europe mainly, but, we stretch as far as, Canada to Thailand. Right. And I guess we spent the, the first year building out product, proving out the value of it to so developers, customers, primarily developers.

We we've got big product teams. Bear in mind were heavily regulated. So, big old legal and the regulatory team as well, sort of compliance, FinCrime, et cetera. We then got big marketing team as, as we scale [00:21:00] our, our go-to-market operations hiring heavily in sales at the moment as well. So as we, we launched across Europe over the coming months, they still primarily UK focus at the moment.

Callum: Why did they go with UK? 

Tom: First place we got our license for, issuing credit. So that was the, I mean, that's the main reason it's, it's a big focus built for yeah. General duty platform customers we can service across the world. 

Callum: Yeah. Yeah. So what's that license? The financial... 

Tom: FCA regulations. 

Callum: FCA regulations, yeah. And then you've gotta go. If you go into Europe, you've gotta do?

Tom: Gotta get an EMI license, from one of the European countries and you can then pass all that across the, across the continent so we can start dropping into various markets. 

Callum: So, so Brexit made it a little bit harder cuz you couldn't, you could have before took your FCA license into Europe.

Tom: Yes, for. So we, we are now cause we we're a Swedish headquartered company and Swedish founded. So the Nordics is sort of a, a natural home for us. We've got quite a large proportion of our customer base out there. So I think they'll probably be, on [00:22:00] the roadmap for, for credit issuance anyway, in the coming months, I think it'll probably still be a couple of quarters away.

Callum: Yeah. 

Tom: And then the rise of Germany, France, Spain, the, the major eCommerce markets around, around Europe. 

Callum: Yeah, for us Germany's for reviews, like Germany's, an amazing market took us a long time to, to, break into Germany and, and do well there. But now it's a really strong market for us in the eCommerce market is growing.

Do you have any books, podcasts, or anything like that? You think our listeners should, should jump on. 

Tom: God, or do I have that? I listen to a regular basis. Although I generally, I listen to "Money Walks" on BBC and "Wake Up To Money", as often as I can. Cause I, I think they're fantastic at giving you a, a macro overview of the world.

Callum: Yeah. 

Tom: It, it's not very eCommerce or, or necessarily business related, but it it's really helpful for understanding what's out there and things that might end up, affecting you. 

Callum: No, I, I agree. I do Bloomberg every morning. Yeah. Just to try and get that wider view of, hold on what what's the world [00:23:00] doing right now? That global view. And yeah, I think that that would help... Really appreciate having you on. Okay. 

Tom: Can I give you one, one, one place that I hang out on a lot? So what, what got me into tech in the first place was investing on Seedrs and...

Callum: Were you one of the? Are you one of the people investing. 

Tom: Yeah. Yeah. And so when I first got in, interested in, in tech and VC I, I got into the Revolut, around...

Callum: Wicked!

Tom: In 2017 and, it sort of sparked an interest in, in tech investing. And I spent quite a lot of time on that because I see a lot of, I mean, there's loads of interesting new businesses on there.

Callum: Yeah. 

Tom: There's loads of eCom businesses, lot businesses on there. And I think it's a fascinating place to learn about A who's out there raising money, what . Are they doing? 

Callum: Yeah.

Tom: But B is how they use, crowdfunding to, to build communities and to manage engagement and to create sort of a, you know, a dedicated set of loyal fans.

And, and so it's not a book nor is it a podcast.

Callum: No, it's a community yeah. 

Tom: Awesome place to go and learn about...

Callum: No that's what's happening out there. That's [00:24:00] that's awesome. And I think that's massively probably more helpful than a, than a book or a podcast, to be honest. So that's Seedrs I'll, I'll put that in the show notes because I, I'm not, I'm not on there, but we do a bit of angel investing.

Tom: Oh, cool. 

Callum: But I've not done Seedrs do you do, is it similar to like funding circle? 

Tom: Uh it's it's different. So Seedrs, Crowdcube, there's SyndicateRoom as well. So it's all equity-based companies come on. It's normally DTC companies come on and say, we're looking to raise a million pounds for 10% of a business.

And, you could invest anything from 10 pounds to a hundred thousand pounds, be closer to 10 pounds. There's some, some cool businesses on there. So you can start investing in companies that you love as well, which is so did you do well at the Revolut? Yeah, Revolut's done very well, but, haven't been able to exit it yet.

So we're waiting for the, the IPO once this downturn's finished. Yeah. And then we'll be celebrating. 

Callum: Yeah. It's weird that they just missed the IPO. I think they probably would've gone this summer. I think they probably would've IPOd...

Tom: Yeah. 

Callum: Before the end of [00:25:00] 2022. 

Tom: Oh yeah. I think you're right. They they've, they've raised a fair amount of money, relatively recently.

I think it was summer last year and so they're well, well, capitalized. I think they'll be okay to write it out well, touch wood. 

Callum: Yeah. So I turned toward for you, honestly. Thanks for it. Thanks for coming on. And that's a brilliant end to this show today. I will add all of what we've talked about in the show notes and all the links, so all of our listeners can go and get them. Brilliant. Thanks for coming on. Thanks for having me. Cheers, buddy.

Callum: Thank you for listening today. In reviews we trust is a bi-weekly podcast where I hope to be bringing you advice and insights from brands that are taking the e-commerce world by storm.