Podcast: Driving change in the automotive industry by redefining car financing with Carmoola CEO Aidan Rushby

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Show notes

Bios

Bill Cilluffo joined QED as a Special Advisor in the fall of 2014 and became a Partner in 2015. He is currently Head of Early Stage Investments after six years as Head of International, leading QED’s Investment teams in Latin America, Europe and Asia.

Prior to joining QED, Bill spent nearly 20 years at Capital One, spanning several roles and leading several businesses. He spent the first 6 years of his career leading Marketing, product development and credit policy for Capital One’s subprime credit card business; ultimately having overall P&L responsibility, and growing the business to become the most significant player in the market. He moved on to spend 2 years in various new business development roles, spanning the telecom, medical finance and small business finance industries. Bill spent 3 years as Deputy Chief Credit Officer for the bank, playing nearly every role there was to play in the central credit function, after helping build the department from scratch in 2002.

Bill then pivoted his career to general management, leading Capital One’s Canadian, and ultimately International businesses, over the course of 6 years. Profitability of the business grew significantly under Bill’s leadership, through new product and channel introductions, acquisitions, and significant cost take out. During Bill’s last 3 years at Capital One, he led its Co-Brand and Private Label credit card business, building the business nearly from scratch to one of the top few players in the US market, through a series of acquisitions, most notably including leading the acquisition and post-merger integration of HSBC’s US credit card business, which closed in May 2012.

Bill graduated with a BA in economics from the University of Michigan, and competed the SEP program at Stanford GSB.

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Bill:

You're listening to the Fintech Thought Leaders podcast from QED Investors, your deep dive into the world of venture capital and financial services with today's digital disruptors. QED is a global venture capital firm focused on investing in fintech companies all the way from pre-seed to IPO. Fintech Thought Leaders brings together the most talented entrepreneurs tackling today's biggest problems. If you're looking to learn more about what motivates our founders and team members to succeed, you're in the right place.

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Hello and welcome to the Fintech Thought Leaders podcast. I'm Bill Cilluffo, head of international investments at QED Investors. Today on the podcast, I'm excited to be joined by Aidan Rushby, co-founder and CEO of Carmoola. Aidan, welcome to the podcast.

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Aidan Rushby:

Thanks, Bill. Really excited to join and yeah, it should be a good episode.

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Bill:

Definitely, definitely. Well look, I'd love to kick off to see if you can give our listeners maybe a 60-second commercial on who Carmoola is and what you guys do.

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Aidan Rushby:

Yeah, no problem at all. So Carmoola is a direct-to-consumer auto finance company. We enable cheaper, easier, and faster car finance. We do this through a mobile app where within 60 seconds of downloading a consumer can get a budget or a credit limit of how much they can buy a car for. Customers then just enter the registration number or the VIN number of the car they want to buy, and then the app generates them a virtual card where they can buy instantly online or add it to their Google or Apple Wallet, walk into a car dealership, buy the car instantly.

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Bill:

That's awesome. That's awesome. And I know we'll talk a lot more about that business later on in the podcast, but I know that's quite innovative in the UK market and not something that you can find elsewhere.

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Aidan Rushby:

Yeah, definitely. And consumers seem to really love it, which is the most important thing.

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Bill:

Absolutely. Well look, before we dive into the Carmoola story, that is not your first startup. You've been an entrepreneur now for quite some time. So I'd love to really dive into the early days of entrepreneurship. Your first company, if I'm not mistaken, is called Movebubble. So I'd love to hear a little bit about what was that and what led you to get that started.

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Aidan Rushby:

So God, feels a very long time ago now, but Movebubble was a property platform very similar to the US Apartment List. It was a rental platform specifically targeting people that were looking to rent a long-term rental. And again, that was a mobile app, direct-to- consumer business. It was really trying to help people find a place to rent and doing it more efficiently and easier. It was an extremely challenging business. I spent at least seven years trying to get that to work. And it was just a very, very difficult space and a massive challenge, but learned so much along that journey and it was in many ways learning what not to do more than anything else I think.

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Bill:

Well, that's a big part of the journey for sure. I mean, I know how painful it is to rent apartments in the UK. I mean, I know so many people that think they've got a signed lease, but they don't really have a signed lease and then it gets broken later. So I can see where that's a big opportunity, even if it proved to be hard. What led you originally to decide to start a business in that space?

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Aidan Rushby:

I love helping consumers. I think that that was my biggest motivator and I was working in the industry. Very quickly realized that it could be digitalized. The one thing I didn't realize was just I guess when it was early days is just how difficult the market was to access the revenue pools. Some of the incumbents and the network effects of the incumbents were so strong that it was just extremely difficult to actually access the revenue pools and the profit pools in that marketplace. I think those early classified businesses, if you like the marketplace 2.0s, if you like, which were just so embedded, especially when you have on the supply side a subscription model, I think it makes it extremely difficult for a new entrance to come in because you just have to get to... We worked out that you would have to get to something like 98% of supply for it to be compelling enough to keep the consumers on your platform. And so it was just a huge challenge to get to any kind of scale.

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We managed to get to about four million customers on that platform, or downloads of the app, and we got to some fairly decent revenue numbers, but it was extremely difficult to say the least. I think Carmoola dwarfed the revenue that we managed generating that business within the first six, seven months. So yeah, it was a huge challenge.

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Bill:

I mean, that is fascinating. I mean, you've talked about how much of a challenge it is, and I want to dive into some of the learnings here in a minute, but four million customers is still impressive. So maybe the business model didn't work, but pretty impressive to get four million people. You could probably give away free money and not necessarily get four million people to do it.

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Aidan Rushby:

Yeah, it was. And the supply side was relatively... We built a really great brand. We focused on the city-by-city rollout that really leveraged some of those network effects. But even so, I think we did a lot of things right, but I think one thing you can't really understand is that ‘how do you access those revenues and what is the competition going to do to block you?’ It was really, really quite challenging to do anything of any meaningful scale.

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Bill:

Yeah, no, that makes sense. So I know you've shared in the past that you feel like while you were running this, you got in the cycle of failing, and I know you talked about how challenging it is. What do you mean by that and what were some of the steps you took to pull yourself out of it? Because clearly you're on a very different cycle of that today.

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Aidan Rushby:

Yeah. So we first started out that business, Movebubble, which was more of an online rental agency is probably the best way to think about it. That's quite a common thing now, but back in the early days, that's what the kind of initial premise was that you could digitalize the letting agency and become more scalable as a result. We pivoted and pivoted, and because you couldn't necessarily access the revenue very easily in this market, and it was very, very difficult to monetize, I had to keep pivoting the business model. And this kind of led to learning to fail quite a lot and it was extremely difficult to actually get it to work. It was just really, really difficult. It was very easy to grow the demand side. It was extremely difficult to grow the supply side and monetize. That's where we were trying to monetize, and it was just extremely difficult to get that to work and it failed, failed many, many times.

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And I kind of got into this loop where as an entrepreneur, I didn't want to give up. There were times when I definitely should have given up because I tried and tried and tried and I kind of knew it wasn't working, but I just didn't want to let the shareholders and the investors down. At this point, they'd invested quite a bit of money and I didn't want to give up. And I was fortunate enough to be relatively good at raising money, and so managed to keep through pure absolute determination and would kind of drive through and be able to keep it going.

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And from a very young age, I didn't want to look as a failure I think to the outside world. I think by stopping and saying it's just not working, it would've felt quite bad and I just wasn't in an emotional point where I was able to at that stage just say, "Look, I'm not going to do this anymore."

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And so I kept trying and trying and trying and managed to get to reasonable scale. And the final failure point was that we were raising about a 20 million pound round and it was going through the final stages of due diligence and the deal fell apart in the summer of 2022. I kind of at this stage knew that it needed a significant check to kind of make it really work, and I just got to a point where I had to stop because the board wanted me to go back to the existing shareholders to go and ask for more money, and I knew that they wouldn't be able to provide enough money for it to be a meaningful step forward. And so yeah, decided to stop at that point. But yeah, it was quite a challenge.

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Bill:

Yeah, I mean that's certainly never easy. Our colleague, Frank Rotman, has the comment that businesses almost never fail due to lack of ideas. They really only ever fail due to lack of money. So it had to be a really tough call to kind of when do you keep going, when do you decide to stop and move on to your next thing. What was it that ultimately allowed you to make the call to that ‘this is it, let's not keep doing this anymore?’

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Aidan Rushby:

Yeah, I got to some quite dark personal places over the kind of last four, three or four years of that business where I was just really struggling to... I guess quite a deep level of unhappiness. And I eventually got to a place where it was just really bad and I eventually sought help and I said, "Look, I need to do something about this." And so I started to do cognitive behavioral therapy probably about three years towards the end of that business. And I had quite a challenging childhood. Like I'm sure lots of entrepreneurs, I think ultimately you don't do this unless you're trying to prove a point. And I'd been through quite a bit and I needed to understand myself better. I needed to go on this journey.

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So I went through cognitive behavioral therapy and it was a combination of things really that kind of was driving it. One was I was heavily dyslexic when I was younger and school was a massive challenge for me and I had this deep emotional thing to prove that I wasn't stupid. And then I also had some challenges with some of my parents. And so kind of ended up in this world where I was really, really trying to prove to not only the world that I wasn't stupid, but also that I was trying to do this because I wanted to be loved and liked and some of these things, which meant the worst thing in that kind of scenario is to fail because then ultimately it's kind of compounding that you're stupid or you're not capable. And I went on a massive journey to really understand this and to get to acceptance around this and still do it now.

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But I ended up in a place where I eventually was able to be more rational about it and not being driven by emotion and got to a place where I was very comfortable actually saying, "Do you know what? If I draw this, I could take all the learnings and I could stop doing what I'm doing and use that into a new venture and a new business." That's just learning. It's not failing. And I was able to go on that journey and enable that self-learning and I learned so much about myself. I still do it now. I think it's an incredibly powerful way of understanding the way you're thinking about things and the way you kind of move things forward. And was able to get to a place where stopping that business. It was an extremely hard thing to do. I remember writing the letter, ringing personally a lot of the shareholders and explaining why it was the right time to stop it and to stop effectively wasting their money and we could use the resource and build something much better together off the back of it.

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Bill:

Yeah, yeah. Well look, I really appreciate you sharing. I mean, there's got to be lots of both entrepreneurs and really anyone out in the community that feels like they need help, but it's always hard to sort of figure out how do you start, where do you go? I mean, it sounds like you went through a long period before you took the steps to seek help. Any advice you would give for folks about what caused you to finally seek some help and what your learnings were there that might benefit others?

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Aidan Rushby:

Yeah. Look, for me it was first of all, it was about getting to a place where you were ready to accept the help. I think a lot of people, you've got to almost go into quite a bad place to be able to get there. I think it is recognizing that you're almost in a self-destruction kind of mode. I think you end up in a world where you can get quite dark quite quickly, and so you've almost got to get to that point before you're able to rebuild from it.

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So once I made a decision that I wanted to move forward and get to a better place, then I spoke to probably three or four different therapists and I did some research and I learned a lot about it. And then it comes down to personal connection with the individual that you're going to work with. And I was super lucky with the lady I ended up working with, she had a master’s in finance. She was very interested in money and entrepreneurial adventures. And so we connected really well from a very early stage.

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And you then over time build trust and you're talking about some quite deep traumas. And so it takes a long time to build trust. Some people that say they can go through therapy and get it solved in six weeks is a complete myth. For me, it's taken nearly six, seven years and there's still things that are not quite there. And so yeah, I think take it step by step, play the long game with it. And ultimately it's a personal development journey. You learn so much about yourself and you're able to use this in a business context when you kind of discover that and how you can utilize that as an extra skill going forward.

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Bill:

Yeah. Well look, I really appreciate you sharing some thoughts of that stage of your journey. And to your point, it's kind of at some level never-ending exploration, right? There's always things going well, things not going well, and everyone needs a support network, whether it's a formal or informal. And it's great to come to the realization on how that can help.

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Well look, let's jump from Movebubble and some of the learnings you had from that into Carmoola, which I can speak from direct experiences going quite nicely. Let's start with going from a rental platform to car finance. It's a pretty different opportunity. I mean, I'd love to know a little bit of where the idea came from.

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Aidan Rushby:

I love coming up with business ideas all the time. I'm continually reading annual reports. I read all the IPO prospectuses. Even now, I find it fascinating. I love just to learn. So I'm continually reading those things. And I remember a time after I finished Movebubble and made a decision, I went to New York and I remember I sat there reading as I always do on holiday, the amount of business plans I've written on holiday. I was sitting there reading the Carvana and the Cazoo IPO prospectus, and I thought, "What...

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Bill:

I can imagine sitting on the beach in Majorca reading the Reddit annual report.

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Aidan Rushby:

Yeah, I was sitting by the pool. And I remember reading the Carvana one and the Cazoo one thinking, "Wow, this is a huge market." And there were a couple of learnings that were key to take into the new business. And I remember looking at it thinking, "Wow, I can't believe the number of people that are buying a used car, not just in the UK but Europe and the US." It was just a huge market. And I thought, "Wow, this is really interesting." And I looked at the reports and you could clearly see that all the profit pools were in the finance and the ancillary services and thought that was really interesting.

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And then I was very familiar with Klarna and all the buy now pay later solutions that had kind of been building. One of my friends was building a buy now pay later business. And I thought, "Wow, it's really interesting how all these consumers they're being educated and trained around downloading an app, get a budget, be able to buy." And I thought, "Wow, there's an opportunity here maybe to put these two things together and build a car financing business and utilize some of the latest technology that was out there." And I thought, "Wow, this is really interesting."

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And then I started doing more research into the market and could see very quickly how this could be a massive opportunity. Number one, the dealerships and the brokers were taking massive commissions at the point-of-sale finance, anywhere between 10 and 15% of disbursement. So I thought, "Wow, that's a huge commission that they were taking." The loss rates, when I started looking at the ABS data around the securitized used car portfolios, I was really surprised at how big the loss rates were. They were anywhere between 5 and 8%. And I thought, "Wow, that's really interesting. I wonder why that could be the case."And when you looked at it, there were lots of layers in the value chain, people, actors with different objectives. And so the data was just getting a complete mix of data between the end consumer and what ended up at the lender.

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And then also the apex of the traditional lenders was massive. There were very little levels of digitalization, very old school systems, huge head counts, big call centers. And I thought, "Wow, there's a big opportunity here to kind of disrupt and change that." And it's kind of really played through on those kinds of three key things.

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So we built a proposition, as I said, that would be a mobile app that would enable consumers to go direct so they could get their budget upfront. They would then just enter the reg of the car and then we'd make it really seamless for them to pay and to pay back the loan as well.

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And so yeah, I think it's obviously gone extremely well and we can talk about that in a bit more detail if that's useful. But yeah, that's kind of where we got to.

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Bill:

I mean, that's interesting. Let me dive just a layer deeper. I mean, in our Capital One days, Capital One's become one of the largest independent car finance companies in the US and what's interesting is people can get pretty afraid of car financing. And the first question that comes up is, okay, well don't the manufacturers just subsidize all the loans? How do you make any money? You're specifically going at the used car finance market where that really doesn't exist. I mean, until Carmoola came along, how would people go about thinking about financing or were there really options for financing in the used car market?

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Aidan Rushby:

Yeah. So the traditional customer journey is that you would go either to an online broker where you would complete an online application form, and then it's very manual step-by-step, almost like with a concierge person on the phone that would kind of coach you through the journey. A lot of back and forth phone calls. I remember testing it. It was about a 16, 17- step process from the point of which you complete the application until you were able to buy the car. And it took days.

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Alternatively, you could go into a car dealership and you would have to fill in a paper-based application form. There was a lot of fear about being rejected at the point of sale. It was really kind of a clunky manual process once you walked into the dealership and did that as well. And ultimately the consumer was paying for all of the inefficiencies in the traditional model. So you'd be paying a higher APR, you would basically be effectively paying a massive premium for taking point of sale finance.

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Obviously since we have launched, then there's been massive regulatory changes that have kind of driven the business even further. So you had the consumer duty that came in, which made it less attractive for dealerships to sell point-of-sale finance. They have to adhere to being fair value and various other measures, and it's become a real regulatory headache.

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And then the mega wave that's been driving the growth more recently is that in the UK we had a massive commission issue with FCA where what was happening is a consumer would go into a dealership and the car dealer would then just crank up the price, dependent on the customer just so they could access more commission. And this has been in the news. There's over, I think it's about two million people now have made complaints to the FCA about this. The compensation that's going to be paid out is huge. I think you saw probably that Lloyds, which is one of the largest providers of car finance through Black Horse, is something like 400 million aside, they expect it to be closer to about 1.8 billion. And basically all of this has just driven consumers to look for an alternative trust in point-of-sale finances that just come right down as a result kind of changing.

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And then you've got this other trend, which is younger consumers just don't necessarily want to go into a car dealership and buy cars in the same way as their parents did. They're much more interested in being empowered and taking full control of that. And I think we can talk about the segments of our customers in more detail, but around 50% of our customers have never taken car finance before. The majority of them say to us they use Carmoola because they love the empowerment of it, they like to be in control. I think about 25% of the audience is a female demographic and they just say they can get their car finance sorted in advance and then they can just walk in and buy without having to deal with any car salesman or sleazy sales pitch ultimately.

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Bill:

Yeah. I mean, it is interesting. I know that any entrepreneur in fintech needs to think about regulation, and I think a lot of people tend to approach it as being a bad thing and being an obstacle and getting in their way. I mean, you just described a couple of great examples where the market is clearly failing, regulation can help, and then if you're an entrepreneur and you create a great solution for consumers, regulation can be your friend. I mean, looking at auto finance in the US, the lack of regulation I think is what continues to drive so many of these bad behaviors. And at the end of the day, the most powerful person in any small town in America is the person that owns the car dealership. So the lobbying power of the car dealers is pretty stunning, and they've managed to get exempt from so many different consumer protection regulations that it sounds like in the UK the FCA and others are able to take action on. And I think it's a great thing for consumers and create a great entrepreneurial environment.

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Aidan Rushby:

Yeah, I think it's the size of the market as well. There's nearly eight million used cars bought in the UK every year. I think if you compare that to new cars, I think it's about 1.5 million. So just a huge market as well.

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Bill:

No, it makes sense. So I know I've heard you talk before that you've got a particular framework as you're thinking about new business ideas, the Hamilton 7 Powers framework, which admittedly I had not heard of before. It's interesting, I think many entrepreneurs come up with their ideas through personal experience, some do a little more of a systematic study in the direction of what you've described before, but I think it is pretty unique to take a clear academic framework and apply that to how you think about things. I wonder if you could talk a little bit about what that is and how you leverage it and what advice you might give to others searching for something like that.

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Aidan Rushby:

Yeah. It's not an original piece. I'm a huge fan of the Acquired podcast, which I'm sure you've probably listened to. And at the end of it, they always do a playbook and they come back to the 7 Powers framework when they're kind of discussing the playbooks of the different businesses. So for me, I think it's a really good way to think about it. And I think that ultimately what are the things that you are doing? What are you building in to really drive future value?

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And we use a lot of these things, but for me, one example is we heavily focus on automation. So just to give you an indication, Carmoola will grow probably 300% this year. Top line revenue will add five people to the company. We spent a huge amount of time building automation of the whole system. So we built fully automated value-based bidding on acquisition, fully automated underwriting, fully automated loan disbursement and fraud management. We've also built our own servicing and collections platform that runs fully automated.

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So our ability to drive huge volume without scaling cost is one of the key powers they talk about. They talk about processing power. So that's one way that we're really leveraging it.

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And one of the key parts of our strategy is about brand. I think ultimately Carmoola is selling car finance, which is money, ultimately a commodity. So how do you build a brand around that that customers will choose to use us above anything else? And so we heavily focus and invest in brand. So this includes not only just an amazing product experience, thought about it in lots and lots of details. So when you are adding a car, you get to go through a fun car name generator and you get to name the car, which are like old English people's names as part of it. And we send them a pack out after they brought a car with their air freshener, story about Carmoola and why it exists. Socks and various other bits and pieces.

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Our customer service, I think our current MPS score is 92. We look at the reviews online, customers just absolutely rave about it. We really see that that's one of the seven powers of brand and we see that as a long-term investment into creating a real emotional connection with the customer. And we do a lot of details around that to kind of build that equity over time.

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So obviously data and automation is a key part of our strategy. As someone at ex-Capital One, we are heavily invested in the data side of the business. So we see that as a network effect over time, that as you build more and more customer base, you can feed that back into your decisioning and you can get better and better at underwriting the bigger the data set comes. Especially with fraud management and combining that with a direct-to-consumer approach, you can really leverage the data from the acquisition channels and feed that into your underwriting decision. And we see that as another key area that you will get, as well as some of the basic things more that they talk about with economies of scale. Ultimately, as a lending business, the more you prove the better performance, your cost of funding comes down over time and various other bits and pieces.

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But I think it's a nice way to think about how you instead of some of the more traditional frameworks that aren't super relevant in some of the newer businesses, it's a good way of framing your thought process around where are you putting your capital allocation and how you're kind of building the value in the business.

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Bill:

Yeah, super helpful. And by the way, happy to give props to the Acquired folks. I do think that's one of the best podcasts out there. Sometimes I get a little intimidated since all the episodes are three or four hours long, so I don't always start them. But those are some of the best content out there. My personal favorite was their LVMH dive in, which I know they started as a tech podcast, but that business is so cool.

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Aidan Rushby:

They've just done one on Hermes as well actually. If you like Luxury sector, it's really interesting as well.

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Bill:

Yeah, I listened to that one as well. That was super cool. So kudos to those guys. So let me dive into something that you just said. You started talking about brand and your 92% net promoter score, which is incredible, and the use of data and all of these things.

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Certainly back to my days at Capital One, having spent a ton of time with the guys at Nubank, these are topics that aren't always synergistic with each other. So at one point your job is to keep customers happy and have a beloved brand. On another hand, your job is to decline more customers than you accept because you're managing credit risk and trying to figure that out. And presumably the 92% NPS is among the customers you approve. So there's the whole issue of who do you not approve and how do you think about those customers.

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But how do you think about making decisions in that environment. If you over optimize on analytics, and I would argue that's what Capital One did, sometimes it comes to the detriment of brand and customer experience. If you over optimize on brand and customer experience, you really just can't be too generous in a lending business because it's not that hard to lend money. It's much harder to get it paid back. How do you think about making decisions in that environment where you have these forces that don't always align to each other?

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Aidan Rushby:

I think that's a great question. I think sometimes the best place to start with that is who is the entrepreneur behind it and sometimes what is their reason for creating the company. I think if you ask anyone in Carmoola, I'm probably the customer's biggest fan and I absolutely love... I continually talk about the people that we're serving. Ultimately, we're here to help consumers get easier, cheaper, and faster car finance, and it has to start there.

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And then it's a question of starting to talk about segments. So who are you serving? Why are you serving them? And going deeper there. And I think that that's really key. And then it comes down to how then do you utilize the data to deliver on your business model. And ultimately there's no point having a business that isn't delivering value to the shareholders because ultimately you need to exist and build a compelling business case that can ultimately continue to serve those customers in the real long term.

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And so I think it's about a combination of making sure you stay really connected with the customer, build the brand, and then have the data layer as well that supports everything you're doing. And so we utilize the analytics as a core, as I'm sure every business does, and really kind of prove out the capabilities and the core of the business.

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So for example, we're recently built a value-based bidding tool, which basically can predict early in the funnel how valuable a customer is utilizing an NPV framework so that you can target more of the right type of customers that you are trying to target that you can serve and help. And then you can acquire them based on a bidding system and a value base. So you're trying to attract customers that you can help and you can serve. And then it's around utilizing the best-in-class underwriting.

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So one of the really nice things about being a direct-to-consumer platform, unlike the traditional lenders in this space, is that you can use the type of car the customer is buying, the deposit amount the customer is using, the loan-to-value that they're using, credit utilization, and you can utilize open banking, you can utilize all your data on the product side as well, the behavioral, how they're going through the product. And so you're able to have a much richer data set to be able to underwrite the customer based on that. And as a result, you're hopefully able to help more consumers.

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And because of the structure of our model, we're able to... Cheaper is a real challenge, especially in this space, but ultimately being able to create a model now where our cost of acquisition is one-third of the traditional auto lenders. Our loss rates are sub-one percent compared to the traditional players. They're like 5 to 8%. And the OPEX is very, very lean. There's only 29, 30 people in the company. And so ultimately, by operating in this way and building this model in this way, you should be able to pass on some of those savings to the consumer as well as find ways to be able to lend to customers that other people wouldn't necessarily lend to, be much more advanced underwriting and better way of doing it.

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Bill:

That's awesome. No, that's a great answer and it was hugely instructive for me, having spent so much time with the folks at Nubank on... I mean, I think their answers would've been very similar to yours. I mean, I think Capital One got started as a data analytics company and started to think about customer later, whereas the story you just told, I think Nubank really exciting to see companies being able to do both at the same time from the start. How can you be fanatical about the customer and fanatical about the unit economics because at the end of the day, they both need to work to create an amazing franchise. So huge kudos.

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Aidan Rushby:

And I think they do ultimately interlink. If you build a really, really strong value proposition that the customer's buying, ultimately that should feed through to lower CAC. You should be able to attract the right types of customers and play it through as well. And also you are able to, building a brand and building customer loyalty is critical for us is that we want to ultimately sell more products and services over time. We want customers to come back from multiple loan cycles, which traditional lenders just don't do. If you're a traditional lender, you are just looking at one loan cycle. With us, had multiple customers come back now for second loans. So these are all key things to building long-term value that we're really, really focused on.

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Bill:

Yeah. And that's one of the benefits of going direct, a reason why no one ever gets multiple auto loans because they're being disintermediated by the dealer and the dealer just cares about who's going to pay them the most commission on a loan. So that makes all the sense in the world. Hey, a couple more aspects of Carmoola that I'd love to dive into before we wrap up today. It's not been the easiest fundraising environment over the last couple of years, and I know you've experienced that. It sounds like you've had a relatively unique approach to prioritizing who you wanted as investors and how you've gone about it. I wonder if you can talk a little bit about your approach to fundraising.

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Aidan Rushby:

Yeah, of course. So yeah, we have had to probably raise money in some of the most challenging times. I think at one stage, I remember when you guys first invested, I think we must have gone through three prime ministers in the space of six weeks or something. And I thought it was a real challenge.

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But I think fundamentally as a lending business, not all VCs understand them. They all get very excited about fintech, but they haven't necessarily clogged the majority of the profit pool that comes from lending. And I think that ultimately I think that's starting to change. But I remember when we first went out, I was having to explain the very basics of lending to some of the VCs and the pool of people that you are really kind of talking to that understand your business then that can really add value is quite limited.

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And so for me it was very, very clear and I kind of prioritized the list of everyone that I wanted to speak to. I would do the research upfront. So who are the best VCs for lending? Who in the VC fund understands lending? So you're not having to explain everything. And ultimately if they do invest, you don't want to start every board meeting explaining how the revenues work and how the provisioning works and all the various bits and pieces that you have to do in a lending business.

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And so I basically created a long list of all the VCs that had invested in lending and I thought were likely to do it. And then I prioritized them based on who are the number ones that I want to work with in the space, who are the most credible. I put them on a Trello board and started reaching out to them, probably starting in reverse order. So talking to the ones at the bottom of the list to start with so you can kind of improve things as you go.

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And yeah, it was not straightforward. It was a real challenge. And I think that... I'm not just saying this, I've sent it to people, but QED was number one on that list. And I'm a massive believer if you really, really focus and you really believe things will happen, they will happen to you. And so I was very focused on making sure that you guys invested and made sure that I ran the process in that way to ensure that you guys were top on that list.

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But the crazy stuff was I would go to IC, I went to probably about six ICs that summer. I remember going to some of them where their partner had spent hours and hours with me, it was absolutely sold on what we were doing. And then they would go to IC and you would have people that were not from that country or didn't understand lending, throwing the whole thing off kilter. And I found it extremely difficult pitching on video calls and had to do quite a bit of training that summer on how to do them. And I think you guys were the last IC I did that summer actually. And yeah, hopefully by that point I'd got to a reasonable space and was quite clear on what we were doing and why we're doing it.

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But the amazing thing was just how not data-driven at all it was. It was very opinion-based, who in the room shouted the loudest, which I was really quite surprised about. And yeah, it was a huge challenge. But yeah, love there. It was probably one of the hardest things I've ever done considering we've raised now 35 million in equity, but we raised 140 million in debt. We just got a big term sheet this week on the debt side of things, which will enable us to lend in super prime and prime space, which is going to be game changing for the business. It is very clear on the debt side how the value proposition is really clear. I think the challenge was always like how do you get the equity investors on side and that can add value.

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Bill:

Yeah, I mean it's interesting to hear you talk about the kind of VCIC process. And it is something we spend a lot of time thinking about. On one hand, you know that whoever the lead partner is on a deal definitely can suffer from proximity bias and they can fall in love with an idea. And so there is value in having some dispassionate people asking questions. On the flip side, you also know that the person who's leading a deal knows 20 times more about the subject than the other people asking questions. And so how do you create a process that's going to take advantage of different expertise, take advantage of people outside the process, but then also recognize that the people closest to it do actually know a whole lot more. And it's not necessarily an easy task. I mean, we've kind of changed our process several times over the years when we think we're biasing one way or the other. But it's interesting to kind of hear that view and it's not that surprising to me that that's kind how you felt in the generic VC process.

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Aidan Rushby:

Yeah. And I think that ultimately they're making a personal judgment on an individual on a 45-minute phone call or video call. And I sometimes question if you could get massive swings on that process of how good is this individual at actually delivering, how can they lead? Can they actually do the job? Just because you can sell on a 45-minute kind of pitch, it doesn't necessarily mean that you can build a lending business, which I think is one of the harder things to do because you've got to be able to raise debt, you've got to be able to raise equity, you've got to understand credit risk, you've got to understand direct-to-consumer marketing activity. It is not like a B2B SaaS business where you just need an amazing salesman, maybe to go and sell to some consumer, some businesses. I think the challenge with this business is it is very, very complex and not many people can pull it off.

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Bill:

No, that's great. That's great. Well look, I am flattered that QED was number one on your list. Not too surprising in terms of a lending business, we probably do know lending better than most, but just make sure it doesn't get to Yusuf's head that he was number one on the list. We could see that creating downstream problems.

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No, in all seriousness, look, we've gone kind of really in depth on a number of subjects. I've got several other topics on my script. We're kind of nearing the end of time. And while I admire Acquired three to four-hour episodes, we try to keep ours a little more bite sized at 30, 40, maybe 50 minutes. So I really appreciate you joining us today. We always end with the same question for everyone. Hopefully we've got a number of aspiring entrepreneurs that'll be listening to this series over time. What's one tip that you might share to an aspiring entrepreneur?

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Aidan Rushby:

Yeah, I think I couldn't possibly give one tip, but I think the biggest thing I learned was I think a lot of people get lost in what is valuable and what is not valuable. And I think a lot of people focus heavily around the user experience and the UX of a product rather than core design of the business model and how is it really going to deliver value to the consumer.

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And I think value to the consumer is ultimately how is it easier, cheaper, and faster? And so when I come up with business ideas now, I really, really focused on those core things depending on what the audience is. Sometimes if it's a B2B proposition, then how do I make more money? I don't necessarily always think that cost saving is that valuable, but how do you make more money? And so I really try and focus on those things and then really how are you then going to actually execute this business model?

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So ultimately, how big is the market and not focus in terms of number of people, focus on revenue pool, profit pools. I think you really need to probably more on the profit pool side of things, and then really focus around how are you going to actually access this market. And got a friend at the moment that was looking at starting a business and it's like there's no reason why you cannot understand how you're going to access that market before you've even built something, before you've even sold an investor. You can build a landing page, you can start targeting the customer, you can start building that through very early.

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And then I think the key other part of that is how are the competition going to react to your proposition and what are they going to do to stop you? And I think if you can really understand that early on, it's really key then for your strategy of how do you build a scalable business that can win. And for us, it was understanding what are the traditional lenders going to do? How could they react to this? Can they build this proposition? What are they going to do to try and stop us? I think working all of that through and being able to be very, very clear about how you're going to do that, I think is really, really key to get right before you even go and speak to investors or even kind of do anything really.

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Bill:

No, that's great. Well, look, I really appreciate you sharing some of your journey with us, Aidan, across a number of different topics. Some more positive, some more negative. But I love the framing that it's not really failure, it's just the opportunity to learn. And it's one thing I just have so much respect for the kind of tech startup community in general is while you're living it, it's easy to think about failure, but it is if you sort of pull back up. I do think that's one of the great innovations that Silicon Valley has had over the last 50 years is just recognizing that, look, a lot of ideas don't work. That doesn't necessarily mean that something's wrong. It's just a great opportunity to learn and then go be even more successful the next time. So I love that insight.

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So thanks for spending the time with us today. It's been great chatting with you and kudos on all the success you've had so far with Carmoola and can't wait to see five years from now what all it will become.

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Aidan Rushby:

Thanks, Bill, really appreciate you taking the time as well.

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Bill:

Definitely. All right. Thanks to all of our listeners and we'll see you next time. Bye.

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This has been the Fintech Thought Leaders podcast, your window into the world of venture capital and financial services with today's digital disruptors. QED is proud to provide the best fintech advice you can get. To learn more or to read the full show notes from today's episode, check out qedinvestors.com and be sure to also follow QED on Twitter and LinkedIn at QED Investors. Thanks for listening.

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