Launch HN: Finley (YC W21) – Debt capital monitoring and reporting software

[suhpreme]

Hey HN! We’re Kevin, Jeremy, and Josiah, and we’re in the current YC batch. We’re building Finley (https://www.finleycms.com), software that streamlines the debt capital raise and management process, starting with compliance monitoring and reporting.

Debt capital is basically a corporate loan of over $20 million used to fund operations and growth. That’s a universal business need, so it’s not surprising that debt capital is huge—add up all the venture capital investments in 2020 and you’d still be $70 billion short of debt capital investments over the same period. [1]

Debt capital also comes with rules. Hundreds of pages of them. Here’s an example of a typical credit agreement, which is the type of contract that borrowers and lenders sign when they agree to a loan:

https://www.sec.gov/Archives/edgar/data/1357204/000119312511...

The credit agreement dictates all the conditions that companies have to comply with in order to maintain access to their funding. These conditions are known as covenants. [2] If companies don’t submit the right reports to lenders on a weekly basis that show they’re in compliance, they can lose access to tens of millions of dollars of their loan.

The problem is that borrowers today manage their credit agreement compliance with some combination of email, Word, Excel, head knowledge, and Post-it Notes. Today’s options for managing credit agreements are outmoded, error-prone, and end up costing companies millions in fines and lost access to capital (Fintech founders often unwittingly discover this after starting their lending business, as Stilt (W16) co-founder Rohit Mittal has pointed out. [3]).

Our software helps companies automate their regular reports on debt capital to their lenders. Consistent with Murphy’s law, this seemingly boring task turns out to be quite a difficult technical problem. It starts with encoding the conditions of credit agreements into properties that companies can query their loan data against to monitor and report on in real time. The process of turning unstructured data from credit agreements into structured data is challenging, but tractable, and we’ve been encouraged by the similarities we’ve seen across our credit agreements and excited by what doing this can enable.

Jeremy, our CEO, saw firsthand at Goldman Sachs that keeping track of credit compliance can require a small army of bankers and lawyers. At Ironclad (S15), a contract management startup, our COO Josiah worked on the Collaboration and Negotiation team and helped launch an in-app contract negotiation tool. [4] And as the first engineer at Nova Credit (S16), I saw how existing financial systems can be made much more efficient with modern technologies. [5]

What excites me the most here is the chance to build infrastructure in the capital markets space, which has ramifications far beyond reporting. In the longer-term, we’d love to empower companies to conduct debt capital raises faster and more effectively (the current process of raising debt capital comes with exorbitant legal fees and can take 6+ months).

Today, we’re helping startups manage hundreds of millions in debt capital and, as you might expect, building the plane as we fly it. We’d love your thoughts on our approach, questions about debt capital or fintech infrastructure, and any other feedback you might have.

Thanks!

-- Kevin

[1] See full report here: https://www.mckinsey.com/~/media/mckinsey/industries/private...

[2] https://www.investopedia.com/terms/c/covenant.asp

[3] https://rohitmittal.substack.com/p/a-brief-guide-to-starting...

[4] https://ironcladapp.com/blog/introducing-ironclad-editor/

[5] https://www.novacredit.com/

[waterside81]

This sounds like exactly the right formula for startup success:

1) People with experience in a given industry

2) People who have seen the problem over & over again

3) Large businesses with lots of money but lacking in skill/will to automate the solution themselves

4) Outsider comes and says "hey we can automate that really boring problem for you save you money"

Please remember this comment when you get acquired for tons in a few years.

[suhpreme]

Yeah, this isn't the HN experience I was hoping for... :-).

If I may, the final ingredient I'll add is that this problem is one where software not only automates but enhances the solution. As a company grows, they'll add additional credit facilities and explore other financing options (like forward flow arrangements). Each agreement/arrangement comes with their custom set of requirements on your various credit products, and the lack of a central data store creates all sort of internal process complexity.

[lintaho]

Love seeing startups tackle opaque, non-consumer spaces with hairy efficiency (and perhaps even structural) problems.

I can't even begin to imagine the universe of problems like this that haven't been surfaced yet, and that's extremely exciting. Good luck guys!

[suhpreme]

Thanks! We're excited too. It's always fun building software where it needs to exist, then thinking what new things that enables.

[cpoz]

With the democratization of capital through tech companies like Pipe and Stripe Capital, it's exciting to see enabling technologies like Finley's that will benefit the entire corporate lending ecosystem, including incumbents and new entrants.

Having worked with credit agreements before, they are several hundred pages long, so it's difficult for a human to read and extract information from a single credit agreement, let alone multiple. Companies can have multiple loans, each with their own credit agreement. On the other hand, lenders have to manage credit agreements across their entire portfolio.

[suhpreme]

Well articulated! And exactly right. We hope to accelerate the democratization of capital access and think we're solving the key bottleneck to achieving that.

[sebmellen]

Hey Kevin,

Looks fascinating. Could I ask you more about debt capital? I am working with an organization considering raising debt capital right now, but, as you mention, the associated rules are very confusing, and it all feels much less straightforward than startup funding.

Do you do any management of the negotiation/set up process (i.e. everything that comes up before signing a contract?

It looks like Ironclad is more oriented to those needs... Do you plan to occupy that space too?

[suhpreme]

Great point - it’s hard to appreciate just how different debt financing is vs equity until you’re in it yourself. Unlike VC's, debt investors are optimizing for 0% of their investments to fail. This makes its way into the contract's negotiation process and final structure/requirements.

Our vision is to power the end-to-end debt financing process. We’re focused today on post-close monitoring/reporting, but our next module will be exactly what you’re asking: the negotiation + close of that contract. We’re well aware of this pain-point: growing startups can’t afford the 6-9 months it takes to get their money (after already agreeing to partner with their debt investor!).

Fortunately there’s strong incentive alignment at this point to put that money to work. We also think our current reporting/monitoring work will be leveraged to streamline that process (a lot of reporting requirements come up during due diligence / negotiation). Finally, it’s a natural product extension since we’ll help you close your facility then can automate your reporting immediately upon close.

[mcicld2]

As someone who used to work in real estate finance law, definitely can see the value. It's always been an incredibly manual, hands-on, and time-consuming process, which means as a result, it's error prone and expensive. Resources get diverted to focus on reporting vs more impactful work. Plus, there's so much valuable data that gets lost through the manual process—and that's why so many fintech and legaltech companies capturing that data (and corresponding insights) are having their renaissance.

There's so much opportunity in the finance space to modernize these processes that have always existed because "that's the way things are done." Glad you are changing the status quo. This is a diamond in the rough and can't wait to see how your team takes it on.

[mathackernews]

Congrats on the launch and Finley looks like an exciting product.

Do you plan to mainly focus on the borrower side or also look at the lending side?

Do you have any integrations with particular lenders or lending software?

What integrations do you have to enable routine reporting? eg. integrations with specific accounting software? Generic API integration, etc?

[suhpreme]

Thanks!

Finley sits in between debt investors and borrowers, but focused on the borrower side. We think that’s the key bottleneck to solve for since borrowers often have the bigger knowledge/technical gap. e.g. a fintech founder doesn't need capital markets expertise to discover a fantastic lending product. We do believe debt investors will be a major distribution source, since today debt investors often bear the burden of educating/managing first-time borrowers. Finley can take care of that for them.

We’re planning an API integration, but for our MVP have figured out regular data delivery processes with customers that work with their existing workflows (e.g. a cross-account s3 bucket). We’ve built pipelines from there to automate reports upon receiving that data.

[mrwnmonm]

Am I the only one who don't understand a lot of the new YC startups?

[mring33621]

There remains a lot of opportunity in current-day finance and banking for automation of manual processes.

[festinalente]

[disclosure: finley co-founder]

no, you're not alone! we've actually had this conversation as a team and with yc batchmates as we've gone through yc w21.

to really simplify what we do, we're a reporting tool for companies that take out large loans from banks and need to send updates to their lender every month.

i think there are a few questions contained in your original question, though. among them: has the low-hanging fruit of tech/software been picked, such that only esoteric or niche ideas (there was a slightly heated conversation about a calendar app the other day) get funded? has abundant VC funding created a culture of solutions looking for problems? etc.

my hot takes, in order of conviction:

a) "[tech] can only be understood backwards; but it must be [created] forwards" (apologies for the misappropriation) -- another way of stating PG's point that tech startups look like niche/low-value toys at first before expanding into larger areas. this is a bit tired, but like all good heuristics, even if you know it you still fall into the mental trap. so when i look around and start to see other yc w21 companies as "toys" or inscrutable or bizarre, i try to interrogate that belief. easier said than done!

b) this could be a symptom of spiraling complexity in software (and the saas ecosystem). all the new yc startups are building on top of a few generations of other yc startups (e.g., now that everyone has a CRM + ERP, what could you build on top of that?). i was previously at a yc-backed enterprise saas company whose clients included many other yc-backed enterprise saas companies. my brother, a debt investor at a bank, is entering tech for the first time. i only bring that up because i have been shocked at how high the hurdle is for participating in saas conversations re early-stage startups. whether it's "figma for finance with a workflow element" or "carta for cap markets in the neobank space," the way silicon valley frames conversations around new software in terms of slightly less new offerings is astounding (it is both positive and negative. positive--faster to iterate on familiar concepts. negative--keeps other people out of the convo).

c) increasing distance between software greenfield and the average consumer. as i look at yc's large fintech companies, it seems like they've gone further up the value chain, or perhaps further way from the end-user. in fintech, you have stripe, which handles payments and which many companies might be familiar with (even though overall penetration has a lot of room for growth). but the "back-end" solutions like modern treasury or finch are not built for the average consumer, even if they can provide a ton of utility.

thanks for your comment!

[brycelarkin]

Looks cool! I use to work as a debt investor. Our group never really had trouble in the compliance area (really, it was just trying to deploy all our capital). I think in my time at the company, we've only had 2-3 misreported compliance certificates and we just asked the company to resend an updated version. From a debtor's point of view, is setting up the compliance infra for a note/revolver time intensive?

[jeremytsui]

Thanks for the question Bryce! You're certainly right that the compliance lift and infra needs may vary depending on the debtor and transaction profile. Specifically, we're currently focused on asset-backed loans as a segment within debt, where transactions tend to have more complex compliance and reporting requirements.

[yaseer]

I know little of finance, so let me see if I've understood correctly...

Finley's software automates the generation of debt capital reports. These reports are a regulatory requirement.

It's really hard because: A) there's lots of unstructured data, & B) The reports require real-time data for their credit models.

Is that the right ballpark?

[jeremytsui]

Hey I'm Jeremy, CEO of Finley. That’s exactly right--when I was a debt investor at Goldman Sachs (which is on the receiving end of these reports), I spent 30% of my week reviewing and correcting the reports that came in. All of that happened in Excel and required dozens of rounds of back-and-forth with borrowers. It's a really tough technical problem given data comes from a number of sources depending on a borrower's given industry. Given this dynamic, we're focused on fintech and proptech first, because that's where real-time data is most accessible

[toomuchtodo]

I have nothing to offer other than "how do I invest"? Best of luck, looks like the race car already has, ahem, traction.

[suhpreme]

Ha - thanks!

[lefstathiou]

Hi Kevin, congrats on the launch! I'm the cofounder and CEO of FINSIGHT, one of the few... sustained (for lack of a better word)... entrants into the capital markets infrastructure space (we own Deal Roadshow which markets about roughly half of IPOs, 99% of ABS and 20% of corporate DCM new issue in the US).

My two cents on overall go to market:

1) Good job not mentioning AI/ML/Blockchain/Distributed Ledger anywhere on your website. This market does not trust black boxes or anything they do not understand. How you solve the problem is no one's business but yours, they just want the job done well.

2) Sales cycles are long, today is always the best day to begin prospecting clients. Every successful enterprise fintech company I know was built on strong outbound (cold calls and cold emails, conferences, etc), not inbound. This is not an industry where you can sit back and throw money at AdWords and Instagram. Put differently, your target customers are not looking for this solution so you have to find them and convince them why they need it.

3) The most important factor in winning new business here is social proof. Do whatever it takes to get it, even if it means giving it away for free. Get those logos on your website!

4) Never, ever cut out the banks and remove any site copy that could be mistaken for you doing it. I know of no startup that has succeeded in this endeavor and many have been destroyed for it (I don't want to mention names lest this comment offends some of these people).

5) As PG has written about previously, don't be afraid to do things that don't scale. I can run our whole company from a smart phone but I still have clients (including some from GS) that insist on emailing us to do things for them despite the fact it took them longer to to explain what they wanted over email than than log in and make the change. I don't care, people are more intelligent than machines. I actually find the clients that make us do the work for them to be the most loyal and supportive. That last mile of development to perfectly automate this workflow often isnt worth the brain damage and I would NEVER push the client to do it on their own if they don't want to. That's what they pay us for.

6) Your lights can be turned off overnight if BlueCoat's (Symantec > Broadridge) web filter categorizes you as anything remotely close to a virtual data room, file sharing or social networking site. Go ahead and get yourself categorized properly and monitor it regularly. Do the same for your email IP addresses.

7) I operate with the assumption that no one is going to log into my website (thankfully many do). Figure out a way to push value to them. Monitor space is the most expensive real estate per square inch in the world for this crowd.

8) Regarding your website: I think there is too much white space and scrolling. This market values content density (don't believe? look at bloomberg). I realize this is super subjective.

9) I found that focusing on value created resonated more than costs saved. As an owner of our company, I like saving money because it flows straight to our bottom line. Most people I pitch are not compensated that way and naturally don't care. Convince them they can make more money or execute better for their clients and their ears perk up.

I'm sure there's more... feel free to reach out and I would love to get a demo.

[suhpreme]

Thanks for taking the time to write this! FINSIGHT is a great company we’ve admired from afar.

Love these two cents. It's early, but good to know we’re building some right muscles with things we’re doing today. We’ve embraced the PG mantra and have been putting in extra efforts to prospect/reach out to clients, win social proof, and do the things that don’t scale to bolster our automation and make our customers love us. We’ll keep that spirit strong as we grow.

Also completely agree with your point on prospecting clients proactively + early. As you know, there’s such a knowledge gap in this space that it doesn’t make sense to expect customers to show up on our doorstep with ads. Though we’re investing in content since we think there isn’t enough education out there for e.g. first-time fintech founders, we’ll keep outbound core to our DNA. Also appreciate the thoughtful feedback on our website, value-props, go-to market. Looking forward to connecting!