In this episode, Elias Rubel is joined by Logan Allin. Logan is the Managing General Partner and Founder of Fin VC where he is responsible for management of the firm, sourcing/consummating investments, maintaining board responsibilities, and adding operating value with portfolio companies. Fin VC specializes on Global FinTech, with specific marcro theses and a focus on B2B Enterprise SaaS. Current firm investments: Figure, SoFi, Avinew, Coinsuper, Aiera, Nestio, CRE Simple, Netomi, Onfido, Tradeshift, DailyPay, and Numbrs.
[04:39] Logan’s background
[07:16] What it takes to be able to capture value in the bull cycle
[10:13] What Logan looks for in early-stage SaaS companies
[11:18] LTV to CAC
[12:04] Why companies are failing to occupy the white space out there
[14:34] Habits to be great at sales and marketing that can never go wrong
[16:35] How to embrace a more diverse set of perspectives at the decision-making table
[17:04] How to provide business development support and connecting them into customers and distribution channel
[19:22] Use empirical evidence to decide what, what the best option is moving forward
[23:17] Regulatory frameworks and moving companies on the consumer side, cross border
[26:28] The skills to know what the buying process is on their end
Elias Rubel (00:02):
So today I'd like to welcome Logan Allen, a former management consultant, corporate executive in the asset management world, focused primarily on innovation and financial services. Uhe made the leap to be an entrepreneur as an early team member at sofa, and then in 2018 spun out to start fin VC and has since made more than 14 investments in the B2B and B to B to C space, Logan, welcome to the show.
Logan Allin (00:56):
Thank you. Great to be here.
Elias Rubel (00:59):
So I am really curious. I'd love to start kind of at the beginning because you come from this world of asset management and financial services, innovation clearly that's had a huge impact on your, on your journey so far, and I'd imagine on your investment thesis today. Could you tell us a little bit more about that?
Logan Allin (01:18):
Absolutely. So I started my career at a Duke undergrad, actually coding and, and helping build software as a management consultant initially at a core management consultant called cap Gemini. And I got thrown into effectively the financial services team because I had had one inter internship at city group. And so they looked at my resume and said, you're going to go do financial services. So it wasn't, it wasn't a plan. But the minute I got into inside of these banks and asset management firms and even insurers I recognized there was a massive opportunity for innovation and change. And that really got me excited. And thankfully because I wasn't a great coder or engineer software emerged to solve for a lot of these problems, whether that was trading or core banking systems or portfolio accounting or financial planning. I basically started my career in 2003.
Logan Allin (02:16):
So as the.com bubble had burst and you started to move from more of a consumer centric world to very much a B2B oriented world. And I think you're seeing the same trend line and FinTech as it's called today and more of the traditional private equity world. And so it has been fascinating to go from the B2B enterprise software world, helping banks innovate, which is a little like helping an elephant dance being an executive and actually having a technology budget at city national bank, and then Invesco to finding, you know, solutions for all of our problems and dealing with it in real time, having to go to portfolio managers and private bankers and have them yell at me because the solution work like that is pretty topical and leaves a very strong Mark as you go out into the world beyond that as an entrepreneur.
Logan Allin (03:07):
And so at that point, this was in 2012 started to see an inflection with lending club prosper and, and these other B to C oriented companies with the ability to go out and offer financial services to consumers through technology and mobile. And that's where, you know, so far emerge and, and happy to talk more about that story. But you know, from sofa moving into more enterprise oriented companies, I was an advisor at Adam par. I was the interim CEO at San Bato did a number of different projects in the more B2B oriented world and really gravitated towards that space. And that was back to my roots. And so after becoming a VC, I ended up doing a number of B2B and enterprise software investments. And then actually went back to sofa in 2017 and built out our venture arm, which was very geared towards B2B enterprise SAS work.
Logan Allin (04:07):
So if I could be a customer or a distribution partner and so when I started my firm in 2018, it made sense to continue that thread and theme. And I think what you're seeing now is a re bundling and very much the incumbent financial services firms, as well as large fintechs adopting new technology in a major way. So the financial services industry spends a trillion dollars per year on technology, and yet only 8% of their data's in the cloud. They are in dead last for adoption of cloud technologies. So I think there's been a gradual adoption of hybrid cloud and those types of structures. But by and large, there's a lot of white space to maneuver. No matter how hard they try, you're seeing significant churn and failure in the technology offerings. They have, JP Morgan has had five or six different millennial or gen Z driven credit card solutions that they think is the wedge offering to acquire those customers, which is just a very strange approach, right.
Logan Allin (05:11):
Can you imagine, like, you're, you're a gen Z or you're a millennial and the first relationship you have with JP Morgan and the way they're trying to acquire you is through a credit card offering. So they've, they've shut down a lot of those those offerings and it just hasn't worked. And so I think you're still seeing an opportunity for B to C fintechs to compete with the incumbents, but the incumbents are spending a lot of money and time and effort on adopting technology. And we're trying to invest in those businesses that are mission critical and that, you know, make a lot of sense for the incumbents.
Elias Rubel (05:45):
So that's really interesting. And before we jumped back to talk about some of your early experience as a leader and advisor, for some of these fantastic companies, I'd love to deep dive on what you just said, a moment around, like, why is it that you think with all of that white space and all of that spend I'd imagine that there are just so many entrepreneurs, chop chomping at the bit to solve and, and occupy that trillion dollars in technology spend. Is that something that you're seeing, or why do you think that companies are failing in that space? And it's failing to occupy that white space?
Logan Allin (06:22):
I think it's, it's really only started to emerge in the last three years. So much like you saw in the financial services world from a software and technology perspective, you know, selling into the incumbents was very much a B2B enterprise play. But if you look at kind of the, the.com late nineties, the major technology companies were all B to C, and those were more generalists companies, everything from, you know, pet food to travel when FinTech emerged, it also started B2C, right? And so you have many years of B to C orientation with players like ourselves it's so far that really felt we could disintermediate the incumbents. Well, that turns out to be really hard and highly, highly capital intensive. And so, you know, when I went back to sofa, we recognized the, actually it was trending the other way now. And you shouldn't be really investing in B2C businesses, particularly because we really felt that 2020 was going to be a significant challenge from a macro perspective.
Logan Allin (07:28):
We did not anticipate COVID, nobody did obviously, but it was just shaping up to be a tough year from a environmental standpoint. And, and, and that was because we were late in the bull cycle. We were late in the credit cycle. We're starting to see some, some flags in the credit space, covenant light loans, corporate credit issues over leverage kind of hearkening back to Oh eight. And then we knew it was going to be a messy election year. So, you know, that was another big reason that we tilted very significantly in enterprise SAS was, was that direction. And then the opportunity set that we saw for enterprise investing. So now I think you're seeing a huge number of companies in a number of different areas, asset management and capital markets, alternative lending. We call that banking and lending as a service opportunities, insurance, a insurance as a service, the other theme and insurance that is really interesting as new risks and technologies that traditional insurers just aren't very good at underwriting cause they're highly tech enabled.
Logan Allin (08:29):
And the next area is blockchain and we think blockchain can be cheaper, faster, better for specific applications. So we invest in what we call enterprise blockchain applications. And then lastly, an enabling technologies as could be cyber security, reg tech, AI, machine learning, enablement biometrics there's a huge number of spaces that corporates whether those are our insurers banks, real estate private equity firms, the entire gamut of the financial services industry need to focus on adopting or you know, they're going to have B to C oriented companies actively trying to disintermediate them. So I think it's truly at this stage and really in the last couple of years become a full scale strategic imperative. And you've seen that in the M and a markets, right? So Morgan Stanley acquiring E-Trade I'm personally very bearish on that transaction, but it was a bit of a hail Mary in terms of Morgan Stanley, recognizing they needed better technology, both on the mobile and the website to address millennials and retail customers and Goldman acquiring a number of different companies to integrate into Marcus. And so I think you're going to continue to see that, and there's gonna be a lot of consolidation continuing in the space. You've seen that in the payments world now, I think it's evolving in in other verticals as well.
Elias Rubel (09:54):
Sure. So I I'd love to go back to some of these early growth stories. We could start with Sophie if you'd like, or, or pick some others whatever you think would be best, but given that, you know, best in SAS, our mission here is to focus in on that first, you know, post product market fit revenue sprint from around a million in ARR to 10 million in posts. I think you've had so many fantastic experiences as an operator and leader before even jumping over to the investing side. I'd love to deep dive on some of those stories about how you bridge that gap then, and then we can come to present day and here, you know, how are you seeing the companies that are investing in see the most success when they try to make that sprint, that initial sprint?
Logan Allin (10:42):
Yeah, so a lot to unpack there. Let me start with what we look for an early stage sass companies. And it's interesting because you can find public data on enterprise SAS, comps and metrics, and you can find late stage metrics as well. But there is basically no publicly available data on early stage evaluation of enterprise SAS companies. So it's NBC. My partner is Peter Akerson. He was formally an executive at McKinsey and was a big part of their enterprise SAS research and efforts and engaging with the startup community. And they found this to be quite similar, but they didn't really get granular on what are those key metrics that companies need to focus on both from a benchmarking standpoint and in terms of comparing themselves to the peer set, but also secondly, when should they go out and raise capital what are the milestones?
Logan Allin (11:39):
And so for us, we're seed and series a entry points, our real sweet spot as a seed plus stage, which we define as post product and some degree of product market fit. Usually right in that 500 kid, a million dollars of ARR, we will lead those rounds, price them, take board seats and take a very active role in supporting the company, which for us takes the form of business development support and connecting them into customers and distribution channel partners as well as capital sourcing as they scale both from, from our own funds and co-investment platform, but also our broad network globally. So at a series seed stage, you know, we're looking for a number of different metrics. Number one, they obviously need to be showing pretty significant growth. Usually that's 600%, six X or more again, 500 K to a million of ARR.
Logan Allin (12:30):
Typically their ARR as a percentage of revenue is somewhere in that 60 to 70% range, meaning there's still a healthy amount of of professional services and that's a function of them simply need to iterate and develop on the product. Acvs are typically around 50,000. And in our experience at this stage, maybe a little less but that's kind of where we want to see them. There should be some level of LTV to CAC data on CAC on a fully baked basis. Obviously it's still early days in terms of the cohorts of customers that they've brought on board, but typically we're seeing kind of four to one CAC ratios and some level of payback period of 12 to 24 months. If they're more SMB or middle market focused in 24 to 36 months, if they're more enterprise focus, they should have somewhere between kind of 10 to 15 customers.
Logan Allin (13:26):
They're going to have a lot of concentration, obviously in their top 10 customers, 80% plus. And then we spend a lot of time talking to customers. We look at net promoter scores if they have that data, that net promoter score should be somewhere in the 60 to 80% range at the seed stage series a stage. And their customers had better view. This application is missing mission critical, meaning once it gets into the enterprise and it gets through POC and into the enterprise, and I'll touch a little bit on what that process should look like. They need to retain and be sub 10% churn. And so, you know, from that perspective, you know, we feel that there's insulation in the enterprise SaaS base, and a lot of the companies we're investing in and many of them are advantaged in this environment.
Logan Allin (14:12):
Billing should obviously be kind of a million dollars plus there, there will probably be a backlog and customers as you get that implementation process nailed down. And the sales cycles probably a six to 12 month process, particularly for those larger enterprise customers at this stage. And their implementation is probably a three to six month process. So that's kinda how we think about those early stage metrics. We spend a lot of time in subsequent rounds. [inaudible] Be looking at net retention and expansion rate. So alongside of churn our customers buying more seats or utilizing the product, if it's more of a transaction based ARR and understanding how that share of wallet is deepening. So those are all the things that we think about and the key metrics we look at, and we literally have a scoring metrics that we use in evaluating companies across every single aspect of what I just described.
Logan Allin (15:09):
And we have a weighting in terms of what we think is most important at the early stages in order for these companies to really continue to scale. And then on your second question relative to scaling you know, we've invested in early stage companies out of our flagship on one including companies like era and the Tomi and I'll touch on what those two companies do, but they've been highly advantaged and grown significantly in this environment. And then we've invested in several companies outside of the portfolio on our co-investment platform, which takes the form of more growth and late stage businesses. Those include companies like on FITO and trade shift and you know, they all have very similar characteristics which is very much enterprise SAS base mission critical global application, very easy to be portable and cross border on fetal and Tradeshift are primarily in Europe Natoma and era here in the U S but they're there all four of them global.
Logan Allin (16:07):
And we think that's highly important. So these are non-regulated businesses. They're obviously selling into regulated customers, which, which creates that global portability which is more than can be said for consumer fintechs. There is if you think about it, not a single global consumer FinTech company in the world, not a one, not a single one. And so it is extraordinarily difficult as we found it so far as we looked at this to evaluate different regulatory frameworks and moving companies on the consumer side cross border. It's basically like Groundhog day, you're starting over and you need to build a brand and regulatory framework and so forth from scratch. So let me just touch on Eliza. It makes sense. I can give you a couple of examples amongst those four companies I mentioned. Yeah, that'd be fantastic. So you know, what are the key areas we spend time on, on the go to market side for companies is pricing.
Logan Allin (17:06):
And we think about pricing as an initial price when you go to market initially, and you're early stage seed and series a, and then it's very much an iterative process on trying to reach that value based pricing level that the market's going to accept without a lot of friction. And so what I mean by that is the pricing needs to be extremely simple and easy for the end customer, whether that's a CFO, who's buying it and it's ultimately going through procurement, or if it's a CTO. And so that's something we spent a lot of time on is what is the base pricing and how do we make sure that we can modularize this pricing and scale it so that, you know, you can continue to iterate and get the best value and get to gross margins that are in ultimately the 70 to 80% range, right?
Logan Allin (17:59):
That's where you want to be as an enterprise SAS business. Early days, those numbers were probably 40 to 60%, particularly with your professional services mix, but over time, figuring out how to scale. And that's, that's a lot of that is driven by pricing and pricing drives a lot of that sales process. The second piece on the sales process is very much being vertically focused on one single use case in one single vertical. So in our world, that is one use case in financial services. So for example with [inaudible] they are a AI machine learning driven platform that automates customer service. And as I mentioned, they've been highly advantaged in this on this market and have had a huge surge in adoption from existing customers and a recognition from new customers that this is a necessity part of their tech stack and what they do.
Logan Allin (18:54):
And this is very much public information. They help you take all of your inbound customer service inquiries whether that is email which is still believe it or not 70% of inbound customer service and interaction that could be through CRM. It could be through a Zendesk or, or a similar application. And then secondly, through text message third through customized chatbots and then for through social. So if somebody complains about your company on Twitter, they can respond in an automated and human like way using natural language processing and new capabilities. And so they're actually effectively charging on a per ticket basis. And as you can imagine in this environment, people aren't going into call centers. And so companies have come to rely on them, whether that's a insurer or a bank or an airline. And they've got all three of those customer segments amongst others that are utilizing the platform to create that automation and make sure that they're servicing their customers in a high touch way, but in obviously a low cost and efficient way.
Logan Allin (19:59):
So within the Tomi, you know, there was a lot of you know, process and discussion early days on pricing and go to market. And I think what they recognize and what this plays out with from it's automatic recommendation is to be very focused on a specific use case, and then go out and replicate that across their peers. What I call this kind of the open table or network effect, right? If one of the financial services firms or banks is utilizing you, and they are a case study that you can reference, you go to all the other banks and you say, Hey, look, you know, this is what we've done for your, your competitor. We want to come in and do it for you and level the playing field, because if you don't, you're going to turn customers and you're going to have a worst customer experience.
Logan Allin (20:44):
So that's, that's a key piece is just being very on one vertical one use case and not spreading yourself too thin, both from an industry orientation perspective and a geographical standpoint. And then the third is obviously implementation, right? And you know, if there is a significant amount of professional services work in creating business requirements, tech, integration, specs, et cetera, et cetera, like that's a real problem. And there's a lot of friction there and it's going to be a six month on average implementation process, which doesn't help for a lot of reasons. One, you can't recognize revenue until it's live. And then two, which is creates friction and backlog and your process and a strain on resources. So API, SDK driven, very simple sandbox technologies that you can provide to these enterprise customers is critical in order to be able to enable that integration and make it seamless and make it remote and self-serve and as many ways as possible.
Logan Allin (21:45):
And that's now more important than ever, I would say, you know, ingrained in that in addition and this, and this is something we're seeing more of is in the enterprise SAS or API economy world people are saying, well, here's an API. And particularly we're seeing this with insurers and banks. They're like, well, that's, that's great. This is awesome data. However, we don't have any ability to really build screens from a mobile perspective or an IBM standpoint on web to be able to accommodate this data. And so that the company now is on the hook for building those on a white label basis in order to enable and remove friction and deployment. And so we think that's actually going to be an increasing trend, particularly for these banking and lending as a service companies. So hopefully that helps. Those are kind of the, some high level thoughts and some examples.
Logan Allin (22:36):
You know, I would say that the similar trend line has occurred for on FITO and Tradeshift and for era, just again, being very use case specific and focused in order to get from a million to 10 million, you need to nail all those key areas. And, you know, without kind of removing friction in the sales process, having a streamlined implementation approach and having a very differentiated technology in the market and just touching on marketing a little bit, each of our companies, we encourage and they have developed one pagers for every specific industry segment, so that they're going when they're going to a bank or they're going to ensure that's a very different pitch and they have to be smart on what the integration framework looks like, what the key technologies are at that company and why it's a different sale. And so we very much encourage our companies to develop these very specific marketing materials, obviously positioning themselves on a use case specific basis and going in and selling an insurance company on claims adjudication or whatever that key workflow might be. But speaking their language, having that industry expertise, and as you scale, right, Salesforce, for example, has specific sales teams tied to specific industries, but early stage companies don't have that luxury. So you've got to very much have quarterback leads at the sales and the level that, you know can be adaptable and work across multiple industries and then gradually start to specialize. So I'll pause there happy to answer any other questions.
Elias Rubel (24:12):
Yeah, absolutely. No, I think that's really helpful. I'm curious, do you find success taking it a step further? Not just use case specific, but even down to the personas that they're selling into to navigate such a complex lengthy sales cycle, as far as the materials that they're preparing and how they position that?
Logan Allin (24:32):
Yeah, I think that there's definitely persona orientation for the product team on a sales basis. Certainly contextualizing who the user is and how they're going to utilize the system and providing as much color on that through the demo as possible, I think is very critical. Absolutely. and I think developing personas and knowing your user is, is obviously a very critical initial step and that user profile may evolve and there might be other users in the organization that are applicable. So for example, with era, they have a vast variety of users. This is a quantum as a service solution providing market data aggregation and quantitative analytics, AI machine learning for equities and equity research. So what's interesting is that the obvious users are portfolio managers and analysts at investment banks and asset managers.
Logan Allin (25:34):
That was certainly the first focus segment they went after. But then they recognize the private bankers and wealth managers need that data and want to be smart on the markets and having easy a workflow in place to utilize that software and Bloomberg is overwhelming and very difficult to navigate and has no AI machine learning. And then the third set of users, which has just emerged is corporate CFOs and IRR functions who are utilizing era to help get smart on earnings calls as well as benchmarking their customers and peers. And so w what error provides is real time transcription of earnings calls and investment conferences that's tagged to the individual equity. So you don't need to sit on an earnings call anymore. That's transcribed in real time and summarize and tagged in the right way so that you can be very clear on what that corporate entity was reporting on. If you're an equity analyst, or if you're, you know, a competitor, you can get a sense for what the CFO of your competitive organization talked about. And that's very critical in order to tailor your own comments. And so, you know, that that's, another area is on the persona side, you're going to build for an initial persona, but be prepared to be upselling and cross selling into other users and finding different aspects to your, your application, which might be simply different dashboards or flexibility in how that technology is adopted.
Elias Rubel (27:02):
Sure. No, that makes sense. It's a, it's a complex sales cycle, complex marketing mapping that has to happen as well. So as, as we wind down this interview, which has been really helpful and super insightful, I'm sure, especially for those founders and operators out there listening with going to B to B FinTech focus, I'm curious to find out, you know, we all have those people in our lives who are influential professionally, whether they're mentors or just folks out there in the industry, other operators or investors who we think are doing really great work and admire how they go about the work that they do. I'm curious who some of those folks are for you.
Logan Allin (27:44):
And, and in terms of people that are mentors, or I think a great deal of, is that the question? Exactly. Yeah. Yeah. So it's funny because, you know, in the enterprise SAS world it's, it's a space that's pretty diffused, right? And you've got the legacy players the Oracles and SAP of the world. And I, I wouldn't consider Larry Ellison a mentor or somebody that, you know, I'm looking for thought leadership or direction from but obviously a hugely successful and, and, and, and longstanding entrepreneur. It's one of those industries where you really have to spend a ton of time on your own getting smart on the space, whether you're an entrepreneur or a VC. And so you know, for us, that was a lot of hands on data and analysis of our own portfolio and really looking at the metrics that mattered.
Logan Allin (28:42):
I would say that, you know, Salesforce and Marc Benioff, and, you know, the machine that they've created has taught us all a lot about what it means to go to market in the right way. What distribution and channel partnerships could look like and what best practices are around those particularly as it relates to data and this notion of push versus pull so needing to push in and fill out a lot of data versus poll and integrating data and making it very easy on the user. I think that Salesforce is, has certainly taught us a lot. I think the, the newest but oldest company in this space is Microsoft, right? So, you know, the Sattia has really pivoted that business from what was a kind of iOS software for the desktop and the laptop to very much cloud focused cloud applications and selling in enterprise software into their largest enterprise customers.
Logan Allin (29:47):
And I think, you know, they've, they've taught us a lot. They acquired LinkedIn, which I think is ultimately gonna be a really interesting collaboration and channel. That's taken some time to come to fruition, but the moves that he has made I think have been tremendous in the culture he has set as well. And I think culture is extremely important. Particularly as you scale, we stress this continuously with our companies. We've seen bad cultures, we've seen good. But I think he's done one of the best jobs of anyone on setting the right tonality and the right culture. And you know, he he was interviewed a couple of years back and he mentioned a book which I read and was one of my, is still one of my favorite books. So I'll leave with this recommendation. And he recommended mindset by Carol Dweck.
Logan Allin (30:33):
And the kind of reader's digest version is that he very much stresses having an open mindset versus a closed mindset. And a closeup mindset means that you really feel like you have all of your capabilities and you have nothing left to learn, and there is no evolution. You're kind of stuck which I think we all sometimes naturally unfortunately default to, and his view is that no, we continue growing, learning and adapting, and he's applied those principles to to Microsoft and I, and I think that's a huge takeaway. But yeah, on the, on the reading and the data side, I'd love recommendations that we're, we're very much always looking for insights and data on the space. I think what you're doing in interviewing and hopefully providing content and thought leadership is, is hugely important. You know, we think this is a critical space.
Logan Allin (31:27):
We view it as a specialist in specifically applying enterprise SAS to FinTech. And we think that's a great tact to take because specialists are outperforming generalists in the venture world, and we think that will continue. But there are a lot of obviously you know, smart enterprise and more generalist investors out there that need to look at things more broadly and have multiple industries to contend with. So those are, those are my parting thoughts and hopefully this is helpful and we're available on our website and vc.co and always happy to engage with entrepreneurs and the rest of the ecosystem. Well, Logan, thank you for sharing all of the wisdom and joining us on the show today. My pleasure
Speaker 3 (32:18):