Business On A Mission & Fundraising Problems

You can find the full video interview here.

Today’s entrepreneur and storyteller: Haden Kirkpatrick

Haden is the former CEO and founder of Odin Money, which was a Neo banking startup whose mission was to help the average American, unbanked, underbanked, or middle American consumer build financial stability and wealth through a combination of basic banking services, machine learning, and robo-advising, wrapped up in a gamification layer. He is a product and marketing strategist with impressive traction and portfolio in financial services and telecom, a mobile guru, relentless entrepreneur, and strategic consultant.

Name of the project: Odin Money
About: Neobank serving the needs of the underbanked in America and globally.
Year started: 2017
Year closed: 2020
Location: San Francisco, CA
Industry: FinTech
Category: Neo-Bank
Stage: Seed
How much capital raised: Bootstrapped
Key competitors at the time: MoneyLion, Shine, Green Dot, RushCard

Traction reached: Traction was actually an area where we didn’t have too many problems. We as founders invested our own money and then got an MVP product out that was a financial wellness and fitness platform, machine learning-based, and gamified to help people understand where their money was going and how they could grow it and then reward them when they actually earn. We successfully executed the plan that we put forward, we ended up getting 7,500 users on that application over the course of nine months. The intention was to prove to the investment community that we can launch and iterate on the product, which we did. And we were able to grow a base of customers to a certain point.

Target market, the market situation at the time of start:

• Unfortunately, the United States is 32% unbanked or underbanked, in some sort of financial distress or without financial infrastructure. These are the customers that go to check-cashing places or remittance houses or bill pay houses and pay exorbitant fees to access financial services that you and I take for granted. And that’s been the customer I’ve served for decades, so I understand them well, we know how to reach them. And we just wanted to provide baseline financial services, which we believe is a basic human right at this point. And then use those to be able to create financial wellness for these customers.
• So there’s this market down at the bottom end of the spectrum, where you have customers that have been rejected by traditional banking. And there’s a lot of reasons why, let’s just hold that aside for a second. The big banks don’t want 1 in 3 Americans and we think that’s wrong. And we thought that was a big market opportunity. And then those who service these customers are largely almost at a usury level in their fees that they charge. They charge sometimes 3 to 5% of the value of a check to liquidate it for just turning up the printer, check into cash and it’s riddled with fees all up and down the value chain mostly because it’s brick and mortar locations and they haven’t digitized their underwriting methodologies. So we wanted to insert ourselves into that environment and provide lower-cost services to these customers.
• Approximately 49% of Americans have less than $500 in their bank account and are just one bad event, like a damaged car, God forbid a pandemic, away from utter financial destitute. Our ultimate core approach was a disruptive $300B alternative financial services industry, target these customers, and pull them out of that usury system with somethings much more cost-effective and accessible to them.

What inspired the idea: My founding partner and I have spent a lot of time in the subprime space in the United States and around the globe. I ran T-Mobile’s $6.5B subprime business unit, he was my business modeling data officer. After that, I launched mobile wallets all throughout Southeast Asia for mobile telecoms, and I’ve seen how mobile financial services can lift people out of poverty and create a banking infrastructure for those who didn’t traditionally have it.

Success parts, what worked:

• I think the three biggest things that were successful were the design of the product and the way we architected the core value proposition, which was you come into the environment, you pay your bills, you hit your budgets, you hit your goals, and we reward you with points as a fungible asset. A traditional bank will reward you when you swipe, they reward you to spend, spend, spend, to consume. We were going to flip that on its head and reward you to save, invest, and do the things that have been proven to build wealth. So it was gamified to generate wealth and you were awarded based on generating wealth because the more you save, the more we benefit.
• And customers love the messaging, strategy, and brand position. They were bought into the mission, into the brand, what we wanted to achieve, and they resonated with both the product and brand matching together. The thing that customers told us they really, really liked was the idea that we would be providing real-time instantaneous financial services, basically providing PRIME-like services to subprime people, not treating them like second class citizens. And that was wrapped up in the mission and the ethos of the company, it’s also specific to their point of view and thinking. They walk around the world today with such difficulty engaging in the financial system, the market system and we were taking a point of view from their side, as opposed to the business side of the alternative financial services or the banking side. We were aligning ourselves to be on their end of the spectrum and to help them. So between the empathy and the mission and the initial product and how we designed the value prop, those were the three big selling points that helped us drive the traction.

F*ckups/Challenges:

• We started in 2017 with fundraising by going out and saying here’s our vision, here’s a solution and opportunity, space in the market. And then justifying our team’s skills and considerable expertise against that. The market feedback was do you have a product? what have you actually built? San Francisco is a very engineer-centric market so investors are used to people that can get hands-on keyboards and actually do this stuff. We obviously needed to invest in being able to build out a product solution. So we went to build a product, launched and deployed it, showed traction and growth on that. And then the investors started asking, well, where’s monetization? So every time you achieved an investor milestone, they wanted more and more and more and more and more attraction. And at some point it got to where we couldn’t continue to bootstrap on our own funds, we couldn’t monetize because the MVP was a freemium model given our focus on the interests of our already challenged customer segment. When you’re not offering the core value proposition of a banking solution with bill pay and other things layered on top of it, it is just a nonstarter for these customers. And the investors seemed to want to have it all — a proven business model with market traction and revenue and profitability — before they wanted to put investment into it. Sort of backward of how I understood the process going.
• One of the big issues we had with fundraising is that there was a perception that the market was too saturated. There’s a series of FinTechs that I mentioned among competitors above as well as a few others who have consumer-centric banking as their core value proposition. There are also upmarket competitors, firms like Uber that are launching deposit solutions for their drivers. And then there are some downmarket competitors that just appear in neo-bank plays and going after this market. So there were a lot of players that were earlier to market than we were. If my partners and I had started this in 2011 when we first had the idea, it would be a totally different game, but we didn’t actually pick it up and start running with it till 6 years later. So we started late and we’re a little bit behind the curve. We thought we had a differentiated positioning strategy, but it was hard to cut through a pretty complicated market like that.
• The second problem with the market was the perception that investors had around our target customers — that these customers were just shit customers. And the average investor has literally no idea or empathy in how these customers work or the way they struggle in their daily lives. I personally was maybe one step away from being one of these customers early in my life but thankfully had help. I have friends that didn’t and still can’t get bank accounts anywhere in the country because they are on the blacklist, their record is marked in the bank check system so no bank chooses to work with them. Investors couldn’t imagine what their life was like effectively saying that half of the country or a third of the country is not an acceptable investment target. The irony of this was we had the most interest from investors during the government shutdown in 2018 when investors all of a sudden woke up and said “I didn’t realize that all these Americans were on the fringe like they were.” And when the moment passed, those investors went away — the immediate crisis was over, but these things continually happened, right?
• We would have conversations around how good the customers are, how they pay $120-$150 in fees to other organizations. I can charge them $10 and make hundreds of millions of dollars in revenue a year. That connection between the real world cost these consumers have and what the potential value to an enterprise was was pretty broad. And we were just either unable to communicate it, or investors couldn’t get past their preconceived biases. It is probably a mix of both but we take accountability for that.
• The last thing that we ran into was, and this is probably a failure on my part, I put together a business plan based off of my experience running a business. And because we would be taking people’s money in the form of deposits and holding it, I held us to a fiduciary level of responsibility. Meaning, when we rolled out our performance, we planned for an additional cushion to ensure that we wouldn’t have problems with solvency, for lack of a better word. And then we targeted our raise on something that will allow us to get to the first phase of the roadmap. I just wanted to know that I can get to the point where I can grow the base to cover the licensing fees, unit fees, marginal fees that I paid my platform partner, and I want to have gross margin profitability…We are in a market that is intended to keep you raising, to keep going, and getting more and more money, which is fine. We had forecasted our Series B, we had that aligned with our roadmap and financial plan. But if I’m going to take deposits from somebody, I don’t want to get to the point where I’m begging for money or I have to send those deposits back or shut down and just rip the service out from the people that needed it. This manifested itself in the business model needing $2.25M — $2.5M in funding. I constantly had to answer the question from investors why is it not $1.5M? Because that’s just what seed round raises are. There was a complete disconnect between their business and my business. I felt I needed to manage my business ethically to keep my brand promise and my mission to customers, and the way they felt they needed to manage their business to keep their promise to LPs. I was trying to build a business, they were trying to build a startup for the next round or a bridge to the next round. I am certain that if I had come off of my position, we might’ve had a few checks cut, but it felt like a ticking time bomb that I wasn’t willing to risk our company or our consumers. I’m building a proper business first, and accelerated tech venture second, those things are not mutually exclusive in my brain.

Key causes of failure:

• A saturated market of neo-bank solutions, late entry into the market
• Challenges of balancing building solutions for the challenged customer base, early monetization and early-stage investors wanting to de-risk investments in the neo-bank space
• Disconnect in target market perception among investors and founders
• Looking for investors that share the company’s mission and they’re hard to find against this target customer cohort.

Grateful for:

• Make sure you walk into the investor meeting knowing what you’re willing to trade-off. Don’t get into a position where I found myself, where I had a business model built and I was not sure whether I’d be willing to trade off terms for higher raise. Any sort of doubt in answering those questions are things that investors can smell and suss out. Your ability to answer tradeoff questions, really tightly and succinctly shows that you’ve thought through them and what you’re willing to negotiate around.
• I’m grateful for the lessons learned. I’m grateful for the team that I established in the way that they hold their weight to help make this mission possible. The folks that we’ve put together as a team were just really committed to what we’re trying to do and really bought into the vision and did some tremendous work. And I’m proud of them. And I’m grateful for having met them and worked with them. And I’m proud of the product we deployed and delivered.
• I’m also really, really grateful for the customers and the users that put their trust in us. Unfortunately, we could not fulfill that trust for a lot of different reasons, but they were still willing and able to put in anything from their email address and stay up to date to sharing our mission and vision with their networks for the MVP, handing over their banking credentials so we can help them become more financially fit. Those customers are life bread and blood of all startups. To have customers respond to your value proposition and your product like that is something that all entrepreneurs should be grateful for.

A note from Haden: if anybody watching this video or blog wants any advice, just pointed my way. I’m happy to talk to anybody anytime.

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This information’s purpose is to help learn from the mistakes (and pivots) of others, as well as to encourage founders to openly speak about things that failed. Look at it as a shared f*ckup depository for resilient brilliant minds.

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