E27: Special Episode - Splitero's Series A

Hi, everyone, and welcome back to another episode of the Breakouts podcast, where we interview extraordinary founders in just under 20 minutes. Now, this time around, we actually have a special episode for you guys. We've wrapped up recording season one, and we're just getting started on recording season two. So we're kind of in between seasons.

But one of the founders we interviewed on season one went on to raise their next round of funding, and we wanted to have him back on the pod to share kind of what it takes to go from a seed round to a Series A round. I personally really enjoyed this episode and learned a lot from this interview, so I hope you do as well. And without further ado, here's today's episode. All right, ladies and gentlemen, welcome back to another episode of The Breakouts.

This time around, we have a bit of a special episode. We have one of our old guests coming back. It's Michael Gifford, the co-founder and CEO of Splatero. Now, we talked to Michael a few months after he had raised his seed for Splatero.

Now they've gone ahead and raised a Series A. So, Michael, wonderful to have you back on the pod. How have you been? Back.

Thank you for having me again. We've been great, obviously. It's great to talk to you again. Yeah, likewise.

I'm so excited. I guess, where should we start? Maybe we can start by doing just like a quick recap of, you know, what Splatero is for some of the listeners that might have missed the previous episodes. Definitely go ahead and check them out.

We did two episodes together. But in terms of a recap, could you share one more time what Splatero does and what problems Splatero is trying to solve? Yeah, Splatero is on a mission to help homeowners by providing them the best options to access their home equity. right now with what's going on at the interest rate environment and the economic uncertainty, it's really difficult for most homeowners to access the equity in their home.

Really cool. So, and I think we talked about this last time, right? Like, so maybe if we can just like run through an example for our listeners. So let's say that I have a home that's worth a million dollars.

I come to Splatero. What kind of lump sum of cash upfront can I expect when I'm trying to access, you know, part of the equity in that home? and how does that process kind of work? Like, you know, from the point where I tell you guys, okay, this is how much my home is worth.

This is the home. This is the property. What happens next? Process is very smooth.

So homeowners come to us and like you said, we put a valuation on the property. Once we get a valuation on the property, we actually discount it slightly and we have a starting point. So we share in the appreciation above or below that starting point. Most homeowners come to us and can request up to $500,000.

They can have those funds for 30 years. There's no monthly payment on it. And it's not debt. So it doesn't affect their FICO score.

Gotcha. Okay. That makes a lot of sense. Just to drill deeper into this example, I'm going to throw out some numbers here and try to walk us through a bit of an example to try to, you know, understand the nuances.

But let's say I have like a $1 million home, right? And that's what you guys, you guys agree on the evaluation. Maybe you guys come up with it. would it be safe to assume that I could get somewhere around $130,000 in upfront cash?

Is that something I decide? Do I pull some kind of levers and adjust it? Or how is that upfront amount determined? Yeah, that's very safe to assume in that scenario.

Most homeowners that come to us have about 50% equity in their house. And so, like you said, if you have a million dollar house, you have 50% equity, it means you have $500,000 that we can help you access. obviously we can't let you access all of that, right? And we don't want to put you in a tough situation where you don't have any other access to the equity in your home.

And so in that scenario, you're likely able to get 130,000. Most people with similar scenarios are going to access roughly 10 to 15% of their home's value. So a million dollar house, pretty easy to access 100 to 150,000. Some might even access up to 300,000 in that case, but that's a realistic scenario.

Gotcha. Okay. And let's say that, you know, your home increases in value with the average appreciation, which I believe is around 3% per year for homes. So after 30 years at that rate, the same $1 million home would be worth $2.

4 million roughly. So that means essentially that the home is appreciated $1.4 million in value. And of that, Splatero would keep a percentage, and then you yourself would keep a percentage based off of the equity that you essentially gave to Splitaro at the beginning in exchange for the lump sum of cash.

Is that fair? That's fair. And in most cases, Splitaro shares in about 20 to 30% of that upside. And so the homeowner keeps the lion's share of the economics, especially in a scenario like that.

Most people don't hold their homes for 30 years. Most people are closer to the seven to 10 year mark. And so EPS Yankton isn't as drastic. But in a scenario like you described, where the home value increases substantially, we actually have a safety cap in place, which would protect the homeowner's upside.

So the investment from Splatero can only make as much as that safety cap is per year. Think 9.99 to 17.99, somewhere in that range, depending on the other characteristics of the investment, that would actually cap out.

So in a scenario like you described where the home's more than doubled in value, which is great for our homeowners, but Daryl's share is actually a pretty minor portion. Ah, interesting. Okay. I like these safeguards in place.

I feel like, you know, if I were going ahead and doing this, that would make me feel a lot more safe, that I'm not giving up, you know, all the upside here. But if I do want access to some quick cash, I can get it. Yeah, and you can also use that cash for up to 30 years, as you mentioned. And the really neat portion about it is there's no monthly payments, right?

So you can access that $130,000 that you talked about. And the next month, you don't have to turn around and start making payments. Very nice. Ah, okay.

That's really cool. You know, shifting gears a little bit more about since your last fundraising round, right? Since the seed between the seed and the A I guess what did you guys you know accomplish Like what was the progress And then also like moving forward from the A to you know the B or whatever round you guys want to raise in the future what kind of milestones are you hoping to hit Yeah So the internal and external points that happened between those two markers of time, for sure.

The interest rate environment, the economic environment, right? And it put homeowners in a lot of uncertain situations where they look now at their home as their biggest asset, of course, but also it has a substantial amount of cash that they can access. And so when people are uncertain what's going on with their jobs and the economy, they do want to access that cash. And so we have had a lot of homeowners coming to us asking for our help from all 50 states and even some other countries.

Since our seed round, we've expanded out of California. We're now in five different states. So California, Washington, Oregon, in Utah and Colorado. So that's been a big change for us.

Our team has grown substantially. So we've had to find an amazing team that are, they're located in 10 different states as well. So we've brought on quite the team and really we've grown, right? In how much we were able to help homeowners, how much we're funding monthly has grown substantially.

And then as the part of your second question, right? For the B, where do we go from here? The team continues to grow. We want to advance into more states and keep helping homeowners across the U.

S. Really interesting. So I guess there's different axes that you could progress on, right? So one of them is, okay, the amount of depth that you have per state.

And the second is the amount of breadth, i.e. the number of states in which you're able to operate. I'm guessing that there is some regulation or licensing that you guys need to go through per state.

Is that right? Or I guess what hinders you from saying that, hey, we're in all 50 states at once? Yeah, of course, the the operational complexity of being in all 50 states is certainly a high bar in hindrance. There is a licensing component that we that we abide by there or outside of licensing.

There's also legal docs, right? Say a mortgage in California is not the same as a mortgage in New York. Right. And so how do those documents look, work, act, feel that kind of thing goes into that.

But outside of that, you know, you also think about the team to help homeowners in all 50 states. You need a massive amount of people to do that, which we will do eventually. However, you have to find great talent. You have to hire them, train them, onboard them, right?

Get them in the seat so they are adequately able to help homeowners. All that does take time, especially a little more than the one year since we probably last spoke. But we're working on all those things now. Interesting.

So would you say that the velocity of expansion here is a function of how quickly you can hire an onboard talent that can operate in each geo? It is. That is one of the factors for sure. I think your breadth versus depth is definitely another question to ponder on.

The depth of each market is not equal, right? So your states like California have a substantial amount of homeowners who have a lot of equity in their house. That's different than, say, maybe Montana, where there aren't as many people, there are not as many homes, they don't have as much home equity. And so you're making these decisions kind of as you go, as you look at markets.

There's pros and cons of everything, but breadth versus depth is definitely a question that comes up. Interesting. Okay. So basically, since your seed and, you know, after having the economic environment shift, you guys expanded from one to five states.

Do you guys have a number in your head that you think about when, you know, hey, we're in X many homes or we're in Y many states that you think would be a good milestone for going to raise a B? I don't think about it in terms of raising a B as the next milestone. I think it's more, more sort of the, how the company grows from here, right? We do want to enter more states and we think about entering more states and helping as many homeowners as we possible.

We put metrics around that, but it's also other features of the business, right? You have to get more efficient at say sales and marketing, right? To bring your costs down. You also realize efficiencies in the tech org as you add to the team and build different engineering features.

And so those are also milestone markers that you want to achieve before your next fundraising round. I think that the B round is always the most historically toughest to raise, right? And so when you think about the different components of the business, it's not always just, you know, either check the box because we help this many homeowners or check the box. We're in, you know, X number of states now.

It's also how are you doing with every other aspect of the business? That's not so much of a metric. That makes a lot of sense. So it seems like there's multiple different metrics and axes that you need to consider before understanding, you know, what's the right time.

And I'm sure it's also a function of other things like runway, revenue, how developed as a team, you know, customer acquisition cost, as you mentioned. And I'm curious, you know, if you're comfortable sharing from the time that you guys were at the seed to the A, what was the difference in, I guess, the number of homes that you were able to serve and the amount of revenue or profit you guys were able to generate? Yeah, these are always important numbers for sure. I think that when we raised our seed round, we were just getting started, right?

So we hadn't helped a single homeowner when we raised the funds to start the company. We knew that there'd be product market fit, right? We could point to all the data that this was a product that was needed, which has helped. Now we've helped hundreds of homeowners, right?

And so that number is growing and growing every single day in all five of these states, which is amazing. As we go to scale and think about our next round, the other part of the equation is the fundraising environment, right? Right now, it's very difficult. Probably for the near future, it'll be pretty difficult to raise, you know, a significant amount of financing.

It makes you think about how fast you grow, right? How many markets you actually enter? Is it worth it or not? You kind of making these trade as you trying to also you know reach your next milestone in your business Yeah that makes a lot of sense And from what it seems like these days it seems like the growth stage fundraising rounds are impacted the most right Like as opposed to like pre-seed and seed, we're definitely seeing impact across the board, but more so in the later stage.

Is that kind of what you've seen as well? Yeah, we haven't started too many of those conversations, but you think about the companies over the last few years that have gone public and hasn't exactly worked out as well as they'd hoped, that scrutiny comes down the funnel into the venture-backed companies, right? And so we will have to face those questions. How are you going to reach profitability, per se, or what are you going to do with this next round of fundraising?

Is it going to be your last, or are you reliant on raising another round in the future? Those are all questions that those later stage investors are asking. And I think, unfortunately, for a lot of businesses right now, they might not have the greatest answers for that. Yeah, that makes a lot of sense.

I'm curious, for this round in particular, who were some of the big investors involved? And how did that round kind of come together? Was it a lot of follow-on investments from your seed? Or did you guys bring in a lot of new people?

We did. We had new and old. So all of our prior investors participated, which was just awesome. Wow.

Led by Fiat Ventures, which was great. And then we had some significant follow-on from a few different funds. PVJ Capital, for instance, is one. JoinFX.

Gemini Ventures, who led our seed round, came back in with a large check, which was great. Dream Ventures. Permit Ventures. So we had quite a few funds join the round, which was very exciting for us.

Awesome. Okay. So it seems like it was a mix of both, right? A lot of follow on, but then also bringing in some new people.

That's awesome. You know, if, you know, you're being able to raise so successfully in this kind of fundraising environment, that's a testament to, you know, the kind of work that you guys are doing, at least from what it seems like on the outside, it seems like you guys are doing a great job. I think there is a note there that now in this current environment and to all the founders that I'm sure listen and it takes substantially longer, right? Than it has in the past, right?

And it is tougher environment to raise. And so make sure you do have that runway and the amount of time and the connections, right? There's nothing better than a warm introduction. So try to network, get out there, meet people because fundraising right now and probably for the new futures is difficult.

Yeah, no, 100% agreed. You know, the fundraising environment, it's tough right now. You just went through it. you probably have a number of fresh lessons in your head.

I'm curious for founders that are going from, you know, kind of seed where a lot of the capital is being used to de-risk very core parts of the business to series A, where things become a lot more about metrics. What's a piece of advice that you could offer to seed and precedes, seed and precede founders? I think that there's a change from, you know, What is your competitive note to, do you have a product that can reach profitability in X amount of time, right? Like, do you have a real product that you can make into a profitable business and grow substantially or not?

I think that that's probably a major shift that's going on in the market right now. The growth at all cost days are over probably for a while. And so, you know, that's a first principle of like, okay, our product, is it a real product that has legs that can grow? and make us into a profitable business?

And if not, what is your plan to change to get to that? So I think that's probably one of the most important. Obviously, you have to still have the metrics. You have to have shown your growth and that you have product market bid and that there are metrics for a business there.

But first and foremost, do you have a product in the near future that you can make in a profitable business or not? And if not, then what did that timeline look like? And what's the growth look like? Because being relying on your next round of fundraising could be a mistake that a lot of companies have made in the last couple of years and hopefully are not making now because it might not be there.

That makes a lot of sense. Are you guys profitable at the moment or are you working towards it? We are working towards it. Yeah, definitely one of our goals.

Awesome. So I'm curious about is like, so profitability, very important in this environment. Apart from profitability, what's like the, I guess, biggest goal, challenge, or thing that you're looking forward to over the next few months to the next year? We're doing some really cool things on the tech side, for sure.

Part of the Series A round was to hire more talent, right? And so we're a lot of people in, build some cool things internally. That's always, you know, kind of an A-level task. And so I'm looking forward to that.

And honestly, like, I get so much joy from all of the homeowners that we help and the stories are just incredible. We talk about them every week in our old hands. And so I get a lot of joy just from actually helping the homeowner and seeing the power that our product has, giving somebody a large sum of cash that they can use to pay off their debt or redo their roof, build a pool, like enjoy their house. All of those things are just awesome stories.

That's awesome. And are you guys, in terms of product strategy right now, are you guys kind of doubling down on, hey, let's just focus on what our core product offering is right now? Are you focusing on or are you focusing on also expanding the set of features or solutions that you guys offer? Yeah, we have an interesting product where I would say that we're somewhat counter cyclical.

And so the demand for our product is enormous right now. We are seeing hyper focus on our core product. I think that that probably changes as we grow. But right now we're very focused on home equity.

Awesome. The product as it exists today, does it involve a significant amount of human touch from your guys' end to provide that lump sum of cash or is it mostly automated? I would say right now, mostly human touch, but there's automation that is growing and that's a lot of kind of the tech enablement that we building now There a lot that can be touched with automation but early stage it really hard to put all that automation in place And honestly like you need to actually have a human do the do the role for some amount of time So you understand okay, is there a portion of this that we can't actually automate and what can we automate?

And if we do automate it, how much lift does that actually give us? Is it worth spending the time and money on now? Or should that be something we, you know, put on the product roadmap down the line? That makes a lot of sense.

So right now, in terms of the kind of refinements that you're working on, are they more on the process side? Are they more on, you know, the product side of things? Or is more of your effort on, I guess, the go to market or the distribution here as opposed to, you know, refining the product? Or how are you balancing those efforts?

is what I'm yeah we think about things in internal and external tech if you will right so external would be your product and what people see and use and there is a lot of improvements that we are doing there to make it easier and more homeowner friendly when they come to us they need to upload documents or something comes up in underwriting that we need to ask them about like how do we surface those things the other side is the internal side right and so the automation that we put in place for our team less clicks if you will spend less time doing certain tasks that We know we can automate.

We think about things in both those realms. Awesome. Okay. And you also mentioned that a big focus for you right now is growing the team.

You guys expand into additional states. What's your plan in terms of hiring? Like, what are you looking to grow the team to? And what kind of key roles are you hiring for?

Yes. Right now, not too many key roles. We will be adding roles here in the near future. I think we, because of the demand for our funnel, we pulled forward a lot of hiring in late last year while we were doing our fundraise to keep up.

And so we're starting to see the efficiencies. Those people are now trained and onboarding. So we're seeing all of that now, which is excellent. So later this year, we'll definitely start hiring for some key roles, some leadership roles that we haven't filled, some later stage kind of company roles that you just don't do early on.

And then of course, homeowner advisors, processors, underwriters, all of our production funnel, we'll be adding to all stages of our business. Interesting. Okay. That makes a lot of sense.

I'm curious, you know, this is a bit of a tangent, but I think also something that a lot of people are thinking about, whether, you know, it's in prop tech, fintech, health tech, all of the above. The whole wave of chat, GPT, AI, all of the above, the proliferation of AI tools that are interesting demos yet half-baked. I'm curious, have you thought about leveraging AI to any extent to automate or make some of these processes more efficient? Or do you think that the technology is a little bit too early and there's not merit in applying it at the moment, at least in these prop tech kind of use cases?

We have thought about it. To answer your initial question, I think that where we stand right now is a few of the things are a little too early, but there are some really interesting things that we can use in our process. And we're, we're actively working on those. Um, what we do right now is not a cut and dry.

You just produce this unit and then this unit and this unit and this unit, right? It's very specific to our homeowners and very with their situation, what's going on. And so, um, that make some things for AI great if it's really repeatable, but if it changes every time, it might be a little more challenging. And so we have thought about it.

We haven't installed or initiated too much of it right now in our process, but I think in the future is definitely opportunity. Yeah, no, that's, that's really cool. And you bring up a great point there that for AI where, you know, a lot of it is based on pattern recognition and frequency. You know, if things are very, very personalized, you know, for example, in a case like this, it's hard to get with AI.

It's hard to, you know, to get it to be able to do those kinds of things unless the frequency of the same kind of use case appearing is there. So that makes a lot of sense. I think those are all the questions that we had for this round. Michael, is there anything that you want to plug, want to share about Splatero and its journey going forward that we haven't covered so far?

Far as Splatero goes, we are happy and willing to help homeowners in the five states that I mentioned before. So California, Colorado, Washington, Oregon, Utah. Please go to our website, www.splatero.

com. There you can fill out the application, takes one to two minutes, people get through it in a breeze, and then speak to one of our homeowner advisors. So our homeowner advisor can talk about your situation. We talked about a hypothetical here, but everyone is created very differently.

And so our homeowner advisors are able to help and tell you, you know, you might come to us and say, hey, I would like $100,000 for this scenario, but we might approve you for more than that. And then they can figure out what to do with that extra cash. But we're here ready to help homeowners. That's awesome.

All right. You guys heard it. Go check them out at splotero.com.

I think you guys even have like an estimation tool, right, that you can use. So go ahead and give that a try, folks. Other than that, Michael, it was so great chatting with you again. I think it felt really cool to speak with a founder that I talked to before and kind of see how the journey is progressing.

Hopefully we get the opportunity to follow Splatero's journey in the future as well. But thank you so much for coming on the pod. Yeah, it was great chatting with you again. Hopefully we will talk to you after the next fundraising round.

Yeah, there you go. All right, folks, thanks so much for listening. We'll see you on the next episode of The Breakouts. Thank you.

All right, folks, and that wraps up today's special episode. I really hope you enjoyed it. And I'm actually really eager to hear from you guys about what you thought about this new format where founders come on board and share, you know, fundraising news and kind of what they've learned along the next step of their journey. So definitely, you know, reach out to me, shoot us a ping.

We'd love to hear from you. If you haven't done so already, also follow us on Twitter at The Breakout Spot. check out our YouTube channel and check us out on LinkedIn as well to stay up to date with all the new episodes and insights that we're bringing about. And I think that's everything folks.

Thank you so much for listening and we'll see you next time on The Breakouts.