A little while after we spoke to Richard Reed last week, we were fortunate to catch up with another insightful entrepreneur whose latest venture might change the scope of mobile app investments.
Martin Macmillan is the CEO and founder of Pollen VC, a financial tech platform that gives mobile developers early access to their app store revenues.
Apps generally rely on paid promotion to drive growth in users and install base. By paying out for app store sales within 7 days rather than the usual 30-60 days, Pollen VC enables revenues to be channeled back into user acquisition almost immediately. This gives apps the possibility of funding their own growth instead of vying for venture capital or other sorts of financing that may be more costly or require equity to be lost.
Pollen VC has dubbed this new form of finance for the app market “velocity capital”.
We were interested in finding out exactly how the Pollen VC founders were inspired to develop this service, and to see what applications it has for other finance providers.
#BFS16: What made you take the steps towards creating Pollen VC?M/p>
Martin: I co-founded Soniqplay previously which is a music app company and I had this exact problem. As app developers we experienced payment delay from the app stores. After we were selling digital gigs it was up to sixty plus days before we actually got paid out by the platforms.
Pretty frustrated, I looked for a solution in the market through some traditional invoice discounters and I just drew a complete blank from the disconnect between the old world and the new world. Traditional invoice discounters were pretty hung up by the fact that there was no invoice – no piece of paper. There are no invoices although clearly you could see the great level of forensic detail, exactly the sales reports for what you’ve clocked up. It was frustrating because we were trying to unlock the sales we already had. This is where the idea for Pollen VC came from.
Before Soniqplay I spent a couple years at UBS running short-term credit restraining. From a credit risk point of view I thought this was actually a better risk than an invoice. Anyone can fake an invoice. A cycle is taken up in verifying an invoice – that it’s real and it’s actually going to be paid. This way [with Pollen VC] we were able to bypass all of that and just take an additional fee directly from the billing system in order to price the risk.
What I’ve done in my career is just drawn on an understanding of the old world of financial services and the new world of the digital app economy to figure out a way to bring a solution.
#BFS16: How did you get the funding you needed for Pollen VC’s “velocity capital”?
Martin: There are two different things here. There is raising equity capital to build the business and there’s raising debt capital to provide the underlying access to loans.
From the equity side we were lucky enough to be connected with great early-stage investors and people from the gaming space as well. We were able to raise our equity capital pretty quickly because we solved a problem that was pretty well understood in the community.
From the point of view of raising the debt capital, we were able to raise that initially through private facilities and we’re starting to raise from more institutional facilities now that we’ve got data to prove our business model.
#BFS16: Was it a big challenge for Pollen VC to get that initial funding?
Martin: If you look at the makeup and the credibility of the team, e.g. a very early hire for us was a head of risk… A thing any debt investor is going to look for is a very deep understanding of risk and process. Once we were able to map out in a high level of detail exactly how the journey worked, taking it to debt investors was a relatively straightforward formula. It’s really all about understanding how you are financing companies and the security approach – how you make sure you will get paid back in all eventualities.
#BFS16: Why do you think a solution like Pollen VC hadn’t been provided before?
Martin: Obviously you’ve got two very disconnected worlds. When I started asking around in the app development community the response was. “It’s Apple/Google. It’s how the market works and there’s nothing you can do about it.”
If you were a traditional financial services business it would be very hard to understand the exact psyche and problems of an app or game developer. You may understand the credit story but actually how to communicate with your target audience would be harder.
If you were an app developer and you thought “Hey, there’s a problem that needs to be fixed here” it’s very hard to raise external capital unless you understand how the financial services work.
The team has had access to both sides of the fence and that’s how we connected it. In a way what we found is that the market almost didn’t know they had a problem. When we shone a spotlight on it, it became a lot more obvious that there was indeed a better way to do it.
If you look at how gaming companies were financing user acquisition, they were going back and using equity capital. From a capital efficiency point of view, [Pollen VC] allows you to recycle the money that your game is already making. The net result is you end up keeping your venture money for building product and team et cetera. If your app or game is any good it’s going to be able to fund its own user acquisition.
#BFS16: Looking at the landscape today, what is the best advice for startups looking for funding?
Martin: I don’t think there’s one correct answer. It’s a case of “what are you trying to achieve?” If you look at a gaming company you’ve got a couple of different options. Typically game companies go to a publisher and give up a revenue share. The other side of it is you raise venture capital in which case you’re on a treadmill to try and be an enormous, successful gaming company.
What we’re doing for gaming companies is giving them a third option. They’re not giving up a revenue share and it allows people to keep more control of their business.
Pollen VC provides an extremely sensible finance solution for mobile app companies. If you read our interview with Richard Reed, his team struggled for funding because of a lack of experience. Pollen VC’s team was able to raise equity capital quickly because they had a wealth of experience. Nevertheless, the key component that remains consistent in obtaining funding is team.
We’re excited about platforms like Pollen VC. Combined with the best crowdfunding practices and Angry Birds-like marketing tactics, we could see the rise of a new breed of independently funded entrepreneurs. Have you already grabbed your ticket for Business Funding Show ’16? We’re going to be exploring every finance service out there. Join us and find the best funding option for your business.