C2FO: Our Story

C2FO was born out of necessity and founded on the principal of buyer and supplier collaboration to make the world’s first working capital market. Watch how it all started.

Video Transcription

Good morning, everyone. Thank you. Thank you for being here. I have the great privilege of starting off the program. But I will keep my comments brief and to the point, simply (...)

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Video Transcription

Good morning, everyone. Thank you. Thank you for being here. I have the great privilege of starting off the program. But I will keep my comments brief and to the point, simply because we have much better speakers lined up after me. So it’s a great honor to have both Karen Mills and Walter Robb here, along with our other speakers who will be speaking later today, and some of them who will be arriving later on this morning.

As I was thinking about the comments for you, just three things: who we are, what we do, and why it matters. Sometimes I think when considering who one is, or what a company is, going back to the origin story makes a lot of sense. So the seeds for this company were planted when I was a banker. And now I’m officially a recovering banker. [Laughter] But I had a lot of great businesses who would borrow from our bank at attractive rates, as best we could provide, working capital loans against their accounts receivable. And yet as I looked at those accounts receivable, I realized some of these businesses I was loaning to, or that we were loaning to, were doing business with the Costco’s of the world, or the IBM’s of the world. And finding a way to assign value to that business according to their customers was a real challenge for us in the banking business, because we came between the AR and the AP.

We were, in some ways, an opaque wall that should perhaps be eliminated so that there can be transparency between AP and AR. So that began to swirl around in my head a little bit. And in 2000, I left the bank to go build technology companies. I turned the bank over to my brother. And I went off to go be the black sheep in the family and build technology companies. And the first technology company we built, we were lucky. We got to be a fair size. (Our customer base included) 126 of the Fortune 500 – it’s funny that I still remember that, because it was a big thing for us, that we were able to get off the ground in 2000.

You know what happened in 2001. There was a nuclear winter for technology companies. NASDAQ got crushed. The Dow went down. The markets went to heck in a hand basket. And, as I said, we’d been lucky. We were able to get some business. And we had a lot of accounts receivable. We had very little cash. And that’s when I picked up the phone to talk to a few of our customers. I remember precisely where I was when I made that call, because we were close to not making our payroll, and we needed to find a way to get accounts receivable to turn into cash so we could do what we needed to do to keep the business in business. I picked up the phone and I called Tom Restaino – to this day, I remember the call, I remember him, where I was, where he was – at ITT.

And I said, “Tom, everything is fine here. We got about $1 million of accounts receivable from you, and we’re doing a nice job, aren’t we? And everything’s good at your place, right? Boy, this is – how about those Royals? Can you pay us early?” “Well, Kemper, why?” “Why? Just we’ve got some things we need to invest in, like payroll.” [Laughter] Wasn’t quite as transparent as that. But, “Do you think you could pay us early?” “Well, we’ll talk to finance, Sandy.” And he did. And the finance guys came back and said, “Well, we’ll pay you your $1 million at a one percent discount 30 days early.” And it was manna from heaven for us.

And I realized that a couple of things had to happen. One, I had to have a relationship with Tom to be able to make the call. Because it was a pretty treacherous call to make. It could have gone just the opposite way. And, two, there was no efficient vehicle for finding the right price for this accelerated cash flow. I probably would have done two, or three, or four percent discount. But then it sort of went back to this idea at the bank where I was struggling around with how we could create transparency between AP and AR, and all those seeds that had been swirling around in my head were, at that moment, planted. And we began to think about why you needed to have risk-based underwriting of working capital. Which is a fancy way of saying there’s no real reason for an intermediary to come between AP and AR.

So that’s who we are. We believe we’re solving, with you, attempting to solve, a fundamental problem that has existed in finance since the beginning of finance. We don’t think there should be risk-based or credit underwriting of working capital. We think markets should be established to allow for the efficient provisioning of working capital between trading partners. And we believe that intermediaries create too much transactional friction and that a market done right, done well, is the best solution.

And what do we do? We operate a market for working capital, the first of its kind in the world. Some of you are clients, and some of you, we hope to have as clients. Our job is to make it collaborative, to make it a win, for you and for your suppliers. There are companies in this space who talk about maximizing supplier discount; who talk about two percent discounts for 10 days paid early. Who push or advocate for a buyer push – a mandate to those suppliers. We advocate exactly the opposite. We advocate on behalf of the supplier. We do it for two reasons. We want the supplier to be very, very happy. We want the supplier to be in the market often. We want the supplier to be accelerating as much cash flow as the buyers in our market have in terms of cash to accelerate. Our job is to please both sides of the equation. Which is why the first name of our company is Collaborative. Collaborative Cash Flow Optimization (C2FO).

It’s about creating collaboration between you and your suppliers and doing it in a way that is beneficial for both. Would you rather have a 6 percent APR for 40 days, or a 12 percent or 20 percent APR for two days, three days, four days? Would you rather have that supplier in the market often, accelerating cash and creating a stronger supply chain at a rate that’s good for you, making good income for you? Or do you want to have that supplier come in once when they’re very desperate like I was when I called Tom? No, you want to be part of something bigger. It’s not just about that transitory moment in time when that supplier needs something. It’s about consistency. It’s about recreating a market that’s beneficial for all. Not a singular experience for the supplier, but a constant experience for that supplier, where they’re getting value from you in a market at a price that’s right for them.

There are $40 trillion of accounts receivable on the books of businesses around the world on any given day. There is only $3 trillion of traditional finance in place to help create liquidity against that $40 trillion opportunity. That’s all banks added up. That’s all supply chain finance. That’s all factoring. That’s everything. $3 trillion trying to create liquidity in a $40 trillion market. $40 trillion of AR on any given day. $200 trillion ofcost of goods in the course of a year, globally. $200 trillion. To put that in perspective, that’s larger than the equity and the debt markets of this world combined. And yet there is no efficient market for working capital. At least there wasn’t. It’s perplexing that this has not been solved before. It’s further perplexing that we’re the only company that is still, to this day, operating a working capital market. And it’s – I don’t think it’s for lack of growth. We’ve been growing – the guys just showed me – we’ve been growing at something like 30 percent compound quarterly growth rates since our first quarter. And when that’s a compound quarterly growth rate, that’s a pretty rapid pace.

So we think we’ve got the right model. We think that the system, as it’s structured historically, is flawed. The economic tax of that inefficiency is also something that we study. If it’s $3 trillion in traditional lending that companies have outstanding in the market, perhaps, or a market, or another market (we believe in a proliferation of markets; we want there to be many markets for working capital). We’d like to lead the way. But we believe that there should be multitudes of working capital markets  – that’s the only way to solve the problem. For the time being, we are leading the way. If we can arbitrage or help a supplier or company who is borrowing at eight be funded at six, or a company who is borrowing at six be funded at four, still creating a win for you against you excess cash, $3 trillion at a 200 basis point spread is $60 billion.

There’s $60 billion of opportunity in terms of what we might, in a proliferated market, be able to add back as a more advantageous borrowing rate for suppliers while still getting great income for the buyer. There’s $20 trillion of excess cash. Excuse me. There’s $20 trillion of cash on the books of businesses around the globe on any given day. Let’s assume that 50 percent of it is excess. And there’s lots of trapped cash, and you’ll hear about that later as well, but let’s just say it’s $10 trillion of excess cash. Making, in this market, 10 basis points, maybe when Chris [Chris Dark, President International for C2FO] speaks, maybe in the European markets, negative 10 basis points, negative 20 basis points. Taking that to a 600 basis point yield from zero today against $10 trillion is $600 billion.

So $60 billion of opportunity for arbing better rates for the suppliers, the guys who are borrowing. $600 billion of additional income that can be created for companies with excess cash. And then going down to the biggest bucket that’s out there, the remaining plus or minus $37 trillion that’s not funded by this $3 trillion of traditional finance. And so for the sake of numbers, rounding that to $40 trillion and just calling it a 600 basis point arbitrage – so if [a supplier] can borrow at 600 basis points, (6 percent) and invest in their business to create an ROE, ROI, or whatever it is they want to assign in terms of an alphabet to it, if they can do this at (6 percent) and can fund it and create value at (12 percent), they can make a 600 basis point spread. A 600 basis points spread on $40 trillion, is $2.4 trillion of opportunity to be added back into the global domestic product.

So while we think we’re doing really neat things for our clients, and really great things for our suppliers, and we’re really proud to be in this position, we’ve only begun to scratch the surface. We did $1 billion, we announced last fourth quarter. We’re on pace to do $1 billion a month by December of this year. And we need to be doing hundreds of billions a week, not a month. So there’s a lot of work to be done. And we thank you for being part of the solution. We think that there’s a really great opportunity to do something substantial here. Not just for you and your suppliers, but maybe at scale for the globe. And those are great numbers. But I think why it matters isn’t just the macroeconomic or the transactional friction of inefficient systems. That’s interesting to talk about, but what’s motivating is – and there are some suppliers in the room today here – what’s motivating to us, what wakes us up in the morning, is what we hear from our suppliers.

I remember when we just got started I was working the phone, like Chris Evans [Supplier Relationship Manager at C2FO]  does now, talking to suppliers about our market. And we had a couple of large buyers who had came on with us. And I noticed in one case a supplier who was playing all the time at 20, 30, and 40 percent APRs. And at that time, we were really focused on discount bidding. And I wanted to make sure that the individual understood that discount bidding was really getting him an APR that was probably too punitive. So he shouldn’t have been bidding two percent or three percent discount. I wanted to make sure he understood the delta between discount and APR. And I called him up, and, yes, he understood.

And I asked, “Why are you bidding like this?” And he said, “I lost my business in the recession and I had a second on my house. I lost my house.” This was not a small business. This was a $50 million business that this fellow had built. I remember him saying, “I like to sleep at night, and I don’t borrow from banks. I use your market to accelerate the cash flow so I don’t have a second on my house and I don’t have to worry about whether I’m going to keep it.” And that was very motivational for me.

And I remember another conversation with Lionel Marquee from The Singing Machine. It was one of our first big suppliers in the Toys-R-Us market. And Lionel – very exuberant individual. And we would talk all the time. And Lionel loved us because he was able to, as he first met us, the first email he got from us, was right before he was about to finish an agreement with his factors. And the factors were charging him what factors do. Lionel and I became friends, because through C2FO he was able to not sign that factoring agreement, to accelerate his cash flow from Toys-R-Us to go on later to accelerate his cash flow from Costco, because he was a supplier to Costco as well. He was bringing in karaoke machines from Asia, and it was just too hard for the banks to finance, so he had to go to a factor, and now he could come to C2FO instead.

So there are literally thousands of stories like that. I was lucky, because I got to hear some of them firsthand in the creation days of the company. But – so who we are? We’re just like you. We want to do the right thing in business to make things work. We hope to lead the way to create something bigger and better than ourselves. We need you to do it. What we do is we think we solve a real, perplexing and fundamental problem that’s existed for a long time in finance. And why it matters? Because what the suppliers say. Because what Lionel says. Because of what economic productivity we can create if we do this right. What hires are made, what innovations created, what new products are created by these companies now because they’ve got the right cash flow now?!  That’s why it matters.

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