Sandy Kemper welcome remarks at 2016 C2FO Strategic Retreat

C2FO founder and CEO Alexander “Sandy” Kemper speaks about working capital solutions and how efficient markets are good for business.

Video Transcript:

Welcome to our board, our investors, our advisors, our business council, our partners, distinguished guests from Kansas City, and our associate team members.

We are here at the World War I (...)

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Video Transcript:

Welcome to our board, our investors, our advisors, our business council, our partners, distinguished guests from Kansas City, and our associate team members.

We are here at the World War I National Memorial, and it is in fact, yes, THE Nation’s World War I Memorial. In part because it’s a remarkable asset for our city, in part because it has a wonderful auditorium like this, and in part because it’s part of a neat and fun history as I said of our city.

Perhaps more salient, we’re here because Christine and I are co-chairs of the capital campaign to add on new space and new exhibits to this great museum. And as I was looking at our cap table last night, I thought there might actually be a few investors here, especially the early ones who have seen such a remarkable rise in their stock price, give consideration to this capital campaign that I am co-chairing. [audience laughter]

I also want to thank our marketing team for putting this on. It’s not easy to get done. We had – I don’t know what your connection is Emily or how you worked it, but the weather we had last night on the ranch for our dinner was lovely. Thank you for that. Thank you to the team for putting it on and doing it so well and I think you’re going to be pleased by the presentations that will follow mine.

I asked this very same marketing team, I said, “You know I tend to go on and on at these things so why don’t you just give me one slide. That’s all I want. It needs to be the greatest slide ever created. I want to see this thing capsulized with bells and whistles and beeping sounds and flashing buttons everything that we do at C2FO, so that my speech can be mercifully short and we can get on with the rest of the presentation.”

So this is what they gave me.

It is true that the best things are often the most simple. We do one thing – and one thing very, very well. We built and operate the world’s largest market for working capital. And we’re very proud of what we’ve built, we’re singularly focused on it, and we think we’re solving a very big need in the world of finance for companies everywhere around the globe.

At C2FO we believe a few things very deeply. We believe that working capital is water for commerce. That working capital is as important to business life as water is to biological life. The problem is that most of this vital liquidity is siloed or trapped or sequestered behind balance sheets or third-party intermediaries, unable to be accessed efficiently by those who need it most.

We believe that risk-based underwriting of working capital is a relic of the world’s broken credit system and that everyone’s AP is someone else’s AR. The problem is that the current system acts as an obtuse and opaque wall blocking this reflexive transparency.

Finally, we believe that efficient markets are good for business and that an efficient market for the distribution of working capital has the potential to open the floodgates of liquidity to hundreds of millions of businesses around the world.

The problem is that this has never been done before…until now.

On any given day around the world, businesses have between $42 and $43 trillion of accounts receivable on their books. And with deference to my banking friends in the room and with a nod to my past as a banker, I will tell you that the current system is not providing enough liquidity to finance these accounts receivable. No fault of the system, it’s just inefficient, it’s costly, regulatory burdens aren’t making it any easier for those of us in the banking business – I say ‘those of us’ because I still serve on the board of my bank where I was once CEO. In fact, I’m sure we’ll talk about it more on the panel but I read recently in the Wall Street Journal that the – I believe John Ahearn could speak to this better than I – that the top ten banks in the United States now are paying something on the order of $72 trillion, sorry, $72 billion (feels like a trillion) – $72 billion of fees to the regulators where just three or four years ago that was only $30 billion.

So we have a negative cycle. We have inefficiency in the system, we have regulatory burden upon that inefficiency, and we have problems for those who need capital and need to make a return.

Well, we built C2FO as a market to be able to handle the delta between that which is financed now and that which could be financed.

The economic tax or burden that this inefficiency presents to the world’s businesses is between four and six trillion dollars. Four and six trillion dollars per year because of the inefficiency of this system. The fact that people cannot get the access to the capital they need and that companies with cash cannot return or get returns on the cash they have is the foundation for this horrendous tax on productivity.

There are, on the face of this planet, only four economies with a GDP greater than $3 trillion. And those economies have been hard fought for. War, strife, struggle – centuries in the making. But what if you could build an economy without struggle and strife? What if you could look at that tax as an opportunity to create new economic vitality for the world’s businesses? We built C2FO to help make the next $3 trillion economy possible. And it wouldn’t be an economy of nations, it would be an economy of connections, of network. An economy that would be based on a polyglot association of businesses all speaking the lingua franca of trade and commerce. And that economy would start with one business and two or three thousand of their suppliers.

In this case, this is Toys”R”Us, the year is 2010, the lines are the connections between Toys”R”Us and their suppliers all around the world. And as luck would have it, we’d managed to hire some good people to come on to take care of Toys”R”Us – I think we were a grand total of seven people at that time – and that good group of people, many of whom are in this room, would help us grow [Slide: Constellation of Connections] to add new businesses and more connections. Not just a business and one supplier, but many suppliers to that business. And as the market grew, many suppliers to multiple businesses. One place where that supplier could order their cash, find their cash flow at a price that worked for them. Routing orders as we do in the market, to and from buyers and suppliers, across the panoply of opportunity.

So in this particular case, this is the retail industry vertical and it would continue to grow and grow until finally we had a constellation of interconnected businesses sourcing cash in the most effective and efficient way possible for them at rates that they named and rates that were good for their buyers.

But it wouldn’t be limited to just one industry vertical. [Slide: Constellation of Transportation] New verticals would arise, in this case logistics and transportation. And the connectivity there would be the same as the connectivity inside the retail vertical. But then we began to notice that even verticals interoperated with each other. That suppliers in one vertical were also suppliers to businesses in other verticals. And as we added beyond logistics – pharma, healthcare, technology, manufacturing – we would have finally a proto-galaxy of connections where all businesses could come together to get what they need to grow their respective economic endeavors.

Some of the numbers behind that galaxy:

I think our executive team and I know that our investors are most proud of the fact that we’ve grown at a sixty percent compound quarterly growth rate since inception, March of 2010. Not too many companies I know, certainly none that I’ve ever been associated with so I know it has nothing to do with me and everything to do with you in this room, I don’t know of many companies that can grow that quickly for that long. And for those executives here, keep it up – it’s what we expect.

Well, along the way we picked up some really wonderful investors, all of whom are in the room and all of whom will be giving to this wonderful capital campaign later on this afternoon.

In 2013, we had our first billion dollar quarter, and by this I mean market volume. In 2014, our first billion dollar month, in 2015, our first billion dollar week, in 2016, we expect our first billion dollar day. This company continues to grow and grow and grow. Offices now across the world: London, Hong Kong, Singapore. I’m particularly pleased that it’s really sort of London, Hong Kong and you’d expect the next city to be New York. London, Hong Kong, Kansas City. It makes me proud as a fifth generation member of this community, or member of a family of this community, to have Kansas City be the place we call home.

We wouldn’t be where we are, of course, without the suppliers. It might surprise you to know that the average supplier in the C2FO marketplace has over $100 million of revenue. Some of these companies you know very well have more than $100 billion of revenue. And yet also some of the names you don’t see up here are companies with less than $1 million of revenue. C2FO is a marketplace for companies of all sizes, of all nationalities, of all needs, to find the vital water for commerce that they need, at their price, at rates that work for them and rates that work for their buyers. It is a marketplace that matches need with opportunity without any frictional intermediation. It is a marketplace like none other in the world – like none other in the world – and it’s a marketplace that will remain our singular focus even as the competition, such as it is, distracts themselves and diverts their attention to things that they are at best considering Plan B or Plan C because their marketplaces, such as they are – they’re not really marketplaces but their dynamic discounting applications and their early payment platforms – are not working.

Ours is working. We don’t need a Plan B. We don’t need a Plan C. We’re fortunate to have been able to build something that has so far stood the test of time, accelerated rapidly, attracted great investors, great customers, and a great team. I think as we’ve looked at our team, the other thing I’ll comment to you on being in Kansas City and being very proud of the team that we’ve built, I think the total amount of unwanted turnover that we have had in our company in the last five years is less than five positions. And we are now almost a hundred and thirty folks spread across the globe, many here in Kansas City, most in Kansas City, and so many of them have been with us for as long as the company has existed and those who have come more recently have also, of course, not left. We have a very strong retention and a very strong team.

These $100 million revenue companies are doubling every year inside the C2FO market and more importantly, their participations are doubling every six months. When a business comes to the market, in particular we’re talking here about suppliers, they don’t leave. The average supplier participates in the market over eighty times per year, accelerating 95 to 97 percent of their invoices. Again, at a price that works for them. When they have cash, maybe the price is lower. When they need cash, maybe the price is higher. What we’ve done is built a utility pricing marketplace that’s never been built before. No one does what we do in allowing companies to name their price for what they need. No one’s ever built a marketplace like that. Certainly no one’s done this for working capital. I think that’s part of the reason they don’t leave: it works. They’re able to find their cash, they’re able to build their businesses, and they’re able to do it without that frictional intermediation that is causing that four to six trillion dollar tax annually on the global economy.

Maybe the best part of our model: each year’s cohort of suppliers produces more revenue for the buyer, more revenue for C2FO, and more cash flow for themselves each and every year. The businesses we brought on as customers in 2010 are not only still with us in 2015, but they’re more profitable to us, more profitable to their buyers, and sourcing more cash flow from the market in 2015 than they were in 2010. And interestingly and extraordinarily, every single next year accelerates more rapidly for each year’s cohort. The slope of each line higher and tighter and up and to the right, faster to $10 million in revenue.

It’s a good model, it’s a great team, but we wouldn’t be here without you so I’ll close by simply saying thank you to each and every one of you for what you’ve done to make this company what it is.

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