SaaS Interviews with CEOs, Startups, Founders
They Help Banks Underwrite Cannabis Founders, $500k ARR Now, $1m Soon?
17 Jul 2021
Chapter 1: What is the main topic discussed in this episode?
Yeah, there's great fees on it, right? I mean, it depends on where your ATM is. And the funny side point to that is you put an ATM in a cannabis dispensary because they're so cash-based. Hopefully, you don't rake people over the coals with fees, but they can be very lucrative. About 15 times...
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. Hey folks, my guest today is Justin Fisher.
He's helping financial institutions bank higher risk businesses. The company you are, if you want to follow along, it's called riskscout.com. Justin, you ready to take us to the top? Let's do it. All right. What's that mean? Bank higher risk businesses?
Well, essentially, Banks bank consumers and regular businesses all the time. Higher risk businesses in our world are THC, so cannabis, hemp, CBD, MSBs, which are money service businesses. They move cash, ATMs, and there's about 30 other types. But basically, they require a lot of additional due diligence and compliance before the bank can ensure that they can bank them appropriately.
Give me an example. So I'm an investor that owns a bunch of ATMs. I want to bank with JP Morgan Chase. JP Morgan won't take me. Why don't they like ATM revenue?
Yeah, that's a great question. So ATMs are heavy in cash, right? Doesn't mean you're doing criminal activity, but because you're dealing with a lot of cash, the source of funds can be obscured, right? So the other side of ATMs is they can be kind of dangerous, especially if you decide to fill them yourselves.
So between those two concerns, the banks generally shy away from banking ATM operators is what that's called. Little fact that people don't know, 60% of the ATMs in the country are actually run by independent operators. And when all this pandemic and surplus cash came out, that's where people got their cash was in rural areas or even urban areas where a bank logoed ATM isn't there.
So they do provide a really important service. I mean, we're all down on Sixth Street sometimes and we need cash, right? That's an independent ATM, you know? Is that a good business? Can you make a lot of money running an ATM? Yeah, there's great fees on it, right? I mean, it depends on where your ATM is.
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Chapter 2: What challenges do higher-risk businesses face in banking?
It ends up making ridiculous things come out when the examiner sits and talks with the bank. Nathan, you've got 300 ATMs. You know what? I'm going to decide to make you have to open up 300 different bank accounts for every ATM just so I can separate cash easier. An examiner actually told a bank that. and force the bank to not be able to bank that business, right?
And they force them through saying, hey, this could be an enforcement action to you.
So if I open one ATM, I don't even know how much, like every Monday morning, I have to take a slug of cash and stick it in the back of the machine. How much cash is usually in an ATM? Like how much would I be carrying down Sixth Street to restock my ATM?
Hundreds of thousands of dollars. It depends on how you do your process. But most ATM machines will only have about 20K or less in them. But I mean, I'm sure you've seen in the news where people pull up trucks and drag these ATMs out and do all kinds of crazy stuff.
You take an ounce of intelligence and you watch someone feed it, not advocating crime, but that's unfortunately a very sensitive area. And so that's why you'll see more armored car services. But every time you use those other third parties, they're cutting in on your fees, right?
Yeah.
That's fascinating. And I'm wanting to go, I'm wanting to go roll up a bunch of ATMs now. Okay. Okay. So how do you help? How do you make money?
So we help make, we make money by helping the institutions do compliance, right? So when a, let's just say, let's just take a different market, like a THC dispensary, right? You know, and Oklahoma has a ton of them, Texas, we're not quite there, but An Oklahoma THC dispensary says, hey, I have to have a bank account.
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Chapter 3: How do ATMs operate in cash-heavy environments like cannabis dispensaries?
I got to make payroll. I got to do something with this cash. It can't sit in a safe, which is also unsafe. And so they will bring it to the bank. Well, the bank has to do all this due diligence. Where's your license? What is your criminal background? All that kind of stuff they've got to do.
And all that due diligence ends up in like Word documents, background check systems and all these disparate places. Well, then imagine if you have... pretty much the only bank that's banking THC in Oklahoma. There's only a handful and you've got hundreds to thousands of those customers, right? They're hugely profitable for you. You got great fees, but you're just a person in their mid fifties.
Who's like literally trying to do this with manual processes. We come in and we automate all that process. And so when the examiner then comes in and says, okay, Nathan, show me where you did everything you said you're supposed to do. You can say right here inside risk out. We have every, you know, every T cross and every I dotted like all our compliance stuff.
So who's paying you, the owner of the cannabis business or JP Morgan that wants to bank the cannabis business? The banks, the banks and credit unions themselves.
In fact, most of them are community banks and credit unions. So not even at the JP Morgan level, like there's 8,000 community banks and credit unions in the US, right? 98% of them are under $10 billion, meaning they're like everyone you see around Austin or anywhere where they've got a handful of branches and they're just trying to bank their community.
Yeah.
Interesting. Okay. What is an average bank or credit union pay you per month to use your tech?
Yeah. No. So the great thing is we start off small. So we have a $5,000 minimum. So it's enterprise software, right? But we have a $5,000 minimum, but very quickly- Monthly, MRR. And what's great about it is our banks end up growing. We had a customer who was at that in November, who's now over 20K in just a matter of months.
And part of that, Nathan, is because we actually charge off of each business that's under compliance. So as their businesses start growing, even if those businesses are just buying multiple products or working in multiple markets, those are all individual pricing for us. So So here's the model, right? So you are a bank and you want to bank someone.
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Chapter 4: What compliance measures are necessary for banks to serve cannabis businesses?
Yeah, we did that straight out of the gate. That was like, you know, we just came out, we had a great team deck. You know, it's the typical, like, what's the formula look like? Yeah, well, about 5 million in valuation. And, you know, you figure out a discount for everybody, get everybody involved. A bunch of my early investors were Experian and bankers and lots of great people.
So, you know, it was a lot, you know, the first day of enthusiasm as you get going, right? I also invested as well.
And then you raised two, well, how much of the 800 did you put in? Uh, a hundred K. So, I mean, is that, I don't know if you're like super rich or not. Does that mean a lot to you? Like, are you all in?
Yeah, that's, that's all in. And then I'll be in the next round as well, too. Like I'm, I'm, I'm, I'm parring in there throwing in each round.
So, okay. And then the 2.2 million you, you raised during COVID, I guess. Uh, yeah, man, that was a weird time. Yeah. Right in the middle of COVID. Yeah. I mean, I want to learn that story. So what was the valuation you raised that on? Uh, we raised that valuation, um, at, uh, 12 million. Okay. And how did you do this during COVID? I mean, that's crazy.
Yeah. No, look, I mean, I think, you know, the challenging thing is I have all my existing contacts and they knew where we were. But I think the biggest problem with new companies taking on new round of capital was that, you know, in the first parts of COVID, all the way to the mid, you know, VCs were looking at, you know, stabilizing their existing portfolio. Right.
And so for us, we went back to some existing investors who knew the story, wanted to be involved. And, you know, some of them just instead of being pro rata came in more than where they were and said, you know, we're in it. We're going to come in with you.
Any plans to rate in the near term?
Yeah, actually. So we're on the typical start of a Series A now, given that our revenues are crossing that point. And really, honestly, the biggest part is we're in that typical flux now where time to add more devs, time to add more sales. I can't mention the two partnerships we just landed, but they open up about 3,500 banks worldwide. trusted partnerships for resale.
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Chapter 5: How does RiskScout help banks manage compliance for higher-risk clients?
If you haven't read it, it's absolutely important. I've read almost every business book in the typical ones, you know, but this one is about removing the obstacle that is working with people, right? Treating people like obstacles is kind of a natural human condition.
And so I think reading this and understanding it is a little bit of a religious connotation, but not being overly religious, just more about understanding that people are people, you know? I love that. Number two, is there a founder you're following or studying? Man, I usually follow Elon.
I mean, I think breaking the eggs and getting things done is pretty fascinating at the same time, you know, wildly irresponsible sometimes, but I like following and seeing what he's going to do. And then Richard Branson later, I mean, how can you not follow these two guys and you know what they've been doing? So.
Number three, Justin, favorite online tool for building RiskScout besides your own?
I mean, personally for me, RiskScout Mixmax is a lifesaver because I just, I can't do the calendar thing. I got to be able to send calendar appointments all out everywhere. And I can never go back to like when, what time period, what time zone. So Mixmax has got a ton of features. I don't even use all of them yet, but I like them a lot.
Number four, how many hours of sleep do you get every night?
I sleep pretty good. You know, it's stressful during the day, but I get about eight hours of sleep. That's great. And what's your situation, married, single kiddos? Married to kids or teenagers, so it's a little easier. They're usually sleeping pretty late, especially in the summer.
That's a busy guy, though. How old are you? I'm in my early 40s, 42. 42, last question.
What's something you wished you knew when you were 20? Man, I'll tell you, it's the lesson that Anatomy of Peace taught me. I'll tell you this way. Sometimes meritocracy builds internal struggle, internal competition, right? I've been in way too many businesses where it's like sales versus development or sales versus operations or what have you, right? And it's always about competition.
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