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Today, the back office for many lenders and originators is still very manual and human-intensive. We are talking lots of emails, reading contracts and processing Excel files. In some cases these processes have been in place, pretty much unchanged since the 1990s. That is because there has never been a comprehensive solution available to automating capital markets process for originators and lenders.
My next guest on the Fintech One-on-One podcast is Stu Wall, the CEO and Co-Founder of Setpoint. They call themselves “the operating system for capital markets” because their system can replace the manual processes that have been in place with state of the art technology that takes advantage of automation and standardization. While they started in the real estate space they are now making real serious inroads into other lending verticals.
In this podcast you will learn:
- The founding story of SetPoint.
- The mission and vision of the company.
- What they mean when they talk about the “operating system for asset-backed lending”.
- How they replace the existing processes based on Excel and email.
- How SetPoint has earned the trust of the market.
- Their response to the build-buy-partner conversation.
- The biggest challenges in capital markets for asset-backed lenders and originators today.
- Why they started in the real estate space.
- The different lending verticals where they operate.
- Some of the originators they are working with today.
- Why this will likely be a winner take most market.
- How they were able to get Citi and Wells Fargo to back their company.
- Their biggest challenge in getting deeper market penetration.
- Some of the features that are on their product road map.
- What is involved in onboarding a new lender or originator.
- Stu’s vision for the future of SetPoint and the automation of capital markets.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 503 – Stu Wall
Peter Renton
Welcome to the Fintech One-on-One Podcast. This is Peter Renton, Co-Founder of Fintech Nexus and now the CEO of the fintech consulting company Renton & Co. I’ve been doing this show since 2013, which makes this the longest-running one-on-one interview show in all of Fintech. Thank you so much for joining me on this journey. Now, let’s get on with the show.
Today on the show, I am delighted to welcome Stuart Wall. He is the CEO and Co-Founder of Setpoint. Now, Setpoint’s a super interesting company. They call themselves the operating system for capital markets. And what they do is they work with originators or lenders to help automate and enhance debt facility management. This is something that obviously originators have had to work with for decades, and how it’s been done traditionally has been through email and Excel. Excel spreadsheets have a lot of room for possible mistakes, and Setpoint brings everything into one centralized area. They’re able to provide software that is much more seamless and avoids any of the potential mistakes that have happened in the past.
We obviously talk in the show a lot about how it works, what it’s for, who is using it, and much more. It was a fascinating discussion. Hope you enjoy the show.
Welcome to the podcast, Stu.
Stu Wall
Thanks for having me.
Peter Renton
My pleasure. So, let’s get started by giving the listeners a little bit of background about yourself. Setpoint is not your first rodeo. Why don’t you give us some of the highlights of what you’ve done in your career to date?
Stu Wall
Definitely, so I started my career at Bain in the private equity group. Left to get my MBA at Harvard. When I graduated, I started a company called Signposts, headquartered in New York, but we had an office in Austin and Denver. It’s basically an AI-powered CRM, purpose-built for service firms. So, scaled that to over 300 people, sold it to a private equity firm in 2019, and connected with Ben and Mike. I’d known Ben for quite a while, and we decided to start Setpoint in 2021.
Peter Renton
Okay. So, what was the genesis of that? Maybe you could tell us a little bit about how you guys got together, the idea you saw that really needed to be addressed and what excited you.
Stu Wall
Yeah. I took a little bit of time off, and I think I was surprised at how much I wanted to start another company. I wanted to do it again and use what I learned. So, I spent a lot of time thinking about ideas and talking to customers. And what got us excited about Setpoint is we met some fintech companies in the real estate space. A lot of them were doing, you know, power buying or iBuying, basically adding liquidity to the market. And we thought those were great products. If we looked at their financing activities, they had kind of these revolving warehouse lines with banks. It was really cumbersome for them to assemble collateral packages. They had these massive Excel files, and it was slowing them down. And they were using their balance sheet to fund asset purchases, which is really expensive if you’re getting your cash from venture capital firms. We thought there was a really big opportunity. We spent some time with some of the operators and thought if we could solve this kind of back office problem for them, they could focus on what makes them different, which was customer acquisition and some of the things that create value for them as firms.
Peter Renton
Okay. Interesting. So then, when did you launch? Was it 2021?
Stu Wall
Early 2021.
Peter Renton
Early 2021. So you got three-plus years under your belt. Could you talk about the mission; what is your mission at Setpoint?
Stu Wall
The highest level mission is to build trust in our system of credit. And the way we think about it is there’s been a lot of innovation on the front end of fintech. So if you want to lease a car from Carvana, if you want to get a student loan from SoFi, it’s a reasonably good experience if you’re a consumer or business that needs to get a loan. I think what’s not well understood is the connection between those originators and their source of funds, which typically is warehouse lines and securitizations.
That whole process and system runs on Microsoft Office. So there’s a lot of Excel files. There are a lot of emails back and forth and FTP folders. That creates a lot of risk for lenders. Most of the risk of these facilities is fraud and mistakes. It’s really slow for originators in a way that affects their business. And it’s inefficient for both. Thousands of people do what we call a stare and compare where they look at two Excel files to see if they agree or not and understand why they don’t. We think if we can make that backend capital markets operations process, instant and error free, you reduce risk for lenders. You’re a lot faster for the originators. You make the assets more liquid, you make capital more accessible. So that’s really the vision of the company.
Peter Renton
Maybe then we can talk about how you do that because you’re going up against, obviously, decades of entrenched kind of processes. There’s got to be a compelling reason for someone to sign on. So tell us, what does it look like when a lender works with you guys?
Stu Wall
Yeah, so there are two products we offer. So, the positioning is the operating system for asset-backed lending, and there are two products below that. So Asset OS and Capital OS. Asset OS digitizes, organizes, and verifies all the data and documents associated with collateral. So, to stay with some of the PropTech companies, every time they buy a house or extend a loan for a property, they have to organize a lot of data and documents associated with that. We can connect to a Box folder. We can read the documents. We can label them, organize them, extract information compared to the data tape, and verify information if needed. So that moves from a really analog, slow, and error-prone process to real-time. The second product we call Capital OS is the financing activities. So what would typically happen is you would spend a decent amount of effort and money with your law firm negotiating a loan service agreement. That agreement is then given to an analyst on either side with the lender and the borrower, and it’s codified in Excel. In that Excel file, you upload the asset data; you run the calculations both to determine the net funding amount as well as to certify you’re compliant. Staying with real estate, you can own a certain amount of properties and a zip code. Is that still true or not? That’s all done in Excel. Excel, you know, is error-prone. There’s no version control. You could send me a file. I could replace a formula with a hard key number and send it back to you. You wouldn’t be aware of that. So, you know, constantly, we see files that have lots of mistakes. We move that into software. We can calculate net funding in real time. We can certify things are compliant, and we can also do a lot of interesting things around optimization and forecasting. That’s just not possible in Excel.
Peter Renton
So, for these companies that are moving away from their Excel process, what you just described is not an optimal situation. What’s the pushback? Is it just because we’ve always done it this way, and it works well enough? What is the pushback you’re receiving?
Stu Wall
What we do is so critical flow, whether you’re an originator or a lender, that there is a process. They’re doing it somehow, and typically, they’re doing it manually with Excel. So, we are replacing something that exists. I think upfront, there was a lot of trust, and we had to earn the trust of our customers. So we’ve been through a lot of security audits, were approved by every major bank, and were affirmed or formally approved by all the rating agencies. We have a lot of large banks or customers that are references for us, but it took a while to earn the trust of the market. I think once we have gotten there, things have moved faster, and now it’s just a question of why it is better to partner with someone like Setpoint, where we spent years and tens of millions of R &D investing and solving this problem that applies to many lenders and many borrowers. You can invest your tech resources in things unique to you and leverage Setpoint to benefit from everything we’ve developed.
Peter Renton
Some of the banks you’re working with and other lenders, is there a build, buy or partner discussion going on there where thinking, well, maybe we’ll just, we could just build this ourselves. I how does it, how are you positioning yourself in those conversations?
Stu Wall
Yeah, we have had a lot of conversations with companies that have aspirations of building it themselves. And what’s been interesting is some of the early adopters for us were the companies that arguably had the largest kind of R and D investments. So they were the most tech-forward businesses. And I think the conversation is, you know if you’re starting an e-commerce company, you don’t build payment rails, you go to Shopify. Shopify has built that out. You can get started. It’s going to be better than what you could build yourself. It’d be cheaper. It’s faster. And then, you can focus your resources on what makes you unique as an e-commerce company. I think the same is true here to the extent we can kind of cover this cap markets operations piece, which is critical for everyone and very similar. If you look at the tasks that we solve, whether you’re factoring in perishable goods, doing aviation leases, or buying houses, the steps in the process are very similar. If we can build infrastructure that solves that problem, you can focus on what makes you unique. And that’s the conversation we have. And I think we’re usually convincing, but not always.
Peter Renton
Right. What are the big challenges right now on the capital market side of the business?
Stu Wall
I’ll make the distinction between an originator and a lender. A lot of originators come to us, you know, they’re managing a lot of different Excel files, and some of our customers have a dozen different warehouse lines. There’s one Excel file per line. They have a large team of people that’s cleaning and organizing data, and that’s intensive for them. I think they’re not optimizing their cost of capital because they’re making allocation decisions that sometimes don’t allow them to use their leverage fully. And they’re worried about mistakes. You may have priced some of those warehouse lines a year or two ago when prices were different. And if you were to a trip covenant, you might have to come back to the table in a much higher rate environment. So you’re concerned about that. The conversation with the originator is this will make you much more efficient. The savings exceed the cost of the software. You can also make much better decisions on how you pledge assets and won’t have to worry about making a mistake. Some of our customers come to us after they’ve made a mistake, I think, in anticipation of that risk.
On the lender side, I think there are two points. One is that they are also obviously very worried about mistakes. And if you look at a lot of the facilities that we work with, the assets, the terms of the facility aren’t very risky. You’re advancing 80 % against single-family real estate. And you have a lot of protections built into that agreement, but you are worried about fraud and mistakes. And we certainly see a lot of examples of that. Setpoint is very helpful in mitigating that risk.
What I think, though, is even more important is if you’re using Setpoint, you can take the operational considerations out of origination. So, if you’re a lender or private credit fund that’s grown very quickly, you may have exceeded the capacity of your operations team. You may not be able to do smaller deals or operationally intensive deals. You may not be able to offer flexibility. Like for example, maybe you only let your borrowers draw one day a week. If you have SetPoint in place, you can remove that from your origination decision. So you can do smaller deals, you can do complex deals, you can offer unlimited draws. That will differentiate you and allow you to do better deals. So you’ll create better returns as a fund. And that’s really, I think, the selling point for us.
Peter Renton
Interesting. So, you started in the real estate space. What was the reason you started there?
Stu Wall
My co-founders, Ben and Michael, left as the CRO and COO of realtor.com to agree to start the company together. So they were in a position where they knew a lot of the innovative PropTech companies that were growing and needed access to capital and were dealing with this process. I think it’s a big market. It is very intensive in terms of document verification, et cetera. But I think what’s been a surprise for us is that the majority of our growth over the last 18 months is outside of real estate. So we do SMB lending, we do factoring, we’re in ABL. You know, really, we’ve seen a pretty broad variety of assets. And the way we think about it is that the manufacturing process is pretty similar, right? You’ve got a lot of data and documents, you have a borrowing base, and the process to access funds, you have to submit a funding request and reports. It doesn’t matter if the assets are bananas, cars, airplanes, or houses, it’s similar. And so that’s been an exciting realization for us.
Peter Renton
Who can you share publicly that you’re working with? Who are some of the companies that have signed up?
Stu Wall
Some of the ones we talk about, GreenSky is one example. Carvana, obviously, in auto, and Fundbox, which is an SMB originator.
Peter Renton
How are you working with them? Can you tease out all the different things that you’re providing? Because there are two sides to this, right? You have these originators, but then you have the banks. I’ve got another follow-up question, but maybe answer that one first about how you’re working with the likes of, you know, a Green Sky or a Fundbox.
Stu Wall
I guess part of your question is whether we can work with the originator and the lender independently or together.
Peter Renton
Yeah, right.
Stu Wall
What we’d like to get is that they’re both using it. They’re both collaborating over a shared pool of assets, data, and documents through Setpoint as opposed to trading emails and Excels. But we can function where one of those customers may engage us. And I guess to give you an example, I don’t want to necessarily point to a specific customer to give the before and after, but I can give you a generic view of it. A customer would come to us. They are organizing a lot of data and documents. They’re doing it manually, so they might have one box folder per document. They’re not labeled correctly. Some folders are empty. Sometimes, it’s the wrong document. Sometimes there’s a mistake. Sometimes, we’ll see a picture of someone holding a phone that’s a JPEG of a construction receipt in a folder. Someone goes away on vacation, and the new person has to open every folder to see what’s in there. So that can be problematic. And then there are these kind of third parties that will review information that are fairly analog and take three to seven days where you might send them a package of collateral, they open all those folders, they look for information, and if there’s an issue, they get back to you. So that’s the starting point on that side. What we would do for them is we would connect to Box. We would use a combination of OCR, tabling, and an LLM to review all the documents. We digitize them, label them, and create the Box folders, and there’s a human in the loop. If you need to verify, for example, that the guarantor’s name is on a document, we have people who use our software to do that kind of final check. But to the originator, it takes this very cumbersome, slow, error-prone process and just makes it very fast and easy. The second thing would be on the Capital OS side; they have a huge Excel file. Every time they need to send a report or they need to submit a funding request, they upload the asset data, run a lot of calculations, and send that file to the lender, and the lender does the same thing. If there’s a disagreement, they will try to look at both Excel files to see why there was a disagreement and email back and forth. And a week later, there’s a financing event. We can create the Excel file for the borrower. So, we have all the calculations in our system. They can export Excel and send it to the lender. The better approach is the lender’s also using it so they can come into the system and approve it through the software, but that’s not required.
Peter Renton
Right. But I imagine that’s where the real benefit, or more benefit I guess is going to come from, right? When you have the originator and the lender both inside SetPoint, they’re both clients. If they’re both using the same system, that makes it a lot more efficient. Are you using the originator to get into the lender or the banks, saying, “We’ve done all this for, you know, FundBox or GreenSky. Why don’t you get on with the program”?
Stu Wall
Definitely. And I think this could be a winner take most market because what we’ve seen is someone like a FundBox or Green Sky will adopt Setpoint, they might start with one of their warehouse lines. They like it, they expand it to all. That often means we get connected to their lenders. The lenders try it and both sides want to have one system for all their counterparties. You don’t want to use Setpoint for JP Morgan and have your own system for Goldman Sachs. And I think that’s true for the lender as well. You know, to the extent we can add value to the lenders, they would like to have the same system, the same process for all of their borrowers. And I think there are a lot of benefits that we could drive.
We do see that kind of viral adoption loop happening. And there are a lot of benefits to the lender, and to the point you made, when the two come together on a platform, there are a lot of additional benefits. One example would be waivers. So, you’re a borrower; you’re above a concentration limit. You need to ask for an exception. Right now, that’s a phone call and a lot of back-and-forth emails where it gets documented. You could agree to that in a system; we’ll timestamp that agreement and update all the calculations to reflect it. It’s just a lot faster and a lot more efficient to do it that way.
Peter Renton
Right, right. So then, are you finding that some of the originators are now using this as a competitive advantage when they say, “We have really got all of our ducks in a row now, and we’re using the latest technology”? How are your customers leveraging the fact that they have this system now?
Stu Wall
Yeah. I think that is definitely happening. And if you talk to lenders, they know who the problem children are, for lack of a better term. You know, they will often send something that’s not compliant, or they blew a concentration limit or a covenant. And that can affect your access to capital markets. So if you can present as “We’re very buttoned up, we’re going to be easy to work with, we’re using Setpoint”. We would like that to be an advantage. And certainly, we work with a lot of lenders, and sometimes the first customer they introduce us to is someone that needs that help. That would be the hope. I would also say for the originators, there’s a lot of benefit in basically optimizing their cost of capital. So, if you have multiple warehouse lines or multiple facilities and you’re originating assets, you have to make decisions on how to pledge those assets against your warehouse lines, so you’re compliant and optimize your cost of capital. Excel really breaks down with those types of math problems. And we can do that. We effectively run a genetic algorithm where we more or less test every possible combination of allocation decisions you could make and come back with, “This is the one that’s compliant now and in the future and maximizes your leverage”. And that can be a real moneymaker for the originator.
Peter Renton
I want to switch gears a little bit and talk about your recent fundraise, your Series B. It was 31 million. Was that right? And you got some very, very big names on your cap table there. Tell us, how was that process? I presume it was harder than the previous time when you raised in 2022, right? And that was, I think it was starting to get hard, but anyway, tell us a little bit about that process.
Stu Wall
Yeah. So we did a $46 million Series A led by Andreessen Horowitz in late 2022. I would argue it was already getting harder.
You know, we didn’t really need to raise capital. So I think the numbers we’ve shared, we were growing. We’ve been growing about 6x year over year on revenue. We have a very low next to no burn. So we didn’t really need additional capital. But something we thought was really important, given the winner take most dynamic, was to get the support and buy-in of some of the most important players in the market. And Citi and Wells obviously are two of the four largest US banks, they’re very active in the markets that we’re in. They’re a great source of referrals for us. They potentially are direct users of the platform. So once those strategics approached us and said, “Hey, we really like this. We think this could be something we would use and ask our customers to use. Could we be equity investors”? We thought that was a great way to pick up some partners and show credibility to the market. And it wasn’t just Citi and Wells. Henry Kravis, one of the KKR founders, and Spencer Rascoff, he’s one of the Zillow founders. So we had a lot of support, as well as Andreessen and others.
Peter Renton
Now that you’ve got that seal of approval, I know you only recently announced it, but how has that changed your marketing?
Stu Wall
A lot of what we do is all about trust. And so you have to believe that this is a critical process for you as a lender, a critical process for you as an originator, you have something that is working, otherwise you wouldn’t be in business, and you’re choosing to replace it. So it’s really important that we’re trusted. I think having gone through that process with Citi and Wells and getting our customers on board and everything, I think really helps us there. And we want to position ourselves as the anointed one. Like, look, we can all agree this is a big pain point. It’s important to get it right. It benefits both sides. You know, there could be one vendor that standardizes this, and everyone wins. And that’s definitely the positioning that we take now. And I think it’s been well received.
Peter Renton
What is the challenge like for you guys? As you describe it, it’s a known pain point. This is a great solution. What is the challenge now to get much deeper across all of finance, shall we say?
Stu Wall
So a lot of it was credibility. We’ve come a long way, and Citi and Wells and going through security audits and affirmation from rating agencies and approval from banks, I think has gone a long way on that front. I think now we sometimes run into a build-buy-partner conversation, which is, should we allocate our tech resources to focus on these kind of capital markets operations activities? So that’s a conversation we have, and gets back to what we said before, I think you could leverage great software like Setpoint where this is our reason for being, and we’re always getting better and making releases every week. That will get you further faster and cheaper than building it yourself. And there’s also sometimes a “why now” conversation. You’ve got a lot of priorities. This seems to be working. It’s not great, but it’s okay. So why is this a priority relative to other activities? And I think we have a good case for that, but that’s often part of the conversation.
Peter Renton
Then I’d love to get a sense of what are the features that are currently missing that you really think should be part of your software as it gets more mature? I imagine you have a product roadmap.
Stu Wall
Yeah, it’s a good question. I mean, there’s a lot on the roadmap. I would say, at its core, we really are focused on speed and efficiency and accuracy we take as a given. But if you look at what we do in Asset OS, as well as what we do in Capital OS, just in the way our sales team has goals and we track pipeline, our product team tracks how fast we are, how many kinds of process steps can we remove for our customers. So we’re constantly iterating on that. The same is true for onboarding. We’ve really taken it from months to weeks, which I think has been very helpful to our customers. Typically, people want to be up and running very quickly, and now we can do that in the course of weeks. So a lot of investment is going into that. There are other areas I would say we’re investing in and continue to spend resources on. One is optimization. We’ve talked about that, but there are a lot of interesting things you can do as an originator to understand the most efficient way for you to pledge assets so you reduce your cost of capital. And then on the lender side, we’re increasingly working with them to offer kind of white label tools where they could actually expose their originator to an interface that’s powered by Setpoint, but maybe branded as that private credit fund where their borrowers can come and submit reports, submit funding requests. And there’s this real-time feedback of like, yeah, this one, there’s a validation error, this calculation’s wrong, they can fix it, resubmit. So those are two areas we are currently investing in.
Peter Renton
For a listener who is an originator or a lender or credit fund bank, and they’re interested, what’s involved in onboarding? And you said it just takes several weeks now; what are you doing during that time?
Stu Wall
Yeah, so for Asset OS, where we’re digitizing, organizing, and verifying collateral, we need to connect to your Box or wherever you’re storing documents. We need to understand the requirements and connect to different sources of data. That takes a couple of days. That’s a relatively quick setup. On Capital OS, we have to understand the loan agreement. So we have a team called Capital Solutions that will read the loan agreement, look at an existing Excel file to the extent that it exists, interpret all the constraints and terms of that agreement, and then we convert that to software. That process takes a couple of weeks from end to end, with a few touchpoints along the way. But yeah, that’s all it takes. It’s pretty quick, and a lot of our customers will start with a single line and test us out. And then, once things go well, they expand.
Peter Renton
OK, so last question then. What’s your vision for the future of Setpoint? Within that, maybe you can talk about your vision for the future of automation in the capital markets.
Stu Wall
Yeah, I think the goal is that this is winner take most market where there is a company, and we aspire to be that company that standardizes this process between lenders and borrowers. When that happens, and I think it’s a when, not an if. There are a lot of benefits. There’s a much better way for borrowers and lenders to collaborate over a shared pool of assets and agreements than by trading emails and sending Excel files back and forth. And to the extent that exists, I think you’ll see it’s easier access to capital. So you can do unlimited draws and smaller facilities. The way Shopify creates an opportunity for there to be more innovation in e-commerce; Setpoint creates an opportunity for more flexible and available capital, and there’ll be a lot more innovation in fintech. That’s a goal. Also, the assets themselves become more liquid. So, we see that two companies we work with may sell assets to each other. Before Setpoint, there was a lot of duplicative effort involved in organizing all these data and documents. You’ve got a warehouse line, you sell them to someone else. They have to start from zero and do it over again. To the extent we’ve already digitized everything, we can make those transactions seamless. And I guess the last point you brought up is access to capital when you’re going out and negotiating these agreements. I think to the extent a standard like Setpoint exists, that process gets easier, a lot faster, a lot more standardized, which I think benefits both sides.
Peter Renton
Right. Well, yeah. And cheaper with less lawyer fees, less technology fees, all that sort of thing. So it’s a really good point. It’s a great place to end where funds can flow more freely if there’s less friction in both sides of what you’ve been talking about on the originator and the lender side. Funds can flow more freely, pricing can get better. There are all sorts of added benefits. So anyway, we’ll have to leave it there. Stu, really appreciate you coming on the show. Great to chat with you today.
Stu Wall
Thanks, Peter.
Peter Renton
Well, I hope you enjoyed the show. Thank you so much for listening. Please go ahead and give the show a review on the podcast platform of your choice and go tell your friends and colleagues about it. Anyway, on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.