In this episode
Eric Youngstrom, Founder and CEO of Onramp, discusses his journey in the finance industry and the purpose behind his company. Onramp provides working capital solutions to small e-commerce businesses, helping them overcome cash flow challenges and grow. Eric emphasizes the importance of supporting independent small businesses to create a healthier economy. He shares success stories of businesses that have grown with the help of Onramp’s funding. Eric also discusses the challenges of customer acquisition and recruiting, as well as the future of lending and the need for trust in the financial system.
Key takeaways
- Onramp provides working capital to small e-commerce businesses, helping them overcome cash flow challenges and grow.
- Supporting independent small businesses is important for creating a healthier economy.
- Onramp has helped businesses grow and succeed, with some customers graduating to more affordable financing options.
- Customer acquisition and recruiting are ongoing challenges for Onramp.
- The future of lending lies in better data visibility and underwriting based on business performance.
- Trust in the financial system can be built by diffusing corporate power and promoting competition.
Transcript
Rory Holland
Alright, Eric Youngstrom, Onramp, good to have you.
Eric Youngstrom
Thank you.
Rory Holland
I would say welcome to Texas, but you’re.
Eric Youngstrom
I live here.
Rory Holland
You live here.
Eric Youngstrom
Yeah.
Rory Holland
So full disclosure, Eric and I have known each other for more than a decade.
Eric Youngstrom
Yeah.
Rory Holland
Are we that old? 13, 14 years.
Eric Youngstrom
Something like that.
Rory Holland
Going back to like the credit.com and the CS Identity days and all that. And also full disclosure, Eric’s a client with Onramp Funds. Super excited to have you. So we’ve already covered the fact you’re in Texas, but you didn’t grow up in Texas?
Eric Youngstrom
No, no, I grew up in Washington State.
Rory Holland
Washington State.
Eric Youngstrom
Yeah. Small town, Washington.
Rory Holland
Small town. So you grew up in a small town, and then how in the world did you get involved in finance?
Eric Youngstrom
So my last company, we did order aggregation and shipping management for ecommerce SMBs. One of the things we would see was these companies would have a good order from Amazon coming into the system, and they had no cash to buy the shipping label to ship the order, which then would mean they’d have to cancel the order, refund the money, which is doubling your credit card fees for no revenue. Upset Amazon, upset customers, terrible thing to happen for a business. And so it looked like there was a really cool opportunity to go in and work with the same SMBs that we’d worked with at ShippingEasy across 30,000 at ShippingEasy and what we required by Stamps, a couple hundred thousand, with an inventory product that would just solve the problem of making sure you always have inventory, that you can always advertise to turn the inventory over, and that you always have that last $5 to buy the shipping label to make sure that product gets moved from your dining room, your garage, your warehouse, to wherever that customer is.
Rory Holland
And so that led to Onramp which has for, how many years has Onramp Funds?
Eric Youngstrom
Two and a half, going to three later this year.
Rory Holland
And can you describe what you guys do?
Eric Youngstrom
We provide short-term working capital that its purpose is built for the ecommerce companies from the US. So, it is very much aligned with your inventory turnover and your cash conversion cycle, making sure that you are not short of cash to keep the business running and allowing you to extract your personal funds and stop using your personal credit card to run your business.
Rory Holland
Some of these ecommerce guys are, I guess, early-stage ecommerce, might be using personal funds to start and they do that for a period of time.
Eric Youngstrom
Sometimes for years.
Rory Holland
Oh yeah. Risky.
Eric Youngstrom
Yeah, I mean Onramp raised over 20 million dollars and Chase still makes me personally guarantee the credit cards of the company, which is really irritating.
Rory Holland
That is irritating.
Eric Youngstrom
So these guys who are just not VC eligible, right, they’re never going to raise funds. They don’t have an equity pool available. And so we are kind of essentially a kind of a line, right, that gives them the ability to scale and keep up with demand.
Rory Holland
You’re their funding arm. Yeah. So tell us a little bit about the audience, you serve customers, you serve them.
Eric Youngstrom
So our customers are US based. They’re small businesses, definitionally. Usually they’re sole printers. Sometimes there’s a couple of employees helping do some of the fulfillment work in the back end warehouse. But they are the CEO, CMO, COO, CFO, all in one. And the product we’ve built basically automates how you draw working capital and how you would repay that to make sure that the line’s always available when you need it. As if you had a full time CFO in your business who was doing that manually with a bank line of credit. And our software just automates that process so that you have one less thing to think about, and you always know that your working capital is available for that next inventory purchase or to do that next Christmas campaign to make sure you’re turning inventory over.
Rory Holland
So they can see where they are as far as revenue and when they’re going to need more funds to be able to. So, it kind of flattens that curve out, I guess.
Eric Youngstrom
Exactly.
Rory Holland
What types of loans, like how big a loan, are there average loan sizes or?
Eric Youngstrom
Our average loan right now for a new company, customers, is about $25,000 and then our customers what we found is in their first year they grow 75 to 100 percent and they do that again in their second year. So by the end of their second year, they’re drawing about $75,000 per loan. So it’s very exciting to see that right. We actually can now see the impact that the cash we deliver is having on these businesses because without that they may not be able to afford that next 50 percent bigger inventory purchase because their credit card would have been maxed out.
Rory Holland
So they’re sticking with you, it sounds like.
Eric Youngstrom
Yeah we have customers now that have been there for over two years and you know net revenue retention is running north of 125% year over year.
Rory Holland
Awesome.
Eric Youngstrom
So it’s working well.
Rory Holland
Yeah, I don’t need to say this to you but maybe the folks that are listening, competitive space.
Eric Youngstrom
It’s a competitive space because everybody and their mother will make a loan. But in terms of doing it purpose-built for ecommerce, using our data streams and really having the intimate knowledge of how the business works. There’s really only four or five of us. In that regard, there’s not a lot.
Rory Holland
There’s not a lot. It’s just competitive with those four or five.
Eric Youngstrom
Yeah. I mean, but you know, there are just a ton of people out there who say, give me your bank statements and it might take me a week to make a loan.
Rory Holland
Yeah.
Eric Youngstrom
And then here’s a loan for you. Whereas, you know, we don’t ask for your bank statements. We’re just saying, you know, connect your store, connect your bank, and then we do the rest. And, you know, an hour later, you’ve got an offer, and cash is moving.
Rory Holland
Yeah.
Eric Youngstrom
So just a much more streamlined, much easier process. Right? And we’re always there alongside you. Yeah So just a different approach, right? It’s not a traditional approach. It’s very fast and very easy for the merchant.
Rory Holland
And you mentioned, you said purpose-driven so and for ecommerce companies so very niche focus for Onramp What was like what was the inspiration and I think the stamps calm I think was some of that and some of your history and experience of what what wasn’t working?
Eric Youngstrom
Well, so, the real inspiration is growing up in a small town without a big business. My dad was a doctor. A lot of my friends, their dads were, you know, here’s the guy who owned the auto glass shop. Here’s a guy who did residential construction. And those are the guys who had their, you know, their store names on the little league fields, right? They were coaching little league and teaching Sunday school and things like that. And so it looked; I just wanted to be a small business owner. And I liked small business owners. And I think that the more successful independent small business owners there are, the less concentration of economic power there is, that the healthier a society is and the healthier world is. So, from a purpose perspective, from my purpose, that’s what I’m about. And then the business itself is just purpose built specifically for ecommerce because I think that’s the biggest place that people are gonna be building businesses for the next 20 years.
Rory Holland
Yeah, that’s a great inspiration. It’s so true. I couldn’t agree with you more. And I share that approach to this country. Small businesses are what make it all possible. You and I happen to run small businesses. I wouldn’t have it any other way, but that’s great. So are there some success stories or anything you can share related to some of those relationships that you’ve helped establish with these ecommerce companies?
Eric Youngstrom
Yeah, we’ve got, Feel Great Vitamin Co. was one of our early customers. We’ve helped them grow and watched them grow and become very, very successful to the point where they’ve graduated from their need from an Onramp because they’re big enough to go to, you know, established banks, right, and get a much more affordable cost of capital. But because, you know, that takes scale to be able to get there. And so we were great to partner with them on the way. We’ve got another group called Store Wolf that sells refurbished Dell computers that grew from a $10,000 advance to, you know, doing hundreds of thousand dollars at a pop now. And just we get to watch that business grow month over month. It’s phenomenal to see that kind of thing happen. And it’s really rewarding to be a part of that journey. And seeing them get there.
Rory Holland
I bet.
Eric Youngstrom
Yeah. So it’s funny when you think about running these businesses, you think about customer churn. And in the SMB world, churn comes from, unfortunately, businesses failing. Our churn also comes from businesses graduating. They actually just scale past us. And at least that’s something you can be really proud of because I might lose a customer, but I’m super excited. I know they’ve gotten to that scale where the odds of failure now have gotten so small that they’re just going to be around forever as long as they want to be.
Rory Holland
You’ve helped fulfill the purpose that Onramp is.
Eric Youngstrom
Exactly.
Rory Holland
That’s great. What are some of the biggest challenges you’re facing right now?
Eric Youngstrom
Growth, it’s hard to, customer acquisition, getting that marketing engine really dialed in so you’ve got a repeatable engine that can, on the performance-based side, they can just scale fast enough to keep your investors happy. That’s the challenge; it’s the speed of investors. But I think we’re getting better at that every day, and we’re seeing the proof coming out as we’re just watching the metrics come through. And then probably recruiting, right? I mean, just getting good people in is, I think we’ve been really blessed to do a really good job of it for the most part. But it takes a lot of time and energy. It’s the right investment to make.
Rory Holland
Sure.
Eric Youngstrom
Because a bad hire can be really detrimental to business.
Rory Holland
Finding good people. I mean, that’s such a cliche, but it is so true.
Eric Youngstrom
It is. It is. It’s not easy to do. Yeah.
Rory Holland
What do you see next, when you think about what your industry is doing and the evolution of lending, kind of a down the road question. Where do you see Fintech going from here and like what you’re doing for a living going from here? Since it’s evolved so much over the decades and years and it’s going so fast now, in some ways, lending is still archaic in the way it was done. You guys are farther ahead. Where do you see it in five years?
Eric Youngstrom
Yes, lending’s in the Old Testament. So it’s been around forever. So we’re not breaking new ground in that regard. I mean, I think the data streams will get better. If anything, that would be; I mean, I don’t think it’s going to change a lot compared to what it has been for the last couple of thousand years. But I do think, you know, the data visibility that comes with these things makes it a really interesting play, right? Like we now underwrite ecommerce business owners that have retail stores. And we can underwrite the retail volume as well if they’re using the same payment gateway that they use for their ecommerce business. And, you know, historically, retail underwriting did not do that because the data stream wasn’t there. I think it’s just in the credit card process. You couldn’t see the order. You just knew that there was a card swipe, right? And you really just get the aggregate daily volume. And so I think as those things get better, right, the opportunities become much more interesting to be much more granular about how you understand the risk of these businesses, but also the success potential, because the source of truth data means you actually have visibility in a way that that business owner does and because you’re not getting the data straight from the business owner there’s no manipulation you’re concerned about. So the ability to make decisions faster and more intelligently I think is really going to continue to blossom.
Rory Holland
And you’re not underwriting on credit then, you’re underwriting on business performance.
Eric Youngstrom
Business performance. We actually don’t do personal, and we’re intentional about that. We want that business to stand on its own two feet. Right. As if it were IBM going out to get a line and not Eric, going out to get along on behalf of Onramp. We think that’s really important for these business owners because it means that they’re being treated as if they are the CEO of a bigger business, right? Where that business can go out and get its own facilities for finance or for anything else, right? And be treated as a business and not just a hobby of some individual.
Rory Holland
Yeah. Is there anything you wish more people knew about Onramp that they might not know?
Eric Youngstrom
I just wish more people knew about Onramp. Yeah.
Rory Holland
This is a good start.
Eric Youngstrom
I mean, I’m super excited about what we do. I mean, I love working with our customers. I wish more of our customers understood that when they’re having business problems, whereas as a lender, we’re a little unique that we understand that that’s part of the risk we’re accepting. And when you work with small businesses is that a lot of small businesses unfortunately fail. And so we’ve put some structures around that are very owner-friendly, so long as the owners are just being fair with Onramp on the way down. But we try to then kind of take a little bit of that headache away because it’s already a stressful time for them if it’s not working. I mean, it’s a terrible position to find yourself in.
Rory Holland
Yeah. God, that’s refreshing. What you just said is refreshing. I know your heart. So what you just said, I think, is what I wish more people knew about Onramp, because they would choose Onramp over other choices because of what’s at the heart of what you guys do. The fact that you’re giving business owners a way down, a conversation I’ve had a handful of times today already with our other friends at the Fintech House, is when things are going well, from a financial perspective, for businesses or people, it’s all good.
Eric Youngstrom
Right.
Rory Holland
When things go bad, the institutions or the companies they work with now you’re being pursued, and not in a positive way. And there doesn’t seem to be much gray area in there. Either you’re on point, or you’re off. Like either you’re doing it right or you’re not. And hardships happen. So hearing you say that, that’s.
Eric Youngstrom
Well, we know hardships are going to happen. And we’re trying to. I mean, the nice thing about our product and the ecommerce working capital cycle is 50 to 60 days. So we’re not having to go give a year’s worth of capital with a year’s crystal ball in front of us, right
Rory Holland
Right.
Eric Youngstrom
Which I don’t have. We need a 60 day crystal ball, which is a lot easier to kind of predict. And so we have a smaller exposure and we’re seeing these changes and we’re re-upping every 60 days. And so a 50K loan may turn into a $20,000 loan. But we also know that we’re seeing that downward trajectory, and we’re trying to be helpful. But I guess because we have less exposure and we’re working more frequently, right, we’re a little bit more able to work with the merchant and really help them kind of through those times and then help make sure that they’re just not carrying that liability that might be a much bigger burden on their shoulders.
Rory Holland
Sure, sure. You and I know as business owners, there’s gonna be burdens at times when you’re making payroll and everything else. A couple more questions. One is along the lines of trust in what we do for a living, meaning the financial system. It’s trust in our financial system is so critical, and I don’t think trust. I can remember my lifetime in our society and in the systems of government and our financial systems have ever been lower. So in, this industry, how do we build? How do you think about building trust so that we can restore faith in the financial system, like through the work that we do?
Eric Youngstrom
Wow. Not a question I was expecting. Not what I’ve thought a lot about. Trust in the financial system. I don’t think people like the financial system. They don’t like bankers. I don’t know that, from my perspective, that I don’t trust them. I just trust them to do what the rules say. Barring maybe the 2008, 2009 great bailout, that kind of stuff, which I don’t care for. I don’t know the better answer to that one either, but I don’t care for it.
Rory Holland
Yeah. Yeah.
Eric Youngstrom
Yeah, I don’t. That’s a hard one.
Rory Holland
It’s one of these things when I ask the question, and there’s no easy answer. Don’t really expect didn’t expect you to have one necessarily other than just the conversation, like us in our community here in finance, and we’ve got 100 people downstairs, the folks listening to us and watch us can’t hear it, but there’s a lot of great people downstairs from all different walks of life and different sides of the fintech and financial industry that from the conversations I’ve had and these folks that we know are all connected to the fact they want to try to do better for our society and the businesses and consumers that work that use the financial system to make their day to day lives better. So, from that standpoint, I think we’re all thinking about it. I think a lot of us are thinking about it but the trust in the financial system like trust in our society is a big question.
Eric Youngstrom
I do actually have an idea of this. It’s actually not specifically financial; it’s antitrust. But that is, you know, our system of government is designed to diffuse power from federal to state to county to city to municipal. And we have an antitrust system that’s designed to prevent monopoly. But I think the antitrust system should be redesigned to look at just market size or some similar metric that would then say there’s a maximum market size where you are not allowed to exist and we’re going to split you in two. And create two entities that then are going to compete and will double the number of CEOs and double the number of other roles and create more opportunities for people to grow up in businesses. But simultaneously, they’ll be able to say, but if you want to be greater than, I don’t know what the size is, 10%, 20% market share that you actually have an obligation then to apply the full constitution of the United States against your business. So, as Twitter gets so big and, they want to say, no, we can censor because we’re a private company. Well, no, because you now have more than 10% market share. So you or whatever that number is, right? You’re not allowed to. I think the same thing would be interesting for banks that, you know, Chase Bank may say, look, it’s worth it to us to be a global bank and simultaneously have to adhere to the Bill of Rights, and we can’t then have our payment gateways deciding we like this business or don’t like that kind of business and don’t want to be involved in Second Amendment debates or whatnot.
Rory Holland
Yeah.
Eric Youngstrom
Or great, if you want to be able to pick and choose your winners that you just can’t be that big. We’re going to cut you down to size, which then diffuses that concentration of economic power, creating more choice, more competition. And I would think at that point, that actually ends up building more trust because you’re gonna have then these business leaders closer to the populations that we’re working with because there will be more of them.
Rory Holland
Yeah, I like that. That was interesting. That was an answer I didn’t expect.
Eric Youngstrom
I didn’t connect it at first because I spent a lot of time in my college days in antitrust. That’s always pervading in the back of my mind. I think corporate power is actually one of the problems, you know, and that’s why you have the kind of crony capitalism stuff going on in DC th:e size of these businesses using the federal government to try to maintain power. I know these easy answers right because before you had that you had the robber barons buying up state legislatures right doing the same thing at the state level.
Rory Holland
Yeah.
Eric Youngstrom
So, but, there’s got to be an answer that recognizes where we are today.
Rory Holland
Yeah, it will. My hope is it will come. It will get better. I’m optimistic about that. Alright, one last question. This one’s a lot easier. So you’ve done a lot, you’ve run a lot of companies, now you’re founder of this newer company, Onramp. What advice might you give someone that might be thinking about entering the fintech space or starting a company in the space?
Eric Youngstrom
Wow. So, I started a fintech company never having been in finance and just assumed that I could figure it out along the way. But having had a lot of exposure, you know, in running companies, right, you get a CFO’s perspective, if you will. I just think you have to want to go do it. I would say to most people, if you have an idea that you want to pursue, you should pursue it. And if you don’t, but you think you might one day, you should try to go work for other people who do. I think I’ve been really blessed that I got lucky in the companies that I joined as a you know, kind of first employee being hired to get a work alongside some great people. And I viewed that journey as an apprenticeship to get to a point where I could go found something where that experience would pay off and give me an opportunity to de-risk when it was my turn.
Rory Holland
Yeah. Well, thank you for that. Eric’s been a blast.
Eric Youngstrom
Thank you.
Rory Holland
Now we get out there to have some fun.
Eric Youngstrom
Alright.
Rory Holland
Thank you, Eric. Eric Youngstrom Onramp Funds. Find him on Onrampfunds.com.
Eric Youngstrom
Was that your last one?
Rory Holland
That’s it.
Eric Youngstrom
Alright. Perfect.
Rory Holland
Yeah. Thank you.
Eric Youngstrom
It was awesome.
Rory Holland
Thank you. That was awesome.
