Okay, so a covenant is basically just a constraint It's a-- Yeah, it's, it's a condition. It's a condition to it. And if you violate that, that can have obviously bad consequences. Correct. It, it...
Those bad consequences- Costly... generally are economic. [chuckles] Yeah, yeah, which means- Yeah... it's gonna cost you more money. So a term I keep hearing is factoring. Explain what factoring is.
[upbeat music] Welcome to "The Rebooting Show." I'm Brian Morrissey. This is episode five, believe it or not.
I think we're getting better, and I wanna thank you all for sticking with some of the early roughness that we had. I mean, that's mostly just my Wi-Fi here is terrible, and I didn't have the right microphone.
So I wanna thank J Ray Sparks, uh, who's the producer of the show. He's, uh, been very patient in ironing out these, uh, these challenges we have on the Miami internet.
And it's also been great to see the podcast grow already. The episode with Sean Griffey got a lot of downloads. So please do help that along, um, by recommending the show to anyone you think would find it valuable.
You can also leave a review and, uh, give it a rating on Apple. As I said, I always like to see those.
I wanna, in particular, give thanks to, uh, my good friend who goes by the name Happy Crapper, who said that my perspective is very well-informed. So thank you, Happy Crapper, for that.
[upbeat music] So I wanna continue these, uh, genuine conversations this week. This is a, what I'm calling a spotlight episode of "The Rebooting Show."
The way I'm structuring the podcast is in these five-episode mini seasons, um, with a theme.
This first season, the theme was on B2B, and that's why I had those guests on because I think they're running modern B2B businesses. And it was underwritten, um, by my friends at Silverblade Partners.
So what I'm doing is I'm matching sponsors to topics and then doing this fifth podcast, what I'm calling a spotlight, in the series with them.
My promise is I treat these podcasts the same as all the others, and I pray that they will be as valuable as all the others, and so that's up to me and you, Bernard.
I wanna bring in Bernard Urban, who is the founder and CEO of Silverblade Partners, which I've told you a little bit about over the last few weeks, but we're gonna get into the nitty-gritty and the details here because that's, uh, where the magic happens.
[upbeat music] Bernard, thank you for joining.
Brian, thank you for having me on the podcast, and also thank you for giving us the opportunity to be your premier sponsor and support you on, on this new, uh, relaunch of your podcast. Oh, absolutely.
Bernard, I will give you those opportunities many times in the future. [chuckles] And to all of you out there, I will give you the same opportunities, like, on a regular basis. Just, like...
That's, uh, bmorrissey@gmail.com. Anyway, let's get into it.
So I always like to tell people about the origin stories because this is a great one I, I feel like to get into the details about because for those of us who are not steeped in finances, going down the rabbit hole is interesting because this is really an important, obviously critical part to having sustainable media businesses.
But tell me the origin stories of Silverblade Partners, because you're solving, like, a real issue, whi-which is why I found it really interesting.
But I think your background is interesting because it's an issue that's both a media issue and a finance issue. Yeah. Thanks, Brian. Well, my background is that I'm an agency guy.
I started out working for agencies within the large holding companies, and then for about twelve, thirteen years, I had my own agency.
And one of the most difficult things about owning an agency at that time, and I think still, is keeping the lights on through liquidity.
So we were always chasing the receivables and doing our best to sort of make, make the... pay the freelancers, pay the staff, keep the, uh, the rent paid.
And the clients, of course, had their own ideas about what timely payment was. That evolved, you know, over a decade of conversations into what is today Silverblade Partners.
So the idea here is to look at what's available in terms of accounts receivable financing, different types of solutions, and I think we've come up with sort of cherry-picking best features of different approaches and blending them into hybrid, if you would, uh, a form of trade finance that I think is really well suited to media businesses.
Mm-hmm. And we've been around for a year, well, two, two and a half years now, and the response and the conversations that we're having is more or less proving us correct.
So what we've tried to do is match and bring the world of trade finance to advertising media, and in a way that creates a solution that makes sense for both parties, that's pretty elegant, and it solves the problem- Yeah...
in the right way. So, so let's just sort of, like, set, like, what we're talking about here for those who are not r-really steeped in the finance world, i.e. me.
Cash flow is an absolutely critical function of businesses. You need to have cash in order to, to pay your employees, your vendors and stuff. And in order to... You can have a lot of sources of cash.
You can sell things, and you get paid by, um, partners and sponsors, and that's what we talk about in advertising media. But I think the interesting part, see, when you enter in the media business.
I know when I s- first started reporting on this stuff, two things stood out to me as being odd. One is that nobody knew how to count audiences or could agree on the size of an audience.
[chuckles] And two, that nobody paid each other on time. Everything just kept...
O-one party to a transaction would put off paying the other party, and that party would then put off paying other parties, and I certainly experienced this.At Digiday.
So explain the critical role that cash flow plays in general for, for businesses, but then why that's an acute issue within this advertising media world.
Well, just dealing with it from an acute issue, generally an invoice-- the general terms for invoice turn in our industry is somewhere between forty-five and sixty days,
which means that the revenue that any company, and we're talking about agencies, ad tech, and publishers, all the way, all the way through that ecosystem, once a dollar leaves a brand, as I like to say, that means that those companies are operating on and working with a, a limited amount of cash based on, on how that th- that those receivables are turning, which generally creates problems in terms of
meeting the company's commitments in terms of payroll, staffing, overhead, other OPEX expenses. And then what happens is, as a company grows, yeah, those things still stay out of alignment.
So while you might have a short-term need to meet incremental growth, incremental revenue, new business, that only exacerbates the problem. A lot of companies, depending on the scale, will do one of two things.
If they're a startup, uh, and they're going through rounds, they'll raise equity, and they'll use that equity to sometimes float AR, which is a very inefficient use of that capital because that capital is designed to perform
at a higher rate of return. And- Right. So, so let me just jump in there. So like- Okay... you, you can take on financing in order to finance your day-to-day operations.
We always see this in, in-- Because I've written so many funding stories, I think, in, in my life. Like, I don't miss writing them 'cause they're all just cooker, cookie cutter. Yeah.
AI should write them 'cause everyone says the same freaking thing. And one of the things they always say is day-to-day operations, which basically means, like, we gotta pay to keep the lights on.
We gotta pay people, otherwise they won't show up. And it doesn't matter when you're-- If you're working for a salary, y- it's not gonna be like, "Well, Google hasn't paid us in ninety days." So what?
They're like, "You gotta pay me 'cause I gotta pay rent. My landlord's not gonna take, uh, new payment terms."
But if you take on-- If you use equity financing, that's to grow the business, and that's-- Is that why it's inefficient? Yeah, correct.
So that if you raise money i-i, from an equity perspective, whether it's through a B round or a C round, you take on an equity investor,
that money to be used to finance AR i-- There's money available to finance AR at a, at a lower cost of capital, so it's an inefficient way to use that money, and it also limits the company's ability to, to do the things that are necessary- Yeah...
to scale, right? Yeah. So whether it's other acquisitions, tuck-ins, however else that company has a strategic plan to scale, using that capital to float the fact that Google doesn't pay on time, as an example,
results in it's an inefficient use of capital and results in other problems that we have seen in terms of expectations of those equity partners in terms of how the company is performing overall. Yeah.
So let me ask you this just on the payment terms thing. Mm-hmm. Why can't this just be written into contracts, right? Is this-- How unique are these, the payment terms in this sector versus others?
'Cause I sometimes like wonder, like wh- when looking at like the ad world, are other like industries as messed up as this? And like why is it like this? So why...
Are, are these payment terms uniquely bad to advertising media? I don't think that the payment terms are written uniquely bad, but I think that they perform uniquely bad.
And I, I mean, I haven't really fully-- I have my own theories. Our business wasn't always digital, right? So
you had a thirty to sixty day turn whenever w- everything was in print and broadcast, and then you have the amount of discrepancies or make goods on insertion orders from back in the day.
So I think all of that just inherently slowed down the, the capital on one side. On another side, the money starts with the brands.
And brands, while even if they spend a, a billion dollars a year on advertising, Cody, as an example, a few years ago, went out, they were moving a billion dollars of their media business around the world to a new, to a new me- media buying agency, and they asked for a hundred and fifty day terms, right?
At the beginning of the pandemic, there were more than a few retail brands that were going out to all of their advertising partners and asking for at least a hundred and twenty day terms. Okay.
So if let's just say a big CPG company i- is gonna ask for, which basically means that they're setting the terms 'cause they have all the money, like, and you want the money, a hundred and twenty day terms.
If I'm a partner of them, let's say on the publishing side, I have to spend a ton of money in order to create whatever the agreement calls for.
The ads I have to run, that shelf space like has to go somewhere, and I have to basically front all the money in order- It's a third of your, it's a third of your annual budget if it's-- assuming that it's a hundred percent of your accounts receivable with that one company.
So they're basically asking for getting interest-free loans by doing this. And a lot of- And the reason they do it- Yeah... is 'cause they can do it. [chuckles] They-- Well, they can, and that's fine.
Uh, and I know that there's-- I know, for example, a certain company that's a big brand that spends a lot of money,
they like to keep a certain amount of cash on hand that they arbitrage internally through different programs, and that results in slow payment. They- Yeah...
have their own inter-- They-- Their own internal ROIOn cash, right? Yes. So it's to their advantage. It's how business runs, so. Right. No, I understand. Yeah. Every family is dysfunctional in its own ways.
I think every industry is dysfunctional in its own ways, and you just gotta embrace it and accept it. Okay, so here's an obvious question. Why... I- I'm running a business, I run into this issue.
Don't I just walk down to Chase and open a line of credit and, and solve this problem like that?
Yes, you can, and many people, many companies do just that, and that's kind of the second, now what I call the second mistake, after the equity mistake.
The problem is that what h- two things happen there, and again, I've seen this firsthand and I didn't expect to see it on the scale that we're experiencing it.
I don't think that type of borrowing fits our industry particularly well for a couple of reasons. The f- the first being specifically the fact that whenever you start talking about 60, 90, 120 days, it...
That's, that's a third of the year. And the amount of money that a company's gonna be able to borrow at a bank a- against their entire AR is going to be
probably close to or less than enough money to float AR that performs at that scale, right, or on those terms. Excuse me.
So what happens is these types of facilities, a revolver if you would, they get tapped out pretty quickly because there's also the temptation to use that for something else, computers, servers,
covering a short-term necessary increase in staffing to cover a, a new client. And what happens is
in the ad tech space, the publishing space, the media space, these types of facilities get tapped out fairly quickly- Mm-hmm... and the company gets stuck.
And then the, the other thing that happens is you have, uh, a cost of capital there that starts kicking in that includes fees, accounts going to default. So the borrowing base gets diminished. So...
And you have a fair amount of covenants, right? They're looking for, in many cases, a minimum balance in, in an operating checking account, right?
So these are all things that are ultimately restrictive and not extremely well-aligned to the advertising media business. Okay, so a covenant is basically just a constraint, basically, and nobody likes a constraint.
It's a, it's a... Yeah, it's, it's a condition. It's a condition to it. And if you violate that, that can have obviously bad consequences. Correct. It, it... Those bad consequences- Costly... generally are economic.
[laughs] Yeah, yeah, which means- Yeah... it's gonna cost you more money. Uh- Exactly... you're gonna get more fees and, and whatnot. So a term I keep hearing is factoring. Explain what factoring is.
So factoring in, in the, in the broadest definition of factoring is, is where an invoice is purchased at a discount. And, and what happens in factoring, traditional... Excuse me.
Traditionally in factoring there's a couple of features to it, I call them. One is the fact that the cal- cost of capital and the interest being charged actually increases the longer an invoice goes unpaid.
So while you may start out in a 30 or 60-day window with a reasonable amount of interest being charged, once you start hitting 60, 90 days, that interest becomes higher.
So it's really not the best solution in an industry where I've seen, I've seen invoices from, uh, major ad networks going 150, 180 days sometimes. It, it... The, the cost there becomes extremely high.
The other f- thing is that in factoring, a lot of times these firms will have access to a company's checking account, so they will put money into that account and remove money from that account.
That's another thing that I'm not particularly fond of in terms of factoring. So give me like a, an example of how you end up working with, say like a publisher. Um, you can use specific names.
If you don't, just- Yeah... give me like- Yeah...
breakdown of the challenge they face, and then the options that they would have, like we discussed, but then what is the option that you're saying, "Hey, you should consider this one"? Sure.
So I won't specifically mention anyone because it's... We specifically work in this vertical market, and we tend- Yeah... not to talk about our clients. So we only do advertising media.
So the way we work with a client is, structurally, is we purchase the invoices generally out of, generally with no recourse, which means w- we own that invoice, which means that removes the ANR from our client's balance sheet.
And- Okay, but so what, like $10 million? Well, in terms of scale, like right now we work with clients as big as half... $500 million, half a billion dollars.
We have over $1 billion of working capital available through our partners to deploy into this space. On the smaller side, we're just putting that together.
But generally, if we're, you know, talking about a client, we're talking about 10, 25, 50, 100 million, but certainly $250 million of annual revenue is something that we're very comfortable with that.
Okay, so someone has $20 million of AR typically a month, right? Yeah, yeah. Like, and you s- you go into them and you say, "Look, you're gonna have to wait," who knows, "30, 60 days, 90 days or whatever.
You got all these expenses, and we're gonna cut you a check right now for 20 million," you say? Or, "We're gonna give you, what, 85% of it?" What is the... What are the- Yeah, so- Terms? So what, what we do...
Well, first of all, what we do is we contract with our clients and, and we, um, we'll come in and we'll do this for a period of three to five years.
We'll do it at a fixed interest rate, which is tied to LIBOR, which I know you and I have discussed. Yeah. Just go for it. It's one of those things I've read many times, and then I'm like, I don't- Yeah...
I feel like I should understand it, but I don't. But I just... It's, it's like the rate people get to borrow at, I believe. It's the rate that banks, it's the rate that banks borrow money at overnight. Yeah.
So we use three-month, generally use three-month LIBOR, so which is very, it's a very small-Right now, currently.
So what we'll do is we'll come in at libor plus X percent, and all of the invoices perform at that percent consistently. So you're paying the same amount of interest- Okay...
you know, whether it's thirty, sixty, ninety or one hundred and eighty days. It doesn't get more expensive. We purchase the invoice. We do that with an advance rate that's between eighty and ninety percent.
So if it's a hundred dollar invoice, the client's going to get eighty to ninety dollars immediately when the in- within two, two business days of the invoice being presented.
Then what happens is we wait, and we wait till the balance is paid, and we subtract the interest based on how that invoice performs, and then the balance minus the interest is then paid to the client, and the client's made whole on the invoice.
The net result of that is our clients have more than enough working capital on demand monthly within two days of their billings. Yeah. And this is...
So would this be end up being more efficient, which is usually cheaper, like, than just, like, taking out a line of credit or factoring? Like- Yes. Well, there's a couple of things.
So just to touch back on the factoring, um, our money only moves in one direction to the client. We don't take money from the client.
We simply take, um, domain over an existing lockbox where we redirect payments to a lockbox that we all agree that we will use. Yeah. So we're not taking any money out. We don't have covenants in terms of bank balances.
We, we don't... We're very co- We're what we call covenant lite, uh- Okay, so it's more flexible. So the terms are more flexible for- The, the terms are more flexible. We don't have any hidden fees. Hey.
And the, the really interesting thing is also that based on, uh, the advertising media space, if a company's doing
two hundred and fifty million dollars a year, twenty million dollars a month example, we can pre-approve them against their existing clients for almost two times, in many cases, the amount of revenue that they're doing.
Wow. So our credit lines against their existing clients will be higher than they're currently performing at. So if they need access to more capital through growth, we're just there ready to buy those invoices.
So the ability to scale is dramatically, uh- Yeah... more flexible. Dramatically. All right. I mean, isn't the catch, though, that, like, what the rate actually is? Is this like buy now, pay later or- No, no...
payday loans? [laughs] I haven't taken any payday loans, thank God, yet. But if I do, they, they charge quite a premium- We're-... from what I understand.
We're out there with rates that are, I think, extremely competitive. And we... And, and when you look at what a, a bank facility might be,
w- we're competitive with those facilities, especially when you start adding in f- fees and other, other ca- capital costs. So and at large scale, in some cases we can, we can be extremely competitive- Yeah...
in terms of our rates. So explain to me, though, historically low interest rates, right? Like, and, it, it- Yes... interest rates have not been- Yes... this low for this long for a long...
Like, it's a very strange time, and I think inflation is starting again, and, and many people have never lived really with inflation, like, as adults. Like, they don't remember inflation being a big deal.
Clearly, rates are gonna be going up next year. Like, how is a higher interest rate environment, is it gonna put pressure on a lot of balance sheets? I mean, obviously, the way to control inflation traditionally is that
interest rates go up, w- which cools off certain economic levers within the economy that brings inflation theoretically under control.
So yeah, I think that we're heading into a period in the coming year where interest rates are going to go up. Yes. I mean, I think the handwriting's pretty much on the wall for that. Right.
But how does that then, um, impact the advertising media, or does it not? Well, all things being equal, in a way, certain costs are fungible.
But I think that from a forward-looking perspective, I would, as I assume anyone with that responsibility, is paying a keen attention to and has a keen eye on what's happening with interest rates and, and what they're able to, what they're able to do.
So I, I, I would... With any loan right now, I would try to lock in a low- something on a lower, on a lower rate than, uh, and then wait if, if you... If that makes any sense. Yeah.
So I've always heard, and, and it's one, one of those things that people don't talk about a lot, but, like, that a good CFO really makes or breaks a company.
Explain why that's so important, because I feel like a lot of times when we're talking about the show and the rebooting overall is about sustainable media businesses, and there's a lot of details, like, that are involved.
We're seeing with what's happening to BuzzFeed as a publicly traded company that, like, you can talk about vision and a story and stuff like this- Yes... but numbers are numbers, right?
And like- Yeah, you have to execute in numbers. There's only so much magic you can do because numbers are numbers.
But talk to me about the, the CFO role and why that can be, like, a strategic advantage in these companies.
Well, when I started out, I wrote, and I think Digiday did a story on us where the headline was, "Finance Is the New Creative." Yeah. And when you start talking- I assigned that story, Bernard. You did that.
So, so the... We've come full circle, Brian. And so we, where, where you and I began, we are now back to. So
I think that it's a, an important differentiator in the landscape where through technology and through a lot of other things that's hap- that take place in our industry, the ability to move money, the ability to be liquid, the ability to have, uh, leverage I think is a differentiator.
And so we have, uh, some clients that are using our ability to finance their AR to extend terms. Extend terms. So they're going out to their clients and they're saying, "You know what? You're paying us in sixty days.
Pay us in a hundred and twenty days."And spend more money with us because we now have the liquidity that we need. So I think that's a mindset where suddenly finance moves to the front of the conversation- Yeah...
and is not at the tail end of the conversation, where I think that smart thinking about how money is moving through the industry becomes an, an extremely powerful competitive advantage.
Not to take anything away from the importance of strategy, the importance of great creative, the importance of, of smart media planning, but then at the same time, if you wanna ice that cake with the ability to think and be smart about how you're advancing all of this trade, that to me is the ultimate combination.
Yeah. I always think of it as like an 80/20 thing. 20% is usually optimization, and this is on the optimization side. And, like, optimizing businesses is incredibly important, as we see time and again.
But talk to me about that because, like, you talked about, like, actually negotiating better terms, because this isn't just necessarily about cashflow in our conversations.
Like, for instance, like buying data, like there's a lot of companies that spend a lot of money on data, and they can actually get better terms if they're more flexible, right? Correct.
So i- i- it's specific to that part of our industry, Silverblade can help alleviate problems in adequate into the supply side for certain companies.
So which ultimately ends up being advantageous in terms of access to inventory, access to data, et cetera.
And al- also from a publishing standpoint, there, there are pain points on their, in their supply side that we can come in and we can be helpful.
So we can actually structure things in a way where we're balanced across accounts payable and accounts receivable, and I think that's pretty unique.
And i- in terms of being a third-party structure that it's extremely useful rather than a CFO trying to figure out how to do that with just a line of credit at a bank. Right.
So final thing is I have to ask you, because you're much more steeped in this than I am, is DeFi.
I, I am firmly crypto curious, and so I've gone down the rabbit hole, and I realize that I really need to understand a lot more about the basic finance.
But what's going on within decentralized finance I think is fairly interesting. Do you, like, do you see this having an impact on this feature/problem in advertising media? Well, here's what I know.
If you talk about DeFi, you talk about Fintech, uh, you talk about trade finance- Yeah... um, I think they're, th- some of these things are coming together.
I know personally some very senior, uh, people at some of the big banks that are in charge of trade, and there's a lot of things that they're just beginning to do using blockchain, using some technology, and I think that's where all this is going.
I also see trade finance becoming more focused on it. There's more consolidation in our industry. So I think it's an exciting time to be thinking about these things as they come together.
In terms of are we going to virtual company in the metaverse, that's probably not something I see happening [laughs]. But I do- Just don't... I, I think crypto is a bit volatile right now, so I, I don't know.
I, I don't know if we're going to be doing transactions in Dogecoin. But anyway, the US dollar, we do work internationally, so we work with UK pounds, the euro, and various currencies in South America.
We're not really ready to... [laughs] Just wait till the stable coins come out, I think. Yeah, if, listen, if it, if it happens, I wanna come back and just, we'll just do a whole crypto podcast.
Yeah, no, I'm gonna be doing crypto. I just talked with Jared Dicker, actually. He's, we gotta come on and jam about crypto. So we're gonna do, we're gonna do something on crypto.
I, this pers- on a personal level, outside of Silverblade, it's extremely interesting to me. Yeah, yeah, no. It's the- Yeah. Yeah...
the, the concepts are fascinating, and I think what I've liked about it is, like, it's forced me to really think about and understand money in a way that I never really have. I never really thought about money.
Learning about finance alone has been worth going down the crypto route. It's, it's an exciting time for money. Yeah, exactly [laughs]. The financialization of everything. It's awesome. Yeah.
Well, Bernard, thank you so much. I really appreciate this conversation, but also your support. You've been very patient with my own, like, rickety systems. Well- So I appreciate that... no, no problem.
We're excited to be, to be part of what you're doing. We're out here to support doing what they're doing in the space, you know? So... And to find out more information, Silverblade Partners is at silverbladepartners.com.
Thank you all for listening. We'll have a new episode next week. We're gonna have a couple of, doing a couple of, like, year-end episodes. [outro music]