This is part of an ongoing Q&A series with our originator partners.
Hello, there! Today, I’m joined by Martin Macmillan, the founder and CEO of Pollen VC, one of the first originators on the Cadence platform.
Pollen VC provides flexible credit lines to mobile app and game publishers. Their first deal on our platform, Ultra Short Term Mobile App Financing 3-A, was launched in August of last year.
A little bit of background on Martin before we jump in. He’s previously described himself as a reformed investment banker turned FinTech entrepreneur. Before founding Pollen VC, he was a Director at UBS in London, where he ran the short term credit trading group and helped build UBS’ first client-facing electronic debt trading platform.
Brian Guerra: Thank you for taking some time to speak with us. I’m jumping right in with the question I’m most curious about, and it has nothing to do with investing.
Your business is built around and focused on apps, so I’d imagine you’re more in the loop than most about the interesting and/or fun ones out there. What are your goto apps?
Martin: For productivity, I love Wunderlist – I’m an inveterate list maker and I like the fact that it works offline, so I can add things as I think of them. I use it to bunch up items to talk about with colleagues in our catch-ups, so I don’t end up bombarding them with single question emails.
For fun, I like Vivino, the wine tracking app. It lets me scan wine labels and check pricing, as well as give me a log of what wine I enjoyed and where.
BG: List making and wine tracking, very practical! Ok, so for those who are unfamiliar with Pollen VC, can you briefly explain what your company does?
Sure, we solve a liquidity problem for growing app and game developers.
It takes Apple and Google up to 60 days to pay out the developer of an app after consumers have purchased content. We make secured loans to the developer, enabling them to bridge this funding gap and reinvest more quickly into marketing and user acquisition for their app or game.
We connect directly to the billing systems of the App Stores and mobile advertising networks, allowing us to digitally verify their receivables on a daily basis, and offer a simple drawdown mechanism making the end-user experience simple and user-friendly.
BG: That’s interesting about developers having to wait up to 60 days to get paid. Is there anything else you think people would be surprised to learn about the app industry?
There are roughly 5,000 new apps and games launched each day globally on to app stores. Discoverability is, therefore, a huge issue, and developers are reliant on advertising platforms like Facebook and Google in order to target consumers.
Fortunately, the targeting abilities of the ad platforms allow even niche apps to reach their audience. Of course, being able to monetize an app successfully and cover the underlying acquisition costs of the ads is paramount. Sadly, most do not achieve this.
BG: When surveying the market, what types of developers and/or apps are typically most compelling to you?
Any developer who is investing in paid advertising for their app or game.
It all comes down to unit economics. If they can prove that $1.00 invested in Facebook or Google Ads will yield more than $1.00 in lifetime value (LTV) in a known number of days, then being able to reinvest faster into paid marketing is going to help them grow quicker.
BG: And you’re able to offer a different way for them to reinvest in their own company than what’s been typically available, right?
Yes, until now, many app developers relied on dilutive equity financing to fund their advertising spend, but we offer a cost-effective, non-dilutive solution using their accounts receivable (AR) to finance growth.
BG: What do you think is a misconception investors may have about the app industry?
We’ve been lucky. The ubiquity of apps and the familiarity with the underlying counterparties like Apple and Google means that everyone gets comfortable with the concept, albeit not the underlying payment terms on how they operate.
BG: From an investor’s point of view, what makes this space unique as a potential opportunity?
Tech giants such as Google, Apple and Facebook have very little debt in public markets and are among the most cash-rich companies in the world. Working in partnership with Cadence, we offer an opportunity for both retail and institutional investors to access these underlying credits, albeit in a synthetic form.
BG: Can you, at a high level, explain the lifecycle of the capital you raise on the Cadence platform?
Most of the funding we provide ends up back into user acquisition cycles with the main advertising platforms, i.e. Google, Facebook and Apple Search Ads.
App developers are focused on their unit economics of acquisition – what it costs them to acquire a user (e.g. Facebook ad spend) and the expected LTV of that user. Provided the LTV exceeds that Customer Acquisition Cost (CAC), if the ROI is positive after factoring in the cost of capital to finance over the same period, then using their AR to finance their ad spend is a very capital-efficient way to grow. The ROAS (return on ad spend) breakeven cycles can be achieved in some cases in as little as 7 days, so every day counts.
BG: That makes sense. I’m sure there have been some great success stories, but is there one in particular that comes to mind?
Sure, we helped a team of talented game developers achieve more than 20x revenue growth in 15 months and ultimately achieve a successful exit to a listed gaming company.
Initially, the referral came from their angel investor when the company was seeking to raise more capital to fund Facebook ad campaigns. Fortunately, their investor subscribed to the same school of thought on capital efficiency as we do, so we were introduced directly.
Everyone had a great outcome because 1) the founders scaled and exited without additional dilution, 2) the investor had improved returns on exit by not having to follow his original investment with additional capital and 3) we were lending more capital as the company was growing.
BG: Hopefully many more of those stories to come! My final question is specifically about the partnership between Cadence and Pollen VC. As one of the first originators on our platform, what attracted you the most?
We loved the ease of use and flexibility offered by the platform, and the vision and commitment of the founders. The team has been great to work with and helped us access a diversified investor base of both retail and institutional investors. Cadence will remain an important part of our capital mix as we continue to grow our business.
BG: Thanks for your time Martin! If anyone is interested to learn more about you, how can they do that?
We have a very active blog where regularly post original content and guest posts at https://insights.pollen.vc/ I would encourage current or potential investors to subscribe in order to get updates on our business and a good flavor of how we are helping provide capital efficient funding to growing businesses in our sector.