How to Help Ecommerce Brands Scale through Sustainable Inventory Management and Financing with Settle's Alek Koenig

In the DTC ecosystem, cash flow is king. After spending four years as the head of Credit at Affirm, Alek Koenig founded Settle in 2019 to help brands streamline their inventory purchasing and bill pay in one, easy-to-use platform. From financing tips to cash vs. equity, Alek shared his learnings, insights, and best practices with the Tydo team.
December 21, 2021
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Purple background with the Tydo and Settle logos with white text that says "Cashflow management"

How to Help Ecommerce Brands Scale through Sustainable Inventory Management and Financing with Settle CEO Alek Koenig 

In the DTC ecosystem, cash flow is king. 

With ecommerce funding, brands can grow, scale, and pay salaries, invoices, and taxes on time. It’s easier said than done, especially when DTC brands operate on tight timelines. 

After spending four years as the head of Credit at Affirm, Alek Koenig founded Settle in November 2019 to help brands streamline their inventory purchasing and bill pay in one, easy-to-use platform. 

Fast forward two years, Settle has morphed into a rocket ship. The cashflow management startup recently raised $60 million in a Series B round, led by Ribbit Capital and existing investors Kleiner Perkins, Caffeinated Capital, among others. 

From financing tips to cash vs. equity, Alek shared his learnings, insights, and best practices with the Tydo team.

From Affirm to Settle 

At Affirm, Alek learned everything there is to know about credit. While he was there, he noticed that some merchants were using Affirm for working capital. To improve their cash flows, they found it helpful to get paid immediately and then ship their goods in two weeks. 

Most brands don’t know what APR they’re paying on merchant cash advances (MCA). And, MCA providers don’t really know either. By the time brands take capital and pay it back, it’s too late. They realize they paid too high of an APR.

Alek saw an opportunity to tackle cash flow issues and help brands scale in a massive way. When Alek realized he could combine working capital with an accounts payable tool, he knew Settle could change a business’s trajectory, instead of saving them a couple hours a week. 

Some DTC brands don’t know when their revenue is coming in, so Settle pays their inventory and vendors, and then brands pay them back with the revenue they get from their inventories. 

Transparency, honesty, and flexibility are embedded in the product. “There are no unknowns, no gotchas, or no surprises. You know exactly what APR you’re paying,” says Alek. 

Alek walked the Tydo team through the platform, and we can validate that the user experience is truly seamless, intuitive, and simple. 

“Let’s be as upfront, as transparent, as honest as we can be, and that’s going to win in the long run.” 

Building a Game-changing Platform 

90% of Settle customers come from Bill.com. They’re the 800-pound gorilla in the space. 

Some brands make payments, especially international ones, directly through their bank. And, some brands are even more old school and use Excel. With both methods, brands are creating more work for themselves. 

Settle’s onboarding experience is seamless. To use their platform, brands connect their bank account and accounting software. That’s all there is to it. 

Settle ingests invoices on behalf of a brand and automatically parcels out the information to enable one-click pay and scheduling. Also, Settle creates a unique email address for all its customers, so they can forward invoices to one spot. 

Their unique edge is working capital. With their product called extended payment terms, Settle effectively pays vendors on the date of the brand’s choosing. Then, brands can select their repayment time—whether that’s 60, 90, or 120 days—and Settle explicitly states all the fees associated with that. Best of all: All transaction costs are free. 

Before underwriting an ecommerce business, Settle looks at:
  1. Revenue
  2. Gross margins 
  3. Return on ad spend (ROAS) 
  4. Burn rate 

Those four metrics ensure their team is lending to the right customers. If a brand matches their criteria, Settle will underwrite them the same day. Then, they can start using the platform the following day. 

The last piece of the puzzle is their marketing card. Settle generates a virtual card for brands to plug into their Facebook and Google Ads accounts and manage spend. 

Settle’s card has higher limits than the average credit card. That’s because their team actually knows how to underwrite an ecommerce company. They understand the ins and outs of an ecommerce brand’s cash flow. 

“With Settle, vendors get paid sooner, which makes them happier. Plus, working capital is easier to access for the brand.”  

Cash vs. Equity 

Right now there’s a lot of uncertainty in the market.

When brands come to Settle and ask, “How much capital should I have?” Alek boils his answer down to two key pieces of advice. 
  1. Make sure you have access to debt.
  2. Have extra cash in the bank. 

He also emphasizes the importance of understanding the difference between credit and equity. 

With debt, brands effectively pay a lower interest rate than the cost of capital for venture. Alek says, “If a brand equates venture capital to APR, it’s probably in the 30-40% range.” 

Brands should use debt for something that’s repeatable or a short-term investment that pays dividends. For example, that could be an inventory purchase where a product has a 50-70% gross margin. 

“Any money you invest in inventory is going to come back higher. Leverage debt to increase that. You’ll have a greater return on your capital,” explains Alek. 

The same goes for marketing. For brands with a return on ad spend (ROAS) around 2-5x, that money returns positive dividends as well. 

For R&D and hiring, debt isn’t a good solution. That’s a better use case for venture. Alek notes, “Venture money won’t kill your business. You’re giving away ownership. Remember that.” 

At Settle, they’re trying to educate customers on all these options. And beyond that, they’re showing customers that they have options in the first place.  

“It’s nice to have a little bit more buffer than you think you need. You never know what the next three months will hold in such a fast moving environment.” 

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