Settle x DTC Experts: The Power of Alternative Financing

LearnOctober 6, 20234 min read

In this panel hosted by Settle and DTC Experts, we had the pleasure of speaking with two experienced founders - Katie Kaps, Co-Founder and Co-CEO of HigherDose, and Eric Osman, Founder and CEO of Mockingbird. Both shared valuable insights into financing, managing cash flow, and prioritizing profitability as their companies have rapidly grown.

Financing Journey

Katie first sought outside financing for HigherDose in 2018 when the company pivoted to focus more on location-based infrared sauna spas. With growing inventory needs, HigherDOSE looked at financing but didn't want to provide personal guarantees so looked into financing from platforms like American Express loans, Shopify Capital, and PayPal helped initially but the rates were extremely high . Settle's flexible credit has since been crucial for HigherDose to fund inventory and keep up with accelerating demand growth.

For Mockingbird, preorders funded initial growth for the first couple years after launching in 2019. But to solve inventory stockouts and consistency issues, Eric looked beyond equity to options like ABLs, bank debt, venture debt, and payables financing like Settle to fund the inventory expansion needed.

Cash Flow Challenges

Managing explosive demand growth with limited capital has been the biggest cash flow obstacle for both HigherDose and Mockingbird. Katie shared how HigherDOSE quickly outgrew Shopify Capital and PayPal forcing them to look for alternative financing options to meet their capital needs.

Eric emphasized that the unpredictability of demand and supply chain issues makes taking the right inventory bets extremely challenging from a cash flow perspective: "With physical products, you'll always be wrong, and from a cash flow management perspective, it's how wrong will you be and how much will that cost us." Eric advises taking inventory bets that are justifiable and defensible and to learn from past mistakes.

Cash Flow Management Strategies

Like many CPG brands, HigherDose attains a large portion of their revenue (approximately 50%) during the holiday shopping season so the team employs daily cash flow modeling in the months leading up to the holiday season with support from their CFO and Settle Working Capital's flexible payment terms.

Mockingbird takes a simple but diligent approach - forecasting sales, payables, and expenses in Quickbooks and Excel for the next 6 months on a bi-monthly basis to inform cash projections and financing needs across their various debt facilities from bank debt to Settle.

Perspectives on Profitability

Both Katie and Eric agreed that no cash flow tricks can outrun poor unit economics - focusing on profitability is imperative. Eric even recommends prioritizing focusing on profitability over cash flow, which can be used to as a tool to make the aforementioned inventory benefits but needs to "sit on a strong foundation of sound unit economics."

Katie emphasized focusing on margins and cautioned it is easy for founders to get caught up on production and meeting customer demand without focusing on whether the operations led to business sustainability.

Advice for founders

Katie suggested ensuring your self-care as a founder to avoid burnout. Eric framed inventory and marketing purchases as "bets" - predicting the business outcome, ROI, and impact on cash flows will exceed the cost of financing. Routinely stating and evaluating these bets over time helps make better decisions and make for more accurate bets in the future.

When it comes to assessing financing, Eric also advises choosing flexibility and size of credit lines over simply lower terms. Both Katie and Eric also recommend building strong supplier relationships to get more favorable terms and resolve any potential inventory and payment issues more smoothly.

Key Takeaways

A few key lessons from this experienced founder discussion:

  • Prioritize profitability first before cash flow management
  • Forecast diligently and take "bets" with clear predictions and accountability
  • Add cash flow flexibility where possible - through options like Settle Working Capital
  • Build trusted relationships with suppliers and financing partners

For any brand looking to boost their growth like HigherDose and Mockingbird, Settle is here to help fuel your success with non-dilutive financing and cash outflow visualization. Reach out to discuss how we can support your business!

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