Leave No Business Behind – Capitalise’s Covid Response

More than half a year into the Covid pandemic the grim toll on not just lives but also mental health and our economy continues to build with no end in sight. There will surely be much accounting to be done in terms of which responses were right and which misguided, with many learnings and lessons for the future. Part of this post mortem will surely also include how various business reacted, and what they did to help their respective communities.

In that spirit, Capitalise (which is also a QED investment) constitutes a very interesting case study as the team very much found themselves in the eye of an unexpected but nonetheless perfect storm.

By ways of context, Capitalise works with accountants to give them the tech enabled tools to better serve their small business clients. These tools are varied, but many of them center around helping the small businesses get the funding they need to grow and prosper.

Shortly before the pandemic was yet to hit, Capitalise had embarked on a fundraise as part of its normal fundraising cycle. Given strong traction in the latter half of 2019, the company had decided to push back the fundraise to early 2020. The logic behind this was sound: It would mean using up more of their capital cushion, but nobody had any doubt that they would complete a successful fundraise given the performance metrics they had under their belt.

The fundraise was progressing quite nicely when in February, in the span of a few fateful weeks, it became clear that the virus that had originated on the other side of the planet was now spreading across the globe and would soon be classified as a pandemic. The impact of this on Capitalise was immediate: Small business funding, and by extension Capitalise’s revenue took a big hit, and all the potential investors that had lined up decided to play for time to see how things would shape up.

With revenue falling and the funding round on hold, the team at Capitalise found themselves in a position any founder would dread. Of course, on top of all this came the stress of trying to run a business which was situated in London that was quickly becoming the global epicenter of the pandemic.  

There comes a point in every classic drama where the protagonist has to make a decision that will determine how the story will end and how the finale will unfold. This is commonly referred to as the second act turning point, and typically requires the main character to draw on their values, strengths, and powers in facing the adverse circumstances. The founders and team at Capitalise were now in for such an epic test, and without hesitation chose to focus on how they could give their accountant customers the tools to go out and help the thousands of small businesses that were now facing severe and in many cases existential cash flow issues.

The quick and decisive action by the UK Chancellor Rishi Sunak had already made a tremendous difference with their Bounce Back and CBILS initiatives, but these impactful initiatives came a long way from covering every impacted business. To address this gap, in conjunction with The Corporate Finance Network, Capitalise launched #LeaveNoBusinessBehind drawing from the UN’s similarly named initiative. The movement was supported by the Association of Chartered Certified Accountants (ACCA), AccountingWeb, Accountex, AVN, Clarity & Forgotten LTD. Its objective was to provide accountants resources to support their clients.

As they started working in tandem with the government programs to enable the accountants to deliver much needed lifelines to the small businesses, Capitalise faced the first of many choices it would have to take. To deliver the maximum level of loans to businesses in need would mean Capitalise having to forego its own commission income in many circumstances, and this at a point in time where every pound of revenue mattered immensely. Needless to say, the team decided to do the work needed to process many of these loans for free.

The Capitalise team: Helping accountants deliver for small businesses come rain or shine

In parallel to this, the company also got busy on the product side, and in the span of a few weeks took to market a new product that would enable businesses to litigate  on bad debts, which at this point in time was becoming a crucial priority for many businesses.  

The story is far from over, but after those initial fateful months in March, April, and May Capitalise closed a significant funding round with a mixture of its internal and new external investors, and after the initial hit and sacrifices, delivered record revenues in both June and July.

There are surely many such stories yet to come out, and what we do in the commercially focused startup world pales in comparison to the heroic efforts by the doctors, healthcare workers, delivery staff, all other essential workers that toiled so hard during this period. But in the end, every business matters, and it is the sum total of all these small businesses, whether they be pubs, restaurants, theatres, or retailers that make up the fabric of our modern society. In normal times, these businesses serve us on a daily basis, adding to our quality of life. As the going gets tough, it is important we do all we can to not leave any of these small businesses behind.

The Rise of the Workplace Bank

With the advent of the first industrial revolution in the late 18th century, millions of agricultural workers began a structural shift from agriculture to factories, setting in motion one of the most important events in human history since the domestication of animals and plants. While the overall impact on economic growth and productivity is undebatable, there is more controversy around what the impact was on the living standards of the workers that populated the factory floors, in some cases literally working day and night in very harsh conditions.

Some economic historians such as Robert E. Lucas argue that with the industrial revolution the living standards of the masses began to undergo sustained growth for the first time in history, while other historians argue that yes the growth of the economy’s overall productivity was unprecedented but living standards for the majority of the population did not grow meaningfully until the late 19th and 20th centuries. Some argue even further that living standards for the workers decreased initially, citing the fact that the average height of the population declined during the first industrial revolution as evidence that the nutritional status of workers was actually decreasing.

The perceived safety of having a 9 to 5 job is simply no longer there for a vast majority of workers in the 21st century.

It is actually quite easy to see the parallels to today’s debate about the digital revolution, also referred to as the “third industrial revolution” (the second industrial revolution being the advancements in manufacturing technology that took place in the late 19th century, also referred to as the “technological revolution”).

Just like back then, there is today a very important debate going on about income inequality, living standards, and worker’s rights. And for good reason, too. Widely available statistics tell the story of how more than half of all workers in developed countries are today effectively living what could be best described as “paycheck to paycheck”, without a buffer to meet an unexpected expense as low as GBP 300.   

The dangers of being a delivery person are not limited to traffic: Increasingly financial distress is becoming the bigger peril.

This is clearly a big societal problem and causes great stress and suffering on the working people that toil so hard to make sure our modern economy functions. These are in many cases the nurses, teachers, factory workers, delivery drivers, and countless others that are the glue of the modern economy, yet to an increasing extent they are facing great economic hardships and financial distress.

Finding a solution to this problem will ultimately rest with the politicians that we collectively elect, and one can only hope that our leaders will implement inclusive and progressive solutions as opposed to some of the darker paths that have been trodden tragically in the past. There is however also much that can be done at the level of the companies that employ these workers, and I believe many of the fintech companies of today will have a role to play in helping employers solve this problem.

I refer to this phenomenon as “the emergence of the workplace bank”, and to best illustrate what this means there is a very useful case study from one of the big west coast tech companies. This company contracts with millions of gig economy workers globally and used to pay them on a monthly or fortnightly basis as they completed their work.

Several years ago, it became apparent that these workers wanted to get paid real time as they completed their work (driven by the financial stress referred to above), and the tech company arranged with a fintech start up to help achieve this in what we today refer to as income streaming. It turned out that this was such a critical and strategic area for the tech company that they decided to actually bring all income streaming functionality inhouse. Given that they had the tech and developer resources, this was in fact relatively easy for them, and before long they were paying their contractors on a real time basis.

However transferring money each time the worker completed a task (or in some cases at the end of the shift) had a cost associated with it, and the company realized they could save money if they issued their contractors their own cards. This was welcomed by the workforce, and this new card had great (and quick!) adoption. With the advent of embedded payments and advancement in fintech infrastructure, it was also increasingly easy for the company to do this.

Then something very interesting happened. The contractors increasingly started to close their accounts with their former bank, reverting to live their financial lives fully within this newly issued “employer card”. Once that happened, the next logical steps started falling in place like dominoes. The workers wanted to pay their bills from that card, send money from that card, and pay for their groceries with that card.

And it did not stop there. As we know, these workers were very much living paycheck to paycheck, and they started asking their employer for advances or overdraft facilities on this card as urgent financial needs related to their work or personal lives started cropping up. The employer had now become their bank!

The morale of this case study is manifold, but some things are especially worth pointing out. Firstly, while it is ultimately the government’s responsibility to make sure workers are treated fairly and get to live lives without financial stress, the employers will not be able to avoid having to help their workers deal with the new financial challenges of the 21st century for long. I imagine a big vacuum or gravitational pull that will irresistibly pull employers into being part of the solution, making sure their workers can have access to the new financial tools to help them.

Secondly, as increasingly more and more employers will find themselves in this situation, they may also realize that they do not have the resources of this big west coast technology company to develop and create all these solutions inhouse. Hence, they will look to the rapidly emerging fintech companies of today that are active in the HR-tech space to provide those solutions. Some of these companies such as Wagestream have come at this problem from an income streaming perspective, while others such as Ben have come at it from a benefits perspective, and yet others have come at it from a debt consolidation or credit perspective. In the end, the ultimate driver and impetus here will be the crucial day to day financial needs of the workers, so it is reasonable to expect a big convergence as the workplace bank emerges.

Of Tsunamis and Tech: How Wagestream Responded

Tsunamis are a series of waves caused by a large and sudden displacement of water that is triggered by earthquakes, volcanic eruptions or underwater explosions. Rather than resembling ordinary sea waves that are caused by wind, tsunami waves resemble rapidly rising tides that can reach up to ten meters in height. The series of waves usually hit in periods ranging from minutes to hours, arriving in so called wave-trains. While at first they can appear as a big wave on the horizon, as people living in ocean basins can tell you, they are not to be taking lightly: The 2004 Indian Ocean tsunami was amongst the deadliest natural disasters in human history, with at least 230,000 people killed or missing.  

When I think of the Covid-19 pandemic that erupted in early 2020, I in many ways cannot help to think of a giant tsunami. I remember seeing it rise slowly but surely in the distant east, thinking it was scary but unlikely to have such an impact on our distant shores. But with the unrelenting force of nature it was upon us before long, and all that was left to do was to seek higher ground and respond in the best way one can. Whether the worst of it is now behind us, or whether what we have just been through in the last three months was just the initial installment in a longer series of powerful waves, one thing is clear – our society, in fact the entire world, is continuing to go through a trauma, and as the waves recede there will be much reckoning and rebuilding that will need to be done.

There will surely be a particular reckoning in the area of public healthcare, and whether a majority of Western societies were right in running their healthcare systems with a business minded “Just In Time Inventory” mindset borrowed from globally integrated and cost focused supply chains. These are complex questions, and rather than diving into them here, I’d like to focus on something more upbeat and optimistic, and something that is also much closer to what I do. How did the start-up world respond when the wave started hitting? I’d like to focus in particular on the companies where I serve on the board here in London and the first case study I’d like to bring up is Wagestream, on which I had also done a blog last year.

One of my friends used to say that when under stress and pressure, there is a very strong tendency in people to revert to their comfort zones. He had said this in the context of businesses and their leaders undergoing stress, so for example in a financially and quantitatively focused organization the tendency may be to open up the excel spreadsheet and start sharpening the pencil on costs, whereas a more sales and marketing focused one may be more focused on opening up PowerPoint to draft a new story, etc. Startups are by definition nimble and agile organizations, and hence it is no surprise that when under pressure they would rely on their tech, innovation, and product development skills to respond to the crisis.  

Wagestream’s response was in fact a prime example of such product innovation under pressure. One salient memory that will stay with me forever was the Friday before the lockdown was announced, in Wagestream’s Holborn head office. Life was by no means normal and we all had a sense that something big was happening, and the crowed sidewalks for High Holborn would not remain so for long. The cadence and intensity of bad news was rising sharply, and one could almost touch the fear spreading through all segments of society.

It was under these circumstances that Wagestream announced that they were to host their first ever companywide product innovation competition. Everybody was to be involved and were allocated to a number of smaller teams that would compete to come up with new product ideas with the winning ideas to shape not just the future of the company, but also their response to the Covid crisis. I was asked to join the jury for selecting the winners along with the cofounders, and the competition was on!

I have to say I was incredibly impressed with what the team had produced in a very short time! Every idea was amazing, and all of them had the same laser like focus: How can we use our strengths and positioning as an organization to better help our customers and their employees, many of which were incidentally key workers for the NHS, BUPA, and other organizations. I don’t like spoilers, so I will not give away the winning answers here, but you can check out the results yourself from Wagestream’s web page.

Karl celebrating his two year anniversary at Wagestream, just weeks before the product innovation competition. Photo courtesy of yours truly.

One anecdote that really stands out which I’d like to share was regarding one of the winning ideas that was submitted by Karl, one of the very first employees at Wagestream who had actually just recently celebrated his two year joining anniversary (he was the first one to celebrate this milestone at Wagestream). As we were announcing the winners, we asked Karl how long it would take him to implement it and bring it to life. It should incidentally be noted that the competition had only been announced twenty-four hours ago. His answer was a simple shrug of the shoulder, nonchalantly stating “I’ve already done it”. This is probably one of the most brilliant responses I’ve ever heard, and in that time of crisis it was a much-needed morale boost for the entire team.

There may yet be many more waves that come to hit us, but as David Deutsch says, problems are inevitable, but problems are also solvable. As I continue to work with amazing startups such as Wagestream I cannot help but believe that whatever the world throws at us, we can overcome it together.