Entrepreneurs often solve their own problems. As a serial entrepreneur in companies as varied as manufacturing, systems integration, and products, Lil Roberts had seen that small business owners across industries often didn’t have the timely financial key performance metrics they needed for informed decision making. She had started businesses from scratch, bought distressed companies and turned them around, but had never scaled a business with equity financing. “I wanted to be part of reshaping an archaic industry,” she stressed — that required venture capital.
The time delay between accounting record keeping and getting financial reports was acute for companies with fewer than 20 employees. And that describes the vast majority of firms. Worse yet, some of these companies don’t do their books regularly. As a result, they don’t know their cash flow needs or the best ways of minimizing their taxes. They don’t know if they will be able to pay their employees or vendors three months down the road. Nor do they have readily available the financials banks want if they need a loan.
Good bookkeeping platforms are many, so there was no need to reinvent that. Roberts chose Xero as the platform on which she would build. Her company would focus on speeding up the human process of getting bookkeeping information into and out of Xero. Roberts would use technology to automate repetitive functions and humans for higher-level tasks.
In 2016, she set out to digitize the process and, by 2017, she had built a minimal viable product (MVP) and launched Xendoo. The first half a million dollars was bootstrapped. Roberts invested her money into the company.
Roberts is a long-time member of Entrepreneurs’ Organization (EO) in South Florida. She served on the board of her local chapter for several years. EO enables million-dollar-plus business owners to overcome day-to-day business challenges through peer advisory groups, coaching, and education. She had invested in the businesses of some members and they offered to invest in her company if and when she raised money. When she launched Xendoo, she told a few EO members who told their friends and, within two to three weeks, she had raised $1.2 million in a pre-seed financing round. A pre-seed round of funding is a pre-institutional round. The startup is working to define the product and gain traction.
The seed plus round was harder because Roberts had to learn the lay of the land — what venture capitalists seek from an investment. Her previous companies were all funded through debt. Fortunately, her pre-seed round of financing gave her time to learn the rules of the road. In April 2018, Xendoo won the eMerge Americas technology competition, beating 99 other companies. In addition to $100,000 for winning the pitch competition, Jason Calacanis — an internet entrepreneur, angel investor, author and podcaster, and a judge for the competition — invited Roberts to join his Silicon Valley incubator.
“Every Thursday, we did three-minute pitches to well-known venture capitalists who rated the pitches,” said Roberts. Her goal was to rank in the top three every week. “For seven of the 12 pitches, I ranked #1.” For the other five, she ranked second or third. This prepped her for the road ahead.
In May 2019, Roberts won $100,000 from the Rise of the Rest pitch competition, hosted by former America Online CEO Steve Case. In the fall of 2019, Xendoo secured a $3.54 million investment led by South Florida-based Malachi, Washington, D.C.-based Rise of the Rest Seed Fund, Orlando-based DeepWork Capital. Angel investor Jason Calacanis’ Launch Syndicate in San Francisco also joined in the seed-plus round.
Roberts participated in more training. This time in Village Capital’s Finance Forward US 2019 accelerator, a collaboration with MetLife and PayPal. The program supports entrepreneurs using tech to help people manage their everyday finances and build wealth. The first part of the training was to think like an investor. Fellow participants ranked themselves against each other in eight categories. “We learned how to put on the lens of an investor,” she said.
It was eye opening.
The second part of the training was even more grueling and gut wrenching. Participants met with 70 experts. They were able to ask questions of the experts around the specific challenges the founders were facing. For Roberts, it was pricing and organizational structure. Feedback was that her pricing was too low. Fees are now a flat rate and tiered based on monthly revenue. The company started as a bottom-up company. Feedback was that the company needed some management structure. A layer of management was added — a COO/CFO, CTO, and VP of growth. A sales team was also hired.
The coronavirus crisis has caused a break in the supply chain for small businesses. The smaller the firm, the more likely this is to impact the company. Service trades, such as plumbing, electric, remodeling, and landscaping; IT services; and e-commerce companies have experienced the smallest decline in revenue. In some cases, they have increased their revenues. “We partnered with Cogent Bank and were able to help our customers secure loans when the major banks let them down,” wrote Roberts in an email. Xendoo helped them understand what they needed to secure Paycheck Protection Program PPP loans, provided the necessary financials, and ensured their tax returns were up to date. In a similar way, Xendoo will help small business clients apply for loan forgiveness. “I believe this [COVID-9] will result in a six to nine-month pause in [Xendoo’s] growth. It could be longer if we see a second wave of the pandemic and a second shutdown.”
How will you educate yourself, so you get the attention of venture capitalists?