#435 – Revolutionizing E-Commerce Financing: Innovative Solutions for Amazon Sellers
What if there were a way to finance your Amazon business without falling into the traps of traditional loans and predatory cash advances? Our latest episode of the AM/PM podcast promises just that, with insights from our special guest, Nadav Gorlicki of CapEc, who has charted an incredible journey from IT to Amazon entrepreneurship. Nadav shares his firsthand experiences in navigating the financial challenges that Amazon sellers face today, especially as rising fees and costs make sustaining a business more difficult than ever. He reveals the strategic financial solutions that CapEc provides, which are designed to align perfectly with sellers’ ROI and cash flow, offering a viable path for sustainable growth.
Starting an Amazon business is no small feat, especially if you’re working with a limited budget. Managing cash flow effectively can mean the difference between success and failure. We discuss various strategies to overcome the long lead times before sales begin to pay off, and the critical decisions around funding options like loans versus equity investments. Nadav introduces alternative financing solutions that allow sellers to maintain inventory without the burden of personal guarantees or credit checks, thus preserving their ownership stakes. His insights are a game-changer for anyone looking to build a resilient and profitable e-commerce business.
But let’s not forget the bigger picture—while financial success is important, it shouldn’t overshadow life’s simple pleasures. In a thought-provoking segment, we reflect on the importance of balancing work with experiences that truly enrich our lives. From spending time with family to enjoying the moment, we encourage you to remember what truly matters beyond the balance sheets. Tune in to this enlightening episode with Nadav Gorlicki and uncover strategies that could transform your e-commerce journey while keeping life’s joys in perspective.
In episode 435 of the AM/PM Podcast, Kevin and Nadav discuss:
- 00:00 – The Challenge of E-Commerce Financing
- 07:42 – Rise of Specialized Companies in Selling
- 13:38 – Navigating Amazon Startup Financing
- 18:08 – Benefits of Partnership With Amazon Seller
- 19:00 – Sustainable Amazon Seller Financing Options
- 27:22 – Analyzing Product ROI for Business Success
- 32:26 – Effective E-Commerce Financing Strategies
- 36:08 – Financing New Product Launches
- 44:06 – Revolutionizing E-Commerce Financing Solutions
- 44:53 – Changing Amazon Industry Success Rates
- 50:34 – Understanding Payment Terms and ROI
- 53:04 – Finance Your Growth With CapEc
- 54:42 – Remembering Life Beyond Money
- 54:49 – Kevin King’s Words of Wisdom
Transcript
Kevin King:
Money, money, money. That’s right. Welcome to episode 435 of the AM/PM podcast. We’re going to be talking about money today. With all the fees that Amazon keeps increasing, with the tariffs, with all the increased costs of selling, it’s becoming harder and harder to cash flow your business. Still a great opportunity selling on Amazon, but you need more money than ever and you need the right partner, and that’s what we’re going to be talking about today with Nadav Gorlicki from CapEc. We’re going to talk about some of the things you need to be thinking about, some of the different options you need to be looking at when it comes to money, and talk about some good solutions. I think you’re going to really get some value out of this episode, so please enjoy this AM/PM podcast.
Kevin King:
I don’t think everybody in our business ever gets tired of talking about money, and so we’ve got one of the premier guys in the space right now, maybe someone that’s kind of been under the radar for a little while. You might not have heard about them, but that doesn’t mean they haven’t been around and don’t know what they’re doing. I’ve got Nadav Gorlicki on the AMPM podcast. How are you doing, Nadav?
Nadav:
I’m doing great. Thank you, Kevin, for having me. I’m doing great. Yes, I think maybe we have been a little bit under the radar and it’s time everybody gets to know us and be glad to talk to you about it today.
Kevin King:
Awesome. Now you run a company called CapEc. That’s the correct pronunciation, right, or Cap-E-C as it’s spelled. How are you guys actually pronouncing that?
Nadav:
CapEc.
Kevin King:
CapEc.
Nadav:
First time you said it was great.
Kevin King:
Awesome, I figured that was right. But you know people listen like, all right, here we go. Here’s another guy just wants some money at some high interest rates or something. But you actually have a different perspective on all this. You guys were actually you still may be doing this, but if I understand correctly, you came from the selling world.
Nadav:
Yes, that’s correct, I’ve been selling. Actually, my background is even from IT and cloud computing. I started my first company at 2001 and I sold it in 2015. We were almost 70 employees and 14 data centers around the world and then I went into Amazon and since then fell in love with it. I’ve been doing e-commerce for almost 10 years now, probably started about 10 brands private label still have four brands of my own, so very active in the space and very familiar with it and as an entrepreneur, most of my life, when I saw something’s missing or missing a product or a solution in my business, I have the knack to go and create it. So, specifically CapEc we started only three years ago, but a little after COVID, when basically e-commerce was booming, Amazon was exploding and, of course, one of the biggest problems back then was financing, because all the rest was much easier right and when I looked into this industry as a seller and I do have some experience in the finance space, invested for a few years in the MCA space so I was familiar a bit with how those finance solutions work and I felt that our space, the e-com space, is missing a finance solution that really promotes growth, that really helps the seller, that connects directly to the seller’s ROI and cash flow, and those are the most important things when you’re managing financing in any way in your business, whether it’s with that or without, and that’s why we started out three years ago.
Kevin King:
So the MCA world for those that don’t know, that stands for Merchant Cash Advance and that was an out-of-control business for a while. I mean it’s come down now, but it was. I actually back before there was a CapEc or back before there was any of these other options that are out there now in the Amazon world, I think there might’ve been Amazon lending, there was nobody that really understood, when I needed money in 2015 and 2016, understood this business. I walk into the bank and they look at me like Amazon. That’s not a business. I’m not giving you any money. Where’s the assets? Where’s the building? Where’s this? I’m like no dude. I’m making more money than freaking the pizza hut you just loaned a million bucks to, but they wouldn’t do it. So I had to and I didn’t qualify, or I just qualified for Amazon lending at the time. I think you had to be six months or a year selling. I can’t remember and be invited and then so I had to go out and do get non-traditional loans with, with Cabbage and with Blue Vine and with On Deck and with all these crazy people.
Kevin King:
But that’s not really MCA, MCA or the I call it the New York Mafia. It’s the New York Mafia. It’s the boiler room guys and based in New York, because there was a friendly judge and the laws were friendly in New York for this, where they would come to you and they wouldn’t. It would not be a loan, so they did not give you a loan. They would give you an advance against, technically, your credit card receipts. So that was the original concept is, if you’re doing, you know your Amex and Visa and stuff, they give you an advance against that. But they would twist the rules. So it didn’t. They didn’t care if you took credit cards or not. So if you’re an Amazon seller, you’d give them a login to your bank account, literally a login, not just PDFs of your statements, but a login. They go, look at your cashflow, see how many checks you’ve balanced in the last year, do a risk profile and then say, all right, we’ll give you X amount of dollars I think the biggest one I got was 120 grand on that and then you’re able to stack them. So one guy might give you $120,000. And if you need more money, the next guy, he’ll give you $80,000. And the next company will give you $50,000. And at one point I had seven of them stacked but my bottom guy had like 25.
Kevin King:
And they put UCCs on here. So they file with the state in my case Texas to show the order of who gets paid back first by default. But the kicker on these guys, what was I was? They gave me 80 grand but only 72 000 went into my bank account. Uh, the other 8,000 was bull fees ACH origination fee, setup fee, investigation fee, overnight notary fee, and I would have to sign documents basically a default judgment before I would actually they would send the money. So I had to go to the bank, sign a document, get it notarized and FedEx it to them and then as soon as they got that says I’m in default to this loan, so that they could then take that down to a courthouse in White Plains, New York if I defaulted the next day and actually seize assets without going to court.
Kevin King:
So it was, and then the interest rates were the interest daily paybacks and the interest rate started. I mean, the payment started the next day and they didn’t call it interest, they call it factor rates. So it’d be like a 0.4, which is basically 40% interest, but that 40% interest would be in 90 days, so really over the course of a year, that’s really 160% interest rate and it’s just, it’s just crazy, and so that that’s how I’m just I’m just telling the story for everybody, so that that’s how, in the early days, you had to actually get money if you didn’t have a rich uncle or have your own money or didn’t qualify Amazon lending, and at one point, I had 16 of these out to build my business, and it got crazy. I never missed a payment, but it got crazy. And so then, around 2018, 2019, a lot of specialized companies started popping up. Bonillo, I think, was the first. They’re out of business now. They didn’t do proper underwriting and then several others popped up.
Kevin King:
And then you’re saying that, around COVID, you saw the opportunity to come in and apply some of your knowledge and what you know from the selling side, which I think is unique. Most of the people that are coming in offering money are coming from the banking side or they’re coming from the investment side. They don’t really understand Amazon. So I think that’s a unique perspective. So what made you decide? Because in 2020, 2021, around COVID, there were quite a few of these already some that would take equity positions in your company, some of just straight loans like SellersFi, some that would do like Amazon lending, um, and there were several other options. What did you see? That was totally missing, that you could come in and that really would set CapEc apart?
Nadav:
So I saw a few things. One is that, as a seller and looking at other sellers, like you mentioned, I would always get approached by sellers asking me if I could invest in their business, and it was usually for inventory. I mean 80, 90% of our capital is in inventory. As a seller, because without inventory our business isn’t growing and we’re not able to sell basically. And then as a private investor, if I was giving someone equity for inventory it doesn’t matter for what as soon as I gave him equity, I wanted a pretty high stake in the company, especially if it’s starting out, which is a very expensive solution for a seller. I mean a seller that’s doing $500,000 a year. He might be making profits of $100,000 or something like that, and now he needs to buy inventory for $200,000. If I’m going to give him $100,000, I’m going to want 25%, 30% of his company right, and that’s an expensive solution that I didn’t feel any seller should have to go through. On the other hand, even the banks or the MCAs the amount of financing that they would give you would also be relatively low to what the seller needs for growth.
Nadav:
Now, when you look at these stores. When you look at a store that’s basically skyrocketing, you know, for the last 12 months they’ve been going up steady 10% a month. They’re product selling, they have a profitable product and their only problem right now is to bring that inventory and they need to bring in double, triple the amount of what they have. Obviously, even if they’re making 100% on their product, which is amazing, they don’t have enough to meet the demand. So they’re all going to find themselves eventually out of stock, losing their position, and great stores that are in a growth state are now going to go back down and start all over again because they didn’t have enough inventory. Now, when you look at such an amazing product or a company that’s growing and doing well, the risk is relatively low when you understand it as a seller.
Nadav:
The bankers don’t understand this because they don’t drill down into what you’re selling. Are you profitable? How’s your PPC? How much are you ordering? What’s your competition in the category? None of these finance institutions understand what we’re talking about. So when I look at it and understand this, we understand and we underwrite the customer on a product level and we join the customer in that same risk on the product level. So that’s the one important thing first of all, that we feel that, with the right type of underwriting, looking at all this data that we know how to look at on Amazon or Shopify and this data is even better than business data that most finance institutions look at, because they might look at your QuickBooks or even your bank account but they don’t really know what’s behind that. I mean, even if you’re invoicing customers, you don’t know what’s real, what’s not. When we’re underwriting an Amazon customer, we know that it’s 100% real data. I mean it came from Amazon. We know every single thing that happened in the store from the day he opened it. So I know every listing that got closed, every return that came back on that product, every review that was written on that product and how many sales it had.
Nadav:
So we have all real data and understanding that data allows us to really give, to understand truly the risk of the store that we’re going to finance and we look at. And the second thing that was even more important is the cash flow, ROI. I mean the time the cash flow that an Amazon seller needs to deal with is very different than a standard pizzeria or even a wholesaler or reseller, because we have very high bursts of expenses when you’re doing especially private label, when you’re doing manufacturing because you have some kind of deposit. Only 60 days later the product 30 to 60 days the product will be ready You’re going to have to pay the difference in advance, usually the full amount. Then you have to pay the shipping company. It’s going to take you another month or two to get it into Amazon and start selling your product. That’s when you only start seeing some kind of ROI and then hopefully you bought product for three to six months forward. So that’s the term that us going to take you to sell off that product. So your entire return on investment is usually six to nine months from when you place the order and from your manufacturer. All those term loans and MCA loans that you gave as an example. You got money today, they start taking it off tomorrow, so you didn’t really get any ROI back from your investment. If you took money from a loan like this in order to buy inventory, by the time you sold that first unit, in most cases you had to pay back half, if not three-fourths, of the loan you took.
Kevin King:
That’s exactly why it creates this. If you’re successful in Amazon, a lot of people say how much money do I need to start? I’m brand new, I want to start selling on Amazon. I say it depends on your goals. Do you want this as a hobby, to make a little money for a side business, to take a trip with your family, or do you try to make a living off of this, a real living? And that varies. But let’s just say you start with 5,000 bucks is all you got. That’s your life savings. I always tell people yeah, you could start with 5,000, but you’re going to need more money really quick. And out of that 5,000, you need to spend no more than $2,000. So divide that by 2.5. And now, with all the increased Amazon fees, probably should divide that by three or 3.5. But let’s just use 2.5 in this example. So it means you need 2,000. Your landed costs that’s, your manufacturing costs, your tariffs, your shipping everything to get in Amazon needs to be no more than two thousand dollars. So when you pick a product to sell on Amazon, you’re going to find opportunities that don’t fit that mold. That don’t fit that. They’re going to require more money. So you either got to go, get more money to be able to do them or reduce your expectations or change the product. But then if in the extra $3,000, you’re going to have some costs for software and, like you said, the cash flow you’re going to have to pay. If you’re successful, the worst thing you can do is run out of business.
Kevin King:
So you have to pay for the next order before you’ve even sold the first order. And it’s not just like what you said, it’s about 100 days on average. For from the time you place an order with the factory and you give them typically it’s usually about a 30 percent deposit, which is money that’s out the window for a while, and then they make the product usually takes 30 to 60 days, like you said, and then it’s another, unless you’re air freighting it and paying a lot of high price. But on sea, even air freight takes a week or two, but if you’re putting on sea it’s another month to come in. Then it’s got to get checked into Amazon. Amazon sometimes can take two or three, four weeks to check it in. And then Amazon, once you start selling, they don’t pay you for three to four weeks until after the sale. They hold the money. It’s seven days past the expected delivery date and they’re about to raise it, I think, to 10 days, and then there’s some other fudge. So you really have this really long window before you start seeing a dime come back.
Kevin King:
And if you’re successful, you’ve got to get ahead of the game. Maybe you ordered 2,000 units to start with and you’re seeing holy cow, I’m selling these at the clip of 100 a day. I need to order 10,000 on the next order. I don’t have the money. You haven’t been paid from the first one. So now you’re having to go back out and get another loan. That’s why I had 16 loans. You have to go out and get another loan to actually cover that cost. But then, like you just said and it’s a very important point that everybody listening needs to understand is I’m paying on that first loan that I took out if I took out one when I haven’t even generated cash on it, and I’m having to use money from the second loan to not only pay for my inventory but to maybe start making the payments that started the next day or that month or the next first of the next month if it’s on a term loan and you get into this freaking thing where you’re robbing Peter to pay Paul and you never have any money. You may have profits on the books and you show it a 20% profit on a you know, on a cruel basis or whatever at the end of the year, but you don’t have money to buy macaroni to eat that night and it gets. This creates this vicious cycle. And I think a lot of people don’t understand that. And that’s where you can go to somebody and your rich uncle or your neighbor and say invest in my company. But then you look at that and, like you the example you gave, you want, if you’re going to put in the a hundred grand, you want 25, 30% of the company.
Kevin King:
Well, that’s, you’re giving away for a hundred grand and let’s say you’re successful and you sell this company for 10 million, uh, no, say five million, uh, in three or four years, because that should be your goal. You just gave that guy for that 100 grand, you just paid him 1.3 million versus if you took a loan out, even many loans that same 100 grand might have cost you another 100 grand or another 200 grand. At the end of the day, you come out way ahead and I think a lot of people don’t look at that. So when you can do something like what you guys do because your structure is more like you partner like you said it’s on a single skew basis. Correct me if I’m wrong here you guys structure it so it’s based on the individual product and then you put the money in and you work with them on a cash flow basis and you basically share in the profits of that until that is paid back, and then you’re free and clear unless you need money to do the next order. Then it kind of starts over again. Is that basically the gist of it, of how it works?
Nadav:
Yes, that’s exactly how it works. We’re partnering with our customers and we finance up to 75% of the PO of buying that inventory and that specific inventory that we’re partnering on. That’s the only thing we take as collateral. So basically, like you said, we’re partners. We have no personal guarantee, no credit checks, no business liens. We believe that that inventory, that product that we checked ourselves with our experience. We believe and know that it’ll sell very well and there shouldn’t be a problem. And even if something happens to our customer as a partner or he makes a mistake, we have our experience to come and help. So if your listing gets closed, we’ll help you open it. If your container got stuck in customs, we’ll help release it and obviously we won’t start charging any of the of the repayments until that product is actually selling. So you’re getting a lot more than a finance partner. You’re getting a strategic, experienced Amazon seller partner that’s in there with you for good and for bad and obviously we want all our products to sell and everything to go well. And when you look at the profit share, I mean most sellers are making between 70 to 100% on their cost of goods. If you’re not in those numbers, then obviously you have to also recheck your profit and everything.
Kevin King:
When you say 70% to 100% on cost of goods, what do you mean by that? You’re key stoning. 100% would be key stoning, would be doubling.
Nadav:
Yeah.
Kevin King:
So if your cost of goods is $2, you’re making $2.
Nadav:
Exactly profit, right.
Kevin King:
Okay, All right, All right. So that’s a different way of looking at it. Instead of a bottom line I just want to explain that to everybody listening. Instead of a bottom-line contribution where you’re like I got a 10% or 20% profit at the end of the day, you’re approaching it from a slightly different point of view. I just want to explain that. Okay, cool.
Nadav:
Yeah, that’s very important to understand because I’m looking at it as an ROI investment. I mean you’re taking your money, you’re buying with it inventory and then you’re going to get some kind of ROI. You’re in this business to make more than what? If you took that money and put it in the bank and got 5%, or if you went to the stock market and maybe got 10%, you’re building a business. You’re going to make at least 70% to 100% if it’s private label sellers. That’s usually the margins we work on because, like you mentioned, we buy a product for ten dollars, you’re gonna sell it for around 35 and you’re gonna make anywhere between seven to ten dollars net from that 35 dollar sale, after Amazon fees, shipping costs, all that. So so there’s a a good margin here when you look at your ROI, as long as you can finance that ROI and continue to bring in as much inventory as needed. So when you have those numbers, we come in and let’s say we see that you’re selling 2,000 units a month and now you want to buy another 10,000 units for the next five months. Everything makes sense and you’re making a 20% on the top, which is about 70 to 100% on the on your ROI. So our costs might be anywhere between around 10% for those five months only. So you’re going to make 70%. You’re going to make basically a 60 to 90% on everything that we’re financing. We just get 10% and 70% of the risk is on us. Most of the profit you get. So, when you look at it, that’s the business proposition that we were trying to create is believing in good customers, believing in good stores, believing in products that have good sales history and very good growth potential, and after, with all that data and underwriting, we’re able to take this risk and join our customers and basically allowing them to, and they can buy as much inventory as they want and not worry about cash flow, which is the most important thing.
Nadav:
The examples you gave with those loans, what happens to people? They go into a spiral effect. They take another loan just to pay off the loan before, and these are expensive loans in most cases and they can’t get out of it because they’ve already in a place that their existing business, even with its growth, can’t make up this cash flow that they’re in. If you work with us exclusively, you’re never going to need more than 30% capital and you’re making 70 to 100%, so you’re always going to have that extra 30% capital from your profits and we’re putting in the 70% so that way you can always grow almost unlimited, get to a 5 million, 10 million and 20 million revenue business without even having to bring any other capital from somewhere else. Just on your true growth, yeah, you’re going to have a partner that’s going to take a small percentage of the profit, but it’s just a small percentage of the profit, no equity.
Kevin King:
No, it’s not equity, yeah.
Nadav:
Yeah, none of that stuff. And then, on the risk side of it, what I see all the time which is hopefully in most cases no problem, but in many cases ends up drastically is these Amazon sellers. Like you said, they start out with the $20, $50. They mortgage their house or they brought a loan from friends and family, put in $100,000 in their business, $200,000. They’re doing $1 million a year. Great, they’re putting everything back in their business and, like you said, they don’t have any enough money to buy a dinner or, obviously, a gift for their wife. And this happens for a year or two, even if they’re doing two, three, four million dollars a year. They don’t have a salary, they don’t have any steady savings, they don’t have cash. And then sometimes things happen. Amazon shuts down, your listing closes your store because of a mistake even two, three, four, six months. You’re fighting them until you get it back open. You could basically go bankrupt in that time. So another important side of this is risk mitigation. Someone who manages businesses, who creates new businesses.
Nadav:
When you look out there into the market, any business usually tries to get investors or other people’s money to grow their business. It’s also a risk side of it, because when you’re working with us, we’re 70%, basically, of all your business. When it comes to the risk, and you should be able to pull a salary. You should be able to save some money on the side and if something bad happens, yeah, it’s going to fall on us more than on you. So we’re also going to be there to help you get out of it and, most likely, you won’t be in a situation where you go bankrupt or something like that. This business might fail and you can start a new one and continue with your life. So-
Kevin King:
How do you mitigate platform risk? Because Amazon can yank a product for sometimes what seems like no reason, just because the algorithm didn’t like a word or didn’t like something, or one person says, oh this caught my house on fire. Or that girl that’s in your ad and your makeup ad looks like she’s 13. She’s not old enough and it’s a sexy picture of her smiling, or whatever. How do you mitigate that risk? Like you said, if your clients have an issue, you get you jump in and help them out, but does all the payback stop during that time? Because sometimes, like you said, those can take months to resolve. So I’m I still have a little small amounts. It just gets reduced. Or, while that’s going on, are you basically stop payments and you add extra interest on the end, because you are tying up your money and your investors money, so it can’t just like just be magic, magic dust and just disappear. So what actually happens in those situations? Because that’s a regular occurrence.
Nadav:
Well, every situation is a little bit different. But, yeah, we always understand with the customer, we sit with them, we see what’s the problem. We obviously try to help and solve the situation as fast as possible. But, like you said, sometimes it can take a month or two. Sometimes it can even take six to 12 months to solve the problem. So during that time, yeah, we’ll take a small percentage of payouts, according to what we’re able to sell. We’ll connect to the true revenue of the cash flow of that store. We’re not looking to kill the store because then no one’s going to make any money. Or, in other situations, we’ll step in and take over the inventory and sell it through our stores until we solve the situation with the seller. So we have a customer that got hijacked and his store got shut down. So we’re selling his inventory through our stores on the same listing. Even his listing is still continuing to sell. So it keeps its sales rank, it keeps its BSR. We’re saving him even in that way until he gets his store reopened and then we’ll put it back.
Kevin King:
That’s what the guys at art naturals and those guys used to do when they were gaming the system back at five, six years ago, where they knew they were gonna get shut down. So they had, like, I mean, they were doing it you’re doing it the legitimate way but they were doing it where they had five other distributors that would buy their products. The same distributor was the guy sitting next to him at the next desk in the office, uh, and that way they would stay up when one went down because they were doing some crazy search ranking or black hat review stuff or whatever. That’s actually that’s a really cool strategy. That’s a unique angle that most people aren’t offering. I haven’t heard where, if you get in trouble, you just will become a distributor and sell it on the listing and keep that helps. That actually helps keep it it going. So while they’re fighting the problem, they’re not losing rank, they’re not going in the can. Um, that’s actually really good. I used to actually, I look at my product as stocks. Every individual product is like a stock and like I want an ROI on that product.
Kevin King:
Most people talk about their profit of the whole business and they don’t look at, they don’t pay attention to their products, and I think a lot of times people launch too many products and it becomes almost unmanageable or they don’t know the actual ROIs on a product by product, by product basis. And so I think that’s an important thing that people a lot of times it’s better to sell 10 products than sell 200 products. Even though your cash, your total gross receipts, might be less, you’re actually money in your pocket oftentimes is more, because there’s less hassle, less inventory, less storage, less all this other stuff. Do you go in sometimes when you see, when you’re analyzing, I come to you and I say, hey Nadav, I need 100 grand for this product. This is what I’m projecting out. You take a look at it, because you’re an experienced seller, I’m like a banker and one of these other people. You actually have a clue. Let me take a look. Let me pull up Helium 10. Let me pull up all these tools. You know what, Kevin? I think this is a mistake. You don’t need 100 grand. You need 200 grand, because your sales are projecting like this. We’re a partner with you. We don’t want, we want to make as much money, as much return as possible too. We’re going to give you 200 grand instead of a hundred grand, because do you ever do something like that?
Nadav:
Yes.
Kevin King:
Like you cut them back? I’m not going to give you a hundred. You’re over projecting. Based on our experience, you should only have we’ll give you 50 and you should order instead of 10,000 units, let’s just do 5,000 units.
Nadav:
Yeah, so that happens more often than the other one. Yeah, a lot of times when we, when we go in and we check out all the products that the customer wants to buy and, like you said, we, we analyze each product in its own level, its own profitability, its own inventory forecast and and its own competitor market in that category. So a lot of times we’ll come back and we’ll say, hey, look for this product specific. You asked to buy 10,000 units. We believe you’re not going to sell more than 5,000 in the next five months, so maybe you want 10,000, but that’ll take you a year. We’ll finance $5,000 out of that, or you can buy a smaller amount and we can always refinance the next PO in another couple months. A lot of people also overpurchase because they have MOQs or they’re not very forecast savvy and they’re overbuying because it’s also simpler. Yeah, I want to fill a container. That’s great, you want to fill a container, but if you’re only saving $3,000 on the container and then you’re going to sit with inventory for six months, that’s going to cost you $15,000. Then it doesn’t make sense, right?
Kevin King:
Exactly. I see that happen all the time. I think so many people don’t know what inventory turns are. You know, you look at someone like Walmart, the stores, their average inventory is 8.3. So that means that every item in a Walmart store turns over 8.3 times per year. So that’s the average. Some things are way faster, some things are slower. I used to sell a crepe maker and this crepe maker made me good profit and I was. I was probably making $5,000 a month or something on this product, clear profit. After you know, it wasn’t a huge seller but it was middle of the pack and did okay. But every order I only ordered twice a year and so I was tying up my money I forget what 40 grand or 50 grand or whatever for the PO but I was tying up that money for six months, basically because I only had two inventory turns per year and I was making $25,000 on a $50,000 investment or $30,000 on a $50,000, which is 70%, like you said, basically the 70 to 100%, which is not bad.
Kevin King:
But then I looked at it like what if I took that same $50,000 and I found a different product that I could turn on a six times per year basics with similar margins I could amplify my money so much more, I should quit selling this crepe maker. So I quit selling the crepe maker, even though it’s profitable, and put the money into something else that gave me a better return, just like you would do in stocks, instead of investing in some random stock. Like NVIDIA is going up and Tesla is going up, I’m putting it where it’s going. That’s how I look at it, and I think a lot of people that are sellers don’t look at it like that. They don’t even know what an inventory turn is. Do you see that happen a lot.
Nadav:
Yes, I see that happen a lot. Like you said, a lot of times people have too much inventory of a bad product, too little inventory of a good product, not enough. They don’t understand the drill down of their true profitability. They might be looking at their TACOS in a general manner, but a specific product has very bad PPC and it’s eating up and ruining their TACOS for the entire store basically because they’re not drilled down into that exact skew. You know they have a PPC company and they’re not going down and checking everything on a SKU level or ASIN level. So it’s the advertising, it’s the amount of inventory, all these things that come into analyzing the specific products that we’re going to finance. So we’ve even had a situation where I had a customer. He grew from 1,000 units to almost 1,500 units a month and he came to us yeah, I’m going to buy now 50,000 units, but when you check the category that he’s in, the entire category is selling 2,500 a month. So what you’re going to take over the category? No, you’re at 1,500. You might —
Kevin King:
No, no, Nadav, it’s because his supplier said he’s going to give him a five-cent discount for a unit. That could also be something that happens, he’s going to save some money on his units. Come on now, you’ve got to get with the show here.
Nadav:
Exactly so yeah, we take our experience and we always try to give that feedback back to the customers. We’re not like when you go and ask for financing from a bank or anything like that. They’ll just come back to you with a yes or no. That’s it. We come back to you with hey, this product you’re overbuying, this product has bad PPC. You have to improve it. You’re losing money on it. This product you have very expensive fulfillment cost and shipping costs. It’s very bulky. You’re at 3% profit or 5% profit. Consider what you want to do with this product. We’ll only finance 20% of it because it’s a risky product. So we come back with all that feedback and in that way you get some kind of information. And it’s not only a one-time thing, because we’re on a per PO basis and we’re connected to your store. We’re monitoring your sales and your profitability ongoing in real time. So even if we see, compared to other finance companies, on the risk side of it because we’re monitoring everything we’re monitoring especially our inventory that we’re invested in. If we see that your PPC starts getting bad or suddenly the product came in and a higher FBA, fulfillment cost and the profits went down, we’ll come and we’ll flag this product and we’ll come and talk to the customer and see hey, we need to do some modifications here because we’re in a bad position and if we keep going this way, you’re going to lose money and then most likely we are not going to make our money back. So we’re there all the time, even ongoing, not just when we first start off.
Kevin King:
So if I come to you, do you only do Amazon and Shopify or Walmart the stores not Walmart.com but Walmart the stores says Kevin, we love your slow feed dog bowl. Well, we see that it’s doing well. We want to put in all 4,000 of our stores. Here’s a PO for $380,000, and I need to finance that. Do you finance that as well, or do you specialize just in Amazon and Shopify, where you have the data, where you can pull all these APIs? Because if I go to retail you lose a lot of that ability to see the big picture stuff.
Nadav:
Right. So at the moment we’re very focused on Amazon and Shopify, where we have the data, and that’s where we’re at. We do have what happens a lot of times is the fact that once we’re financing that bulk amount of capital that’s tied up in Amazon and Shopify, once he’s able to free all his capital when it comes to the financing for that, then a lot of times the seller can use that capital either for his capital that he freed up, either for financing retail, financing growth, creating new products and taking more riskier investments. Then that’s one thing that happened. And also when we’re working with our sellers and we have a relationship ongoing. We’ve had already at least five sellers that did get into a situation like that where their product’s great, they’ve reached for three, four or $5 million of revenue on Amazon and now Walmart came in and gave them a PO. So we have a relationship, we know how they work, we know that they’re successful, so we are able to do special types of financing for those situations and we have done Walmart retail a few times in that case, when it’s both sides, when we have the online and the retail together.
Kevin King:
If I’m working with you and we got partnerships on, let’s say, three of my SKUs and I come to you and say Nadav, I’ve got a new idea. I’m going to launch this new dog leash and I think it’s going to crush it. There’s no data on it. Will you finance me on that? Or do you only do products that have a history that you can go back and you can see?
Nadav:
So we do only products that have a history that we can go back and see, because that’s also where you need the bulk amount of financing. That’s where the bulk amount of your capital is invested. That’s where your big orders are. When you’re doing a new product, whether you buy 1,000 units, 2,000 units, it’s not a large investment. It’s not a large amount of money. You can use that money that you freed from us financing your 80% of your inventory because those are your main SKUs then you can use the free capital to do new launches and as soon as that first order came in and started selling and you have four months of history and you need to do a new order, then we come in and help you grow it to infinity, basically.
Kevin King:
So what are your requirements? How many months do I need to be selling? What’s the minimum amount that you’ll partner up with? What’s the maximum amount? What are some of those?
Nadav:
So you need to be selling. You need to have an active selling store for at least a year and an active product for six months of history. That’s what we’re looking for. You need to have a revenue of $200,000 last 12 months.
Kevin King:
Not that product, but across all products.
Nadav:
Yeah, across all products, and it needs to be a PO of at least $10,000 because we finance 70% of it. We’re not here to finance $3,000, $4,000. $7,000 is the minimum finance ticket that we want to deal with.
Kevin King:
How high will you go?
Nadav:
We go to the millions.
Kevin King:
So the interest rate does it vary or it’s a straight partnership rate? When you come in as a partner in this and then do you also, do you have access to like? Are you pulling draws directly on my Amazon account or am I actually turning around and paying you? Are you doing automatic ACHs out of the bank or, every time I get paid, do you put some sort of lien on my Amazon account until you get paid back? or what happens there?
Nadav:
Okay. So yeah, it’s a fixed rate for the schedule that we built together. So, if we decided we’re buying inventory for five months’ worth 10,000 units, we’re going to build the repayment schedule to match that sales rate so that it connects to your cashflow, and we’re going to pull it out through ACH debits. And you’re going to know in advance, those 10,000 units cost us $100,000. And we our partner, we took 10% fees on that. So you’re going to pay us back $110,000 in those five months basically. And it’s a fixed schedule that’s pre-built and signed from day one when we pay the manufacturers and we pay directly to the manufacturers when they need to be paid and then we ACH debit after the payouts from Amazon on those scheduled dates that we concluded on beforehand. Also, which is very important, we always try to have efficiency use of funds and the most steady cash flow possible. So that’s why this whole product is built on paying directly to the manufacturer. So when we sign an agreement, you know you want to go in and manufacture 10,000 units and you only have $20,000, $30,000, but we approved you. You’re going to put the $30,000 deposit. We’re going to pay the 70.
Nadav:
If the manufacturing got postponed, there was a hurricane or a blackout in China and it took three months now to manufacture, nothing changes in the deal until we didn’t deploy the funds, until the product wasn’t ready. And we also insist on post-production inspection and we’ve checked that inspection because we need to know that the product’s in good standing, because that’s our collateral. So our deployment of funds is always exactly on the dates when the suppliers need to be paid and that’s how the repayments always connect and correlate to the same schedules and time wise. So you’re always you’re not going to have any surprises. You took a loan out from Amazon funding now expecting to pay at a certain schedule. Your manufacturers and things got postponed. That money basically sat in your bank account for two, three months, did nothing. You’re paying interest on that. You’re already paying repayments on that loan before you even started selling the product because it got stuck in customs or because the manufacturer was postponed. With us, we’re connecting to the real payments and the real repayments always, so you never have those cash flow restraints. You can always sleep well at night and not worry about waking up tomorrow morning and having an ACH debit that was returned from your bank account because your cashflow didn’t meet up to it.
Kevin King:
When you pay the factory direct for what’s typically a 30% deposit, do I start making payments on that while everything’s being manufactured and shipped over over those next 90 to a hundred days, or does the clock start ticking on me paying you back when I start cash flowing?
Nadav:
Yes.
Kevin King:
And I’m paying me.
Nadav:
So the clock starts ticking when you start selling and paying us back, and we do this in a way, like I said, in most cases we’re financing 70%. So in most cases we’ll tell you to pay the deposit whether it’s 10, 20, 30, whatever your payment terms are with your manufacturer will come in for the remaining payment when the product’s ready, when it’s being shipped. We’re always the end payment because until there’s not real product that’s released we don’t really have any collateral. So it’s hard for us to pay deposits. We pay the remaining payments and then we do a grace period until for the amount of time it takes to ship and start selling. So it might be 30 days, it might be 45 days.
Kevin King:
You’re doing this smart because you have one. The seller has to have skin in the game because they’re paying that advanced deposit, so they’re a true partner. They’re not just using your money. You’re paying directly to the factory versus sending it to them which a lot of people and they end up using it to pay for marketing expenses or to buy a new car. I used to know people that got Amazon lending loans to invest in real estate. Like, well, I don’t need the loan, but it’s cheaper than I can get at the bank. I’m just going to invest in real estate, and that’s what they did with them. So you’re running a much more tight ship and actually that probably cuts down on your defaults significantly.
Nadav:
Of course, I think we have the lowest defaults in the industry right now. Because of the way we work, I see ourselves as a responsible partner and a responsible adult. Like you said a lot of times, people, when they get a loan, even though before that they could barely buy dinner, now they got $100,000 in their bank account that Rolex watch that they wanted all this last few months. This is the time to buy it. So no, we don’t do that. You don’t get the money to your bank account. You can’t use it for anything else. It goes directly for payment for a specific inventory, because that’s what you need from your store and that’s what we believe will help you grow. And if you’re doing it right, then you will be able to pull a salary, you’ll be able to pull dividend, you’ll have excess cash flow in your business so that you can live well and live on your business, because you have a very good, strong partner that’s helping you and monitoring you and taking care of you in that way.
Kevin King:
So you guys really work with people quite a bit. I mean a lot of people. They’re just all about the money and they’re just let’s get a hundred loans and we know that seven 8% of them are going to default. We know what you need to charge this. This is right to get this return to our investors and that’s all they care about. Versus it sounds like CapEc actually has a vested interest and you’re like in the weeds with them and you want to see them grow. It’s not just a numbers game. Sure, you got to have a return for your investors and the banks or whoever’s supplying your money, the funds behind, but it sounds like it’s a totally different, more personalized, hands-on approach than what most people are doing.
0:44:28 – Nadav:
Yes, it is completely. I mean, when we look at the inventory and how much he’s buying, like I said before, if he wants to buy more another and he has a large revenue in his business, most lenders will give him the money. Sure, buy as much as you want, it doesn’t matter. If it doesn’t make sense, we won’t allow him to do that. We’ll finance what we believe he needs to buy for the next few months and then he can come back and we’ll buy more together when it sells and when it’s working. We really want to change the Amazon industry. Today, probably 90% of new sellers fail or close in the first year. We want to change those statistics. We want more people to succeed and there’s no reason why they shouldn’t. So many businesses fail just because of bad cash flow management, bad reinvestment or not even having enough cash to build their business. So we’re bringing all our best practices and expertise from all the years, investing in the right places and the right products with the right entrepreneurs that want to grow, and if we do it the right way I think that’s why we have the lowest default in the industry. Our sellers will grow, we will grow with them, and everybody could succeed much more.
Kevin King:
90% on the first year, but I can’t come to you and get a loan until I’ve been selling for a year. So how do how do we help? How do we help the those 90%? Is it education? Is it like they should reach out to you? You know, maybe you’re not at that one year mark, but you, you’re starting to crush it and you’re looking for some options. Do you guys do any kind of like hey, go ahead and reach out to me and we’ll help you a little bit, or help you, walk you through? And in the hopes that they become a customer when they hit that one year mark, or sometimes, maybe you make an exception, hey, this guy is just. The numbers make sense. This crushes it. We will, actually, you’ve been for eight months and you really could use our help, or are you very strict on that?
Nadav:
No, we’re not very strict. If it’s like I said, if it’s a seller that has reached a certain revenue and he has POs of $10,000 and he has sales of over six months, the one year selling mark isn’t a block. But we do need the product history and then we can grow with the seller.
Kevin King:
Now, do I have to be based in the US, a US company? I mean, I know there’s a lot of people that live in other countries and they have a US company. Do I have to have a US company to actually work with you guys, or can I work with you if I’m living in Dubai or Libya or somewhere and selling?
Nadav:
Yeah, that’s a huge advantage with us. Also, when creating the product, me personally, I was living abroad, so it was impossible to get the US financing. Most of the finance out there. They want social security, they want an LLC. All that Because we’re partnering on specific inventory, because we’re paying for that inventory as a buyer’s agent. So we have ownership on that inventory as collateral. We only look at where that inventory is located. So as long as you’re selling in the US, Amazon.com or in the major countries in Europe where we have that inventory as collateral, then we don’t care where the company is incorporated and we can finance that inventory wherever it’s going basically.
Kevin King:
So I can live in Dubai, have my company set up and incorporated in Dubai, be selling in either the US and or Europe, and I’m good to go with you guys.
Nadav:
Yes, we have many customers like that.
Kevin King:
That’s awesome. That’s a very unique. That’s not a lot of people are doing that. They specialize in a certain region. So when you, when you say that you have a lien or you have rights on this inventory, are you doing something where, if I order 2,000 units, you’re working with a 3PL and like 1,000 of those stay in the 3PL and 1,000 go on Amazon? Or if I ship all 2,000 of those units into Amazon and then something goes awry like my listing gets suspended for some reason and, like you said earlier, where you’ll grab those and sell those on your account, or someone just doesn’t pay or goes belly up and you need to grab those back out. Are you having to pull those all the way back out to your 3pl and then relabel them and put them back in? or do you have some other system?
Nadav:
So in most cases, yeah, we’ll have to pull them back out and relabel them and put them back in um, but yeah so. But we follow the inventory wherever it is. So if you’re working with a 3pl, we’ll take view access to the WMS and see how much inventory is in there. We follow the inventory that’s on Amazon because, also because the inventory we’re partners on, if we predicted together five months sales and you’re doing great and you’re selling it in two months already, obviously we also expect to get that money back already earlier because that inventory has been sold. We’re connecting and partners on that specific inventory. So if it sells faster, we want to get paid faster and we even give some of the fees back and we can reorder together again for another order. And if it sells slower, then we’ll reschedule the payment terms so that it matches the sales rate.
Kevin King:
Besides the standard, you haven’t been selling for a year, or you don’t have six months of history on this product, or you haven’t reached $200,000 in sales or some of your basic requirements. What are a couple of the things that gets people turned away, besides those basic fundamental things? When you start looking at their stuff, is it the profit margin? Is that you guys have no clue what you’re doing here? You’re buying this for 11 bucks and selling it for $14. You turn them away. What are some other things that you see that are common reasons for your underwriting team, besides the standard basic requirements. That gets people turned away.
Nadav:
A lot of times it’s profitability. We’ll come back to the seller and show them that, hey, you’re losing money on this product. Improve your PPC first before we can finance it. That happens quite often that a seller doesn’t even aware of his costs in a very good way. Also, the amount of inventory, sometimes the forecasting, or he doesn’t have stable sales maybe ran out of inventory many times during the year because he wasn’t planned well. So it makes it a little bit harder for us to understand the true sales rate. So in those cases, in most cases we’ll still finance, but at a lower percentage, not 70%, maybe 30%, 40%. So those are some of the underwriting places. Oh, and also he might have payment terms. We had right now a situation where a customer comes to us. He’s selling 2000 units a month. He has a 90 days terms with his supplier and he wants to finance a 2,000 unit order. So we come back to him and say, hey, your supplier is giving you better terms than what you’re selling. You don’t need us. That product is going to be sold before we even have to pay your supplier. We’re not here for that. We’re not a revenue financing. We’re not here to give you money, just for the hell of it.
Kevin King:
I think he wanted a new Rolex. He wanted a new Rolex.
Nadav:
Exactly maybe.
Kevin King:
Or a good gift for the wife for Valentine’s or something.
Nadav:
So other financers would come in and say, sure, here, take the money, but he doesn’t really need the money for that. He needs it for other things, and that’s something that’s also very important. Sellers should understand what they take money for, where they’re going to use it and, most importantly, where’s the ROI to pay that back. Because if it doesn’t align exactly, that’s when businesses go under.
Kevin King:
Can you give me a story about someone? You’re like holy cow or someone rang the bell in the office like we got one here. That’s going to just like take us shoot to the moon. Is there anything that comes to mind along those lines?
Nadav:
We had a couple of them. One was a very, very, very strong. He came in very, very strong even on an electronic device. Less than eight months. He reached almost 800,000 in sales in one month on his eighth month.
Kevin King:
Wow.
Nadav:
So it was amazing. You know a huge category. The category sells almost probably around 40, 50 million a month and he reached almost a million in less than a year of that category and we also had a toy company that started with us. They were at maybe $50,000. And within I think 16 months they were already at $500,000 a month.
Kevin King:
Wow.
Nadav:
And that was not an easy category because there’s a lot of competition, a lot of everything. But you see real entrepreneurs that are dedicated, working probably 14, 18 hours a day, doing their peer, going into their PPC, drill down everything. They there were two, three people each one took really responsibility in a certain part of the business whether it’s the PPC, whether it’s the logistics or whether it’s the creatives and just did it perfectly right. And you put all that together and if you do it right and you invest the time you need, then there’s no reason why you can’t succeed.
Kevin King:
So if I want to succeed and I want a partner like you guys to help finance my growth, what’s the best way to reach out and to do that? How do I get a hold of you guys and how do I start the process?
Nadav:
So you can send us an email to sales@CapEc, or you can go on to our website, www.CapEc.io and fill in an application, set up a call with one of our experts and it’s a very easy, very simple application. Usually at the end of the application you connect your store to our API and within 24 to 48 hours, we are finished underwriting your product and can either approve you or not or give you the feedback on why we didn’t feel it fits, and you got nothing to lose. Even if you sign with us on a deal and you end up doing great and you have extra cashflow because basically, you went and you did a purchase order and a month later you still have, still have money in the bank. You didn’t need us. No problem, nothing lost. I always recommend sellers put in application, get approved. It’s a great safety net. Nothing’s going to happen if you don’t use it. It’s not going to cost you a dime. You’re going to get all this feedback. You’re going to get all our help when it comes to the chain of logistics, so we definitely recommend reaching out.
Kevin King:
Well, I really appreciate your time today, Nadav. This has been awesome, and thanks for everything you’re doing to help sellers out.
Nadav:
Thanks for having me, Kevin. It’s been great and I really enjoyed getting such a high level and drill down of the business. It was wonderful.
Kevin King:
Awesome.
Kevin King:
Some great options on how to actually finance your growth on your Amazon business. But you know, I want to remind you of something before I leave you. We’ll be back again next week with another awesome episode of the AM/PM podcast. But remember that money is important in life and, yes, it does play an important role, but it can’t be the only filter for how you decide to spend your time, and that’s where I think a lot of us get lost. Nobody will ever pay you to go on a date with your wife, or pay you to take your kids to the park or grab coffee with your parents. So always keep that in mind, and so many of us just get caught up in the money. But enjoy life along the way. We’ll see you again next week with another episode of the AM/PM podcast. Take care.
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