Between startup challenger banks and digital arms of incumbent banks, small businesses still struggle to get served. As clients, startups are particularly challenged given their specific needs around cash management.
Today’s guest is Everett Cook, co-founder and CEO at Rho Business Banking. As a hedge fund analyst, he saw an opportunity to change the way businesses interacted with banks. Rho banks venture-backed startups that fall between the cracks at the Chases and Wells and firms like Silicon Valley Bank. With $1 million to $30 million in revenue, they’re too big and complex to operate out of a standard checking account but not big enough to warrant attention at the big banks.
Everett discusses his firm’s recent launch of TeamCards and TeamAccounts, which offer managers at startups deep insight and analytics into their business’ performance by seeing a snapshot of their teams’ performance on a cash-flow basis in real time, inside their bank accounts. We discuss the challenges in banking high growth companies and where Rho is headed.
I spent about 10 years in finance. During that period, I saw a lot of changes in capital markets and a lot of the people in my circle became fintech entrepreneurs. I realized there was a large opportunity to change financial services overall. We’re going through a generational transformation. I teamed up with my partner Alex, who comes from a technology and product background. We started Rho about a year and a half ago.
When we started, we saw that a lot of the change and transformation that was happening hadn’t yet impacted end users. From our perspective, the area that needed the most change — and the area we could have the most impact — was in business banking. It’s an incredibly large part of the economy and the financial system and it’s a universally disliked user experience.
The challenge banking businesses
Most businesses are banked at the top five banks in the U.S. Frankly, it’s not a large segment for them — they make most of their money on consumer banking and banking very large corporates. Everyone in the middle is a little bit of an afterthought — you can see it in the product and service and how they manage those customers.
For us, we focus on one thing and try to do it really well: startups (venture-backed or will be venture-backed) with $1 million to $30 million in revenues. These are companies that are too big to operate out of a standard checking account. They need more. But they’re too small to be an important client at the big banks. We’ve been these companies and feel like we understand their experience.
We come at it from technology and service. We believe they need both — we don’t think just a technology product is enough for them to operate. We try to excel on both sides — finance and technology.
A lot of our customers were at Silicon Valley Bank. SVB has done an exceptional job at certain things. We feel we offer a better experience and a better product.
These customers need best in class core banking — checking account and cash management. They want to be paid best in class rates. They want to stretch their runways to grow any excess capital they have on their balance sheets.
The next thing they need a level of service where they have someone who they can talk to, who knows their business and who they are — so they don’t walk into their branch and are seen as a new customer every day. We had experiences where we would open a new account and not hear from our bank again until a couple million of dollars showed up in our account. We got a call the next day.
The third thing startups need are products and technology that helps them run their businesses better. That’s the ethos that we start from when we build operational tools that sit within the financial function to help our clients run more effectively and efficiently. We think the lines between finance and operations are getting more blurred. As you have more control and better visibility on spend, you don’t need to have a hard line between one department and another.
TeamCards and TeamAccounts
We built these two products based on the experience of my co-founder. In a previous role, he had a hard time controlling employee and partner spend. So, he had created virtual cards on an ad-hoc basis. We tried to formalize this.
You can create teams within a Rho account and TeamCards, which you can attach to those teams. You can manage spend on a budgeted basis. Teams can be actual people, a line item on a budget, or a couple of large client accounts — however you want to think about your business. Cards attach to the teams and funds flow straight through — as do ACH and wires.
The really interesting part of this for companies is that this is a step outside of accounting. We wanted to create a place where companies could build tools to run their businesses without impacting their accounting, which is still based on GAAP. You can see where money is going and flowing on a real-time basis.
The changing role of banks
Business banks should be headed in this direction — providing financial services in an excellent way and helping their customers run more efficiently. I don’t know if this is a trend — I don’t see other firms doing this — but this is our focus.
No data is an island. Everything should work well together. We don’t intend to rebuild the full stack of business products. We believe in an ecosystem approach. Ultimately, we connect to multiple APIs and add new ones almost every week.
The role of humans and technology
We assign a relationship manager to each client. We’re out meeting with companies every day. This helps our customers do more. As we roll out more products, we can better understand their businesses and help them. The only way we can do this is by building relationships.
These relationship managers introduce new products to our clients and provide a feedback loop to us about what they need and where they’re struggling. We want to build things people want. Our product and sales teams sit next to each other and are very close.