#168 Finnecto: Where Deals Don’t Die

Ariel: I'm Ariel Puga. I'm from Chile. I live in Mexico City.

I’m Josh Muccio and this is The Pitch. Where startup founders raise millions and listeners can invest. Today’s founder Ariel Puga, has two strikes against him. One, he’s building in LATAM. and Two: the problem he’s trying to solve, is an extremely difficult one. Many startups have tried, few have succeeded. So what makes Ariel different?

Ariel: One of the things that I love the most is to build from scratch. I love to see how people love a solution that you can build. like you are a superhero for their problems.

The Pitch for Finnecto is coming up, after this. Thank you so much for subscribing to the show. Don’t forget to turn on notifications. And for those of you who have said, hey, you guys should start a newsletter - we have! Subscribe at pitch.show/newsletter.

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Welcome back to The Pitch for Finnecto. Let’s meet the investors.

Paige Finn Doherty with Behind Genius Ventures

What gets me to that hell yes conviction, it’s a founder that deeply understands both sides of the business

Charles Hudson with Precursor Ventures

I feel like I’m the lone dissenter

Jesse Middleton with Flybridge

I don’t normally like edtech, but I really like you.

And Jenny Fielding with Everywhere Ventures

Toughen up there, lady! That’s healthcare!

[clap]

Jesse: Hey, how are you? Great, Jesse. 

Paige: Paige. 

Charles: Hey, Charles, nice to meet you.

Jenny: Hi, how are you?

Ariel: Good 

Ariel: I'm Ariel Puga, CEO, and co-founder of Finnecto. When I say the phrase, we need to wait for procurement before we sign the documents, how does that make you feel? Well 

Jenny: Sad. 

Charles: I think I just made a facial expression which was like, woah, that's where deals go to die. 

Jenny: Exactly. 

Ariel: Well, for the last 10 years I've been working on selling and building SaaS for enterprises across Latin America, from Brazil to Mexico. Once I closed a deal, a super big deal with one of the largest banks. And I say, okay, let's go. Let's start. They say, hold on Ariel, we need to wait for procurement. I say, okay. How long does it gonna take? A week? Two? Yeah, it's gonna be, I think, less than a year, they say. 

Charles: Jeez

Ariel: So it's crazy because if operating a spend is so critical for companies, why is it so complicated? Operating spend is the second largest cost for companies after payroll. So that moment was super important for me because I decided to quit my job and give all in on this venture with my co-founder and CTO Vicente. He's one of the best and brilliant people I ever met outside of my wife, obviously. Of course. Uh. 

Jesse: She's watching. 

Ariel: Yeah, yeah, yeah. And actually, he turned down an offer to work at Meta in San Francisco in the FinTech space. Okay. So right now, in just six months, we have closed 20 enterprises, across four countries. We reach over a hundred thousand dollars in ARR with just a small team of four. And all with founder led sales. Now we are raising $1 million to make procurement easy for enterprises. 

Paige: Cool. Thank you. Yeah. Thank you for coming today. Can you share what, how do you do that?

Ariel: Okay. So we found that spend procurement is super complicated because you have multiple requests every day. You have to manage your vendors. You need to approve all the process to account payable, and you need to involve different departments, legal, compliance, you know. So what we do is we give a platform, one front door to every employee in the company so they can start a purchase request. We automate all the policies that the companies have. And then, we connect different departments that are involved in the process and we connect the vendors for the transactions so we can connect the full journey into one platform. So they can operate and have full visibility of the process since their request is started until it's paid. 

Jenny: So just going with that thread, there are all these different groups. You're providing this end-to-end workflow, which is great. How do you incentivize the people in these different groups to actually, do what part they need to, whether it's upload documents, approve things so that this can move more quickly. 

Ariel: When you have different departments, one of the things you need to do is to give features and the solution that they need to work daily. For example, the first thing we do is that requesters have a platform where they can initiate a request. But the thing is that when that connects to the legal department, they need to do all the process for the contract sign. When that process goes to compliance, they need to create the vendor. So what do we do is given to them a platform where they can create the vendors and connect all of the vendors. So then you connect this with accounting. What's a pain for accounting? Accounts payable, approval, checking the invoices. So that's what we do. We understand every need that every department has. So we can create features and the solution that they need. So every department love what we do for them. They don't care about the rest of the journey. Legal doesn't care what is happening in accounting. They want to know what's happening in their department. So that's what we do. 

Jesse: Can you talk about sort of how you've approached the sort of integrations in each of these departments, they might use 1, 2, 3, 4 different tools. Every company's a little different. So how do you sort of figure out which integrations you need with which ERPs, has it just been driven by customer demand and, I guess, how many integrations do you think you need to build in order to succeed? Is it hundreds or thousands or are there just like a couple dozen. 

Ariel: I would say that the main integrations that you need to operate is accounting. That's critical for the operation. Right now, I, I would say that 90% of the need they have. It's for the accounting process. Okay. So we started by integrating their ERPs, but as well, we have an API so they can integrate their solutions. Okay. When they have a legal solution, we can integrate the solution with our API that we have for them for every customer.

Jesse: Got it. 

Paige: Does the integration process look different for each company then? 

Ariel: First? What we did. Create the native integration so you can integrate Finnecto to SAP, for example. 

Paige: Mm-hmm. 

Ariel: But then you need to create the middleware where they can connect the information as they wish. So integration is the same, but the way they want to integrate the information is different. And it's a good point what you say, because I remember my last experience, an integration process could take over a year. It's super difficult. So when we did this, right now we are able to have a customer fully integrated in just four weeks. So that, that's amazing. 

Charles: Can you talk more about the business model? 

Ariel: Well, it's been a journey. The more users we have. The better. 

Charles: Okay

Ariel: So we are building a solution, not for SMB. We're building a solution for mid-size enterprises and large enterprises. Okay. So right now our companies have an average of 500 employees. Right now we are charging per user. We have two kinds of user, approver. And requesters. In the beginning, what we did was charging for everyone in the company, but not everyone was using the platform every day. So what we did is just charging per approvers. If you have more requesters, you're gonna have more approvers, so. Right now we're targeting $20 per user. That means that right now, in the last two to three months, our average, it's about a thousand dollars a month per, per company. In the future probably we're gonna find a way to charge per requester as well, but right now that works very well.

Jesse: Is your -

Jenny: Can you talk a little bit about your customers? You said that they're in different countries, and so kind of what's your go-to market strategy 

Ariel: Right now we have four countries. That means Mexico, Colombia, Peru, and Chile. We focus on those four countries because, you know, are the biggest in Latin America. We are focused on services companies and that's important. Why? Because services companies have pain in operating spend. They have to control spend every day. So we really think that services companies are good market for us. And we are focusing right now on those four countries.

Jenny: Okay. And then just how do you acquire those customers? I mean, you're different countries, you're probably a very small team, so what's the go to market there? 

Ariel: We have a really good team actually. 

Jenny: Okay. 

Ariel: I'm from Chile, South America, but I live in Mexico. But before I live in Peru. And before I live in Brazil. Okay. So- and then 

Jenny: Making the rounds. 

Ariel: My last experience of working almost 10 years in SaaS, I opened in offices from scratch, literally in those countries. So, when we started, what I, what we say with my co-founder. We need to build a billion dollar company. So we are not gonna make it just with one country in Latin America. That's impossible. We're not gonna make it. That's what I saw in the past. So what we did is we're gonna validate the need first from the day one in four countries. That's what we did. So. All the sales were outbound. I still have the messages that I sent on social media, you know, and cold calling different, uh, 

Jenny: And that's how you got your first customers, cold calling?

Ariel: Yeah. All, all of them. All of them. 

Jenny: I've invested in a lot of latam companies and it's a little more typical where they start with a small country like Columbia. They kind of get the lay of the land before they scale into, you know, say in Mexico. So your strategy is slightly different in you're kind of testing a bunch of places. Have you kind of. Thought through both of those models? 

Ariel: Well, I would say that when I worked for my last companies, one of the things I learned is that when you prove a country, then you realize how difficult is to scale to a different country because they have different needs. In our case. From the beginning. We want to build a solution that can scale faster. So we say we're gonna find strategic companies in every country to create the solution, to build a product, to understand if the need is same or similar between them. And we did it. We did it. As I say, we want to build a 1 billion company, so I wanna make sure that what we Think is real, and we did it. 

Jesse: Who's the buyer? When, when you're doing those cold calls? Is it the procurement group that's driving this or is it, you were talking about sort of accounting and finance faces the biggest problem here. Have you found that it's just a normal sales process into these or what has that experience been in cold calling. 

Ariel: When we started, we made a mistake. What was the mistake? 

We’ll be right back.

Jesse: Have you found that it's just a normal sales process into these or what has that experience been in cold calling. 

Ariel: When we started, we made a mistake. What was the mistake? Prospecting the purchasing managers in, in every company. We got some calls with them and they say, I love your product. We want your product. But they didn't buy it. 

Jesse: No budget? 

Ariel: No. No, because they didn't have the, the power to make the decision. It was a good learning, good memories actually. But then we realized that, the CFO of the company really wants to overview the budget 

Jesse: Yeah. 

Ariel: And how spend is happening in real time. So what we did from October actually, was just meeting CFO and we say, how do you control budget? Okay. This way. This way. Okay, so please tell me right now how much you are gonna spend in purchases, subscriptions, in the next three months. They didn't know it. So we say we want to do that with our product. They say, I want it. So now please meet the finance teams, the procurement teams, to check or validate the product. We found that that was a good way. So we sell to CFO or finance teams, but our users are finance, accounting, compliance, security, legal. But the decision is made by the CFO. 

Jesse: Got it.

Jenny: Over the last decade of me investing, I've heard the procurement pitch many times. It's kind of where deals go to die, everyone hates it. And many people have tried to have SaaS companies around this or SaaS solutions. So can you just talk about what do you think your secret sauce is and is there like a timing or a moment that you think that you'll succeed where a lot of these folks have not?

Ariel: So, our secret sauce, I would say that. There are two things. The first is that we provide every employee with a single front door. So that process is a game changer because when you give an employee a platform where they can start a request for a contract, for a vendor creation, for app subscription, for a payment, you know, for every part of the process. They really love us. So that, that's important. The one front door that we have in our platform and then that you, we are able to create all the workflow that they have or all the many workflows that they have into just one. And that's amazing for them because they can save money in many platforms, they can save human resources a lot. But I would say that more than that, they can save money. And that's important. Super important. 

Jenny: Can you talk a little bit about the raise? how much have you raised before and how are you gonna allocate this money? 

Ariel: Our first investor was plug and play from San Francisco. They invested. It was a check that allowed us to create the product, but a few weeks ago we got invested by hustle fund. 

Jenny: We've heard of them. 

Ariel: Yeah. And then we have other angel investors. Right now, when in total we have raised about 350,000. 

Jenny: Can you tell us the terms? 

Ariel: Yeah. $5 million post money valuation. We're gonna focus this round in two things. First, sales, and as well, we need to work on the product. So we expect to have a small, but really good team to reach a million dollars this year and scale. 

Jenny: And how many customers will that be? 

Ariel: That would be a hundred in total. So we have 20 from 20, so 80. 80. 

Jenny: So you're gonna add 80? 

Ariel: Yeah 

Jenny: just in 2025.

Ariel: Just in 2025. Okay. And, and actually what we see with the customers that we're meeting right now is that our average ticket is increasing every month and as we have a stronger product, we can reach higher tickets. 

Jenny: That's great. And what's the burn? 

Ariel: Right now with the four, it's about seven. 

Jenny: Where will it go up to? 

Ariel: Yeah. $7. Well, if we raise the million dollars and we can sell what we expect, we can reach breakeven in September more or less. So with the new hiring, it's gonna be about 15,000 a month. 

Jenny: Pretty reasonable.

Ariel: Yeah. 

Jenny: I hate to be the annoying VC who asked this question, but in latam, I guess maybe in particular, people always think of like, okay, so this company gets big, and then what happens? So if you were to project 10 years down the road, what does the company look like or what are, you know, the kind of exit opportunities for you?

Ariel: Hmm. To be honest, when you build a SaaS company in Latin America, numbers are not easy to build a 1 billion company. But when you create a transactional model on your product, that changes. So first I would say that after regional Latin America, we have opportunities with new verticals around the operating spend. We really believe that we can win the Latin American market not just with the software, but with transactional models, with different businesses around what we are building.

Charles: I think you're super impressive and I'm still wrapping my head around how capital efficient and low cost operation is. I think I'm gonna be out just 'cause this is a category where I've had a really hard time finding companies that can scale, but you seem incredibly qualified to go after this and. And getting customers in four countries at this early point. It's something that's really impressive. 

Ariel: Thank you. 

Jesse: I am also probably, yeah, we don't do a, a ton in Latin America. We're mostly in the US. We do have an investment in a Latin American company called Fin Cargo. Which is in the sort of payments, debt lending, but for intercountry products. And, and one of the things that they look at is how do they affect procurement processes? We as a firm, I have two other partners and we sort of invest together, but also independently, you know, we make different decisions and I would love to introduce you to my partner who did the Fin Cargo deal. 'cause I feel like he may. Like, click with you better on this. And you're a little on the early side for what we tend to write larger checks in. But I think it'd be good for you to build a relationship and perhaps we get there on this round, but if not, to stay in touch for the next. 

Ariel: Amazing, Thank you. 

Paige: I think for our fund, it's not an area I've spent a tremendous amount of time in. I It was, sounds like the product suite that you're building is driving like a tremendous amount of value. But unfortunately our, like, mainly oriented around US centric businesses right now. So for the geographic reason, I don't think it'll be a fit, but I was super impressed by your story. And like, it seems like you're building an incredible business. So I, I wish you the best. 

Ariel: Thank you. 

Jenny: Yeah, so you kind of had me at a 7K burn. Yeah, we invest quite heavily in Latin America. I do a lot of FinTech and SaaS. I think that going to multiple countries at once is hard, but you seem to be able to somehow do it. So I, you know, have a lot of respect for that. So. With that, we are interested in a 100k check. However, we would want the whole round to come together. So maybe slightly different than some of your other investors that kind of invest along the way. We would wanna make sure that you're adequately capitalized. 

Ariel: Amazing. Thank you. 

Paige: Woo.

Jesse: Great.

Josh: And Ariel, for the pitch fund. We work a little bit differently, we're a little bit quicker, and we would like to write at least a $50,000 check in your company depending on where your valuation lands at this point. but, we move relatively quick. 

Ariel: Amazing. Welcome aboard. 

Paige: Yay. 

Jenny: Good way to end the day. 

Ariel: Yeah. Amazing. Thank you. 

Josh: Well done, Ariel. Thank you so much. 

Paige: Congratulations. 

Ariel: Thank you so much

Jesse: Thank you. 

Ariel: Bye. 

Jesse: Goodbye.

Charles: Thank you.

Jesse: It was great to meet you.

Josh: I am so sorry to say this, but I've been replaced. 

Paige: Elizabeth!

Elizabeth: Amazing 

Paige: Wait, is that why you weren't here?

Elizabeth: Hi, my name is Josh Yeah. So I'm curious what you all thought. 

Jenny: I mean, he, he was, he was awesome. I mean, he had great answers. I need to see the product and see, you know, I've looked at so many procurement workflows and I want this to work. 'cause that is like the most awful situation.

We see our companies that are trying to sell into bigger companies struggle. So I'd say that got me very excited. Obviously the capital efficiency is incredible. You know, I always do worry in these latam companies of like, okay, you get big, and then what? But I thought his answer was great. I mean, I feel like a bank could buy him, you know, the SAP of Latam can buy him. So it seems like there are some exit opportunities, which is usually not top of mind, but just having been investing in Latam for the last decade. Yeah. I'm like, I need to figure out how to get my money out. Um, so there's a little bit of that, but ultimately just loved his vibe.

Elizabeth: Yeah, no, Ariel's awesome.

Jesse: We've invested in a number of companies in Latin America over the years. We do a lot less of it now. One of the challenges is this, like tax and excise, like everything you do there is then effectively cost you 20 or 30% more when you get your money out. So whatever your like goal is, like a billion dollar company is really a $700 million company, so it's, that's hard. I would say though, he was very impressive and is super passionate about this space, which is hard to be like, it's like not, you know, I just think about these things and so I, I love that about him. It's like, so all the special sauce is like, I know what I'm doing, it's like better than the others, but that like, just there's like a little bit more, and I think there's a way to describe it and also it may benefit with a demo. Like, or Yeah.

Paige: Yeah. I was going to say I feel like a demo could have been really helpful 'cause I was struggling to like connect with the product itself. 

Jesse: Yeah. 

Paige: It sounds like it was driving a lot of value, but I was like. What, what is it?

Charles: I literally kept writing down I like him, but what is it?

Paige: Yeah. 

Charles: And I wrote it down like three times. I'm like, I believe it's valuable, but if you asked me to spit back what it is, I'm not sure. 

Jesse:Yeah. Like if I asked you to describe the first screen that you got to, I think you'd have hard time describing it

Paige: Wait did, did you get a demo, like in your investment process? 

Elizabeth: Yeah

Paige: Like earlier on? Like was it part of the initial pitch?

Elizabeth: So I’ll tell you. Actually, we initially passed. With Hustle Fund for many of the reasons you guys brought up already, which is we've seen a lot of procurement platforms in latam and all this other stuff, and I think it's also really hard to wrap your head around like, what, what is this touch? What is this Doesn't? But actually big credit to one of our venture fellows, Tony, who kept in touch with him and had the ability to see the learnings and the insights over the last few months. That he briefly touched upon here. Basically the customer persona which is like the service providers is like definitely the better customer audience than the original audience that they were going after. 

Jesse: That's cool

Elizabeth: Yeah. 

Paige: Yeah.

Elizabeth: Cool. 

Paige: It was awesome. Congratulations. 

Charles: Yeah. Congrats. 

Paige: Yeah. 

Josh: Good job, Elizabeth.

Paige: Yay. Yay. That was so fun to have you come back in. 

Josh: I think I'm out of a job. All right. Dinner's in 15. Well, 13. 

Ariel walked out of the pitch room having procured $100k from Jenny and $50k from The Pitch Fund. Will it take a year for legal and accounting to sign off?

Diligence is coming up, after the break.

BREAK

Welcome back. A few weeks after the show, Ariel got on a call with Jenny and her team.

Ariel: Hello. Hi Jenny. How are you? 

Jenny: I'm good. How are you? 

Ariel: I'm doing well. Hello, Scott. How are you? 

Scott: Hey, how's it going? 

Jenny: This is our team, Scott my co-founder and Connor. And, um, should we just kick it off, 

Scott: I guess to, to jump in, one question we that we have, just having been in the game of venture for a decade plus, things go up, things go down, things go sideways. Could you talk about an experience in your past that sort of, uh, a resilient experience where things don't go your way? Basically when the going gets tough. Some founders throw in the towel and they quit. Other founders sort of double down. They get gritty. Can you talk about a, maybe a moment in your past where you've kind of had a very resilient sort of comeback? 

Ariel: OI have many. We could, we could have, uh, bourbon right now, and I can tell you many stories. For my first company called Lemon Tech, that time, email didn't work for, for prospecting? Never, uh, you had to just call, cold calling, you know, all the time. But no, nobody answer the phone. So what I, I found out that was that if I wanted to reach those companies. After the office hours, I mean, at nine, eight, or nine, I found out that if you call companies, that call is redirect to the security guard. So what I found out is that when I call during nights, I can talk to the security guard and ask for the number of the decision maker that I was looking for. So that's how I grew for four years doing the process. So, uh, I always stayed from seven to 10, 10 30 in the night, just making my cold calls to the security guard for almost four years. I closed super big deals over 10,000 a month. Doing that. Okay. So, uh, so it, to me it is a really good story because actually nowadays I have to apply this sometimes. 

Scott: Amazing.

Jenny: So Ariel, we’re kind of curious. One of the topics of conversation in our team is just how you go multi-country at once, and I know we talked about it a little bit on the show. I think oftentimes when we talk to founders that are trying to do something really hard, like going multi-country, they underestimate just the internal works of that. So I understand it's hard to get customers there. It's also hard to build a global team. So any insights or tricks or things that, you know, you've kind of thought about to build cohesion amongst your team? I mean, we, we have people in Europe, we have people across the US. And it's challenging. So any thoughts there? 

Ariel: Well, I would say that first my vision of building a team is that I don’t like the good people. I like the great people. So when I hire people, I spend almost two weeks with them doing different things. Drinking, having coffees. You know, actually the last people I, I hired, I went to the gym with a person and talked with him. You know, super, I, I, I really wanna know the people, so. I would say that building teams in, in Chile is much easier that than in any other country. I mean, Peru, Colombia, uh, Mexico, okay. Building teams in Colombia is about purpose. And in Mexico it's about purpose and money. So that, that's, that's, that's way, way hard. My opinion about building teams in different countries is that you need to, uh, have people that really trust you and you need to be there at least once a month outside of the office, I mean, having a beer, you know, and meeting their families, uh, to me that's crucial because when you meet their families. They, you can connect as well with them. So they, they support you actually. So that, that, that's really good. 

So I, I really think that you need to find faithful people and as well people that think that they can have a purpose in their lives for the future. 

Jenny: Connor, we haven't been to the gym together, but maybe that's our next bonding. We've just hit top of the hour and we actually have to go.

I think, um, next up on our side is. just to kind of run through the financials with you. And Connor will kind of lead on that side. So he'll set up a call with you this week and kind of just run through some of the assumptions, how you're kind of thinking about what some of those numbers will look like and go from there.

Ariel: Great. Thank you so much, Connor. Thank you, Jenny and Scott. Awesome. 

Jenny: Great to see you again, Ariel.

After this call, Everywhere Ventures had more diligence to do, but The Pitch Fund invested the following week. 50k in Finnecto alongside Hustle Fund, who had already invested in the round.

Ariel met with Jenny’s team again to go over the financials. And they decided to invest too! … but with the caveat Jenny brought up in the pitch room

Jenny: With that, we are interested in a 100k check. However, we would want the whole round to come together. So maybe slightly different than some of your other investors that kind of invest along the way. 

In January, Ariel had raised $200,000 of the million. So Jenny chose to wait to wire until the round was closer to the $1M target.

But Ariel kept building momentum. In February he hit $600k, and by April, he wasn’t just encroaching on a million, he had blown right past it.

At this point, Ariel messaged the team at Everywhere Ventures. Saying “it’s time to wire!”

But by the time they got back to him in May, a new investor had come in with an even larger check, which bumped the valuation up to $7.5 million. When Ariel updated Jenny on the new terms, they decided not to invest.

In the end, Finnecto oversubscribed their $1M round, by quite a bit. They raised $1.7 million. — Sometimes rounds move quickly and terms change. If you don’t move quickly too, a round can move on without you.

No offer to invest in Finnecto is being made to the listening audience on today’s show. But you can join our private newsletter for LPs. Where you’ll get access to the deals we’re doing behind the scenes.

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This episode was made by me, Josh Muccio, Lisa Muccio, Anna Ladd, Enoch Kim, and Jackie Papanier. With deal sourcing by Peter Liu, John Alvarez, and Phoebe Sun.

Music in this episode is by TK

The Pitch is made in partnership with the Vox Media Podcast Network.