It was supposed to be a big moment for their business: Co-founders Lara Hodgson and Stacey Abrams had finally landed a big contract to start selling their formula-ready bottled water for babies in grocery stores. They could picture the magazine covers already, the big break their bootstrapped startup needed. But then the reality sank in — all the extra zeros on the order, and the cost of manufacturing the product while waiting for the invoice to be paid.
"You find yourself in this awful situation of doing seemingly everything right because your business is growing, the customers like your product, they're ordering more and more and more, but at the same time, you're not getting paid and so you can't pay your suppliers and your employees," Hodgson told Protocol. "We realized that more businesses grow out of business then go out of business."
That Catch-22 is how Hodgson and Abrams decided to build Now, a fintech company that is helping small businesses get paid upfront for their invoices. On Wednesday, the company announced it had raised $9.5 million in series A funding, which will aid their mission: making sure other businesses don't find themselves in the same situation.
"Everyone told us, 'It's just a working capital issue. Everyone has this problem,'" Hodgson said. "You do not tell an aerospace engineer that everyone has a problem, because my brain hears: 'Well, if everyone has a problem, then the existing solutions must not be very good.'"
It's taken Now, also known as NowAccount, over 10 years to build something better. Now is the third business started between Abrams, the political powerhouse, and Hodgson, an aerospace engineer from Georgia Tech who then went to work in real estate development. (Full disclosure: Hodgson serves on a board at the Georgia Institute of Technology with the author's father.)
The pair teamed up first for a consulting group, Insomnia, before they developed Nourish, a water bottle designed for parents to be able to easily add formula on the go. In 2010, the pair, alongside co-founder John Hayes, started Now. Abrams had been involved in much of the day-to-day to start, but currently serves as more of an adviser while Hodgson leads as CEO.
Abrams's involvement in Now drew some scrutiny in 2018 during her unsuccessful run for Georgia's governor. While Abrams said she avoided conflicts of interest while serving as Georgia House minority leader, documents obtained by the Atlanta Journal-Constitution showed state officials had concerns about the startup's performance. Abrams told the newspaper she was proud of starting a financial-services company that "did not cause a business to sell its soul."
Hodgson admits it's been a more methodical approach to scaling than the fintechs being built now in 2021, but the ambition of changing the financial system is still there.
The idea for Now is to build a payment system for businesses that feels more like taking a credit card. Right now, businesses often get loans or use invoice-factoring companies like BlueVine. Factoring often means a company will "sell" their invoice to get some money upfront, at between 70% to 90% of its face value, and then the rest of it, minus fees, when the customer pays out. Now wants to speed the process up and charge a cut like credit card processors do, versus fees that are based on payment schedules.
"When you walk into Starbucks and you swipe your card, they get paid the next day," Hodgson said. "It's not a loan. It's not factoring, it's not finance at all."
The challenge for Now is getting the risk right. With factoring invoices, the original business is often still on the hook if the customer doesn't pay the invoice. Now absorbs the cost if someone doesn't pay, putting trust in its risk-management systems that it won't happen too often. It tailored its product to only work for businesses that invoice other businesses, often professional services like marketing firms.
"The key to a long-term successful business is balancing scale and risk. A lot of people tend to go for scale first, and then figure out the risk. That can be not only very risky, but exceptionally painful," Hodgson said. "We took a very different approach. We spent several years really not just modeling out the risk but testing some of our components, making sure that it not only worked for us from a risk-management perspective, but that it worked well for the small business."
Abrams and Hodgson may be an unlikely duo to change the face of financing, but that's what happens when you let an aerospace engineer, not a banker, run amok in finance, Hodgson said. "If you think about it, aerospace engineering is all about creating flow and removing friction so that the thing that is flying stays in the air," she said. "It's not that dissimilar from what we did when we first sat down and took all of those tools and kind of broke them apart and said: 'How do we remove the friction from the small businesses experience?'"