Thank you guys so much for joining us today.
And as you guys may or may not have noticed,
we have been doing a lot more videos regarding equipment financing and I am very
excited for today because we have a veteran in the industry. George,
he is someone that is well-known and he has a wealth of knowledge that he's
gonna share with us today. So George,
go ahead and introduce yourself and the company that you're with and we can get
started.
Sure. Uh, I'm George Parker, COCE,
O of Vince, source Capital.
Our firm specializes in providing equipment financing to
venture capital backed startup companies.
We're we're actually located in Connecticut and here in New York,
and we've been doing this for over 25 years.
25 years. George, that is amazing. And thank you for having us over your house.
So let's get started. How did you get into this equipment financing industry?
Well, I actually, uh,
started in commercial banking with a bank out in Chicago
and, uh, came right out of, uh, MBA school. And, uh,
after the training program I was assigned to a, uh,
division that focused on equipment finance companies.
And so that's how I got my first introduction to the industry.
So from there, you know, now you're coce o of vent source capital,
you guys specifically, uh, on a specific niche in the area,
in the space. So kind of tell us a little bit more about that.
Well, as you know, uh,
the equipment finance industry is a very significant industry. It's over, uh,
$1 trillion annually and volume.
And within the industry there are, uh,
n niches and ours is one of them.
So we cover a segment of the equipment finance industry
that, uh, focuses on earlier stage companies, uh,
startup companies. And, um, I,
I think our space is probably 30 to 40 billion
a year. And there are multiple players,
somewhat similar to my company,
although we have some individual specialties.
Ours is more equipment focused. So
For, for venture's capital specifically, you know, um,
you guys focus on this specific area, the startup area. Um,
but when people think about equipment financing, they think about like,
you know,
the huge machines that either you're working with restaurants or you're working
with a construction company, you know, big machinery. Uh,
that's kind of what most people think about when they think equipment financing.
So for you guys,
let's talk a little bit about the specifics of what equipment financing and what
equipment looks like for your customers.
Well, it's certainly not the large, uh, equipment, the,
the huge trucks and manufacturing equipment. So that's not what we, uh,
get involved with. More times than not,
we're covering research oriented equipment lab and test equipment. Mm-hmm.
Um, IT equipment. Okay.
And more light production equipment. So that,
that's a lot of what we do. In addition to that for, uh,
specific players, we may cover medical equipment or, um,
equipment of that, of that nature. So that's more of what we do.
Uh, there's a lot of software involved with the equipment that we finance,
and so it's,
it's more on the technology end of things as opposed to the hard iron,
uh, part of the industry.
That's great.
And that's something different that we haven't seen on our channel specifically
because we've always talked to people that work in equipment financing,
but it's more on, you know, the big machinery side.
So this is definitely something that's interesting, uh,
and that not many people are aware of.
Yes, I, I would say that's so, and if you think about our customer base,
these are technology firms and innovation firms,
and so a lot of what they're using is technology equipment.
So that that's, that drives what we're doing.
So a lot of equipment financing is, you know,
referral based when it comes to getting customers, uh, and,
and maintaining those customers. So for you guys specifically, what,
how do customers find you guys? How, how do they get involved with you guys and,
and you guys end up working together?
We use a number of channels,
but I would say that out of the channels that we use ref,
the referral channel is probably our, our largest. We have some direct,
uh, business direct customers and,
and so we will call on specific companies and offer them our services.
But a lot of, a lot of the times it comes from referrals,
from banking, uh, uh,
contacts that we have from other equipment finance companies
who don't specialize in what we're doing, but would like to see,
you know, a fee from, uh, from referring the business to someone like us.
And let's talk a little bit more about the referral aspect.
What percentage of your, of your clientele right now, of your clients,
what percentage of them are coming from referrals or have come from referrals?
I'd say about 70%.
70%.
About 70% come from some form of referral.
And how do you maintain,
cuz because I think a lot of people want to know they want to grow in equipment
financing or in the alternative financing industry.
How do you maintain a referral to keep coming back to you?
How do you maintain that relationship?
So when, when I look at how we market, okay. It's,
it's a combination of things. So we,
we have to get our name out to the end customer, which,
which which are the, uh, venture capital backed startup companies. Okay.
But, but more importantly,
we have to get our brand out to referring sources.
So we do a lot of, uh,
publicizing to our referring sources, calling them,
developing relationships with them, um,
making sure that we touch base with them, um, multiple times a year.
Okay.
And so that's more of how we get the transactions coming to us. Is it,
it's,
it's from interfacing mostly with the referral sources
and in the background,
making sure that our name is out there by advertising
doing other types of publicizing to make sure that folks out there in
the industry know who we are.
So how important is it to create a,
a niche in the area that you're working in, just in general?
Because for you guys it seems to to have been a success and some people that are
just starting out, they're trying to figure out their way around, you know,
the industry or a industry. So how important it is to,
to start focusing and just settle down on, on one specific area?
I think it's very important, uh, for a couple reasons. One,
for somebody starting out for sure.
Because you don't wanna start out and be competing against the
large financing sources. Okay.
Particularly the banks and the large finance companies. Okay. Um,
it's better if you can identify a market that's not being covered.
Well learn that market well so that you can
identify holes in the market,
places in the market where there's still a need and a,
and an approach to the market that's different than others. Okay.
And I think that's what we've done. Uh,
the other factor is the cost of financing.
And so usually when you're starting up,
you don't have the lowest cost of financing and, and generally you're brokering,
so you're going to somebody else with, hopefully with, uh,
a cost of financing and you have to,
you have to put some kind of margin on top of that. Okay.
So for all those reasons, I think it makes sense to find a niche,
uh, part of the market somewhere where it's not being covered as well as,
as, as maybe others. And, uh, where you have some kind of,
uh, competitive advantage going into the market,
a lot of times that's know-how or knowledge of the market that you can turn
into a competitive advantage.
So George, from,
let's talk about the start to finish of the entire process of a client that,
that wants to join. You guys work with you guys,
they start the process and then, you know,
you guys take them through the entire thing. How long does that, does,
does that take specifically?
Well, from start to finish,
I'd say the shortest I've seen a transaction happen, it's maybe three weeks.
Okay. Um, and you have to understand, uh,
the process of what we do. These are, these are companies that, uh,
are high risk that that's, uh, first and foremost.
And so they have limited, uh, operating backgrounds.
They're generally backed by an outside investor group.
Okay. Um, and we're talking, uh,
transactions in size anywhere from one to 5 million. Okay.
So on the front end we do a screening process that may take a couple
of days Okay. To, uh, get the information from the company,
screen them as to whether they look like they're gonna be a, a,
a good candidate. If they get through that process,
we would probably send them out a proposal. Uh,
we don't do anything before there's a signed proposal.
Once we get assigned proposal,
now we get into the due diligence process,
which involves looking carefully at the financial statements,
talking to their, uh, VC backers. Okay.
Uh, talking to their, um, banks and trade references.
And then doing other, um,
I guess you would call due diligence types of, uh,
of things and be before long,
that's taken at least two or three weeks. Okay.
And so that's, that's why the process takes at least that amount of time.
So I did my research and I, and I recently found the tips,
the leasing tips that you released over a hundred tips,
Uh, and a hundred years ago.
Go ahead. So, so I found those tips.
Could you share some of tho those equipment finance leasing tips, uh, to,
so the people watching this, cuz it was very interesting, very intriguing,
and like we said earlier,
equipment financing is very much an area that it's complex.
So could you share some of the tips?
Sure. So the tips were oriented to customers,
and I'll just give you a few things.
One is to set your priorities in terms of what you're
trying to accomplish with the leasing. It's not always pricing. Okay.
Although pricing is very important,
but there are other things like how much availability will you need? Okay. Um,
what kind of equipment are you trying to acquire? And,
and a lot of times these types of issues will dictate
what types of equipment finance companies you want to talk to. For example,
if your transaction is below a hundred thousand dollars,
that's a certain type of equipment finance company who would consider financing
like that. It's not, it's not someone like us, for example. Okay.
And so doing that early planning, uh, is very important.
Realizing that it's generally gonna take you longer than what you think
to line up the financing that you want and need.
So plan on on that additional time. Okay.
So that's very important as well. Um,
o other things like making sure you check out the financing partner you're
getting involved in, uh,
having some sense of where to go to start looking for the financing.
You may want to start with your accountant,
you may want to try to get referrals from others.
And then how to evaluate proposals.
So what piece of advice would you have, uh,
to a broker that is primarily used to working with unsecured credit or, uh,
unsecured working capital? Uh,
and they're trying to dive into now the equipment finance world and they don't
know much about working in equipment financing.
A couple of things. Um,
certainly equipment financing is different than brokering
working capital financing. Um, it's all financing,
but equipment financing is specialized as is working
capital. So I would try to understand how it's different.
Okay. And to do that, if I were starting,
I would certainly attend some of the equipment financing, uh, conferences,
uh, get a talk to folks that are there, uh,
sit for some of the sessions where you can learn more about equipment financing.
There's an organization called the, it's, I hope I can get this right,
is the American Association of Equipment Finance Brokers. Okay.
So all of our associations, by the way, are alphabet soups in,
in terms of, in terms of their names.
But this one in particular is a very good organization for getting
background in equipment financing and how to go about being a,
an equipment finance broker, best practices.
There are lots of experience, uh, brokers there.
I would recommend spending time with some, a group like that Yeah.
To get exposure to the industry before diving into the industry. Yeah,
That's great. Um, a lot of people are diving into the industry now.
There's a lot of new people coming in, a lot of new players.
But we've also seen that the world is changing. You know, the,
the financial aspect of it, the, the economical aspect of it.
It's all changing rapidly. What impacts have you seen with,
uh, the financial changes going on with inflation, uh, you know,
with all those problems that the country's dealing with, uh, what changes,
what impacts have you seen it in regards to the equipment financing world?
Well, it's, it's an evolving situation, uh, for sure. Okay.
And this isn't the first time we've seen a cycle like this one.
All of them are, are a little different. And certainly this one is as well.
Um, what I'm seeing is we're seeing a slowdown for sure. Mm-hmm.
It's starting to show and the equipment finance volume mm-hmm.
My market has been there for over a year. Uh,
we've seen a pullback and the venture, uh,
debt side of things for more than a year. Uh,
what's accelerating things,
I think is the recent developments with some of the banks. Mm-hmm. Uh,
Silicon Valley Bank, uh, PAC West Bank,
and some of the other banks, uh, particularly in our space, uh,
where we've seen either the banks fail or, uh, come under,
uh, stress.
And I think that's starting to accelerate that in addition to
the rate rises that have come from the Fed are starting to accelerate
folks pulling back from making these equipment purchase decisions.
Okay. And if they're not buying, uh, more equipment,
certainly the financing of equipment pulls back as well.
And so I think we're starting to see that we're starting to see higher
delinquencies, higher write-offs. And,
and so those are the early signs that, you know,
we could be headed into a more challenging e environment for the rest of the
year and possibly for most of next year.
Let's dive in more specifically, uh, with your, the niche area that you,
you work with, you know, it's FinTech companies, medical companies,
software sales, um, the financial impact of the country. Like we,
we were just talking about.
How has it impacted those companies that you work with directly?
Um, I,
I think it's impacted them greatly up until the last
couple of months before Silicon Valley Bank, uh,
had their problem. Okay. Our industry was already hit, uh,
last year by just a downturn in technology
and, um, a closing pretty much of the I p O market. Mm-hmm. Okay.
And so our market relies on, uh,
the I p O market as an exit,
and there are a lot of things related to that that kind of backs our industry
up. Okay. And so, as a consequence,
you saw in our industry some of the funding that goes into the industry
coming from the folks that make investments in the venture capital
firms. Mm-hmm. Okay. Pension funds, uh, you know,
asset managers that put money into these, uh, venture capital firms,
they started to pull back. Okay. And so, um,
on on the other side, uh,
some of the technology companies saw downturns and their revenue.
Okay. So that's, that's, that's a, that's another bad sign.
But at any any rate, um, what,
what you've been seeing in our market is that that's caused the venture capital
firms to pull back,
to start triaging to a certain extent,
favoring companies that they've made investments in that look like they're gonna
pay out within a, a reasonable period of time.
And disfavor companies that are longer shots,
or that will require a lot more equity to see their, uh,
see their profitability materialize.
What that has meant for folks like us is that you have to be more
discerning in the transactions that you do. Uh,
there are probably fewer transactions, uh, than there,
there were three years ago or two years ago.
But the flip side of it is that there's been a pullback from
competitors like Silicon Valley Bank who's basically, you know,
they kind of pulled out of the market pack West is now being
impacted. And so, you know,
there's an opportunity for alternative sources like us mm-hmm.
To actually find more deals. But you have to be more discerning.
It's fascinating.
That's truly fascinating because I think that gives a response to the question
that people have. It's like, is this something bad that's going on? Like,
what do we do? How do we handle this? But like you said, it's,
it's being discerning and seeing how you go into that environment and you dive
in
E Exactly.
We've always found that there's opportunity when there's some
turmoil in the market. And so from my point of view,
we get an opportunity to see and find better
deals at, at better pricing where the risk reward makes more sense.
Well, George, thank you so much for your time.
Thank you for your wealth of knowledge,
because I know a lot of people are interested and they're just trying to
maneuver this specific space. So I want to thank you for,
for just dropping all those golden nuggets and also walking us through,
you know, just how to maneuver this industry overall. So George,
thank you so much.
Thank you. It's my pleasure.