Connecting Financial Models: The Technological Breakthrough of Mercatus

Thank you for having me.

Absolutely. Born in India, came to the US when I was six years old, grew up in New Hampshire, and went to the University of Notre Dame to get an electrical engineering degree, which brought me to Silicon Valley. I spent the first 25 years in semiconductors sales and rose to VP of Worldwide Sales of three publicly traded companies. Then after being bored, I wanted it to change, and I got lucky with being able to shift to the solar energy industry as a VP of Worldwide Sales. That was the good news. The bad news, the bad news in less than six months. I didn’t have a job for the first time in my career. I decided in 2009, that I was finished working for companies. I would figure out what I would do, but I was not going to work anymore for anybody. I just made a commitment to myself rather than feeling badly that I would just write a book one day that the best thing that ever happened was getting fired. That’s what spawned Mercatus. I didn’t know exactly what it was going to be. I didn’t have the name either in my head, but all I knew was that it would be something hopefully that would be successful.

That’s what got me into starting with the Solar Sales channel because that’s what I knew how to do. We represented several different companies. We learned that getting the order was the easy part, but our clients didn’t know how to get financing, so we became an investment bank to help them get financing. That’s when we realized how inefficient it was to move data rooms around and translate that into an investment memo. We looked around for software, couldn’t find anything, and we built it for ourselves. When we went back out on the road with our software, our buy-side clients, which are the same clients that buy at Mercatus, fell in love with the software, and said, Hey, where did you buy it? Where did you get it? We want that. I knew the moment I started hearing that we would become a software company. We dropped the first two business models. We raised a Series A and then eventually a Series B and eventually sold the company in September 2021 to State Street Bank. That’s the journey in a quick nutshell.

Sure. As I said, I started the business as a solar investment platform and it did exactly what it does today, which is anything physical that requires an investment requires a lot of people diligence in your data that has lots and lots of documents. They built a financial model in Excel, and they built another set of documents either to report on the financial performance to analyze the financial performance or provide data transparency. In a simplistic form, not to get too technical and I promise not to get too technical, Microsoft should have finished what they started and they still haven’t done it. They have Word, they have Excel, and they have PowerPoint. They sell it to you as a button, but they never connect it. That’s all we did. We did like what Uber did. Uber connected the driver, the cell phone, the cell tower, and the human. They took existing infrastructure and connected it. That’s all we did. We just said, Why do bankers live in data rooms? Why did they create financial models that are full of riddles and mistakes? And then why do they create a PowerPoint that you can’t do due diligence? You can’t drill down from a PowerPoint back to the financial model.

We just, in our infinite wisdom of not being a software company or being an accidental software company, connected the financial model and made it the heart of the That’s where our IP was, that’s where our patents were, is to connect the financial model in native Excel, but host it in the cloud in the way that you could connect hundreds of different financial models that were from an oil tanker to a commercial building to a real estate residential portfolio to a solar power plant is where we started. Each one has its unique financial model. We just learned how to connect all those in accordance. Then you could do forward-looking scenario analysis, you could stress test the portfolio, and you could give the investors, the senior leadership, finding the dashboards they needed to make good investment decisions a lot faster.

I think like I said, as soon as you have humans, we’re all smart, but we make mistakes. A lot of times it’s just hard to see the data. Quite frankly, I wouldn’t say our value population wasn’t to increase the accuracy of data. The value proposition was you could see the data in a way you could spot an error sooner. If you just show a PowerPoint, Yeah, I’ve got a 9.8% IRR on this particular project and it’s got 30-year cash flows. But you can’t go in and challenge that. But if you’re able to go look and say, Wait a minute, I’d like to drill into your assumptions. Oh, let me go pull up a financial model and everybody’s scrambling on their laptops. In our platform, you can immediately drill into the financial model, look at the assumptions, and change the assumptions. And then you say, But I don’t remember that in the document. Okay, let’s go to the document directly. Everything was always at their fingertips. It was about increasing the speed of decision making, the speed to find hopefully and have that dialog around, is there a mistake? Are the assumptions right? There are a lot of times there may be no mistakes, but the assumptions are wrong.

Somebody might assume that we have 5% inflation. Quite frankly, it’s 20%. Now, interestingly, if you just change that one parameter in the world before Mercatus, it used to take our private market investors, some of the most sophisticated investors in the world, 2-3 weeks to determine the impact of change in just one parameter because they had to address every single financial model that was invested 25 years ago that was on somebody’s laptop that maybe left the company. It wasn’t because it took all that time, but it was just how do you herd all those rabbits into one room and then connect them? In our case, we all had everything the data was centralized. We just gave the investor their data and made it more accessible. We didn’t provide external data sources. That was their job. If they want to do that, we could certainly feed it in. But it was all around taking what was underneath their nose and illuminating it.

Yeah. So again, centralizing the data is the first thing. The second element of that is structuring the data. Structuring is really important. As much as I want to tout that technology can solve structuring, it does not solve structuring. It requires human intervention to look at that. We built a phenomenal services team out of India to help structure the data. The structure might mean you may call a solar power plant a megawatt. I may call it gigawatt. Just by that Mg versus that small delta, that data is unstructured. You have to be able to know over time, machine learning and stuff will correct all that. We would have the database absorbed through the document technology-wise, but you always have some human eyeball looking at it to spot those mistakes and structures. That was always a critical part of it. Structuring the data was the second one. The third one was connecting all those financial models. Everybody always told us, Yeah, but my project is so unique, it’s so different. Quite frankly, we just didn’t look at it that way. It’s like the difference between your DNA and my DNA and a champagne is what, 98.99% the same?

Exactly. Financial models are all the same in our eyes. There was just that very small percentage that was different. We said, Let’s not worry about why that one is different. Let’s worry about what’s common. We took all the commonality and made an according, and then you could always have the corner cases. It was all around just being logical and practical about how you structure it. I think the third critical part. Centralizing the data, structuring the data, controlling those financial models, and ultimately creating a systematic workflow. Because again, if you have 10 people trying to put beans into that little bottle that game we played in school, at some point you have to be organized. You have to say stop, everybody can’t try to put the bean at the same time. When we put together workflow, centralized data, and financial model control, and made those all highly intertwined is what made Mercatus unique.

I would say surprisingly, it was the domain knowledge of the people. The perception was that we knew our customer’s business better than they did. They always brought us on saying, Yeah, not only can you give us good software, but you might be able to tell us how bad our business is and give us better business processes. If there was a jump ball, we always won because of the knowledge of our people and knowledge of our team in India as well as in Europe and North America. That was probably number one. Technology-wise, it was clearly around how we control that financial model to let them live in Excel and build their financial model. But it connected in a way that was where the technology’s secret sauce was. Then I said the other three pieces where everybody had some element of workflow, data centralization, and financial model control that were usually the weakest, but putting all three together, nobody put them together as elegantly as we did.

What’s evolving? And just to be for the record, I am now a former CEO. I left the company back in March, so I’m sure it’s evolved a little bit since then. But it turned out to be that as hard as it was to develop technology, managing the client turned out to be significantly more challenging. In the early days, the executives bought our platform. That’s what we designed it for. It was for the top three or four people of the fund to give them the dashboards they needed because they were the ones frustrated. They were the ones the recipients of bad data incorrect data or unstructured data. They weren’t able to make decisions. A good investor won’t decide until they’re comfortable with the data. All it was doing was delaying decisions and they were losing deals to somebody else who could make a decision faster. But the problem was they bought the software and then we would have to train all the people. They would look at us saying, What did my management buy? Why would I use it? It turned out that the sales cycle started after we sold the software.

To educate the people on why this would make their job easier, a lot of people looked at it and said, Well, this replaces my job. They didn’t want to. We had a lot of failures early on as a function of lack of adoption. We had to put a whole customer success management team in place to take instead of the three people and train them, now we have to train 300 people across the world because these global investors have teams all over the world, and so we had to invest heavily in training. This training is the best form of adoption or increasing the chance of adoption. That was the first challenge. Then the sales and marketing cycle, which we’ll get into, my God, there were more mistakes we made than we eventually figured out how to get the recipe. That was another challenge, just the sales and marketing process of getting to these clients and convincing them that they had a problem because most of them were very successful, had massive returns, were ultra-high net worth individuals, and they had made mistakes. It’s like giving a youngster, You need to buy insurance one day because one day you’ll die.

He says, No, I’m invincible. Convincing that they had a problem was a big challenge in terms of human behavior.

It is all about trust. If you trust the data, you can make a decision. If you trust the data, even if you don’t like it, you can make a decision. Because all the investors are trying to do is assess the risk. They only look at risk first and they say, Okay, for that risk, how much do I want to get a return? The risk is high. I want a higher return. The risk is lower and lower. It was just, again, giving them data that they could deal with in real-time. So transparency was the biggest thing we were trying to solve. Transparency in a fast, efficient manner. To be able to identify, No, something looks wrong. Let’s go back to the team that’s trying to sell this project to us. Let’s go ask for more information. Let’s go do another study. I was giving them the tools to move faster with more accuracy and to give them that transparency. And through that transparency, then they can improve the accuracy of the data. Just as an example, we had a client out of Australia, one of the largest investors in onshore and offshore wind. They took three weeks to find a mistake.

They knew immediately when they presented, Wait a minute, there’s no way this set of projects can yield this return. But how to find out where that mistake was took them three weeks because again, they had to go back to each financial model, and find out why they didn’t connect. Again, we said, Let’s do a head-to-head competition. Let’s have that team look at it and let us look at it post importing all the data and centralizing the Marquette as we found it in less than five minutes. It’s about speed to accuracy. Just having the data centralized and structured gives them speed.

That was another journey where we talked about adoption, but we also realized that the customer has a lot of different pieces of software. Over time they have 30 or 40 pieces of software. Really what we solved for was if you think of the world of Legos. As a child, we all play with Legos. Legos are all individual building blocks.

That sense. Yeah, that’s what I’m trying to explain. When you think of Legos, Legos were initially sold as individual building blocks. Ultimately, their sales didn’t take off until they gave the thin green plate. The thin green plate allowed put the blocks and build a foundation, put windows in, and you could create all kinds of stuff. The industry didn’t have that thin green plate. That was Mercatus. Basically with that thin layer that was a mile wide, an inch deep that connected all existing data sources. When I said data, I also meant there were other data sources. For example, you need a CRM. You need something like Salesforce or Marketo, but that has a lot of data locked up into it. Then you need an ERP system. We were not an ERP system, but the ERP system is probably where the valuable data is. Okay, if you told me I was going to do X 20 years ago, did I do X or not? Yes. The ESB is connected to CRM. Mercatus was inserting that thin green layer into the software ecosystem. You could either put it as a master at the top level or you could put it as a slave right at the bottom.

And people designed it differently. Most people use this as the master so that the data into our platform and then they can manipulate it and they could see the whole thing.

If you remember, my background is sales and so it’s direct sales. I only had one mentality around you building a direct sales team. I knew enough about marketing to be dangerous, but I could barely spell it. I’m being humorous. Ultimately, I managed both teams, but my specialty was sales. We started with just hiring a bunch of salespeople. That’s the most expensive way to do things. Then getting the right salespeople, we had to go through three tries. It was not the fault of the salespeople, but it was not understanding the type of salesperson we needed. We burn through cash every time you hire salespeople, the sales is the most expensive resource. We didn’t invest a lot in marketing, quite frankly, at first, until I met the head of marketing of Marketo. He came through an introduction to a good friend of mine who graduated the same year that I did. I asked her a boy. I said, Your content is so good. I read everything you guys publish. I said, Who is the brainchild behind it? He goes, Oh, that’s the easiest. John Miller. Can I get an intro, Amy? She gave me an introduction.

I met with him, and he was like a doctor, Five questions. Who is your target client? Blah, blah, blah. Then he gave me a quick prescription. He said, Listen, certainly wouldn’t waste money on billboards. Certainly wouldn’t waste money on trade shows, or booths. Wouldn’t waste money on television ads, or radio ads. There’s some obvious stuff we were never going to do anyway, but he eliminated it. He goes, As self-servicing as it may sound, what you want to invest in is your email list, make sure it’s rich. And you invest in a channel of communication. So become a news channel for yourself. And that’s essentially the recipe that we followed. We eliminated lots of stuff in our budget or never got to spending it. He gave us a very clear advice. He said You’re talking about 10,000 people in the whole world. It’s a very small audience. I have over eight billion people, so I don’t need to spend money blanketing the airways. So you’re going to find out who those 10,000 people are. Build a massive mail list, put rich content and pump it to them directly, and then track it, monitor it, and all that good stuff. It was the best advice we got from a marketing perspective.

That’s what we did. We invested a lot. We hired a company in India that was very good. Once you gave them a target list, they came up with very accurate names emails, and phone numbers. We spent a lot of money on content, both video, written content, and all kinds of forms of content. We engaged our clients through that not promoting our product, but promoting thought leadership. That was probably the first. Then we invested a lot in SEO because you’re trying to reach a lot of people. 10,000 is a lot. It’s not a lot, but at the same time, not all 10,000 are decision-makers. You have to be able to get the people that are assigned to say, Hey, can you go look for some software? That’s not going to be the leadership. They’re not going to be sitting on the internet looking for Mercatus. They’re going to assign it to some low-level intern or first-level worker. We had to be able to make sure that we were educating the population. We invested a lot in SEO, so we came up in searches. Then we figured it out by experiment. We spent $2,000, $2,000, $2,000 equally between Facebook, Google, and all that in late days.

Over time, we would eliminate what didn’t work and continue to double down on what did work. That was an experiment.

I think Google was probably the most effective, followed by I think LinkedIn, if I remember correctly. Again, I don’t have the data at my fingertips that we’re an on-market team. But clearly, Google was always number one, so we just continued to spend more and more. But it wasn’t necessarily the paid search per se, but it was just again trying to get more elevation too. Then when we started placing ads where you have either sponsored or you get on the sidebar, you’re not trying to be effective. Ultimately, what turned out to be the most effective for us was actually, remember our client bases, in our case, I think everybody thinks our client base is unique, our client base is typically three to four key people at a $40 billion fund. They’re usually the keynote speaker at a Bloomberg conference. They’re not floating around at the cocktail hour. They have security guards. They get them on the stage and get them off the stage. They’re not spending time. They have an entire team and their secretary is looking at their emails. So all traditional marketing approaches weren’t going to work.

What we learned how to get on a panel with them. First of all, we didn’t have the money initially, so we tried to figure it out by scratching and clawing for free to get on the panel. Because once you’re on a panel, then you build a relationship. You have to practice in advance, you have to get to know them before or afterward. That was ultimately our best conversion. Then when we raised money, we said, Okay, we can spend 25 thousand dollars to host a panel and be the moderator. That gave us even more control. Some of our best clients came from that approach. It means that wasn’t the only thing. You still have to educate through everything I talked about before, but it was the ability to rub shoulder to shoulder or find techniques to find them as they’re stepping off the stage that turned out to be our most effective channel. Then ultimately our final channel was, even with all of that success, it is still a word-of-mouth business.

As much as banking is sophisticated, whatever, it’s still a good old boys club. When we tried to raise Series C, we specifically earmarked the service provider channel because we knew that even if we were on the panel with them and they built a relationship, if somebody said, Hey, these guys are really good, and they went to college together. That’s why we circled companies like State Street and others to say, We wanted that to be an investor because the introductions were key to accelerating the sales cycle. That turned out the last sales channel then, and ultimately, they were also looking to increase their customer base. This is why they acquired us and why we wanted them as an investor and they turned out to be an acquirer, not just an investor.

The churn rate is still not acceptable. We always want zero. If we churn, it is usually around still the adoption issue. I don’t think we have even after a 10-year journey or 11-year journey, it is just an ongoing challenge and you learn each time you lose a client. We’re still well under the industry average, but it’s painful because it takes a lot of effort to get a client. It takes multiple years to support them. Then it fails usually because people don’t use it. When they don’t use it, then they look at it during budget time saying, If we’re not using it. Why are we paying this money? Because it was not an inexpensive piece of software.

It’s going to be all-around speed and accuracy. One of my favorite movies is Margin Call. Margin Call, a young guy out of college, I think, an intern or one of the most junior guys, discovers a problem. Then he alerts the senior leadership and they realize, Oh, my God, the world is going to end. They call the CEO and he flies in at 4:00 in the morning. They’re all around the conference room. Nobody wants to speak up. Finally, they point to him and he says, Yeah, because this is the guy. And the CEO stands up. He goes, Yep. Do you know why I get paid the big bucks? I can determine if the music is speeding up or something like that before everybody else. You’re telling me and he looks at Demi Moore, uses a couple of F-words saying, You’re my chief risk officer and you didn’t know this was going on. And this youngster told us and shame on you. And he used a few good choice words, but, he said, I need speed, I need accuracy. It is going to be around, there will be consolidation in the industry. The ones that will be the winners are the ones who will adopt technology embrace it and use it to their benefit.

There’s still a vast majority that still don’t believe in technology. They still believe in old-fashioned investing. I look at the margin because it is about speed and accuracy.

Sure. If I don’t know the answer, I’ll let you know too.

Yeah, I just realized this one when I met with my dad a few months ago and he told me a story about when I was under a year old I guess I used to run fast and I don’t know how they connected it, but I don’t know. My first nickname was Totyo, T-O-T-Y-O

I don’t know how they came up with that, but that’s apparently what they call me. Sometimes if I beat my old dad’s friends, they still refer to me by that name.

The last Google search. We’re planning a trip to India soon. My daughter got engaged, so we’re getting to look at options of what are we going to do and how much to spend and all that Good stuff.

All Gujarati food.

I’ll have to put a plug-in for my wife. She’s a really good cook and eventually, she married me without knowing how to make anything. Now she’s a published author of a famous Gujarati cookbook and on working on book number two. I have the hidden gem in the house being to eat whatever I feel like whenever I want. But now that she’s published a book, if I ask something she points toward the shelf. She goes, You know how to make it.

When it comes to, I would say writing, most people are not a big deal. I look at it and it’s in my head, I can verbalize it. But as soon as I try to put it in typed written form, there’s something that gets lost between here and my fingertips and the keyboard. For me, it’s always been an Achilles heel. I didn’t realize until I built my management team, that they were all great note-takers. Because they did the detail, note taking and then converting my thoughts into thought leadership. The same, if I trace back to my knowledge of my college friends, all of my good friends were great note-takers in class because I knew those notes to study for exams, so I would always befriend the guys that were good note-takers. Some behaviors just don’t change.

Yeah, because I learned over time that I was much more dyslexic than I thought. But as soon as I was writing, I wasn’t listening. I wasn’t able to listen. And if I was listening, I wasn’t able to write. So it couldn’t multiply like most folks. There were other people they wrote learned that way.

I’m a reserved person, but I’m open about everything more than my family would like. If you ask me a question, I usually have a hard time hiding the real answer. I would say reserved, but if you ask me a question, I’ll give you an honest answer.

Thank you so much. Likewise. I enjoyed it well and good luck. Good.