A guide to financing your user acquisition with Martin Macmillan (Pollen VC)

2 February 2023

Subscription Financial Podcast

Bomee Lafitte

Content Marketing Manager @ Purchasely

One of our previous episodes, "Product Market Fit, Subscription, and Other Secrets of Success" welcomed Idan Waller from a financing and app-aggregation company, BlueThrone, and received a great response from our listeners. In this episode, we delve once again into the world of app business financing! This time we talk about Pollen VC's unique funding method, accounting tips for early-stage apps, and more!

Another episode about the world of app financing!

When it comes to funding a young app venture, folks often seek out angel investors, venture capital, or equity investors. But in this episode, we sit down with Martin Macmillan, CEO of Pollen VC, to talk about a totally new way to finance an app business. It's called "revolving line of credit" funding and it's fast, flexible, and data-driven.

Tune in to hear Martin share insights on

How this financing method works
How Pollen VC’s funding model differs from the others
Who can benefit from it
How "Clean Room Accounting" strategy can help apps better manage their finances
Why Pollen VC is moving toward subscription apps
Financial forecasting for subscription apps: Pollen's calculator (ROAS, LTV, and cash flow)

Join us for a fresh perspective on app financing with Martin Macmillan.

Ways a founder can fund their start-up

A snapshot into different investment types that companies can aim for

Angel Investors

Investor profile: Individuals investing with their personal worth
Investee profile: Startups with an idea, MVP, or from-the-scratch products with few/no customers
Investment scale: Invest smaller amounts of money in industries they have strong expertise
Involvement: May also provide business advice

Venture Capital Investors: (Startup to early-stage)

Investor profile: Professional investors or firms
Investee profile: Startups and early-stage companies with high potential to scale quickly in large markets.
Investment scale: Invest larger amounts of money compared to angel investors on behalf of a group or partners.
Involvement: Often have a higher hand than Angels in company operations, marketing, and business development.

Equity Investors:

Investor profile: Individuals to funds and institutions with larger checks
Investee profile: Mature companies with stable returns and a lower level of risk.
Investment scale: usually much larger checks ($100M+)
Involvement: Become a shareholder in the company who claims on a portion of the company's assets and profits, but often takes a passive operational role.

Martin notes that the best way to get funding for a startup will depend on the company's specific needs, aspirations, and the scale of its development. It's also worth mentioning that the funding options can be more flexible for companies with a working user acquisition machine whose missing piece of the puzzle is only money.

How Pollen VC’s funding model differs

Investment objective: Pollen VC specifically invests in mobile game and app developers to help unlock their app store earnings in the early stage to fuel growth.
Fast funding: Pollen VC's credit algorithms analyze a range of factors related to sales performance, including in-app purchases data, unpaid receivables, ad networks, and residual cohort value. This enables the investor to send the check in just 7 days, rather than waiting for 6 months.
Data-driven approach Pollen VC prices risks, potentials, and lendable credit by digitally ingesting all of the sales and monetization data directly from the app stores and ad networks.
Revolving credit model: Pollen VC's financing differs from other single-time funding methods as the loan is repaid over a period of six to eight months, or a formula that fits each app's specific needs. The amount of available credit is recalculated daily based on the app's performance in user acquisition and return on investment.
Leaves full control to investees: Pollen VC focuses on filling two roles - as a lender and a consultative partner. Unlike many other investors in the field, the company does not interfere in the user acquisition or revenue generation processes of its investees. Instead, it provides financial support at crucial moments and offers guidance on different monetization strategies, such as free-to-play, subscription, return on ad spend, and lifetime value, utilizing its data-driven tools. This approach allows investees to retain full control over their operations.

Who can approach Pollen VC and when?

The distinctive financing model of the company can serve as a powerful motivator and monetization booster for many early-stage apps. However, not all studios fit the criteria for investment. Investment choices at Pollen VC are based on the return on investment from user acquisition spend, meaning that apps seeking a partnership must demonstrate a steady revenue stream generated from a reliable user base.

Martin stated that the Pollen VC seeks a minimum monthly revenue of 25K from the onboarding stage, with ideal performance ranging from hundreds of thousands to the low single-digit millions.

Cleanroom Accounting

Martin shed light on one of the most effective operational methods observed by Pollen VC while collaborating with numerous app studios - the practice of Clean Room Accounting. In simple terms, this approach describes early-stage apps reducing the “accounting function noise” in their user acquisition and monetization processes, allowing for clarity and simplicity.

Typically, start-ups in their early stages manage their accounting for various operations through a single bank account.

By isolating UA financial models from regular running costs and growth plans, app studios can have a clear understanding of customer acquisition costs (CAC), break-even periods and ultimately LTV of their users.

Moving toward subscription apps

Pollen VC used to collaborate with a majority of free-to-play games, compared to a minority of apps and subscription apps. But now, the distribution of its portfolio is more balanced, nearing a 50/50 split. Martin observes this as a natural evolution in market demand, influenced by various factors such as the following.

Over the last couple of years, free-to-play game user acquisition has got harder with the changes around IDFA. (See here an article about the industry’s reaction to Apple’s IDFA changes)
App publishers and marketers are improving at running a subscription app business. They are better at pricing subscriptions, identifying consumer niches and what makes people pay, and establishing the positive economics of ad spend vs. revenue.

Martin brought attention to the challenges of creating a thriving subscription app business, where variables like the seasonality and people’s habits can pose obstacles. He emphasized the need for studios to adopt distinct strategies for acquiring users. Despite the difficulties, the trend reveals a growing number of app studios seeking to secure more enduring and profitable revenue streams through the subscription model.

Episode 18 Sneak Peek

On different funding models

“Obviously, if you're creating something from scratch and it's a high-risk activity, then equity is the best way to fund that. Whereas, later down the track, if you've figured out that you've got a user acquisition machine that really works and you just need to put money into it, it's a much lower risk strategy and therefore you can look at different funding options and debt options if you like to fund that. ”

On Pollen VC’s funding model

“We look on a daily basis and we figure out what's the total amount of revenue you've earned but is waiting to be paid out and we give you a line of credit for everything that you can borrow again at the next day.”

“If we can model and see very strong residual value from cohorts and users that keep paying and playing after months or even years, then theoretically you can borrow up... The line of credit can extend to four times your monthly revenues.”

On Clean Room Accounting

“All of your monetization and user acquisition goes in and out of one bank account so you can monitor how efficient your UI spend is. Now all of your day-to-day expenses, all of your salaries, your office, your all known non-UA related spend gets segregated at. ”

“Yeah, and you can look at how much you're owed, how much the platforms are you, etc. It just it's a super simple hack but it's very effective because... And particularly when you get into all the cash flow management stuff, it's just really helpful to have that stuff segregated.”

On the shift to subscription apps

“We used to be about 70-30 free-to-play games versus apps and subscription apps. Now it's come to roughly 50-50 in terms of the portfolio. ”

“I think a lot of people looking to build a business with greater longevity are turning to subscription apps because there's more money to be made over a longer period of time as opposed to the one-hit wonder free-to-play game that's dead in 30 days. ”

More about Martin

Martin Macmillan is Founder and CEO of Pollen VC. He has 20 years of experience in launching and building technology businesses in financial services and media sectors and a prior career as an investment banker.

Having directly experienced the growth challenges facing tech start-ups and the lack of debt financing options open to early-stage technology businesses, he saw the opportunity to marry his traditional financial markets and technology experience to create a new financing model for the app and gaming economy.

Prior to founding Pollen VC, Martin was CEO at Soniqplay, CEO at Level Four (acquired by clear2pay), and a Director of UBS in London and New York, where he ran the Eurocommercial paper (ECP) trading group and conceived and delivered UBS’ first client-facing electronic debt trading platform.

Episode Topics at a Glance

What is fixed-income trading?
Martin's journey to founding Pollen VC
Ways a founder can fund their start-up
How Pollen VC pushes user acquisition later into the cycle
When should start-up founders get a revolving line of credit?
How do you work and compete with your contenders?
Clean room accounting for UA/monetization
Why Pollen VC is moving toward subscription apps

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HAPPY LISTENING!

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