As an investor with Contrary Capital, free-lance advisor for Southeast startups, and leader of Emory's entrepreneurship organization, I frequently have conversations with founders who are looking to synthesize their "story" prior to raising seed funding. In this series, I attempt to ask the same questions of startups that have raised seed funding from eminent venture firms, and then back into what may have been their answer (albeit through the lens of my industry perspective).

Startup: Pinwheel

Backers: First Round Capital, Upfront Ventures

Raise: $7.0m (seed)

What is the simplest form of the value proposition?

"API-as-a-Service" platform connecting developers of financial technology across budgeting, lending, deposits, and risk use cases with consumers' payroll environment to enable disruptive applications.

Are they creating "space" or positioning against established players?

Pinwheel is aiming to unlock an entirely new avenue of data from a set of closed systems, making it a unique disruptor by almost any definition. While some its use cases have offline or legacy analogs (e.g., income verification), many, such as payroll-based contributions towards consumer loans, are simply not viable with currently available solutions. And similar to Plaid, there exists an extremely compelling first-mover advantage in this market, due to the complexity of integrating with a large, diverse set of payroll providers. If Pinwheel is scale these integrations quickly, it is unlikely customers will turn to a competing platform that is lagging behind. However, Plaid itself is uniquely positioned to enter this space with their own suite of offerings, posing a threat even if Pinwheel established a considerable lead.

What does "product-market fit" / "stickiness" look like?

Pinwheel's success in the near-term is dependent on its platform execution. Customers need to feel comfortable that Pinwheel's platform will scale with their products, support the leading payroll providers (e.g., ADP) as well as fringe players, and protect consumer data and adhere to stringent compliance standards. Most customers, especially large financial institutions, will test Pinwheel's platform with a limited reach product, such as home equity loans under $100,000 for prime borrowers, before employing it in their broader products or services, such as direct deposit switching. If Pinwheel can establish reliability during these test runs, I expect customers to aggressively expand their usage of Pinwheel's platform.

What would "success" mean in the 5-year horizon?

The metric of success for Pinwheel is unique to companies in this category: spark an ecosystem of applications that intrinsically rely on the platform to provide a new experience for consumers. The diversity of applications could be endless, but shifts within the "low-hanging" verticals would indicate that Pinwheel is successful in supporting this ecosystem:

  • Paycheck-linked products: ‍Financial institutions should build products that collect payments directly from a borrower’s paycheck, resulting in fundamental adjustments to competitive rates and default risk models.
  • Payroll visibility: Consumers have a vested interest in understanding every element of their paystub, e.g., how it fluctuate per pay period, how allowances change their withholding amounts, etc. Financial budgeting applications such as Mint or Personal Capital should use Pinwheel to centrally surface this data to improve differentiation and overall experience.
  • Direct deposit switching: Direct deposit enrollment is a clear pathway for banks to increase average account balance and subsequently upsell additional products (e.g., brokerage). Therefore, they should be eager to utilize Pinwheel to replace the current solution (generating a PDF with account numbers and then requesting the consumer to contact his/her employer) with something that seamlessly connects accounts to payroll providers.
  • Income verification: Credit agencies, loan servicers, and property managers alike would benefit from up-to-date pay stubs and tax documents to instantly and securely verify their customer’s income and employment. Pinwheel should be the go-to choice to anyone, from established players like LendingClub to upstarts like NYC-based SavvyScreen, building a consumer risk assessment stack.

What are the major forces (headwinds or tailwinds) that could impact success?

Due to the unvalidated nature of many downstream applications of Pinwheel's solution, the size and growth of this market is unclear, but the recent $3b acquisition of Plaid by Visa is indicative of the lucrative relationship Pinwheel can establish with developers reliant on its platform. However, a major risk exists from the supply side of Pinwheel's platform. It is clear that Pinwheel must first establish a "back-door" integration with a majority of payroll providers by authenticating with a consumer's credential and then scraping data off the relevant pages before engaging in official agreements with these providers. This poses a three-pronged issue: 1) collecting a large quantity and diversity of credentials from risk-averse consumers to build out these integrations, 2) updating these integrations regularly to support changes, and 3) adapting to the eventual financial and operational considerations posed by formal agreements. The payroll market is less fragmented than, for example, the banking market, giving more power to providers such as ADP in setting the terms of the agreement.