From the day I met Assaf Feldman and Eido Gal, I have always been consistently impressed with their ability to focus, deliver on their promises and always deal with everyone in an unassuming and thoughtful way, all with no arrogance.
At Entrée Capital, we are proud and honored to have been a first and consistent investor in the company, and I am proud to have served on the Board for a number of years. Yet, in truth, we’ve mostly just been extremely good spectators : Everything Riskified is today is as a result of what Assaf and Eido did from the start together with a team that shared their vision and culture.
I met Eido and Assaf in 2013 via Eden Shochat who was to invest in Riskified. The founders were setting out to help e-commerce merchants increase revenue, improve customer experience and cut costs by recognizing legitimate customers in the payment process (where merchants could not) and then guaranteeing those transactions. Given our background in fintech and payments, it was an easy sell and we invested in the Seed financing on the spot.
“Our first product is still our flagship. We wanted to create a new solution that took the best of what machine learning had to offer to make more accurate decisions and approve more orders. We still believe in the vision many years on and the core offering really hasn’t changed.” Eido Gal.
Market Fit & Timing
Market fit was a challenge in the first two years. Riskified had to change the merchant mindset and educate the market.
“We had two big challenges in the first 24 months. The first — we had to change how merchants thought about fraud prevention. We had to convince merchants that they had a problem in that they were turning away good customers. The second was data gathering. We knew that the more orders we saw the more accurate we could be, and we needed a big pool of data in order to automate our solution. But gathering that data takes time and clients.”
The startup overcame these challenges by offering merchants something too good to pass up. Its early sales pitch became: “Send us the orders you were going to decline. We’ll review them and find the treasure in your trash. And then we’ll guarantee the orders we recommend approving.” It was incremental revenue with absolutely no risk for merchants. Doing that got Riskified’s foot in the door and allowed it to begin collecting the data it needed.
Once the team was able to show merchants what they were missing, the product took off. Over the next five years the team grew to almost 500 staff and $170m of net revenue
Keys to Success
1/ Employees are a key differentiator. The company hired smart, capable people with whom they liked to spend time. Hiring and promoting at Riskified was always about ability. The team looked for smart, engaged, and curious people rather than focusing on a specific title. That made a huge difference.
“We have ambitious plans because we have high expectations for ourselves. The work we do now will define the future success of Riskified.” Eido said in 2018.
2/ An eye on the bottom line : “We’ve always been a financially-oriented and driven company with high performance expectations, and as we’ve grown so have our resources. We have more freedom to expand our scope and create more positive impact.”
Eido’s comments in an annual summary a few years back explains further: “…. there has been a divergence in outcomes over time between our competitors and us. And assuming a similar distribution of luck which in itself is an incredibly important factor — the main things I am left with to help explain the delta are:
- Strategy — Where we focus and how we allocate company resources. From development time to product initiatives and go-to-market plans.
- Execution — How well we write code, the quality of our algorithms, how usable our product is, how we run a sales cycle, how we service our clients. We do a professional job across all the many different domains that make up our business.
- Organizational Health — The systems, processes and structure we have in place to achieve our goals. From how we hire, compensate, train and manage to how we structure teams and assign scope and responsibility.
- Operating Culture — How we work in order to reach our shared goals. For example, we are very open and transparent because we believe it will help everyone make smarter and more-informed decisions.”
A Note About Fundraising
The one with the biggest amount raised does not always win. From an early start and with a number of early setbacks Riskified understood the value of money, the distraction of fundraising and the need to watch every dollar.
Entrée led the Series A when no fund was interested. Then, a year before the Series B, Entrée stepped up again and led a convertible note which came in two tranches. In the Series B many funds (tier one USA) shunned the business as It was not ‘taking enough risk’ i.e. was not spending much more to try grow faster like its competitors (and a few other uneducated views). Yet they were all wrong as evidenced by Riskified’s outcome vs. the competitors — Riskified raised far less than its competitors over time and even reached profitability (EBITDA).
The focus on building a profitable business was a key differentiator. Whilst competitors raised tons of cash, built a sales and marketing heavy organization before the market was educated, Riskified took an opposite view of constantly refining the product, having a bit more ‘man in the middle’ to ensure quality results and building deeper customer relationships.
Looking back at our e-mails, Entrée always said that “Go Big or Go Home is not an option.” And this held true for Riskified. Each business has its own pace at any point in time and what’s good for one sector is not always good for another.
In 2016 I wrote to Eido : “…this is an absolutely incredible set of results. I love that you have so much cash and are effectively breakeven — raising money is not a target and just dilutes you so don’t be under pressure to raise…. 🙂 ….really impressive!”