How Nood Partnered with Flexport Capital to Improve Their Margins by 4%
margin improvement by switching from air to ocean shipping
stockouts of their best-selling products
line size increase 5 months into relationship with Flexport Capital
Nood is pioneering the at-home beauty industry with their proprietary light-based approach to hair removal and skin rejuvenation. Sam Garst founded Nood in 2020 with the mission of helping 1 million people feel good in the skin they’re in. As one of Austin’s fastest growing direct-to-consumer (DTC) startups, Nood partnered with Flexport to help support that growth.
For DTC brands, growth is a juggling act of constantly evolving consumer demands and shifting cash flows. When Nood started exploring financing options, Sam focused on lenders specializing in retail order financing. However, while many lenders offered revolving credit lines to finance inventory assets, he discovered that several lenders were hesitant to lend based on inventory alone because they typically reserve half of their credit availability to lend against their account receivables (AR). Like many DTC brands, Nood has minimal AR, so Nood found itself looking for alternative options. Sam retained Founder of Free to Grow CFO, Jon Blair to assist in the hunt.
Scaling a Capital-Intensive DTC Brand: Navigating the Challenges
Financially, Sam and Jon faced a few specific growing pains:
- Nood quickly realized that although they were profitable, cash flow was their largest impediment to growth. To get out of this, they required debt to finance their inventory purchases.
- How could they create an accurate cash projection to inform planning for Nood's peak season?
- To match their anticipated demand, Nood needed to purchase more inventory that their revenue could support.
When Nood considered financing an asset purchase with a debt product, Jon sought a repayment structure that matched the cash cycle of their business. For a growing ecommerce company, this meant finding a debt product that allows their repayments to be made after revenue is earned.
Needle in a Haystack: Finding the Right Financial Partner
There are hundreds of debt financing options out there, but for Nood it came down to three options for a financing partner: traditional lenders, asset-based lenders, or Flexport Capital.
Traditional banks/Small Business Administration (SBA) loan
Nood, being an early-stage business, did not meet the three year tax return requirement posed by traditional banks. However, the Small Business Administration (SBA) program remained a plausible option that provided access to loans for businesses that do not qualify for conventional lending. The caveat was that SBA loans are term loans that do not align well with the cash conversion cycle of inventory purchases for rapidly growing ecommerce brands.
Asset based lenders
Nood then evaluated typical asset-based lenders (ABL) and discovered a number of issues. For starters, ABLs required extensive loan documentation and offered inflexible and burdensome terms. The advanced rates presented to them were ~50% which meant that Nood would need to finance ~50% of the upfront purchase with their own cash. Additionally, banks required Nood to complete field exams and inventory appraisals to implement an ABL. As Jon explained, these are multi-week diligence processes costing Nood time and money and would have resulted in ~10% point reductions to their inventory advance rates. Ultimately, ABL financing could hinder Nood’s ability to reinvest in growth initiatives or meet other financial obligations.
In the end, the key differentiators that led Nood to choose Flexport Capital as their lending partner were:
- Higher advance rates on inventory
- Financing for in-transit inventory
- The ability to scale the line rapidly with prior quarter revenue growth
- Simple documentation
- 1 week process from initial call to offer
Because Flexport Capital leverages the technology of Flexport’s supply chain data, Nood was able to bypass both the field exam and inventory appraisal required by ABLs. By leveraging merchant’s supply chain data, Nood and other clients have cited Flexport's ability to provide significantly more capital compared to traditional banks enabling companies to reduce merchant cash cycle significantly. From historical shipment patterns, supplier information, and SKU-level details, Flexport has access to data that other lenders in the market do not.
Flexport finances inventory from the point of manufacturing across merchants’ entire working capital cycle. In contrast, banks tend to provide working capital financing for landed inventory only, meaning they can only address the latter half of a merchant’s working capital cycle.
"There are so many products out there that don't actually match the cash cycle of your business. With Nood's terms with our suppliers, we have to be able to pay for the inventory before it gets to our warehouse. Flexport Capital offers financing that covers that exact gap. They pay our supplier's invoices on their due dates and then we don't have to pay a cent until 90 days later. That is invaluable to us."
See Why More eCommerce Brands Are Choosing Flexport Capital
From factory floor to customer door, Flexport Capital can see shipment and inventory data on goods before they even leave the origin port and at any point during transit.
Flexport Capital offers merchants the ability to scale their line rapidly with prior quarter revenue growth. Because of this, in the first 5 months of the partnership, Nood’s line doubled to ensure their financing needs and inventory builds were met. Today, Nood relies on Flexport Capital for all their inventory purchases and with Flexport Capital's assistance, Nood has been able to invest more in research and development and allocate more dollars to new product launches. They have improved their margins by 4% of revenue by switching from air to ocean shipping and have never experienced stockouts of their best-selling products.
Reach out to Flexport Capital today to see how we may be able to help.