PFA Solutions, a Fairfax fintech startup, has raised $2 million in debt — its first-ever outside capital — to expand its operations and head count.
The company, founded 10 years ago, received the funding as debt from Dallas venture firm Cypress Growth Capital with the goal of boosting hiring, according to Richard Change, PFA’s co-founder and managing partner. Change said he was particularly interested in that model because he didn't want to give up equity for capital.
He plans to use the new funds to hire a dedicated salesperson for PFA's 30-person team and, generally, be more deliberate about when and whom the company hires. Its goal is to reach $5 million in annual recurring revenue. Last year, he said, that figure was $2 million.
As a bootstrapped company, he said, PFA mainly hired only when it had the cash flow from operations, but that often forced it to scramble to hire too quickly to support a newly onboarded client or, worse, turn down a client altogether because it didn't have the manpower.
“We said no for a long time,” Change said in an interview. “The thing that impressed us [about Cypress] is that they are owner-operators. They've done everything that we've done, and they've built and sold companies on the investment side.”
That includes Denver IT provider Greystone Technology, a Cypress portfolio company that sold in 2020 to New Charter Technologies of Palo Alto, California, and Phoenix-based ClearVoice, a startup that helps content writers find jobs, that was sold in 2019 to Fiverr,
PFA provides software that helps manage accounting, compensation, funding and transactional data for investment portfolios at more than 40 venture capital firms nationwide, including San Francisco-based TPG Capital and New York-based TowerBrook. The startup also helps calculate carried interest, or the incentive fee that fund managers are paid based on how well a fund or investment does for firms, among other investor compensation matters.
For years, PFA primarily sought venture capital firms as clients, not as investors, and even last year, the company wouldn't have accepted any outside capital, Change said. But the cost of the staff and resources it needed to bring on new clients was keeping him up at night. With the funds, he said, he will look to hire more from the finance community itself — a competitive field for talent already, but one he knows well.
Change founded PFA after working for nearly six years as an associate vice president at The Carlyle Group Inc. (NASDAQ: CG), where he said he had noticed a technology gap in the private equity world. He started off by performing IT consulting for VC firms, but his goal was always to build a software-as-a-service company. The pivot from consulting company to SaaS was one of the biggest challenges PFA has faced, as it had to transition from the billable-hour model Change knew well to the subscription-based model with which he had no experience.
It was some timely advice from a mentor dating to his days as a software programming consultant for Richmond-based Amentra Inc. that convinced him to take the risk. The mentor explained that building a consulting company means constantly hiring because, Change said, "The only way you scale on the services side is by adding more people."
That's not necessarily the case in building a software company. "If you build a turnkey solution, every new customer that signs up, I don't need to have a body to help that customer onboard or support that customer," he said. "They're using the same code base, the same solution. And I'm not necessarily tied to adding costs for each new client.”
