Don Muir, founder and CEO of Arc Technologies, discussed digital financial products

on April 4, 2023

Don Muir, founder and CEO of Arc Technologies, discussed the mission of the company and how startups and emerging growth companies can diversify risk and maximize return with its digital finance platform.

Peter Ho	Today, we have a special guest. We have Don Muir, founder and CEO of Arc Technologies on the program. Arc is a finance platform for startups and emerging growth companies. Don, welcome on the program.
Don Muir	Awesome to be here. Thank you for having me.
Peter Ho	So Don. Tell us about what Arc does, what does it offer?
Don Muir	At Arc, we’re building the future of finance for modern technology companies. Specifically, we offer digital banking and access to capital for high growth tech companies. We’re reinventing how the modern technology company stores, spends and accesses capital through technology.
Peter Ho	If I heard you correctly, Don. It sounds like what you guys are doing is to reinvent financial services using the latest technology.
Don Muir	That’s spot on. Financial services is one of the last frontiers to be truly disrupted by tech. Specifically, B2B financial services, i.e. banking it’s a multi-hundred billion dollar market in the United States alone that is dominated to this day by offline banks that are highly regulated and have huge barriers to entry. Within the last decade, technology has for the first time started to penetration this highly regulated financial services space on the B2B side and with recent events over the last couple of weeks the adoption curve of digitally native solutions has accelerated meaningfully as high growth tech companies move towards digital incumbents, seeking broader diversification of assets that only technology can unlock
Peter Ho	That makes perfect sense. What is the inspiration or who gave you the idea to start the company. What is the back story? How can you come to the idea of what you’re doing today?
Don Muir	Prior to starting arc, I worked in this very industry that I’m dead set on disrupting. I was a cog in the offline, financial services machine, having worked in late stage private equity. We would hire armies of investment bankers to come in and run redundant, manual offline analyses, and excel to facilitate the raising of debt and equity to purchase companies and take them private. During those transactions, those multi billion dollar financial transactions, I gotta see firsthand how inefficient these banks are. These are services, businesses that rely on thousands of people to make the wheels turn, and when I left New York to go to business school at Stanford, on the West coast, and started talking to founders CEO, CFOs of asset light software businesses. I realized there was this misalignment. There’s this gap in the market where these large financial institutions, these large 100 plus billion dollar publicly traded banks. We’re under serving this early stage high growth segment of the market. That is the startup ecosystem in Silicon Valley. And so what I saw was an opportunity to apply my finance skill set developed on the East coast in New York working in finance. Take that skillset and leverage technology to take these analog offline processes, automate them to create a more frictionless, intuitive, consumer grade product experience across the finance stack for the startups that we’re dead set on serving.
Peter Ho	That makes sense. So what you’re saying, Don, is, you want to look at using technology to disrupt companies like JP Morgan Chase, Apollo, the large PE type companies, the traditional offline financial services firms of the world?
Don Muir	These banks, these financial institutions, they serve a very important purpose in the market. They have enormous balance sheets and are responsible for managing trillions of dollars of capital that the global economy relies on. My goal is not to manage trillions of dollars of balance sheet. My goal is to be the fintech layer that sits between that balance sheet and the end customer, to create a much more frictionless experience with, while diversifying well, diversifying that balance sheet across multiple partners to reduce risk for the end customer. So through technology I can partner with the banks, not displace them, but partner with them to provide a better, safer experience for the end customer.
Peter Ho	I think that’s a good way to think about it: so you are saying, you’re adding a new technology layer on top of what they are offering. Make it easier for any customer that is a startup company or mid size publicly traded company to better manage the cash, to better manage the risk using modern technology. So can you walk us through some of the product offerings Arc currently serve to customers?
Don Muir	So what does a traditional business bank, commercial bank offer to its business customers? They offer 2 products typically at their core: banking for storing cash and lending/access to capital. Arc does effectively the same thing built on a network of bank partners of offline financial institutions. So Arc is the front end technology layer that facilitates access to diversified bank deposits, checking savings, high yield corporate treasury management, storing funds. We facilitate access to dozens of the world’s largest financial institutions on the banking side and simultaneously we provide access to balance sheet businesses that want to lend to those same customers. We bring those partners to the table and offer their loans to our banking customers, facilitating a one stop shop for capital and banking needs for high growth technology companies.
Peter Ho	So what I said earlier, probably need to be revised. I didn’t say it correctly. I think what I heard from you is: you are building a technology layer to facilitate startup technology company to access banking services, access capital through modern technology. So you’re not really trying to displace JP Morgan. You’re trying to make that more efficient.
Don Muir	Exactly. We’re building a layer on top of JP Morgan Chase and the other largest banks in the world to make their services easier to access for the software businesses that expect a consumer grade product experience across the full business stack, across the full tech stack. We don’t think that financial services should be an offline process when every other business experience is a SaaS tool that’s intuitive, easy to use, and as a frictionless customer experience. We’re building the same thing. We’re building a frictionless user experience across the finance stack in the same way that you would expect to have a frictionless experience across any other part of your business stack, your tech stack. What it means in practice? So the two products: banking and funding. On the banking side, we offer a checking account, savings account and a corporate Treasury account. So on the checking side, it’s everyday banking needs from unlimited free ACH, wires, multi-card program, scaled user permissioning. On FDIC eligibility, the savings account, fully liquid account where you can instantly transfer funds between checking and saving, but on the savings product, then FDIC eligible. But we’re passing through 4% APY flat rate on that product with instant same day liquidity. So that’s the core liquid banking stack that every startup needs to run its operations. For our larger customers, we’ve launched a new product which we’re calling Arc Gold. And this product gives series A through series D companies access to an institutional grade, corporate Treasury platform. And so what we can do? And when we activate our Arc Gold for our mid to up market technology customers, they can go into the user interface and they can seamlessly allocate idle cash across an array of money market funds held by Vanguard, bank of New York Melon. They come with SIPC insurance coverage protection. There’s a super insurance cash sweep program with another 2.5 million dollars of FDIC covered available to these customers, and they can invest directly in treasury bills which are backed by the US government, and today, grossing north of 4 and a half percent APY. On the banking side, not only do we have the everyday banking needs so frictionless, you know, checking savings account but we also have a more white glove, a corporate institutional grade, corporate treasury product where you can max out APY and your idle cash, while also simultaneously maximizing protection through FDIC SIPC and government backed financial products.
Peter Ho	I like the idea. It is making it a lot easier for companies to manage the cash, to do banking. So Arc is not a bank itself. You basically help startups to manage their cash, get credit through the banks out there. But you’re providing a layer of technology to make that happen.
Don Muir	That’s exactly right. Arc is not a bank. It’s a very important distinction. Our customer deposits never touch our balance sheet. What we’re doing is we’re partnering with offline financial institutions, the largest financial institutions in the world, predominantly Bank of New York Melon which has 44 trillion dollars of assets under custodian. We make it frictionless to leverage B and Y to invest in the largest money market funds, or directly in treasury bills, the largest funds in the world, or T bills which are backed by the UD Government, make that seamless to do directly, and on this one fully integrated user interface. And by the way, to the extent that you’re looking for venture debt or working capital that’s also built directly in the UI. And so through technology, we can push funding offers directly to our customers, so not only can they save cash, earn a really attractive APY with our banking product, but if they want a line of capital, if they want work in capital or venture debt to extend runway, they can access that through our platform as well within a couple of business days.
Peter Ho	If I think about it slightly differently. For the listeners, I mean a lot of them use Quicken to manage their personal finance. Quicken, as you know, is a company from the eighties. In Quicken, you can manage your bank account, manage your investment, etc., but obviously there’ a lot of limitations. It sounds like to me, you have a new layer that allows companies to manage their finances, to get the banking done, to invest in treasury, to move things around seamlessly, in some ways similar to Quicken. You’re doing it for businesses and startups.
Don Muir	We’re rebuilding the traditional bank with software, traditional banks for tech companies offer bank accounts, and they offer debt. We’re doing both but with the software driven platform. And so we’re rebuilding the banking stack for tech companies for the twenty-first century using software. It’s a software bank for software companies.
Peter Ho	And how big is the addressable market. You mention it is big. I totally get it. But what is the size? Just help me out here so I can wrap my head around it.
Don Muir	Sure. Well, we know that the venture debt industry was a 30 billion dollar market last year. We know that there’s 20 trillion dollars of bank deposits in the US. 95% of venture debt or higher, was originated by an offline lender or financial institution. So all of that exists offline today. Arc is bringing that capital raising, that access to capital, Arc is bringing that online, making that available through a digitally native web application where we are leveraging machine learning, AI and seamless front end UI to access that capital faster and better, and monitoring those positions for the lenders through automated processes that are traditionally offline. So on the lending side it’s a huge market that’s currently dominated by offline financial institutions. On the banking side again, banking is 99% offline that’s run by these traditional 100 plus billion dollar offline financial institutions, predominantly JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, the too-big-to-fail banks that saw a huge uptick in volumes following the events of the last couple of weeks. Again, our goal is not to displace these traditional banks, they serve an extraordinarily valuable [function], they serve an extraordinarily important use case in the market. Our goal is to simply partner with them to make it easier for early stage high growth software companies that run lean and don’t have a in house Treasury function. Make it easier for them to diversify their cash across these offline financial institutions and access the highest yield in the market, and that’s the gap that Arc is filling in. We are building the next generation Silicon Valley Bank that is software driven, diversifies cash seamlessly across too-big-to-fail banks while tapping into the highest APY available in the market through T bills and other money market fund programs.
Peter Ho	Makes sense. How do you make money? Do you charge financial institutions a spread, or maybe you charge the companies a monthly fee? How do you make money?
Don Muir	Yeah. So Arc makes money by charging financial institutions a small, a very small fee on the cash that it’s depositing into their programs. So we’re putting cash with Bank of New York Melon who then use a broker dealer to invest cash into various money market funds or directly into Treasury bills. And there’s a slight take off the top and Arc shares in those economics. But ultimately the rate that the net return that flows to the end customer is exponentially higher than anything available to them through the offline financial institution. And that’s a product of Arc using technology to access the best rates in the market with the most attractive financial institutions at that given time. So it’s technology that allows us to pass through the best rates in the market net of the take that Arc and its financial institution. Partners take off the top.
Peter Ho	With what happened 2 weeks ago, Silicon Valley Bank went under and some other banks have similar issues. One of the things that is top of mind for CEOs and CFOs of the world, is to say, hey, why should we work with this bank or this company. If I was the CFO or CEO of a startup, why should they trust Arc, give their assets or put their money through your platform. What kind of safeguard do you have to make people feel comfortable to use your platform?
Don Muir	It’s such an important question in today’s market. First and foremost, what happened with Silicon Valley Bank, First Republic Bank is a tragedy. I have many close friends, colleagues, acquaintances who have worked or currently work at those institutions. I have a lot of respect for those banks, the culture they built and the talent that they’ve attracted to the platform, and the value that they provided to Silicon Valley over the last 4 decades. So that’s the premise. What I’d say is this: why have hundreds of new companies moved over from traditional banks to Arc over the last few weeks in particular? The answer to that is, we can diversify cash across multiple billion to multi-trillion dollar financial institutions with the click of a button. Arc is not a bank and that’s an advantage. We are a technology company that enables diversification across multiple financial institutions to maximize security and safety while maximizing return on idle cash. And that can only be accomplished through technology through a digital banking platform that leverages bank networks to facilitate a better banking experience for our customers.
Peter Ho	That is so important because I feel a lot of the CEOs of startups are not thinking about Silicon Valley Bank could go under. If you ask them 3 weeks ago, or 3 months ago, it’s not something CEOs will think about, because they have been growing for the last 30 years. It’s not a scenario many have thought about. If you look at what happened, now I think that’s top-of-mind. I think what you just articulate make a lot of sense, because you want to spread the risk across different banks and trying to get the highest possible yield. And I think the technology offers a unique solution to some customers
Don Muir	Using Arc’s platform, a customer that was historically getting $250,000 of FDIC coverage with one traditional bank, they now come to Arc, they get 250k on the checking account, they get another 2.5 million dollars of FDIC coverage through our sweep program that sweeps the cash across dozens of financial institutions that gets them up to 2.75 million of FDIC coverage. They get another $500,000 of SIPC coverage through our money market funds with Vanguard or Black Rock or others. Then they can put the residual up to, we have customers at 20 to 50 million dollars, into T bill ladder program that’s yielding north of 4.5% APY, and is backed by the US government. We can do that all seamlessly and instantly through a digital banking platform. That’s something that simply cannot be accomplished at scale with an offline relationship driven financial institution.
Peter Ho	So what happened the last 2 weeks actually helped Arc because people are starting to think about this kind of things more front and center, right? Are you getting a lot of calls, and are you getting sleep?
Don Muir	No sleep. But the team has been working very hard over the last few weeks and it’s been really fantastic to see the team come together, work around the clock to serve a very discrete need in the market, and while there is certainly tailwinds and benefits to our business, I’m just fortunate that we could be in a place to help so many companies at a time when they needed our services the most. They needed a place to safeguard their cash, to diversify their bank deposits they work so hard to earn. It’s very hard to raise capital from VCs. And in this macro environment, where the funding environment is particularly challenging for a lot of these companies, to jeopardize those bank deposits at such a certain time in the market was adding insult to injury. And so I’m really fortunate that Arc could be in a position to help these founders, to help these CFOs preserve that the cash that was left in their bank account, preserve that runway to ensure that their teams could get paid, and they could continue to disrupt, innovate and evolve.
Peter Ho	Turn it around a bit, Don. You and Arc raised a round of capital, I think, 6 months ago? Can you tell us a little bit about it?
Don Muir	Sure, we raised our 20 million dollar Series A, led by Left Lane Capital. The partner at Left Lane, one of the founding partners of the firm, Dan, he sits on my board now. He had invested in another similar company in a different vertical and it developed really great subject matter expertise, building and scaling this other fintech platform. Dan brought subject matter expertise and B2B fintech to the table. Left Lane has brought institutional knowledge that’s been really transformative to our business since we decided to partner with them last summer. So it’s been a really great relationship to date. It’s enabled rapid expansion of the team, investment in R&D and sales and marketing. I’m excited to leverage, continue working with Left Lane and leverage the capital that we’ve raised to catapult Arc to new heights, particularly in light of recent market dislocation.
Peter Ho	Great. So what is your current priority with the fund that you have in the bank? Are you focusing on technology products, or you’re focusing on go-to-market? What is your priority?
Don Muir	Yeah. Until 2 weeks ago, I’ve been almost entirely focused on R&D. My sole objective is to build the number one digital banking product in the market since I raised the Series A over 6 months ago, that’s been our objective. It’s investing in engineering product design to build the best and most enduring banking platform for modern technology companies in the market. When Silicon Valley Bank and First Republic Bank faced issues in recent weeks, and we saw a wave of inbound organic, inbound from customers, 15 times the volumes of prior periods, we needed to re-prioritize and focus on revenue, customer success, go to market, ensuring that we are showing these customers a grade A product and customer experience. And so we’ve shifted slightly in the last couple of weeks. Now that the dust is starting to settle, we’re back. We’re back building and the focus continues to be building the best product in the market, taking all the recent feedback we’ve received from our hundreds of new customers and building that directly into the user interface, in the user experience
Peter Ho	That’s fantastic. So this is about as much time as we have today. But I’m going to wrap with 2 more questions, Don. So what keep you up at night right now in in light of the opportunity, in light of what you’re seeing in the macroeconomic environment? What are you thinking about the risk to what you’re trying to do?
Don Muir	It’s a truly unprecedented time in the tech ecosystem. On the one hand, the rising interest rate environment has caused valuations to plummet, has driven uncertainty into the venture capital fundraising environment and has created a lot of uncertainty for startups across the board throughout Silicon Valley throughout the country. Arc is not excluded right. So there is an uncertain macro backdrop that we are building it at the same time. There’s been this black Swan event that’s occurred within my niche vertical of the tech ecosystem which is digital banking, startup banking and marrying those 2 events, it’s my job to navigate this uncertain macro environment while ensuring that I’m capitalizing on the opportunity that has unfolded in front of me. We’ve been building very hard for the last 3 years, building this digital banking product, and we’ve gotten the product to a really good place right before the 2 largest startup banking providers, the 2 largest traditional banks who serve the startup banking market faced some real issues, and it created the need for a digital banking alternative to emerge. Arc was there, ready to bring on hundreds of new customers at a time when they needed us the most. And so what keeps me up at night is ensuring that we are cautiously navigating and uncertain macro and fundraising environment while simultaneously investing in the business sufficiently to serve this wave of new demand and capitalize on the secular market tailwinds that are moving in our favor.
Peter Ho	I definitely agree. I think Arc is in a very interesting position. Obviously, a rising interest rate pulls a lot of challenges to financial institutions, to a lot of companies, but at the same time because of the events of SVB, First Republic, there’s a unique opportunity for you guys to speed up some of the thinking of CFOs and CEOs of the world. Because, like I said, a lot of these financial institutions have been offline for the last, I don’t know, 100 years. So technology is there. I think a lot of this is going to move a lot quicker just because of SVB going down, whether you like it or not. So it’s a really interesting, challenge and opportunity for you guys. Final question, this is not going to be easy to answer in 3 minutes. But I hope you can come back, I mean to have you in another episode. How would AI change what you guys are doing, or some of your competitors are doing? What’s the opportunity in the space?
Don Muir	It’s a really interesting question. There is an enormous amount of inefficiency in banking, lending in financial services more broadly. Arc and our mission is to take that offline relationship driven banking model and bring it into the 21st century with software. When you layer in artificial intelligence, the realm of possibilities is seemingly unlimited. What comes to mind, or what I’m tinkering on in the background is one of my side projects, is how to leverage artificial intelligence to make better, faster decisioning processes, particularly on the underwriting side. We didn’t get into it too much on this call, but we have a digitally native lending business. And so it’s a revenue-based financing solution where we run raw financial data, 24 months of bank transaction data, counting data through our proprietary underwriting algorithm, it’s all API driven. And we ingest all this data. And we ingest all this raw financial data and we leverage machine learning and other data enrichment layers to actually strip out operating from financing inflows and outflows particular on the bank transaction data to recreate the P and L and drive our underwriting model. This is already Ml driven. We are already fine tuning and back-testing the model to make better underwriting decisions based on performance of the existing credit portfolio with artificial intelligence. I think we can really level up this full underwriting model and dramatically improve our decisioning capabilities and the speed that we can make faster and better safer underwriting decisions. So I think there’s huge implications on the underwriting side, on the lending business and on the banking business. I think there’s meaningful implications to fraud detection as more and more bank transactions flow through our system. Our intent is to leverage AI to sniff out fraud and AML.
Peter Ho	Great. Thank you, Don. This is a very interesting opportunity. Thanks for spending the time with us today. I definitely would like to have you back to talk about AI more in future episodes, because there is a big topic that I think it affects not only financial institutions, it affects many companies we work with. Thanks again for coming on the program. Congrats on the success and please come back.
Don Muir	Thanks for having us. Yeah, great to be here.

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