Karl Gilbert, CEO & Co-Founder of Raylo on raising £150m, generating £50m of revenue and £10m profit

0:00Hello and welcome back to the Scaling Europe show. I'm Sid Johnson. Today I'm joined by co-founder and CEO of Raylo, Karl Gilbert. Karl, thank you for joining me today. How are you doing?

0:08Karl Gilbert:Great, thanks. Great to be here. Thanks for your time. For those who don't know, can you just give a super quick introduction to yourself and Raylo? Sure. So I grew up in Northern Ireland from a family of small business owners and you probably know that Northern Ireland wasn't exactly the best place to build and scale businesses during the times of the trouble. So like many, I was looking for a way out of Northern Ireland. At the time when I was at school, I played golf for Ireland, and that was certainly the original plan to continue to pursue that. But I was fortunate to have a teammate, Roy McIlroy, who gave me a front row seat to what great really looked like and I figured it would be a little bit smarter to go to university and pursue a traditional career.

0:55Karl Gilbert:So in those 10 years or so prior to Raylow, I was an investment banker. I was in equity derivatives markets, which was actually a super interesting place to learn, be exposed to some really smart people. But I saw the light at some point, and I was fortunate to join a business called Funding Circle just before their Series D. And, yeah, that was a really great, refreshing experience to a fast-growing, really ambitious business. and ultimately was the inspiration to what we're building here today at Raylo. We started Raylo because we saw a phenomenal opportunity to really offer a fundamentally better customer proposition in the electronics market.

1:40Karl Gilbert:It's a huge market,$1 billion globally, and there's just an enormous amount of waste baked into the way people use these devices. typically their consumers and businesses use devices for two three years and then discard either in drawers or ultimately latin fill so we've built a proposition that one firstly addresses what customers really want which is access in a better way which is either around flexibility for affordability. And it also drives all the right incentives to be efficient with how these devices are used. And ultimately, Rado takes responsibility for using the device over its full life cycle.

2:26And things are going well. You know, you just raised 30 million, I think 10 million equity, 20 million in debt. So things must be going well. Anything that you can share about how the business is performing? I know that you've seen good growth, but any numbers or stats that you can share that kind of give an indication of how well things are going?

2:40Karl Gilbert:Yeah, sure. yeah we continue to execute well in the UK last year we grew the business another 58 % finished the year around 57 million ARR and we expect that to continue this year so we're targeting another 60 % and it's really the first time that we've what I wanted to do was really prove in the UK that we could deliver a very profitable business model deliver the right experience across customers and manage that whole life cycle of a customer extremely well and for the first time step into having direct relationships with the best brands now we've done that we're really excited about the the next few years in the uk but we will also begin to launch the business internationally this year amazing i definitely want to get into that but before we get into that can you talk a bit about your customer profile so you work with some huge brands but yeah i think you've talked with some younger early ones like how has that customer profile changed as you've seen your growth kind of accelerate yeah for sure so i think let's start firstly with the end the end users uh which are consumers or small businesses and really in the most simple way we we focus on delivering excellent proposition and differentiated proposition versus other ways they can pay monthly, which are traditional finance, buy now, pay later, or in the smartphone market, the telco contracts.

4:12Karl Gilbert:We focus on really two things. One, delivering a unique level of flexibility, which is our pure subscription all the way to monthly rolling flexibility. So a customer can take a device, a brand new device, and hand it back one month's notice. Younger customers love that. Gen Z, who don't like commitment. We actually find our small business customers like that as well because they need the flexibility when they're thinking about scaling up or down their teams. And then if you stretch our proposition the other way, where our customers can commit to 24 months or 36 months, we can always be the lowest in the market.

4:54Karl Gilbert:So we can uniquely deliver that affordability for a customer who wants the best tech, loves great tech, loves everything it can do for their life. but has a monthly budget, we can always be the lowest price in the market because we use the future value of our device, the device's residual value, to lower the monthly payment for that customer. Amazing. And what's it been like having to almost build in an industry that hasn't quite got this business model yet? We've had the hardware and the technological devices for a long time, but your subscription model is applying a business model that works in an industry that exists, but where the two haven't kind of met yet.

5:32What's that been like?

5:34Karl Gilbert:Yeah, look, I think how we've always approached this is really focus on delivering what is the ultimate customer proposition. And it goes back to that point around flexibility and affordability and leaning into really all the key trends of how consumer preferences and small business preferences are evolving. and then beyond that it's just critical to deliver a superb experience and if you can if you can nail these key points that what customers want flexibility and affordability and wrap it in a in a really premium experience then the the sort of barrier to making some changes i.e. accessing tech rather than owning it that they become secondary or tertiary and you can really drive adoption.

6:28Karl Gilbert:That's all on the end user side to our core small business and consumer audiences. But of course, we need to change the, I guess, minds of our key brand partners. So the key brands that we're working with now include PlayStation and LG. And traditionally, in their checkout, they've worked with buy now pay later or traditional finance to provide an affordability solution and they tend to be either banks um so large brand name banks or very established uh buy now pay laters or fintechs so it's taken a little bit time to build the scale and credibility uh through our own marketplace uh to then be able to land uh these key brand partners which has started to happen in the last 12 months and the the the the benefits for them are huge one we can drive a massive incremental audience we've seen in some cases up to doubling the conversion rate of their e-commerce sites and this is purely incremental conversions um because of these customers who love the affordability or the flexibility we can offer and then two what we're seeing is these customers tend to have a much higher lifetime value than their traditional customer that they're converting.

7:55Karl Gilbert:These customers love premium tech. They tend to be very sticky and they tend to upgrade as well. So we can see a nice boost, 50 % to 60 % as well on lifetime value. Amazing. And talking about growth, you said you wanted to see another 50, 60 % growth this year. You also mentioned your kind of expansion plans. Where are you looking to expand and how much of that growth is going to come from the new markets? Yeah, so we're starting with the US this year, and that will be quickly followed by key markets in Europe. The UK is a great market. It punches above its weight in terms of penetration of e-commerce and the size of the electronics market.

8:43Karl Gilbert:but the US and these other European markets are much bigger in comparison and we'd expect in the next couple of years most of our businesses is outside the UK. And what's that going to look like, that initial expansion? So you're going to the US, is that going to be, you know, what are you going to build out there? Is it going to be offices? Is it going to be the infrastructure? What's that going to look like in its initial phase? Yeah, so the initial phase from a go-to-market perspective, and we will partner very closely with one of our key brand partners. And we will deliver this embedded subscription service for their own e-commerce channels.

9:23Karl Gilbert:So really delivering that big boost in conversion and lifetime value for them through their commerce channels. Of course, we have to have our local expertise from an underwriting and supply chain orchestration perspective. But we can run most of our business from our key hubs in London and Belfast. Amazing. That's going to be super exciting. What do you need to see in that initial expansion for it to be a success? What are the things that you're hoping to achieve? Very much for our, we're thinking very clearly about driving conversion and uplift and incrementality for our key brand partners. and the metrics that we like to look at is of course overall e-commerce conversion rate increasing but the increase is this incremental audience who only is checking out because of the Raylo flexible or affordable subscription.

10:26Karl Gilbert:So these aren't customers that would otherwise have bought. These are purely incremental. That's really what we're going to be digging into to prove the product market fit in these new markets. Got it. Yeah, that's the value you've really got to prove before you can assess the success, I guess. I also want to touch on the funding grant. You raised, you know, $30 million in total split between debt and equity. How was that process of raising money? It's been, we've been very fortunate to have phenomenal backers of our business. It feels like a long time ago in 2021 when we raised our Series A from Optimus Ventures.

11:05Karl Gilbert:And since then, we've been very focused on really the venture arm of banks. So Macquarie, the Australian bank, and more recently Citi mentioned as a new equity partner. And we find that can be that really is the right type of investor who deeply understands our business model, really appreciates some of the financing angle of our business and understands, of course, the debt side of the business that drives a really efficient capital stack. And what kind of, on the equity side, I guess, what was compelling about the investors who came on board again? About the type of investment who joined us?

11:54Well, as in, what gave the investors conviction to kind of back you, I guess?

11:59Karl Gilbert:Yeah, for sure. Look, our model is, the way I look at any business is you can simplify everything. If you look at your gross margins, your gross rate, and then the quality of your revenue, often measured by net dollar retention rate or some other retention rate. And our business is really strong in all three categories. So, gross rate, we talked about around 60 % year on year. gross margins fully loaded gross margins around 50 percent uh and we have excellent revenue retention to really high quality revenue particularly for a consumer business where our net dollar retention rate is about 120 so the business is it naturally compound at around 20 even if we're not investing a lot in uh in growth amazing as a yeah it's a phenomenal metro so it's clear to see the the value to to investors and when you look at the 10 million equity that you've raised where's that going to be deployed and you know is that going to go really into getting the u.s market up standing up and then looking at the other european markets or how are you thinking about spending and deploying that capital yep um it's it's it's going to be very much focused on continued growth strategy in the uk and and the the initial uh u.s launch so So, yeah, we'll likely be raising more capital to accelerate the US and other European expansion in the coming months.

13:29Karl Gilbert:Amazing. That's really exciting. And, you know, what do you think you need to do to enable that? You know, like you've got these great metrics under your belt. You know, things are going well. What else do you need to do to demonstrate to investors that actually this is a business worth doubling down even further on? yeah the other piece either that we're we're working hard on we continue to invest in in our go-to-market team is deepening our relationships with the best brands we want to work with the the category leader in in each of the core categories which is smartphones tablets laptops wearables games consoles tvs and displays um there are you know in each of those categories.

14:14We're really focusing on working closely with them

14:18Karl Gilbert:to deliver these big uplifts in a conversion lifetime value. And the reason we like working with the category leaders is a few things. One, they build the highest quality and durable products. They tend to be at a premium price for good reason which our model offers very strongly against in terms of that flexibility and accordability point but also they fit extremely well into our business model we want to be yeah long term owners of these devices and put them in our subscription across three maybe even four customers and we want the highest quality device that has a strong brand value attached to it that really works across our whole model and whole life cycle Amazing and it feels like if you're given the capital that you need, there's no reason why this couldn't succeed in a lot of wrestling markets in the US as well.

15:13So it must be an exciting time.

15:15Karl Gilbert:Yeah, super exciting. Amazing. And you mentioned at the very beginning that you were a pro golfer in your youth. What lessons or kind of what experience, what did you gain from that experience that you're now applying as a founder CEO? Yeah, so I wasn't a professional, but amateur, elite amateur playing for Ireland. but it was a phenomenal experience I think golf is a great sport because really it's one of those sports where your performance is measured every single time you go out on the course individual performance nowhere to hide you have a number against your day and I really like that because I think you have to one base the number you achieve in a certain day but two you have to be able to deal with adversity at all times it's one of those sports that almost never anything runs perfectly you're almost on every hole or 18 holes every hole you're going to hit one bad shot and and maybe it would be a really bad shot, but just a terrible spot.

16:39Karl Gilbert:So I think building up those reps of dealing with failure, I think is great. I've heard other founders talk about being gamers, and I think that can often be similar, except probably on a slightly faster failure loop. um yeah and i think what it also helped me understand is a lot about my own um psychology my own mentality learning a lot about yourself how you how you best perform under pressure um how you best prepare um which is a you know huge part of golf is preparing and preparing yourself under pressure and trying to simulate um the the the conditions of competition um and then probably finally it's a simple one but it really helped me understand like how important or how how key preparing and practicing and working hard is because ultimately it does it does all show results yeah absolutely it's an interesting comparison that you make to the game is it's kind of why i asked there's something around hyper competitive hyper focused there's short feedback loops you know going down that route in your youth definitely seems to to to create an environment where you get more founders which is pretty interesting um we've got a minute or two left and i kind of wanted to finish on some kind of key learnings insights from your journey so far but i really wanted to know like what's the biggest mistake that you feel like you've made in the journey of building railer the thing that you wish you could go back in time and undo

18:29Karl Gilbert:yeah there are a few you know I think the biggest mistake was really learning in the early days when you create a new financial product and you launch it online the the amount of, let's say, adverse selection you can get. What that means is how important it is to build a trust and brand, particularly when you have a financial service that is delivering a really critical device to a customer, let's say, like a smartphone. And we definitely underestimated that in the early days, and we've since invested a lot in that. And yeah, if I'd gone back in time knowing that, we probably would have made slightly different capital allocations in the early days and probably fewer mistakes.

19:32Yeah, it makes sense. And what's been the highlight? The moment where you thought, okay, everything's flying, maybe you found product market fit, maybe you signed an amazing customer. What was the one moment where you think, oh gosh, everything's coming together and we've really got something here?

19:47Karl Gilbert:I think the key point of the validation of the model was landing the partnership with PlayStation and more recently with LG yeah that is really proving that something very differentiated and incremental versus buy now pay later and you know really we see this being the way this category is going to shift away from ownership models to subscription models and that's what Raylo is. Raylo is the subscription infrastructure for the best brands to make this shift over the coming years. Amazing yeah it feels like the best is still to come right you've got a bright future ahead with lots more markets to tap into.

20:33So look Carl thank you so much for joining me it's been great chatting and let's stay in touch.

20:37Karl Gilbert:Awesome thanks all of that thanks. Thank you you too.

20:45Thank you.