In this exclusive TechBullion interview, Nicole Loftus, the dynamic founder of The Locker, shares her journey from disrupting a $20 billion industry to revolutionizing the due diligence process with her latest venture. The Locker, the world’s first founder-driven, comprehensive, shareable diligence software, is set to transform the investment landscape by drastically reducing the time and cost associated with traditional due diligence. Loftus delves into the inefficiencies and biases of the current system and explains how The Locker empowers both founders and funders with a streamlined, automated approach that ensures greater transparency, consistency, and efficiency in securing funding. Her vision, fueled by past experiences and a commitment to supporting entrepreneurs, is poised to make a significant impact on the global market, driving economic growth from the ground up.
Please tell us a little more about yourself.
Hello – I’m Nicole Loftus. I disrupted a $20 billion industry and built a tech company that was #8 on the Inc. 500 and #1 on Crain’s Fast Fifty. That business was sold to private equity, and it is alive and well today.
I have seen first hand the positive impact that growing, well-funded businesses have on communities and the economy.
So, I set out to create the services and solutions founders and funders need to be successful.
Nicole, can you elaborate on the specific challenges in the current diligence system that The Locker aims to address?
To raise capital (or exit), all companies must endure a diligence process that distracts the team and sidelines operations.
For companies raising capital or wanting to sell their business, diligence is a necessary part of the process. Unfortunately, it has been a manual process, subjective, inconsistent and biased.
The current system keeps millions of founders from funding, which means their communities are missing out on tax revenue and good jobs, while the greater global economy and planet misses out on their innovations.
For investors (angels, VC’s, PE firms) and banks, diligence is vital to success and yet it is an antiquated, manual, costly process wrought with human error and subjectivity.
The traditional diligence process is a major bottle-neck to deal flow which is essential to a fund.
Further, founders are rarely organized or consistent so analyzing 100 deals against each other is nearly impossible.
What inspired you to create The Locker, and how did your past experiences influence the development of this product?
I was raised in a blue-collar Italian family where women are taught to make babies and spaghetti, not multimillion-dollar tech companies. I chose the latter and defied all odds building a company that grew so fast it was #1 on Crain’s Fast Fifty and #8 on the Inc. 500 list. (I’m one of the few women ever in the top 10 of the Inc. 500.) We had 42 amazing employees, happy suppliers and customers that were the biggest brands in the world, all saving millions because of an innovation we built from just an idea in my head. Launching and running that business was a dream come true…until it became a nightmare when I made the mistake of raising venture capital without the knowledge, resources and tools to navigate those sharky waters. Although my company survived, I vowed to spend the rest of my life building better systems for funding entrepreneurs. The Locker is the first. More to come…
Could you explain how The Locker’s automated, standardized software transforms the diligence process for both founders and funders?
For founders, the Locker eliminates the distraction of diligence and puts them in the driver’s seat for the first time ever. It transforms 900 data fields into a concise snapshot on the health of a business. Founders set up their Locker once, update monthly and give an access key to funders as needed. The Locker is a shareable verified repository that makes it easier to raise capital.
For funders, every Locker is standardized, fully automated diligence verified by the humans at CrowdCheck. The Locker is the only comprehensive, automated diligence software in the market. In one tool funders get the deepest, quantitative and qualitative vetting process, saving time and money.
How does The Locker ensure the security and privacy of the data shared between founders and investors?
The Locker is built in Salesforce which has an impeccable record for security. All data is encrypted at rest and in transit.
Every Locker is absolutely private. Only the company’s Locker Admin can provide access to their Locker.
In what ways does The Locker’s approach to due diligence improve the efficiency and effectiveness of funding processes for private companies?
The Locker’s approach is inverted. We are putting diligence in the hands of the company raising capital, not the investor. Entrepreneurs need to realize that raising capital is rife with dangers that could ultimately cause them to lose their business or disclose information that could destroy their company. The dangers start with the pitch and continue through to signing the security documents. Diligence is one of the biggest minefields in the process. Handing over a bunch of .pdf files to an intern at a VC fund so they can craft a story about your business is irresponsible, but we have never had an alternative until now. This gives the founder a new level of control of the process, and ultimately saves time.
Competition for funding is stiff. In most states the chances of raising capital are abysmal, and nearly non-existent in the 30 states that get less than 1% of all venture capital in the country. See this list here.
The Locker enables every company to assemble and share a verified reporting of the business, the facts, strengths and weaknesses.
The Locker claims to drastically reduce time and cost for diligence checks. Can you provide some specific examples or case studies that highlight these savings?
The impact will be transformative to the funding process. The shift of responsibility from funder to founder is massive and game changing for everyone. The standardization will make operations so much more efficient for investors. Founders can complete diligence in the time it takes to type a text vs. the current process of participating in 100 different drawn out diligence processes that could take months.
The feedback on the Locker has been incredible. Big private equity firms have told me that the Locker will solve the “quality of earnings” problem. Small VC funds have told me the Locker will save them $500k per year. Banks have said the potential savings are in the tens of millions. Family offices and angel investors said the Locker will allow them to be more competitive and standardize their review process.
The positive feedback from founders has been mostly around the ability to set up a Locker once and share it with hundreds of funders, saving them time and enabling them to focus on running their businesses.
How does The Locker address the subjectivity, inconsistency, and bias often associated with traditional due diligence methods?
When a fund, angel, or family office sits down to vet a company, they gather documents and with the first word they read, they start forming an opinion about the company. It is a human condition to create a story, look for things that remind us of other businesses we have seen that may be similar. Surprisingly, it’s the first stage of diligence, the quantitative work, that actually has the most influence on the qualitative diligence.
The Locker software conducts 95% of the quantitative diligence an investor needs. The “opinion” is formed by the software and it’s unbiased, there’s no fluency or pattern matching. Every Locker is a representation of what the data indicates. A balance sheet ratio is not telling a story, it is a fact.
So, if we can take nearly half the diligence and make it as unemotional and straightforward as this, then we are on our way to a more subjective, unbiased diligence process.
What impact do you foresee The Locker having on the global market, especially in terms of deal flow and funding accessibility for startups?
Funded private companies are the driving force of every economy. Weeks after a company gets funded, their neighborhood starts to feel it. The nearby restaurants, dry cleaners get business from the jobs created, and the impact ripples out from there to the state economy with tax revenue they create, and their products and innovations influence the national, and ultimately, the global economy.
If every company that has a Locker has an easier, faster path to cash then we will be the driving force of significant, positive impacts from the kitchen table to the national and global economy.
With the acquisition of CrowdCheck, how has The Locker integrated their expertise into its diligence process, and what unique advantages does this bring?
Every Locker is verified by the diligence analysts at CrowdCheck, a 12-year old, highly respected diligence and compliance services firm. CrowdCheck knows how to vet a business, whether it is with bad actor checks, making sure no one is on an FBI list, or verifying customer and supplier contracts. The Locker is the AI and CrowdCheck is the HI, the human intelligence.
Looking forward, what are your plans for expanding The Locker’s capabilities and reach in the fintech and investment sectors?
There are several Locker enhancements in the works today and planned for the next year – all driving toward the best experience for founders and funders with the mission to make fundraising easier for everyone.
What I’m seeing in the startup and investment ecosystem are more choices for companies to raise capital. At the same time, a growing public awareness and interest in joining the community as investors either through crowdfunding or other new platforms.
What future developments or features can we expect from The Locker to further enhance its value proposition?
We are pretty excited about the product we’ve delivered to the market. There are no significant changes planned, although enhancements to the tech are already under way. Over time we will add the ability to set up a Locker by importing data from accounting software like QuickBooks or importing team information from LinkedIn. Other than that, we’re going to let the market tell us what new features they want, and then give them what they want.
