The following interview is a conversation we had with Scott Dorey, Co-Founder of OpenPath, on our podcast Category Visionaries. You can view the full episode here: $25 Million Raised to Build the Future of Payments
Brett
Welcome to Category Visionaries, the show dedicated to exploring exciting visions for the future from the founders who are on the front lines building it. In each episode, we’ll speak with a visionary Founder who’s building a new category or reimagining an existing one. We’ll learn about the problem they solve, how their technology works, and unpack their vision for the future. I’m your host, Brett Stapper, CEO of Front Lines Media. Now let’s dive right into today’s episode. Hey, everyone, and welcome back to Category Visionaries. Today we’re speaking with Scott Dorey, Co-Founder of Openpath, the payments platform that’s raised 25 million in funding. Scott, how are you?
Scott Dorey
Great, Brett, nice to meet you.
Brett
Yeah, you too. Super excited for this conversation. I’d love to just jump right in, talk to you about what you’re building.
Scott Dorey
Sure. Sounds good to me.
Brett
All right, so what does OpenPath do?
Scott Dorey
So Openpath is a technology company, specifically in the payment sector. So we have a history where for the first few years of our inception, were an orchestration platform, or middleware, basically, which means we assist merchants and other payment companies to run their checkout pages. So to get people through that final checkout page where you put your credit card or debit card number in, and then assist merchants with everything from accepting the payment, making decisions on whether to accept the payment, whether from a fraud perspective, it makes sense to take the risk. And then also things like handling chargeback mitigation and also handling things like switching and directing it which down which merchant account they may be using or payment account they have with another participant, and.
Brett
Take us back to the founding of the company. What was it about this problem in the payment space that made you say, yep, that’s it. I’m going to go spend the next, what, 510, 15 years of your life building.
Scott Dorey
So it was really being convinced by one of the other co-founders who was a personal, we lived together, actually, when were at college. We were roommates initially. And when he phoned me and said, I’m leaving to start this venture, we’ve got some really interesting technology to bring to the market. This is why I’m leaving to do this. Knowing already that this guy was always smart guy and I respected his decision making, I thought, you know what? There’s got to be something to this. So we originally went through the business plan and the technology and thought this is a great concept.
Brett
And then let’s talk about the kind of evolution there. So from that initial idea with your buddy from college, how did you see the idea evolve into what it is today?
Scott Dorey
Sure, Brett. We became a pretty trusted market participant in the vertical payments that were doing. So lots of merchants, some public companies as well, and started to get a real reputation in the space as being really proficient guys at what we do. And while were working through that, we saw an opportunity to partner with another payments company and together work on a joint new product, which we call instant direct payments. This is what we’re super excited to be working on right now, which is a new concept of actually, instead of running payments using the payment rails, your credit card, we actually will take credit cards and debit cards. We switch the payment into a real time bank transfer with almost no other further steps required of the customer.
Scott Dorey
So to explain how it works is when you would go to a merchant page and you would go through your checkout, when you’re ordering your normal product, you put your debit card or your credit card in. It would then automatically evaluate the situation or the transaction and make a decision as to whether it was eligible and whether Brett, you had money in your account to turn this into a instant real time bank payment. So Brett’s bank would now pay Lululemon’s bank directly, put the money right in their account, real time. And what that does for the merchant, Lululemon in that case is there’s a no hold back, no reserves, and no risk of charge back to the merchant. So fraud is eliminated.
Scott Dorey
And so we’ve created a very interesting proposition for both customers like yourself and the business, the merchant, because we’ve simplified the process and we’ve now made it a lot more efficient. And you’ve effectively created now money moving as it should, very direct, accessible right away from the merchants perspective. Now they don’t have to deal with the normal fraud and chargeback issues or friendly fraud, as we call it in the business, that largely disappears. So this is, for our marketplaces is really revolutionary, everybody’s talking. This has been the goal for a long time for the payment space, is to make payments free flowing and a lot more reduce fraud and make it frictionless, if you want to use that term. And this is really something we’ve now achieved, and it’s super exciting for us.
Scott Dorey
We’re in the final stages of the rollout, where we’ve been in beta with merchants real time. We’re about to put it out in the broader marketplace, and it’s being so well received. Trey, can you paint a picture for.
Brett
Us of what the status quo looks like for a merchant? What percentage of transactions are fraudulent? I’m guessing it probably depends on the industry. But generally speaking, what are those number ranges look like? And then what does it look like in terms of the funds being withheld? I’ve heard these nightmare stories from merchants or from e commerce companies that I know e commerce founders where, you know, the funds get held all of a sudden for six months and they’re essentially screwed and potentially go bankrupt. So a lot of stuff there packed in one. I’ll let you try to unpack that.
Scott Dorey
And I’ll make it as high level as possible. The reality is you’re totally right. It depends on the vertical. But in general, for most merchants, this is absolutely something. Even the big merchants or big retailers that are selling low risk product, they all wrestle with this issue of friendly fraud and chargebacks and the downside to not managing it let it get out of control is not only the costs associated with losing product and also getting hard with chargeback, both the cost, direct cost of the fines, but also the direct costs of handling peoples time and resources that are tied up and testing them or dealing with them, but also you have set limits and if you go over those limits with your card provider or your acquirer, you will get in trouble where you’ll lose your processing and nobody wants to do that.
Scott Dorey
You’re now out of business. So this is an absolute massive problem. Every merchant talks about chargebacks and talks about the fraud and risk side of the business. And so the fact that we’ve actually resolved that or solved that largely for merchants, and now we have a plan on how they can operate with that put away. Its certainly a game changer, but it’s a major development on the pay space.
Brett
And then just to map the competitive landscape. So I know a little bit about the space. I know the founders of chargeback mitigator and then I know Chargeback 911. I don’t know those people personally, but I followed the story of what happened with them. Where do you sit between those? A similar solution, totally different solution. Like how do you think about that on a market map?
Scott Dorey
Yeah, I mean, know those businesses really well and because of our orchestration platform, we have ties into a lot of those businesses. Our view is, and they’re great businesses because anything that really helps a merchant deal with the problems they’re having with chargebacks and reducing fraud is absolutely a wonderful thing. What we have, we view it as were completely different. Were not competing against the sense that were not in the business of resolving chargebacks after the fact or dealing with them later on and helping merchants through that process. We are involved strictly with is there a better way to run a payment that is more frictionless and seamless for a merchant, and we believe the solution, and the marketplace is telling us that, too, is this is absolutely game changing.
Brett
When you’re having those sales conversations. When do they have that?
Scott Dorey
Aha.
Brett
Like, is there a specific moment where you see their eyes just light up and they’re like, whoa, what you’re saying is amazing. Do you see something like that?
Scott Dorey
Yeah, in the first three minutes of a call. Right. We try to get a collateral in people’s hand in hinder, hands on advance. But certainly, as soon as you’re on a call and you just quickly outline what the key three benefits. Right. As soon as you outline the key benefits of it, they’re like, well, how.
Brett
Do you do that?
Scott Dorey
Right. And the common question is, well, yeah, of course I want to do that. How do I do that? What’s involved? How do we get integrated? Right. We’re on a platform, but we have our own platform. How do we tie that in your technology? And that is really there. So usually the sales decision by the merchant is right in the first couple of minutes. Yeah, we’re interested. We want to do this. And then it’s now, how do we do this? Right? And that’s the difficult part with technology, as you know, it’s the hand holding when the sales now actually done, and it’s now like, okay, now what do I have to do? What kind of resources do I need? Does it tie up my development teams? How hard to lift this? Right. You know, and that, for us, is where the most.
Scott Dorey
So much effort has gone into this over a couple of years in advance of figuring out the connectivity. So to make sure to figure out, okay, well, how does the merchant lululemon or someone selling t shirts at home, how do they get tied into this technology? And so we’ve spent an ordered amount of time, fortunately, using the platform we already had, which is automatically integrated and tied into all the major sales, all the platforms that are being used by all the merchants. So, you know, the Magentos, the bigcommerce, the woocommerce, you know, there’s a laundry list. So we cover most of the universe through a direct tie in and integrations there. So it’s a very quick. Merchants can almost self board themselves very quickly. And then for the larger merchants of the world, like the Lululemons, we’ve already used an example.
Scott Dorey
They will run a custom platform, and it’s a little bit of development work on their side to tie their system into arms. But we’ve figured out how to do it, and it requires a big back office and a lot of smart people, and it works.
Brett
What do you think you’ve gotten right to be able to fix this problem? I have to imagine that there’s a lot of smart people with a lot of money who are sitting there also trying to figure out and try to eliminate this problem.
Brett
Even if you just look at the brands themselves, they probably have spent time trying to see what they can do to mitigate it. What do you think you’ve really figured out and, like, you’ve gotten right as a team?
Scott Dorey
Yeah, that’s a good question. I think it’s quality of the development team, the technical capability of the team. It’s a joint venture between two companies, but it’s both of our expertise. We’re both good at different things, and we basically put those skill sets together in order to solve the problem. And so for us, I think the first big piece of it is just understanding how to solve the problem and work through it. And I think we’re over, I think combine 100 people. So it took a lot of people’s time, energy, and resources to kind of figure out a possible solution to the problem. But then also the second lay of it really was compliance. Right. You’re dealing with banking, you’re dealing with right regulations. So it’s how to make it work in the regulatory environment.
Scott Dorey
And then also, from a risk perspective, a compliance background, make sure that we’ve got all the necessary approvals, opinions, all put to bed to be able to do this compliantly and make sure we’re on side. And I think because there are so many moving pieces in order to make this happen and a lot of things had to come together, I think that’s why you haven’t seen this resolve or a solution come to the marketplace. And I’m not so foolish to think that we’ll be the only guys that have figured out how to do it. And there probably will be competition down the road, but I’m hoping we have a huge Runway.
Brett
And when it comes to the markets that you’re serving, is it just the US? Is it the US and Europe? You know, where are you focused right now and what, where are you going to be focused six months in the future? Maybe twelve months in the future?
Scott Dorey
Yes, we are obviously focused in the US right now because that’s where all of our approvals to operate are. And it’s also the largest market. So we’re super excited to be targeting this and we have obviously tons of runways for growth. Europe is definitely on our radar, on our roadmap and we’ll be compliant and we’ll be releasing product in Europe eventually. But in the immediate future it’s just states.
Brett
Preston, is that a massive regulatory headache when you look at the regulations in the US and being compliant in the US compared to being compliant in Europe, is that a big lift? Im guessing thats more than you just flying a sales team or building a sales team overseas. Thats probably a lot of work has to go into that, Preston.
Scott Dorey
A lot of work has to go into it for sure because you’re dealing with just completely different rules and different regulatory agencies and bodies. And so Europe is a whole different game. Its a little actually easier in Europe than it is in the United States, which is the irony. But we started in the United States because we figured out the most difficult market to crack and so we feel really good too about obviously just the market size. So we’re very excited.
Brett
Is the payment system totally different in Europe? Whenever I have european friends, when I tell them that our bank transfers take a couple of days, things like that, they’re just mind blown because in Europe transfers are instant or very quick. Does that change the value prop in any way?
Scott Dorey
No, it doesn’t change the value prop, but they are a little more progressive. So they’re a little more ahead of us because they’re less card centric than we are in the United States. So yeah, it’s actually easier. And so they’ve had a lot of developments, including things like when you get a text, you’re following your two fa where you basically, you’re approving a purchase. They’re far ahead of us and in doing these things. And so yeah, Europe is interesting, but the problem in then you also have to have european expertise and you have to have european offices, you have to have lawyers and compliance people and you have to have all those bodies in those seats. So it takes time for a business to basically cross into a different jurisdiction like Europe and make sure you have the right people on board to solve.
Brett
A problem makes sense. As you plan ahead for this big push into the market in the US, what are your top priorities as an organization? What are you focused on right now?
Scott Dorey
Its execution. So we are in the, I think were in the fortunate position of having a really amazing sales pipeline build up far ahead of the actual deployment. So we built up a sales organization, actually, as were finishing the technology, and so we started to develop the sales collateral and the sales processes and find the actual key people within were divided into industry verticals. So the key people that were senior and had all the relationships and could get the product into the right hands right away. We built that all up and then we started actually the sales reach out. So we built the top end of the funnel, if you will. At least all of the sales calls were ongoing before the technology was even deployed. And so we’re kind of playing a little catch up.
Scott Dorey
We are just going through the end of the beta phase, where you’re working through the bug fixes and making sure the product is operating super cleanly. And so that next phase will be okay. Now, taking what’s come through the top of the funnel, and particularly the larger merchants, where there’s a lot more volumes, making sure they’re coming out of the platform when it’s executing perfectly. So it’s things like making sure they go through a smooth onboarding, make sure they’re supported by a customer support in a timely fashion. And so getting, we’re on a real run right now to make sure that all of that flow is being mapped out.
Scott Dorey
So we have every possible scenario thought out around potential problems that may arise, how customer support will interact, how the development teams interact with the development teams at the merchants that is trying to implement the platform. So it’s a really interesting process and just managing all that flow, there’s a lot that keeps you up at night as a Founder. But thankfully, and I think this is a great lesson out of it, is make sure when you’re actually bringing or trying to scale up a new company, a startup, making sure that you actually are partnered with other co-founders that really know what they’re doing.
Scott Dorey
And so in our process, we’re fortunate enough, I have two other co-founders, one who’s got the operational expertise and worked in some pretty big consulting firms, and for some big enterprises, who knows how to roll out big projects. And it’s done this in a sleep for almost three decades. And we have a technical cto who’s been in the payment space specifically for a very long time. So there’s something very nice about being able to hand off and know at least that when you hand off sections of the execution to people that it’s in good hands and they know what they’re doing and that’s the key. Right. It’s all people.
Brett
Helps you sleep a little bit better at night, I’m sure.
Scott Dorey
Absolutely.
Brett
What about fundraising? So as I mentioned there in the intro, 25 million to date. What have you learned about fundraising throughout this journey?
Scott Dorey
Sure. And to be clear, the fundraising in aggregate is spread across both us and our partner. We were a much smaller component of that. The fundraising is, theres a lot of lessons out of the fundraising. I was an investment banker and so were always taught when the money is available, you take it. And I think that applies in the case of to a company thats scaling. When the money is available, you never quite know where you’re going to be in the cycle. When money is available, you try to take it when you can. So in our case, we’ve tried to plan ahead and think six months, one year, two years out, and very carefully, always tried to be overfunded for our current state of where were, because you’ll make mistakes around.
Scott Dorey
Every Founder is going to be optimistic about their prospects, so they’re going to, hey, im going to be revenue positive in three months and this product is going to be a hit. And you can’t plan for, well, it may take twice as long or three times as long, or the product may not sell as well as you think it does. So we’ve been very careful to make sure that we’re not under capitalized. And the other key is also lessons of the road for us is just being very careful about the amount of fixed costs around the true amount of resources you need to get the job done. So everybody wants to start with a big team and fancy offices, you know, and all that stuff.
Scott Dorey
But we’ve been very careful and we’ve actually worked in the other inverse direction, which is as much as possible, hiring people on temporarily as consultants until we’re in a position to bring them in full time, see whether the capability to really do what we need them to do, and also make sure that we’re delivering resources just to match demand internally. So that I think is a really key thing. And I’ve seen just too many startups fail for, because they got too big too quickly, you know, they didn’t need to.
Brett
What’s it like being an investment banker? Take us behind the scenes. You know, a lot of the founders that are listening in, I would say our average profile is 25 years old, living in San Francisco, building a tech company. Very few investment bankers listening in. So tell us whats it like being an investment banker?
Scott Dorey
I think its actually fairly similar in the sense that being a startup Founder is like a 24/7 all consuming job. I was at a big firm and it was the same exact scenario. You’re working 24/7 incredibly demanding. But the interesting part is you’re learning about business. You got an interesting view into how businesses scale and how opportunities and particularly also how capital is raised, right. How capital is raised, how its used efficiently or not used efficiently. And I think its a good background because it brings the discipline of understanding money and how careful and steward you need to be of capital.
Scott Dorey
And when you’re coming into a startup and I think that a lot of probably younger startup 25 year olds probably are not used to the being a steward of money concept, right, where you’ve got a shareholder base you’re beholden to and you’ve got to make sure you’re doing the right thing for them, that you’re using the capital really efficiently and being careful about its deployment. Because markets change, right. And markets can suddenly interest rates change, the economy changes, the macro changes, and it can be difficult to raise money suddenly, like almost overnight, suddenly all of the money you thought you had lined up or committed suddenly isn’t there, right. And so you’ve got to understand that and then work within that, right?
Brett
Yeah, I think thats the reality for many founders in 2022 and 2023. But now it seems to be getting better. But 2022 was especially brutal for a lot of the founders.
Scott Dorey
I know, yeah, its still were until end of 24. Now in many ways its still challenging, right. Because you really, the, in order to keep the capital moving and keep getting it reinvested and being available to put into new startups, it needs to cycle through investments. You have the situation now where you still have liquidity or exits are not as available because the IPL markets aren’t available. So that exits off the table. It really becomes a strategic acquisition scenario. If you’ve got the reduced availability for exits, that means capital is not flowing through the funds, then they don’t have the money available to make new investments. We’re seeing that right now. It’s really difficult for VC firms and private equity firms to raise money for new funds.
Scott Dorey
So the number of funds, new funds that are being raised is the ones that have actually, the ones that have had really amazing track records and I’ve had some exits and they’re being able to get a new fund done, but it’s difficult for a lot of the funds now to move to that next stage and that’s only going to still hurt the exit opportunities and the amount of capital available for startups.
Brett
Yeah, that makes sense.
Scott Dorey
Yeah. So I still feel like it’s top sledding. Right. And it probably like tail ended 24 right now, what’s happening in the market, generally globally. And, you know, I would make the bet that it’s not going to improve significantly.
Brett
Yeah. With the way the world’s heading, it doesn’t seem like there’s going to be like a calm 2025. Maybe I’ll be pleasantly wrong, but seems like it’s gearing up to be a pretty crazy year.
Scott Dorey
Yeah, I think so. And I mean, you know, it’s. Whether you buy into the soft landing or the hardline.
Brett
Yeah. I don’t know what to believe anymore. Final question for you here. Let’s zoom out three to five years into the future. What’s the big picture vision going to look like?
Scott Dorey
The big picture vision is going to happen. I can already see it forming because we’ve got a pipeline and our product is really resonating. It’s absolutely going to crush it. I think more it’s how does this fit in the payment ecosystem as a product and internally? The way I think of the world is where does this product end up? Right? Is this OpenPath and our partner end up being, do we remain independent or do we end up being acquired by a major incumbent in the painting space? And my bet would be that we end up getting acquired by somebody who realizes how significant this is and how it’s a game changer. And then they make the decision to, well, we can’t develop it ourselves on a timely basis, so let’s acquire these guys. If I was betting that’s probably how this plays out.
Brett
We’re getting ready to launch a new show called the exit that takes listeners behind the scenes on exit. So when that does happen, you’ll have to come back on that show and talk to us about everything that was learned from the exit.
Scott Dorey
I would love to. And, you know, and part of our internal strategy now is we are actually already planning ahead and working through this is probably interesting for your listeners. We are doing detailed work right now already with larger VC’s in getting prepared for our next big raise. So we’ve already done a lot of initial work to identify the ones that we want to work with and we’re now opening up due diligence rooms and getting the back end of our ship. So all of the material they need to get smart do their due diligence before making investment. It’s already all either done or in process of being finished.
Scott Dorey
And so I’m always of the mind that you got to look a year or two years out and start working on all those things so that when you’re suddenly in that situation of you need to bring in 20 or 100 million or whatever the number is you’ve already got, the VC’s identified who you want to work with because you’ve spent time with them. They know you, they know your product, they understand it and they’ve actually done most of the internal work to get everybody else on board so that it becomes a much easier process. Right. So we’ve already been doing all of that.
Scott Dorey
We actually have already been doing reach outs to a lot of larger incumbent processing companies and started to let senior people know that what we’re doing and that the technology is actually done, it’s actually getting rolled out, that it works so that they know it’s out there and they know what’s coming and it’s important for the marketplace. Right. And for us it’s great because we’re now educating all of the potential acquirers that will buy this, starting that relationship building process now, getting them smart on it. Now they can follow along and see the scaling and happen real time and we’re going to be in a better exit position because of that.
Scott Dorey
And I think that is a really good exercise to keep that as part of your daily job or you’re working with the market and making sure you’re communicating and starting all of that stuff so you’re not rushing at the end because then you’re not limiting your opportunities. You’re going to maximize your exit values and your return to your shareholders. You’re going to benefit everybody. So that’s what we’re doing.
Brett
I mean, that’s the advice to Levon. That’s, that’s super useful, super actionable. And I think that’s not how a lot of founders think. Or at least that’s not the reality for a lot of founders. Like, they’re not able to think so far ahead, but they definitely should. So really valuable, really awesome conversation. Really appreciate you taking the time before we wrap up here. If there’s any founders that are listening in that want to follow along with your journey, where should we send them?
Scott Dorey
Yeah, sure. www. openpath.io amazing.
Brett
Well, thanks so much for taking the time. It’s been a lot of fun.
Scott Dorey
Brett. Thank you.
Brett
This episode of Category Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B Founder looking for help launching and growing your own podcast, visit frontlines.io podcast. And for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening, and we’ll catch you on the next episode.
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