Australia’s new performance-based, debt funding facility invests $600,000 in Xceptional
Monday, November 25, 2019/
Sydney-based employment startup Xceptional has secured $600,000 in funding, through a brand new loan vehicle designed to help founders focus on social impact, rather than repaying the pennies.
The funding has come from the Beneficial Outcomes Linked Debt (BOLD) loan agreement, designed by Impact Investment Group and led by its Catalyst Foundation.
The loan was also backed by Tripple, the Community Impact Foundation, the Disability Impact Fund and the Snow Foundation, and was topped up by a contribution from private investor and social impact consultant Roslyn Baguley.
Under the agreement, repayments will be based on the startup’s revenues, while interest rates will be tied to the level of social impact it achieves.
Founded in 2017, Xceptional is a tech platform designed to help get people on the autism spectrum into meaningful careers, especially into specialised IT and development roles.
Historically, there has been little awareness of the needs of people with autism in the workplace, founder and chief Mike Tozer tells StartupSmart.
While that is changing, partly due to a changing approach from the media, the traditional interview process is still often alienating.
Many people who have the skills to excel in the workplace freeze up in interview situations, the founder explains.
“The interview is so much about meeting someone new for the first time and small-talk, and all these other little factors,” he says.
“It’s become all about talking your way into a job, sadly.”
“We’ve got 10 years to fix the workplace”
This cause is also personal to Tozer. His sister has autism, and for the 20 years she’s been of working age, he has watched her struggle with employment.
“I’ve had enough of seeing her struggle and trying to address the specific situations,” he says.
Then, Tozer’s son, now eight years old, was also diagnosed with autism.
“We’ve got 10 years to fix the workplace for him and the tens of thousands of other children with autism.”
He decided to launch a business “that shows you can employ autistic people for their amazing strengths”.
Last year, Xceptional and Tozer appeared on the ABC’s Employable Me series. Since then, interest has skyrocketed, the founder says. Between the 2017-18 and the 2018-19 financial years, revenue grew by a massive 1,400%, he says.
More and more workplaces are reaching out and trying to work with the startup. And, while the startup has placed 30 people into new roles so far, by mid-2020 it’s on track to be seeing those kinds of numbers on a monthly basis.
“A lot of banks and tech firms are looking for great people,” Tozer says.
Focusing on passion, not pennies
This cash injection will allow Xceptional to stay on top of these opportunities, and will allow Tozer to build upon the startup’s 12-strong team.
But, what’s important to the founder is the rather unusual source and structure of the funding.
“We really wanted to work with impact investors — people who were aligned with the social impact side,” he explains.
“As a for-purpose founder, I could see all these pressures on me, on hitting all the financial metrics,” he adds.
Everything he had to report on as a measure of success, was based around reporting on dollar-figures, rather than on the success of the social enterprise.
“I wanted to increase the pressure on us to place jobs. That’s my sole passion, really.”
The new type of funding structure was devised by Tozer himself, along with IIG chief Dan Madhavan and Giant Leap Fund investment manager Rachel Yang.
“It really excited me, both about the potential for us, but also about the potential of finding a new mechanism for other founders, particularly for-purpose founders,” Tozer says.
Speaking to StartupSmart, Madhavan explains Tozer and Xceptional were “our guinea pig” for the new program.
The IIG team had been looking for a way to invest in profit-for-purpose startups that was, first and foremost, founder-friendly, but also focused on impact.
“The tenure of it, the fact that’s it’s debt rather than equity, the fact that the repayments are linked to revenue, rather than being fixed repayments — they all go to the founder-friendliness of it,” Madhavan says.
At the same time, the cost of debt, or interest rate, is intrinsically linked to the social outcomes that are achieved.
“We’re incentivising the founders and the team to stay as focused on the impact they want to have as they are on the business they want to build,” he adds.
“That’s the big shift in this.”
Ultimately, the plan is to roll out a series of debt funding using this structure, with both profit-for-purpose and non-profit businesses.
For the latter, debt financing is typically the only option. So, a program like this “opens up a whole new space of financing purpose-driven startups”, Madhavan says.
“It’s exciting for us to get to work on something like this, and just to take a really fresh approach to infusing impact into the structure of a term sheet.”
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