Founder in Focus: Denise Thomas, CEO and Co-Founder of ApplePie Capital

This week’s [co]founder in focus is Denise Thomas, CEO and co-founder of ApplePie Capital. ApplePie Capital (Fund II) is a marketplace lender that enables franchisees to get new and more efficient sources of capital for their business.

Denise says the idea for ApplePie Capital came about as banks became more regulated and began pulling out of a lot of smaller loan financing. Most banks only do SBA loans for people who want to build out a franchise - Proforma. They’re heavily focused on financing cash flow loans. And the franchise brands make more money when they open new units; it’s key to their hearts and wallets.

Another key is obtaining proprietary data. Denise observed 33% of all loans that defaulted in SBA programs came down to 10 out of 3,800 brands. She knew she could build a data-driven underwriting model that would be consistent in targeting brands to serve. The industry is huge, and Denise knew she could build finance-in-a-box for businesses in a box. Franchise is data-driven and all about consistency. 

Early on, Denise received key advice worth heeding. She asked an early stage equity investor how to measure her success for the first 12 to 18 months. He said, “When you start out, you usually have 5 or more big obstacles to overcome in a new venture. If you can get it down to one problem in a year, you are going to do well.” Other advice that’s served her well: Choose your board members wisely, and don’t allow a major capital markets deal to be negotiated by anyone but you. 

Franchises / Franchise Lending

When it comes to misconceptions about franchising, Denise says it’s that a brand does not employ franchisees. They license the right to open a franchise location using a blueprint and guidelines. 

Most lenders are focused on the top Quick Service Restaurant (QSR) brands and don’t fathom how anyone could lend to so many other franchise brands safely. These banks aren’t structured to pursue a vertical business model. They’re horizontal and mostly provide services on a geographic basis. Creating a data-driven model to pursue an entire segment is just something they don’t do. 

Denise says franchise is unique because there are multi-unit owners, along with various guarantors and entity structures. It is complex. Systems have to be built to handle complexity and save time for the returning customer. ApplePie Capital has a 30% repeat rate and must make it easier and easier for clients. These are busy people running multiple small business locations, and their loan size continues to get bigger and bigger over time. Denise has sought banks that are comfortable with that growth.

Social Leverage

Denise connected with Social Leverage through her lead seed investor, Freestyle Capital. She says both firms have done a lot of co-investing and are of the same mind.  

“Social Leverage is a wonderful and inspiring firm for early stage investors and beyond.” she says. “They know how to support an entrepreneur and have empathy for them.” Denise notes the firm supports founders in any way they can: introductions, fundraising, and some of the partners in the firm committed capital to purchase loans when ApplePie Capital ran an open marketplace. And they are not a burden.

One-on-One

Pete: Where did you get your entrepreneurial spirit?

Denise: Probably first from my father. When I started my career, I worked for a very large company for six years and the CEO of that company invited me to join his next venture. It was at that company that I began to branch into originating my own ideas. I had great mentors who followed and supported my entrepreneurial spirit and actually backed me to pursue my first.

Pete: Are your parents entrepreneurs?

Denise: Both of my parents have passed. My father was a serial entrepreneur and during my youth I actively participated in learning about his businesses. He was way ahead of his time without the internet. He created a car mart using drive-in theaters that were not used during the day to create a marketplace where people could come and sell a used car with an estimating service to value the car. That’s just one example. 

Pete: What was your key driving force to become an entrepreneur?

Denise: I am endlessly curious, don’t mind well. I don’t follow rules, I find ways to do things better, faster and easier. When someone does not see the possibility, I am very impatient and don’t want to spend my time with narrow thoughts or people so I gravitated to more and more freedom to do what I believed was possible and that no one else had thought of or done. I also like creating order out of chaos and the rewards that can come from doing this and taking risks. Lastly, I found I had a knack for selling and fundraising. It was part of my DNA. I can also quickly assimilate complex things and focus on the most important thing. 

Pete: How did you come up with the idea for your business?

Denise: In my last company, I met a firm that was purchasing Prosper and Lending Club loans through a fund and learned all about alternative lending. I wondered why no one else was funding new small businesses and a friend and colleague, who became a seed investor in the company, brainstormed with me where to begin in the vast world of small business. The criteria was that he had to be somewhat standardized and that led him to recommend looking at franchises. My family had been an investor in a master franchise for over 20 years and my brother-in-law came back to the US after running Coca-Cola in Mexico for years and decided to buy franchise rights for all of San Diego. Both of these experiences were positive and I had a place to start my inquiry and research the market. 

Pete: What was the toughest challenge starting the company, and how did you overcome it?

Denise: The toughest thing was our chicken and egg problem. How do you get Franchisors to commit when you don’t have money to lend and how do you get investors when you have never lent money before? 

There were several things that solved this problem but the central and first part of the solution was to raise money from individual investors/family offices and start a marketplace where high net worth investors could fractionally invest in these loans. We also created a very plausible credit model that was driven by historical data from SBA loans to franchise businesses and a very qualified credit executive who joined our team early. 

Pete: What makes ApplePie Capital stand out of the crowd?

Denise: We are the only 50 state conventional lender that has served over 200 franchise brands in 7 years and financed new franchise locations as well as existing franchisees with cash flow loans. We’ve lent over $1.5B to date. 

Pete: How do you generate new ideas?

Denise: By constantly thinking about how to make things easier whenever I encounter a problem that applies to many people or many companies. I like replenishing markets where there will always be a need. For example, franchise has been around for decades and is not a business model that is going away. There are always incoming franchise brands starting out. There is always growth in brands that have not met their footprint goals. There is an international market. 

Even outside the business I created and am running, I see things that could be done or I invest in things that I believe in even if I am not going to be the one to do them. Everyone in this country will eventually get Presbyopia where they will need reading glasses or other solutions to their problem. My family invested in fundamental technology to make a difference in this area. Once a solution is found, it is a huge market that will never fade away.

Pete: What best motivates you?

Denise: I like the tension that comes from finding a way forward on a problem no one else seems to be able to solve. The other thing that motivates me is making a difference and building something that will provide a legacy for my family and others who help me do it. It is not often you get to create and work in a business that will still be around after you have gone. I think we have one of those businesses. 

Pete: How have your entrepreneurial motivations changed since you first started?

Denise: I am a serial entrepreneur and have done half a dozen start-up’s so if I think of this current one as my last, I would say that what has changed is that it is no longer just about an idea I am attracted to, it is about how I can make a lasting difference in the world. 

Pete: What’s your greatest entrepreneurial achievement to be proud of?

Denise: I would say raising over $1B in lender commitments and building a brand and a company that is well thought of. We have doubled our team in the last year and we have only had one person turn us down in a market that has been very hot. In every interview I do, and I interview everyone who wants to join the company, I hear the same great things about our team and culture. That is very rewarding.

Pete: What book has inspired you the most?

Denise: I really enjoyed the book between the Dalai Lama and Paul Ekman: Emotional Awareness: Overcoming the Obstacles to Psychological Balance and Compassion. 

Pete: What do you do on a daily basis to grow as an entrepreneur?

Denise: Ask myself what I can do better than yesterday each day.

Pete: Do you believe there is a winning formula for becoming a successful entrepreneur? What is yours?

Denise: The Ability to set a Vision. Perseverance in the face of obstacles. Resilience and the ability to pick up and not just carry on, but thrive. Modeling what you expect from others and leading by example. Being in service to others and having empathy and clarity.

Pete: What popular entrepreneurial advice do you agree/ disagree with? Why?

Denise: Never give up. Wholeheartedly agree with this one because it is never easy and if it were, someone else would have done it already.

Pete: Who is the one entrepreneur to be your greatest example and inspiration?

Denise: I think more about great leaders. I have always struggled with this question because I don’t really know what other leaders are really like until their memoirs are written. Steve Jobs, for example, was an incredible innovator, he pushed people to their limits including yelling and degrading people in meetings, but you never knew about that until the book was written. I don’t like to name people for this reason. I think there are leaders who created amazing brands with great values like Southwest and I once heard the origins of the values of Starbucks and how they originated from the founders experience as a child whose father fell down some stairs as a diaper delivery man and he had no worker’s compensation. The family almost did not survive this and when he created Starbucks he valued benefits for every employee. I think a great leader leads with heart and authenticity. One who creates clarity, connection and trust with their teams and drives sustained business performance. 

[Let me share] a quote from an investor and culture development firm, Trium Group, on what he observed when he started his company: 

“Most leaders were not focused on leading with heart and authenticity, nor were they creating the levels of clarity, connection, and trust with their teams required to ultimately drive sustained business performance.”

Pete: How do you define success?

Denise: True leaders help both themselves and those around them to do the right thing. They chart a course by inspiring others with a shared vision and, in turn, create something new out of the familiar. Leadership is, at its core, the ability to map out the best route to success.

On success itself, I think a life well lived, sticking with your values even when it is challenging and creating value for yourself and others (employees, customers, shareholders) is what it is all about. 

Pete: What entrepreneurial tricks (hacks) have you discovered to keep yourself focused and productive in your day-to-day busy schedule?

Denise: I decide the day before every day to focus on my top 3 things. I know I can get that done.

Pete: What would you advise to people who want to go into business?

Denise: It is too specific to be general. It depends upon what they want, how hard it will be, what they are willing to sacrifice, how much they want it. 

Pete: How do you think being an entrepreneur has turned you into a better person?

Denise: I think it is challenging to be an entrepreneur and it develops a greater capacity for many things. When you don’t think you can do another thing, you find strength, when you make a mistake and can own it and grow from it, when you get feedback and respect, when you climb a very high mountain and end up in a valley of death but survive it. You learn you can do almost anything you put your mind to. 

Pete: What makes you feel out of your comfort zone? How do you handle these situations?

Denise: Anything that is very important for the first time. Whenever I am not comfortable, I lean in and research, get active, ask others, etc. Sitting still and frozen when you are uncomfortable will get you nowhere new.

Pete: Share some of your failures and the best lessons you have learned from them?

Denise: I would say the most painful failures are when you fail a person or feel like you did. I try to learn and repair. I have found that most people are very forgiving and thoughtful even if they were impacted by something you did or did not do as long as you demonstrate true care. 

Pete: What sacrifices have you had to make to be a successful entrepreneur?

Denise: My greatest sacrifice was probably not spending time with family when my children were younger. I would also say for many years my social life suffered due to the amount of time I was working. Lastly, and this does not happen anymore, my health may have been relegated to the back seat - sleep had to be sacrificed for a period of time.