By Anna Lardinois, Startup Storyteller
In March 2022, MKEStartup.News spoke to Milwaukee business leader Khalif El Amin about the state of Milwaukee’s entrepreneurial ecosystem. He noted that one thing the city lacked was a hero – a success story that would inspire Milwaukee to increase its support for the startup community.
El Amin suggested that Chad Johnson, founder of TipaScRxipt, could be the hero the city needs.
TipaScRxipt, founded in 2020, allows family, friends, and others the ability to electronically send money to an individual exclusively to pay for out-of-pocket medical expenses. The startup made headlines when it became the first company funded by the newly formed Gateway Capital.
Johnson sat down for a discussion with MKEStartup.News to talk about his evolution from a student at Custer High School to a CEO, the Milwaukee ecosystem and how he plans to bring TipaScRxipt to market. Johnson also (reluctantly) addresses the idea that he may be the hometown hero Milwaukee needs.
Below are notable excerpts from this conversation. Listen to the interview to hear more of Johnson’s story in his own words, as well as on how TipaScRxipt is prepared to offer its technology to a global market that does not require medical billing assistance:
Johnson talks about hybrid equity revenue option (HERO) funding:
The hybrid equity revenue option says not everybody wants to just keep giving up equity, right? So, everybody’s like, ‘Yeah, I’m raising a Series A round, I’m raising a Series Z round,’ right? It’s just a sequence of how often you raise funds. You grow, you scale, you hit some traction, some milestones, and you need to raise more money to grow and scale.
But each time you grow and raise typical venture capital that gives you equity, you keep diluting yourself. And (some) say, ‘If you’re 8% of a billion, that’s better than being 100% of 10 million,’ right?
This new HERO funding is saying some people don’t want to give up equity. Some venture capital groups are saying, ‘Either we take this hybrid equity approach, or revenue option that says if you don’t want to give up equity, we’ll just take a percentage of your projected revenue. And as you keep growing, we’ll just get a flat rate percentage of your revenue.’
If you end up raising another round after that HERO fund round, then it automatically converts to equity. People are looking for different unique ways (to fund a business).
VC’s and everyone, they want to use market data. So, market data says the VC expects upwards of 60, 70, even 80% of the companies they invest in to fail.
The remaining 10 to 20% are going to succeed at a level where those returns will make up for the losses and give them a surplus to move into their next fund. That’s the stereotypical narrative that they’re going to give you as a VC across the board, right? That’s just pretty much their standard.
With this HERO fund, they’re like, ‘Why in the world do we want to invest in 70 to 80% of people that we know are going to fail? How can we ensure that over half of the companies actually succeed?’
I look at things in a different way. It doesn’t have to operate the way that it has been done (in the past). I’m not looking to raise multiple rounds of equity investment. I may raise one more round. But the best funds to raise are revenue. I do things in a way that’s different from the so-called norm, or the regurgitated narrative.
Johnson discusses Gateway Capital:
Dana (Guthrie, Managing Director of Gateway Capital) and I had a conversation, well before the investment happened, going through the Northwestern Mutual Black Founder Accelerator. We met with over 70 VCs. And maybe 5 to 7 expressed interest (in TipaScRxipt). The remainder were like, ‘You’re a bit too early. You’re pre-revenue, get some traction first. Keep in touch.’
What really connected me with Gateway is their focus on underestimated Milwaukee, and that just really resonated with me.
Johnson shares his path from MPS to a corporate career:
I’m Milwaukee through and through. I’m born and raised here. I went to Milwaukee Public Schools; I went to Custer High School. (At the time) Custer High School wasn’t known as a magnet school or a school of academic excellence. However, as I look at my journey in life, particularly here in Milwaukee, there have been milestone connections for me that have put me on the path to exposure and opportunity.
At Custer I got introduced to Upward Bound. I had no clue what I was going to do in college, but I knew I was going to college because Upward Bound provided that exposure to me.
Then I get exposed to something called Inroads (an organization that) creates an “inroad” into corporate America for individuals of racial and ethnic backgrounds that are underserved.
I ended up taking an internship with Aurora Healthcare as an Inroads intern and I had a 10-year career there. I graduated from the UW-Whitewater undergrad program and got exposed to all these different opportunities and connections across the city.
Then ACRE (Associates in Commercial Real Estate) comes along at Marquette, to get more diverse representation into commercial real estate. I got involved in ACRE but decided not to pursue a career in commercial real estate. But I met a ton of industry experts and really made a lot of connections. I (now) understand commercial estate developers are the ones who actually change the landscape of a community in the city, right where you live and where you play. You need to be aware of how that operates in the city.
All along, I’m getting all these different opportunities and exposure to how to operate and connect and build a city and think bigger than your purview and all of this has just been preparation up until this point.
Everything that you don’t see in Milwaukee is an opportunity for you to create it and build it and put your fingerprint on it.
Johnson’s thoughts about Milwaukee:
Milwaukee is very segregated and conservative and behind on innovation, yet I see the opportunity here and choose to stay.
The pandemic and the racial tensions of 2020 really forced everyone to have to pay attention. There was forced adoption (of change).
I think from like 2004 up until 2020, (change) was at what I would call the ‘Milwaukee pace,’ right? It’s enough to kind of appear as though we’re doing something about it. But the traction and the follow-through and the consistency just doesn’t always come to fruition, but really in the last several years because of what happened, it’s like forced adoption. It forced people to say we need to invest in underserved communities and startups and housing.
Everyone’s listening. This is your window of opportunity to step up and say, what are the priorities? I’ve been a benefactor of the intentional focus on increasing revenue and opportunity of venture capital funds and accelerators to really help take the innovative ideas from underserved communities and really help to elevate them and shed light. That may not have been the same case just five years ago.
I’m really focused on building and growing here. I haven’t raised funds outside of Milwaukee and I actually don’t desire to raise any funds outside of Milwaukee or Wisconsin.
Johnson on introducing TipaScRxipt to a new audience:
We’re creating a disruptive startup and it’s crazy that you have to consider it a disruptive startup, because we’re not creating any novel technology. The technology that we’re using exists, but we have a novel application of the technology.
The challenge that comes along with creating a novel application of technology is if you’re a disruptor or doing something different than what people are accustomed to, there’s a lot of education. If people don’t understand it, you have to keep dealing with the barriers of educating and getting people to a point where they finally get to the ‘oh.’ Our internal phrase is, ‘We got to get people to “OH, I get it.”’
When you get people to the ‘oh, I get it,’ then you can begin the scale up and build up. What we’ve had to learn since the investment (from Gateway Capital) and even before is we’ve had to make some pivots to get to market, because the space that we’re in is payments and it’s moving money.
Johnson on the regulations regarding electronic cash transfers:
Cash App and Venmo stay in constant litigation because (the US government is) trying to regulate it more. Cash App and Venmo (were) pretty much just so open the way people were just using it. You don’t know if they’re using it for personal use, business use, if people are laundering money.
We’re considered somewhat of a pseudo-fintech model. Anytime you’re moving money, you have got to deal with the sponsor bank. We dealt with several ‘nos’ or ‘not yets’ in order for our platform to get to market.
The ‘nos’ or ‘not yets’ consider it somewhat like crowdfunding — consumer funding is really the technical phrase. Consumer funding is risky in their mind. (They think) if I’ve got friends or family sending me money, even though (TipaScRxipt is) restricting it, even though it can’t be redeemed for cash, it’s still considered a liability. We’ve had to learn how to get to market by pivoting to the B-to-B play (business to business market). B to B play is what we focus on.
Johnson on TipaScRxipt’s move to the marketplace:
Here’s how we get to market: We actually take what our use case is, which is ultimately saying we need to help people cover their out-of-pocket expenses. But the way we get to market and appease the regulatory agencies compliance bank sponsors is B to B. It is (considered) more secure. So, if a business is providing the funds initially rather than consumers, that makes them more comfortable.
Our core customers at this point that we’re targeting are employers, health care providers, health plans and pharmaceutical companies. Ironically, we’ve gotten the most traction with employers.
To follow the launch of TipaScRxipt, connect with them here.