Bill Cilluffo sits down with co-founder & CEO of Capchase, Miguel Fernandez Larrea, to discuss critical lessons learned from his early entrepreneurial ventures, creating a category with Capchase, the importance of talking to customers early-on and the importance of managing risk in lending in order to succeed.
Bill Cilluffo sits down with co-founder & CEO of Capchase, Miguel Fernandez Larrea, to discuss critical lessons learned from his early entrepreneurial ventures, creating a category with Capchase, the importance of talking to customers early-on and the importance of managing risk in lending in order to succeed.
Thank you. Venture capital firm focused on investing in fintech companies all the way from pre-seed to IPO. Fintech Thought Leaders brings together the most talented entrepreneurs tackling today's biggest problems. If you're looking to learn more about what motivates our founders and team members to succeed, you're in the right place. Hello and welcome to the Fintech Thought Leaders podcast. I'm Bill Salufo, head of early stage investments at QED Investors. Today on the podcast, I'm very excited to be joined by Miguel Fernandez, co-founder and CEO of CapChase. Miguel, thanks for joining us today.
Speaker 2:Thank you for having me here, bill, it's a pleasure.
Speaker 1:Last time I guess we saw each other, we were riding bikes in the Shenandoah Mountains, so that was awesome, it was a good time. So, look, we're going to go into a lot about both CapChase and about your background. But just so the listeners get a little bit of an orientation, I wonder if you can give us about a 60-second commercial into who CapChase is and what CapChase does.
Speaker 2:Great. So CapChase is a fintech company and what we do is we offer lending and payment solutions to B2B software businesses both in the US, canada, so basically North America and Europe. We've been around for four years, so I'm very excited about what we're doing.
Speaker 1:Awesome and I know we've been with you guys for a good chunk of that ride.
Speaker 2:Yeah, pretty much all of it.
Speaker 1:It's been very exciting to watch you guys' massive progress over the years. So look, before we get into CapChase, I know that you've got a long background in entrepreneurship. This isn't your first startup. I'd love to hear a little bit about what caused you to get attracted to entrepreneurship and maybe hear a little bit about your first couple startups.
Speaker 2:Yeah. So I think that since I was very little, I love to see things grow, you know, like the toys that I would use and everything was just like you could see, like growth right and visually and also, you know, from a progress point of view. And then I was lucky that my my grandfather was an entrepreneur and my father as well, so they both launched their own companies. Some of them went well, some of them didn't go well. So I think that I was fortunate to just grow accustomed to risk, you know where, where you like I would just see, like my family, you know, taking risks, and sometimes those risks would pay off, sometimes they wouldn't, right. So I think that that was an incredible privilege and a good position to be in. And then I started engineering right Again, like trying to understand how things work, you know, and and and how things are built. So I did it because of that. I had no intention of working as an engineer ever and in fact I actually joined consulting right after school, but I had always ideas of how things could work.
Speaker 2:I was doing the typical entrepreneurship courses and seminars during engineering studies and when I graduated I started working in consulting and I saw that what I was doing in the day-to-day wasn't that fascinating In my mind. I was working on problems for super large companies and I felt that if I wanted to have a company in the future, those things that I was solving were not really going to transfer so much to a company, because I was working for imagine, fortune 100 companies, right? So huge, huge businesses. So on the side, I tried to work on different entrepreneurial ideas and I launched two startups with friends and I always say that, you know, when people ask me if I'm a Casio entrepreneur, I don't really consider those two early ventures as proper startups because they were just so small, you know, and they failed so early. But they were both really good learning lessons.
Speaker 2:So one of them was imagine like an Airbnb for sports equipments and gadgets. So, for example, imagine that you're going to go to Utah this weekend and you want to bring your skis or you need to have skis. Instead of renting them from a shop, you could rent them from somebody that have skis in Utah and that way, that person has like a spare asset that they're monetizing and you can get a you know, like better equipment at a cheaper rate and you don't have to buy it. So the lessons learned there was that renting peer to peer is is is really really hard, there's a lot of friction in a transaction. And we only figured out once we brought the product to market. Because you know like we had done all the research, all the user research, with all of our friends and all of our families right, so kind of like classic, you know, first time founder mistake. So you know, when push came to shove, we saw that we would make $2 worth of transaction and each transaction costed us about $17 to take place. So, like unit economies were upside down and we stopped.
Speaker 2:And the second one was another marketplace, which also made me realize how hard marketplaces are. It was a marketplace where we would hold in storage and deliver within two hours up and coming brands, apparel within the city of Madrid, so you could go and like, buy a really cool jacket, you have delivered in your place in two hours. The problem there, I think, was the time. Time was tiny. The union economies were really good actually, but the time was very small. After all, you don't need fashion on a two-hour timeline. So anyways, we shut those down. It was super interesting. And then I actually joined the startup, a pre-revenue startup where I thought I could learn from people that actually knew how to do it.
Speaker 1:No, that's really cool. I mean it's ironic. You mentioned the ski idea. I literally am leaving tomorrow morning for Colorado.
Speaker 1:So I have had this debate with myself. I don't really want to bring my skis, I don't really want to rent, so I settled on bringing my boots and renting the skis so I could see where it's not. It wouldn't be very profitable, but you can see where there's a consumer idea there. That's pretty good. Is there anything, as you look back over that period, that you learned that you could point to? That was particularly important to you as you eventually started CapChase.
Speaker 2:Yeah, so one was talking to a customer In the first case. We didn't talk to a customer until we had built the website, the marketplace and everything. We had talked to some customers. They we didn't talk to the customer until we had built the website, the marketplace and everything. We had talked to some customers. They just didn't happen to be the ICP that we were trying to make money off of. So that was a massive learning.
Speaker 2:And then I think it was focus. We launched the tool, basically the marketplace, and we had people uploading bicycles in Madrid, which is where we were based out of, but then people were adding apartments in Cuba or motorbikes in Laos and Vietnam, right. So like it didn't make a lot of sense. We should have like focused on launching, on like saturating one market first before going to others. I think the idea is bad, but regardless, you know, we should have focused on launching in a much more focused kind of way.
Speaker 2:And then also the power of full time, you know, and and we were both, I mean the founders were, I was working in consulting, so like really long weeks, and my co-founder was working in energy trading, so pretty long weeks as well. So you know, after we're just working on this at nights and the weekends. So, yeah, we're putting a bunch of hours, but, like you need to be putting all your hours and all your attention in any kind of venture, because it's going to help you to have way faster feedback loops and also, to you know, to like move it to the next stage or, you know, learn way quicker you know.
Speaker 1:maybe now you look back and like why did I do that? Or you know, whatever it's, uh, it's got to be fantastic learnings. I mean it's almost. You know, when I talked to a few people that started up x, y, y or Z business when they were 16, you know, didn't turn into a business, but just the amount that that kind of carries through over time is just awesome to get rolling. Yeah, so you mentioned you then kind of after these couple startups and your consulting days went on to get this job working for a SaaS company in Europe, can you talk a little bit about what that was and I'm assuming that that had a much more direct impact on what caused you to eventually see the opportunity with CapChase.
Speaker 2:Yeah, I learned so much there and also we experimented most of the pains that we're trying to solve right now. So the interesting thing is that I had never worked in sales ever, and when I applied to that company, I applied for a role as a business development associate, and if you look at the description of the role, it was all about figuring out how to enter new verticals, new industries, new clients and so on. I was like, okay, this is perfect, this is what I've been doing as a management consultant.
Speaker 1:So a perfect job for an ex-consultant.
Speaker 2:Exactly. I was like, okay, this is exactly the same that I've been doing, but for a startup, this is. I was like, okay, this is exactly the same that I've been doing, but for a startup, this is going to be amazing. So then I got the job. When I joined they were like, okay, so you're going to be cold calling this list of prospects. I'm like, oh, I guess this is a different job than I expected, anyways. So I'd never been comfortable cold calling people, but I just had to do it right. So I started doing it and I was doing a consultative sale, trying to understand the problems really well, and it worked. And then I was promoted quickly and ended up running the sales and customer success teams. And then, when it was time to take the company international, I moved to London to set up the international team and international go-to-market structure and everything. And so I learned the thunder to the company from zero to a few million ARR and then left after three years to go to business school.
Speaker 2:But that experience three years like scaling a SaaS company was super, super helpful because we were suffering most of the pains that we're trying to solve right now as a SaaS company and the seminal learning that we had there was that we were selling to a mix of SMBs and enterprise, so everybody wanted to pay late, either monthly or quarterly or biannually or just late like net 90 or net 120 days and so on.
Speaker 2:So we couldn't afford to do that because as a SaaS company you have all these upfront costs that you need to incur to develop the product, to sell the product etc.
Speaker 2:And then you need to recover those as quickly as possible. And just allowing people to pay late or monthly or quarterly, meant that we needed to plug that cash gap with something else, with our equity money, and we wanted to preserve that for R&D, research etc. So the only tool we had back then was to give discounts and we would really give big discounts to get paid up front and to recover that cost of customer acquisition, those upfront costs, as quickly as possible. So that would destroy a lot of lifetime value. It would hurt our growth rates. It was kind of like short-term gain, long-term pain, but it was the tool that we had and then went to business school, started looking at different ideas and we ended up launching CapChase to try to solve all the pains around the let's call it like revenue value chain of a SaaS company, starting with that precise cash cap problem. So yeah, it was a really good learning experience.
Speaker 1:Yeah, man, it's interesting to hear you say that. If I think about a SaaS company, it makes sense why there's a working capital thing. Right, you spend money on all your salespeople, you sell these contracts. They pay you over time. You've got to fill that gap. I guess what you're raising here is it's almost a double problem, in that not only do you as a SaaS company have this issue, but your clients also have a similar kind of issue, and so somebody is going to have a working capital issue to solve probably both of you, and it's pretty insightful to think of that as both. What caused you to go to business school in the first place? Was this just the opportunity you were doing, knew it wasn't for you, or you wanted to go to school and find some co-founders? Or what was your logic on why you decided to head to Boston?
Speaker 2:Yeah, so a mix of things really. So, on the one hand, like being from Spain, like you go into business school in the US, it's like it's the closest thing to going to the moon, right, like you're going to access, like a totally different universe, you know, and like you're just going to be able to open doors that were closed. Also, you know, I thought I had reached my ceiling at that company. I had learned a ton over the last three years, but you know, like I just didn't have very clear you know, like what we need to do as a company to get to the next stage. And then I also wanted to run my own thing. Right, I learned a lot and I felt that I was closer to running my own thing and building my own thing, but I thought I wasn't ready yet. So I to business school to learn how to do it.
Speaker 2:And, yeah, I landed in Boston. It was amazing. I met my co-founder there and then we actually launched CapChase during the second half of the first year, and then we never finished business school because CapChase took off. It was just too much to do both things at the same time. And again, the power of focus. I learned that lesson and we decided to focus on CapChays. So business school was the best possible thing that I could have done at that time and it really served the purpose that I was looking to do.
Speaker 1:When you left to go to business school, did you have the idea that you wanted to do something related to this SaaS thing, or it was more hey, I want to start something. And then, as you started to work with your co-founder, you kind of came back to this idea later.
Speaker 2:So I knew that I wanted to do something in fintech actually, and the reason why is I had experienced those working capital pains and that pain at the point of sale of a SaaS company and I knew that cash really solved it. Right, we were solving it with discounts, some kind of payment terms there, with VC money, right. So that was something that was lurking in the background. And then, actually preparing for business school, doing an accounting course, we went through the cash conversion cycle. You know where you go through, like you know paying your suppliers, and then you know, like how much time you hold things in inventory and then like, when do you get paid by your customers in the environment of a retail company, right, and the different levers that you have to solve for that cash conversion cycle. And then things started to click and obviously, if you have a company, you have a negative cash conversion cycle, then your bottleneck will never be capital. It will be anything else, but it will never be capital.
Speaker 2:So we started looking into that and we looked at different spaces where we could solve a cash conversion cycle. We looked at healthcare clinics, we looked at bed care, you know, we looked at e-commerce. And then, when we're looking at sas, which was pretty like coincidental. Then everything clicked together. The cash conversion cycle clicked together with our pain while running the sales team in that sas company and then we started exploring that. So it was like a I guess that. I guess that's when you experience your passion, your insights and the incremental bits of learnings and iterations, you start to get together and suddenly you're like oh, I can't stop thinking about this thing, so let's talk to customers about it.
Speaker 1:Yeah, that's perfect. So as you started to take that leap and talk to customers, obviously you learned your lesson about friends and family and presumably went to a different set. But anything in particular from those interviews that changed your thinking or altered your approach? Obviously this was one where you had hands-on experience already as a potential client. How did that research shape you in a different way than it did in your prior startups?
Speaker 2:That's an interesting point. We definitely didn't talk to our family and nobody had experience in SaaS and our friends didn't either.
Speaker 2:So we did reach out to our network, both from our previous experiences and Shemek, who's a co-founder as well. He was doing growth equity investing before business school. So yeah, we had a few people to talk to. What we didn't know is which companies this would be the best option for. We didn't know if it was SMB, early-stage startups, late-stage startups, if it depended on their final customer, etc. And also the original idea was more like a firm for B2B SaaS, so actually point-of-sale financing for SaaS companies so that their customers could pay monthly for an annual license, so kind of solving the working cap for the buyers.
Speaker 2:And then, when we started talking to SaaS companies, we started to narrow down the ICP, the ideal customer profile and the ideal segment where this was really valuable. We started understanding more about the competition and about different options. And we also recurrently got the question of CFOs saying like, hey, I love this, but instead of me getting the cash up front from every new customer that I sign, is there any way in which I can get this same functionality for all my existing customers? So actually people were thinking of how can I turn all my recurring paying customers into a source of funding today? So we thought that that was going to be an easier way to start, as opposed to trying to build all the integrations and so on to enable a point-of-sale financing product.
Speaker 2:That is still our main product, so a financing product for SaaS companies that depends basically on their ARR, on their retention, on their efficiency metrics, et cetera, and we ended up launching the Affirm for B2B SaaS much later. We actually ended up launching it last year and now it's one of our fastest growing products ever, but only because we have a platform to make it possible. It would have been way harder to do at the beginning.
Speaker 1:So when you went to jump into the business, some people start businesses and it's like they're number seven person to do the same thing. I studied this one company and I think I can do it a little bit better. You weren't really in that situation. Right, at some level it was an existing industry, because banks exist and banks do commercial loans, but the idea of a custom product didn't really exist. How did you find really kind of jumping in and creating something quite new, recognizing that there were some analogies from e-commerce out there Certainly, banks have products. I mean, how did you really navigate through the, the notion of being kind of a pioneer in the, the specific, uh, innovation that you created?
Speaker 2:yeah, I think that being a pioneer was an advantage, because we didn't know how hard it was. So we like we sort of just like did it, but we knew that the business was going to be a success or not. Let's see like there are a few things that could give us an option to be successful. If we didn't figure them out, we'd fail for sure. And the main one was risk, and we knew that all the lending companies that died typically is because they miss on risk. It becomes an afterthought.
Speaker 2:So what we did at the beginning was we tried to nail that we're going to be giving money to companies and that's the easy part, but we really needed to get it back and make money off of it. We started talking to pretty much everybody that launched a lending or factoring receivable financing company. We're talking to people that have been successful, people that have failed to risk, teams to data analysts, just to try to understand what we needed to do in order to build a model, to understand a vertical, and that helped us to narrow down a bunch of things. One should we focus on just one vertical? What could we learn from SMB lending, what could we learn from revenue-based financing in other verticals, and so on and we started getting advisors that would help us with those different things and, in fact, like most of our hires were dictated by what we were getting in those initial stages. And then we decided to understand what were the levers that we had as a company to grow right. And those levers in a lending company, in a fintech company, are more complex than a regular B2B SaaS company. We needed to figure out capital markets. We need to figure out a fintech company are more complex than a regular B2B SaaS company. We needed to figure out capital markets. We needed to figure out the capital structure and then we needed to learn how to operate as a team. So that was kind of like the framework that we used to figure out what we needed to learn about as quickly as possible and also who we needed to have on board from the point of view of investors and team who we needed to have on board from the point of view of investors and team.
Speaker 2:And yeah, a lot of the things that we did, we did quicker than anybody because we didn't know how hard they were. We did have a more or less similar stage company targeting a similar problem with a very different approach. So this company called Pipe. They were doing something similar. They had raised a bunch of money. I think that when we raised our seed round, they announced like a 60 million round, like the following week, so like they were like one or two steps ahead of us from a capital point of view and they had a totally different value proposition, right? So you know, we didn't let that distract us, but we always, like, knew that there was going to be competition down the road and in fact at the beginning it was quite competitive, and then we eventually out-competed everybody in the space, which was super interesting.
Speaker 1:Now, thinking back to those early years, I mean I'm sure you've learned a ton, right, you've been at it for almost four years now. What's one thing as you think back that said, wow, we weren't sure we were jumping in, but you know what, we assumed something and we really got it right. And then is there something that you think back and like, wow, we really screwed that up. If I had to do it over again, I might have done something very different.
Speaker 2:Yeah, so we assumed one thing we assumed that the market was going to be way bigger. So we assumed that the market, that at the market, that we could really access all the let's say seed to series B companies in the US and in Europe. But I think we forgot to actually focus on the SAM instead of the TAM. Out of everybody that was out there, who could we really work with? Because in a lending product you typically don't want to work with the companies that want to work with you or the people that find you. Those are the ones that you really want to avoid, because a lot of them are desperate.
Speaker 2:So our sum was smaller than we thought. So that was probably something that we should have figured out much better or much earlier, and it would have dictated our go-to-market efforts much earlier and we would have probably gained a few even like a year or a year and a half in terms of go to market experience. And then it would have helped us to go like multi-product earlier as well, which you know like eventually we needed to do to like enlarge our time and be able to go further up market, et cetera. And then another thing that that probably was a mistake is that we treated equity and debt investors as the same, or expecting it would be the same. You just raise money from different pools for different purposes, but you can kind of treat them differently and it's so different.
Speaker 2:That's been a learning even now, as we've gone from, let's say, equity investors are all about the upside right, and their investment can go to zero. They can lose one X or they can make you know three, 10, 20, 100 X, right, but dead investors they can. The best that can happen is that they make, I don't know, like 12, 15% in return per year, right? And of course that means that they cannot lose their principal, right? If they make on average, let's say, 15% return.
Speaker 2:So you know, they look at companies in a really different way. They want to see a boring, predictable, you know, slow-growing plan that has very little room for failure, and equity investors want to see exactly the opposite. They want to see you like, kind of you, trying to reach for the moon as quickly as possible. So that was a big mistake and a big learning and also, as we've graduated from private credit funds to investment banks and so on, that learning compounds. Those investment banks want to see things that are more boring than private credit funds because they're making lower returns, so their capital needs to be at less risk than others. So that's been a really, really big learning from a fintech immersion point of view.
Speaker 1:Totally. I mean that's relevant, I think, to so many companies out there that need various debt products. I mean it's funny. I feel like I'm still continuously learning that same point from almost the inverse point of view, right? So many of us at QED came from Capital One, spent years doing lending at Capital One, kind of we're excited to get into equity where we care more about upside. But I think sometimes we have to catch ourselves.
Speaker 1:I think the kind of lending game is so ingrained that it's like, yes, I know, intellectually my job is to find companies that have massive upside and we focus on that. But I also think just the dynamics here of at some level lose a little bit on the companies that don't work in hopes that you can make a lot off the companies that do is the exact opposite of lending and it is interesting, whereas on the surface they're both risk management businesses and you put your capital out and you hope to get it paid back a lot later. But then you sort of get underneath the the covers and it's very different dynamics and you're dealing with both at the same time. So it's kind of interesting.
Speaker 2:Exactly and actually, when we were talking to VCs at the beginning and they were asking us, hey, how are you evaluating these companies? Because VCs were saying that they were evaluating the same companies that we're lending to. A VC would think differently. And what we always said the same companies that we're lending to. Obviously we think differently and what we always said is look, we're looking at these companies from a lending point of view. We don't care about these companies being a unicorn in five years, we only care about these companies continuing to exist in the next 12 months. So it's like a totally, totally different lens and, yeah, good learnings overall.
Speaker 1:Well, let me go back to one of your stories a bit, from when you spent time in the SaaS business and you thought you were getting hired to do some strategy work and you wound up doing a bunch of cold calling. If I understand correctly, the cold calling skill actually turned out to be quite useful. It was pretty important in the early days of CapChase. Obviously, you've got a much more sophisticated go-to-market today. I wonder if you can just talk through the journeys there's so many B2B companies go through this of cold-calling, founder-led sales and then ultimately have to do a more sophisticated version and then hire salespeople and figure out the model. I just wonder if you can walk through a little bit of your go-to-market journey, because I think that's very useful to a lot of different entrepreneurs starting up.
Speaker 2:Totally. Yeah. So it has changed a lot, right, but kind of like the fundamentals still apply. Basically, what we did when we started is we wanted to always grab the low-hanging fruit, right. So when you start, that's the people that you know. Then the next low-hanging fruit is the people that know, the people that you know, right. So like your network's network and then try to find, like the next easiest connection to these companies.
Speaker 2:So at the beginning it was all founder-led sales. We had no sales team. I think that we only hired our first salesperson once we reached about a million ARR, something like that, and we really did it to just scale things you know and also like to be able to, let's say, like farm the existing companies and get them to continue drawing and continue scaling, etc. At the beginning we were just trying to sell to our network, then to our network's network, and then trying to scale that and try to understand where the bottleneck was at any given point so that we could continue to scale the machine. So at the beginning we pretty much looked at our LinkedIn. We were connected with our professors' contacts as well, trying to validate the idea and from those conversations we started to get our first customers. And then, whenever we got a customer, we would ask the customer if they had any other companies or any other friends that were running companies that we should talk to, and there was some kind of referral circle going on. And then what we did is we started to look at all the B2B software companies, for example, in Boston, which is where we were and we could meet people in person et cetera, and then New York, and then we announced a seed round. It got featured on TechCrunch and started to get a bunch of inbound. And then I think that for the following three, four months it was pretty much inbound all that we got, and we were also like continuing to reach out, you know, like looking at PitchBook and like trying to look at different contacts et cetera. And then that evolved.
Speaker 2:At some point we started to try to understand what was the universe that we're trying to sell, to map it all out and put it in our CRM and start enrich qualification and intent data, so understanding who are the best companies to work with and how can we understand the risk criterias, even before we actually contact them, so that our funnel was more like a pipe than a real funnel, so that we weren't losing too much along the way. And then also understanding the intent. So, for example, have they raced around recently? Are they hiring salespeople? Are they increasing their ad spend? Have they hired a new CFO or a new head of finance? So it's hard to understand that and enriching the database.
Speaker 2:And then we actually built a really robust outbound machine that nurtures people in our database, reaches out automatically, et cetera. And we also built a very, very strong referral network. So we set up a referral team that would go to VCs, to strategic advisors, to other CFOs, accelerators and so on, and would introduce Capsace. And what we were trying to do was try to get people that were aware of the pains to recommend cap chase to their networks. And today 40% of our revenue comes from the automated outbound and about 40% comes from the referral network and the other 20% comes from traditional, paid and inbound channels.
Speaker 1:Wow, that's pretty phenomenal if you're able to get sort of that many alternative channels to work. Does formal partnerships play an important role for you or not so much? I know that's one of the commonly talked about subjects for these B2B type businesses.
Speaker 2:Yeah partnerships are important. We loop them in the referral team. But, yeah, they're definitely important, although most partnerships are more a marketing play than really like a business generation play. You know, like I would say that 8 out of 10 or 9 out of 10 is the best thing you get out of a partnership is the announcement, and then there's this like 10% of partnerships that you really get embedded and they become a reliable source of revenue. So, like, you just have to like incentivize those partners accordingly.
Speaker 2:And I would say that as we've launched the second product, we've had to reinvent all this thing, because suddenly routing doesn't work that well and then you need to train your team to sell to different products and to different motions and so on. So actually we have evolved and now we have separated the teams so that we have one team selling the grow product, which is our core product, and then one team selling the grow product, which is our core product, and then another team selling our new product, which is pay. So I have different ICP, different stage, different value prop, and we just didn't find another way to do it. You know we had to separate it.
Speaker 1:So one other aspect I know that's been a big part of your success is international expansion. I mean you guys are, as you mentioned. I know that's been a big part of your success is international expansion. I mean you guys are, as you mentioned, you're in US, canada, europe obviously a big you know started in the US but then have grown. I know that's one topic that is always controversial. Some people really believe in let's go global, some really want to stick to when you, especially when you start in the US, you're obviously in a really big, big place. Have you had to make major changes to your business as you've gone international or do you feel like you've had a very similar approach that's kind of worked everywhere? I mean, I'd love to hear a little bit of that journey because I know that's one that again lots of widely divergent views on international expansion and widely divergent success stories.
Speaker 2:Yeah. So we went international super early on and the premise that we had to do so is that a SaaS company in Stockholm is very similar to a SaaS company in, I don't know, in San Francisco, right, or Oklahoma, whatever. So that was, you know, like a, it's like the main incentive to go international. Also, we're seeing well, we started seeing a bunch of copycats like coming up. That happens a lot, right, we start a company in the US and then you have the x company in spain and the, the captives of france, the captives of germany, whatever. So we decided to go international. We did. We haven't entered every market in europe, because whenever we went, we were going international.
Speaker 2:Before entering a market, we would look at, we basically do a framework, we would look at regulation, I would look at, we basically do a framework, we look at regulation, I would look at capital availability, at competition, at size of the market, right, and also at localization. You know, like how hard was it going to be to sell in the market? So, for example, in Europe, we entered Spain, uk, benelux and Nordics and we avoided, for example, germany and France. Germany and France, from a regulatory point of view, are insane and we avoided, for example, germany and France. Germany and France from a regulatory point of view are insane, and we avoided Italy because the market was tiny for B2B SaaS. The rest of the markets are fine.
Speaker 2:So, international, it does enlarge your time. It adds a lot of complexity as well. In a lending business specifically, I think, around money flows, right, money movement, capital markets for international is still yet not super developed. So we've gone from serving everything from a Unitrans facility in the US to actually having to set up facilities both sides of the Atlantic. And then I mean regulation is a complication as well, right, so you know, for us it has worked, but we've had to figure it out. And yeah, we have not expanded more internationally because any other market adds disproportionate amounts of headache and also most markets are not that big for B2B SaaS.
Speaker 1:Now you've spent this time doing product diversification in the US, starting with your core lending product and then the BNPL and now the payments. Are you really focusing your broadening efforts mostly on the US, or have you also been able to scale some of these alternate products to other geos as well?
Speaker 2:Good question. So we start everything in the US. I think it's where we have the biggest base of customers. It's the biggest market as well and the most sophisticated market too. So we start everything in the US. We try to find product market fit too. So we start everything in the US. We try to find product market fit. If we don't find product market fit, we don't, I mean we just shut down the product. If we find product market fit, then we bring it internationally. So our BNPL product, which is growing super fast now, we launched first in the US, then we brought internationally and now it's kind of like just scaling it as quickly as we can. So, yeah, I would say that that's kind of like the path that it takes. You know, we talk to customers everywhere because, again, like a SaaS company in Spain is the same as a SaaS company in San Francisco. But when you think about go-to-market, aversion to risk and so on, like the US is definitely a few decades ahead of Europe at this point.
Speaker 1:Well, hey, for our last segment here. I mean I'd love to transition to talk a little bit about the team and kind of leadership of the team that you have. I mean, I know that you guys hold your mission and values very important. I wonder if you can give a little bit of a taste of what a couple of those might be and what a couple of your general principles might be and related. How do you wind up successfully driving those through the team, especially in a world of international expansion in multiple countries and I know you've got some people sitting there in the office with you in New York and plenty of people spread how do you think of really the kind of mission and values and how you use that to really rally the team members?
Speaker 2:Absolutely. So, yeah, I'll talk a little bit about the values and then also about the mistakes that we've made as well, inadvertently, with these values and and culture and so on. But in in values, I mean we, we set our values quite early on. So let's call it like six months into a journey, basically because we're seeing that, you know, when we were starting out, the people that we're hiring were were really determining who we're hiring next, right? So the first three people determine, like, the next 10 people. The first three people determine the next 10 people, the first 15 people determine the next 50 people, et cetera. Right? So we wanted people to have a common set of values and we wanted to define that.
Speaker 2:So we came up with the values early on. It's three values courageous spirit, build an attitude and service mindset. And then what we did is we tried to highlight them all the time and try to motivate people with them, try to draw examples with them, like promote people according to them, etc. So, for example, in every all-hands meeting since day one, we've talked about our values in the form of somebody in the team talking about somebody else in the team highlighting one of the values. So, for example, like giving an example of somebody showing a courageous spirit or a service mindset, you know, or a builder attitude, and and then like why those is because we really wanted people that were doers and not just planners and, and you know, like something. Maybe that's like one of our pet peeves, but I really I get nervous when people are like we should do this, we should do that. I really like people that are like hey, we did this, you know, and this is the result, right, as opposed to just like having a bunch of ideas. Ideas are good, but like, unless those ideas are executed and you get data, they're kind of like worthless. Right, I'm very temporary.
Speaker 2:One of the mistakes that we did is that, for example, like, the way I operate is that I tend to focus on what's not working, to try to solve it as quickly as possible, so then that means that there is more attention on what's not working than on celebrating the wins.
Speaker 2:So that's something that I was giving feedback on we need to celebrate the wins as a team as well, because it's great to solve when the things are not working, but when things work, let's celebrate it and like, get this culture of winning, and I think that at some point, like people thought that bringing mistakes or things that were not working actually like put you kind of like in the spotlight in a negative way.
Speaker 2:I think that that is like still a change that we're doing where, like, we want to celebrate mistakes, we want to celebrate things that are not working mistakes. We want to celebrate things that are not working because you know, like, if you don't celebrate them, if you don't see them, if they remain like obscure and people don't raise them, then they never get fixed. Right, people are afraid to bring up things that are not working and they never get fixed, whereas, like, we want to have a culture where bringing up things that don't work it's actually celebrated so we can put all our effort in solving them and again, like celebrate the wins. So, yeah, trying to instill this culture of people wanting to own things that are screwed up, that don't work, and solving them as being a catalyst for their career, as opposed to, like, getting fired.
Speaker 1:Yeah, that's a great insight. I mean, at Capital One we had this thing called Eureka Moments, that sort of back when somebody sort of found something in the business. They thought they could make it way better, and you know, that was kind of a really interesting way to both celebrate the improvement but also celebrate the hey, you found some problem, and that was great. And everyone makes mistakes, obviously. If you make the same mistake five times, that's a problem.
Speaker 1:But you know, learning from that's pretty critical. So it sounds like you really invested in this very early on in the journey. You're a much bigger, more complicated company now. Have you found that you've had to make changes to your values, as maybe different things are important now than they were then, or have you found it to be quite consistent and really work through different stages of growth?
Speaker 2:So we actually had five values at the beginning and then we reduced it to three because five was too many and too complex. And then we also saw that in some cases the leader for each team really influences that team and the culture and the subculture in that team. So we did see in some cases that we hired the wrong leader and then the wrong values, let's say, were being permeated across that specific leader's team, and then you need to take action quickly, or then things deteriorate and then you need to change the whole team, right. So yeah, those were some painful learnings along the way, but but yeah, we've been trying to be consistent with the values, because I mean once the values. I mean if you attract people based on values and then you change them, then what does that mean? Does it mean that now you need different people? Does it mean that the people have changed, that you value different things, or like I don't know. I feel like consistency is so important that, yeah, like we've kind of like kept them pretty stable.
Speaker 1:So one last question about values, and then I'm looking at the clock and we've kept you for a while here, so we'll be wrapping up. I've certainly both felt myself and talked to many others that one of the most difficult things about being a values-led company is what happens to those fairly few people that are absolutely unbelievable performers, that delivering results, but really don't fit from a values perspective or maybe from a culture perspective, and figuring out how to deal with that. When do you give a little bit of permission to be a little different, when do you not? How do you think that through? I mean any lessons on that front? I mean, I find those are some of the most difficult conversations to be had.
Speaker 2:Yeah, they are 100%. I think that Ben Horowitz talks about this in a book called the Hard Thing About Hard Things. And yeah, basically you're going to have those right. You're going to have people that are really good, are making a difference, but they don't, let's say they don't, embody the values. I think that it's easy to live with it for a while, but then actually things start getting rotten on the surface and then suddenly people don't want to work with that person and then if that person is an IC, then it's somewhat easier. But if that person is a leader, then it actually becomes really damaging to the organization to the point that people start leaving.
Speaker 2:And then if suddenly you're losing people because they can't work or it's just too unpleasant to work with a brilliant, let's say like person that doesn't embody values, that's really bad. And then you start looking at trader right, like is this one person more valuable than three people, than five people, than 10 people? You know like where does this end? Right? And then typically these people are also they know they're really good, right, and that that's like gives them like some kind of they're like earth of superiority or they're condescending or whatever right, but they know they're really good, they're ambitious as well, so they want to get promoted.
Speaker 2:And then, like, that's when it gets extra complicated, because if you promote somebody that doesn't embody the values, that says a lot about your values, right, right, right. If you're promoting people, then like, people are going to want to do what that person is doing and then suddenly that can corrupt your organization a lot. So it is really painful and that's a lesson that we've had to learn and people have talked about it. Right, sometimes it's easy, it's it's less bad to have an empty seat than to have the wrong person in a seat. And having somebody that can't work with others, which is pretty much like the embodiment of somebody that doesn't embody the values, that's really bad for an org, really really bad. And again, this is always easier to say than to do, but it has been one of our learnings for sure.
Speaker 1:Yeah, actually, the quote you made I think is useful in many contexts. It's way better to have an empty seat than the wrong person, and there's one version of the issue that we just talked about. I think it's useful in many contexts. Right, it's way better to have an empty seat than the wrong person. And there's one version of the issue that we just talked about hey, when do you understand how to get rid of somebody? But then there's another one on hiring that hiring is difficult and at times people I see you know subconsciously almost lower the bar for who they're trying to hire to fill a seat, and so it's one of the hardest things to do is understand okay, when have I seen enough people that I'm just going to hire the best, versus when do you feel like you've got to keep the absolute bar in the right spot? We've done all those mistakes More than once.
Speaker 1:It's awesome, miguel. Well, I know you've got a very big and complicated business to go run. We really appreciate you spending the time with us today and we've obviously, at QED, loved our experience working with you guys at CapChase, both in the office and cycling in mountains, and I'm sure it'll be great to come. I'd love to ask one more question as we wrap up. I mean, we try to ask the same question to anyone. You're now a three-time entrepreneur. Hopefully we've got a bunch of prospective entrepreneurs listening. What's one piece of advice you might give to someone thinking about starting their first company?
Speaker 2:I would say just talk to customers, talk to potential customers, because that's really going to make you jump into it. The moment you start talking to customers and they start demanding what you're thinking, that makes you much more motivated to actually do it and it's going to make you jump the gun and just do it. One thing that we did at the beginning like there's a lot of like endless analysis you can do to try to refine the idea, the business model and everything None of those matter unless you talk to customers and they are going to tell you what you really need to do, like this analysis. You'll do that at some point, but it's definitely not the place to start. So just spend all your time talking to customers and understanding the pains. Really, that's just the thing to do at the beginning.
Speaker 1:I love it and something that applies very broadly. Right Almost just about everyone starting a business can relate to that. Anyways, miguel, I really appreciate you spending the time with us and to all you listeners. Take care, and thanks for listening. Qed is proud to provide the best fintech advice you can get. To learn more or to read the full show notes from today's episode, check out QEDinvestorscom and be sure to also follow QED on Twitter and LinkedIn at QEDinvestors. Thanks for listening.