CP 1: Toby Triebel and his founding story of Spotcap
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Martin: Hi, today we are here with Toby Triebel from Spotcap of Berlin . Toby, how are you doing?
Toby: Very well, thank you, Martin! How are you doing?
Martin: I am awesome, thank you! I am very glad that you take time for the interview and let me br iefly tend your personal background. What did you do before you started Spotcap?
Toby: Sure. I am German by background but moved to London when I was sixteen and I did my school there, my university. Then I spent ten years in finance, working at an investment bank for the first five years and then for the last five prior to co-founding Spotcap I worked for an emerging credits hedge fund. So I have been in finance for more than ten years and bringing the finance background with me to Spotcap.
Martin: And when did the entrepreneurial bug bite you?
Toby: I guess it was probably two, three years ago when I started looking into entrepreneurial opportunities in detail. I have always been interested and curious in finding more about entrepreneurial opportunities and startups in general and I have long been investing in startups as sort of an angel investor myself but it was really about two, three years ago when I was, I probably wouldn’t say bored at my previous job. It was more the fact that I was interested in new challenge to put it that way.
BUSINESS MODEL OF SPOTCAP
Martin: Cool. Then let’s put some light on Spotcap – the new challenge of your life. What actually is Spotcap?
Toby: So Spotcap is fintech company, Fintech meaning combining finance and technology, using technology to provide financial services. Spotcap in particular and how it fits into the fintech environment is online landing. It is providing loans to small businesses using technology online. That is essentially what we are doing. We are operating in three countries today – Spain, the Netherlands and Australia providing loans up to 100 000 Euros to micro, small and medium sized businesses as we call them in the three markets today.
Martin: Yes, right. Can you walk us through the credit approval process? So how many applicants do you have? What is the basic process – which one is manual and which one is automatic? What are the typical acceptance rates?
Toby: Yes. We really thought long and hard about using and building the right technology to facilitate both the application as well as the approval process to a very large extent. The application process is done by business owners or directors of those micro, small and medium sized businesses; it is entirely online and it takes up to ten minutes provided that you have all the documents in place. It is really straightforward, it is a combination of entering information as well as providing financial documents and linking data, making sure that we have all the data we need to do our scoring. We then gather all the data, put it into our scoring algorithm and come up with a credit decision that is more often than not accept and approve credit applications. Sometimes we also will have to reject them because the business is not ripe enough yet, not mature enough.
Martin: And do you need a banking license for this and that is the reason why you are currently only in three countries?
Toby: The regulatory environment, it is distinctively across not just across Europe but across the world really. We do not need a banking license in the markets that we operate in which is good and bad. We very much welcome regulation and this is also why we applied and also received the STA credit license from the UK Financial Conduct Authority. Which we would need to operate, to do our business in the UK and we have started to implement the UK STA requirements across the three markets that we operate in. But today our operations in those three markets are entirely unregulated but we approach the regulatory environment proactively.
Martin: Ok, and how does it come that it is currently unregulated? For example, imagine that I am a company in Spain so to speak, a market where you are active, and I have got several options of how I could finance my business in terms of debt financing: whether I go to a bank and get a loan or weather I use Spotcap. From my understanding, it is that banks in Spain are regulated and you as an alternative are currently not regulated. Is there a reason why the regulators have chosen for this to be unregulated or is it just that your business model is so new, they never would have expected something like that?
Toby: It is a deliverable of both. If you think about it you take one step back, regulation is in place inheritly to protect the consumer in two ways. You can touch the consumer in two ways:
- you can provide loans to consumers and
- you can take deposits from consumers.
Regulation is in place to protect those. We do not touch either. We don’t provide loans to consumers, we only provide loans to small businesses and we do not take deposits. Our loans are inherently and exclusively on-balance-sheet funded. So that is why regulation is generally less pronounced in the space that we are in. Having said that, the UK is at the forefront of regulating our space as well and we would expect regulation to be put in place in Spain and other markets as well and that is exactly why we have chosen to be extremely proactive here and voluntarily implemented STA type of regulatory requirements across all our markets already.
Martin: One other thing I wanted to talk to you about is you told you are giving basically loans out. Is there a difference in terms of how you finance those yourselves because you said it is on-balance. Is it more that the loans you are financing with venture debt and your headcount and so on with your equity?
Toby: To a large extent this is true. We use institutional debt to fund our loan book and equity that we raise, and we raised 13 million in our series A charting last year, we use to fund our operations. We use institutional investors debt to fund the loans.
Martin: In terms of revenue model is it right to assume that you are basically like a bank, based on having interest income or is there any other revenue stream that you are thinking of?
Toby: Yes, it is interest fee income exclusively, no other income.
Martin: Okay, cool. One other thing which is very interesting for people just thinking about starting a company; I mean they can either bootstrap, or start a company and get some venture funding, or third option they can go to rocket internet and collaboratively start a company. This is what you did, Toby. Could you please help us understand how the process works at Rocket Internet? So how is an investment decision made? How is the management found and how are the first 100 days working?
Toby: So a lot of questions at once and not exactly one line answers to any of those, I am afraid, because the process at Rocket to some extent is very streamlined but to another extent can differ significantly from company to company, from startup to startup. In some cases, Rocket Internet comes up with the idea, kickstarts the business, then searches for the right management to be put in place, the right co-founders who are then left alone at some point to build the company. However they can benefit to a very large extent from Rocket network in terms of human resources, in terms of expertise and know how in various areas, and in terms of investor relations and fundraising where Rocket can be and has been extremely helpful for many businesses.
There are some other examples where co-founders approach Rocket and come up with an idea and need a seed investor. That is an alternative root whereby management approaches Rocket and comes forward with an idea and Rocket then chooses or not to support that business.
Martin: And is there difference in terms of equity share? Because from what I have heard is that Rocket is typically having an idea and looking for management you maybe get up to 10 percent of the whole management in the form of equity. Is there difference if the founder is approaching Rocket?
Toby: To be honest, I am not sure. I can only speak for myself. So I am sure there are differences across the companies but I am afraid I do not know any further detail on that.
Martin: Okay, cool. So how did you experienced your first one hundred days and how is it typically going? I know there is obviously difference in term of which business model you choose. If you have some kind of fintech related stuff maybe regulatory actions will have a big share of time spent in the first weeks or months. If are only having an e-commerce maybe that is not the biggest issue. But is there some kind of basic process which you can walk us through?
Toby: I mean Rocket does provide an active support to its young companies right after founding. It is clearly they provide support for putting the investment and the capital into place that is needed to build the business. Often, Rocket is involved themselves as a lead investor but they also have a network of other investors that may or may not chose to participate. So that is the big advantage of having Rocket as a seed investor and incubator.
The other advantage, and that is not something to be underestimated is the large extent of expertise within Rocket Internet and within the Rocket Internet family. That is to say in IT, in product, in sales, in marketing, in PR. In many functions Rocket has a tremendous amount of expertise and really great people who has been in their respected functions for a long time, who have a lot of know-how, who can help kick start the business and get it on track faster than you would be able to otherwise. And I think that is the main benefit of Rocket and that is why a lot of Rocket companies have been so successful and have been so successful in a short period of time.
Martin: Can you give us an example, Toby, of specific situation where you tapped into the knowledge of somebody at Rocket Internet and what the benefit for Spotcap was?
Toby: In the beginning, we did not have Aline in our head of communications so we went to Rocket and in particular went to Rockets’ PR communications team and sought some help and advice. And what they did, they provided a lot of guidance, help and actual real work in kick starting or PR effors. In particular, when we launched Spotcap in Spain in September last year they did the entire PR work: coming up with a PR strategy with a concept all the way to putting together a launch event, a press kit and so on which was tremendously helpful. We would have not been able to launch Spotcap that quickly and that successfully without the help of the Rocket PR team in that particular kit.
Martin: So that’s that basically mean that you just paid for the service and had them on demand basis so to speak for just kick starting and scaling up for specified time then potentially scaling down at some other point in time?
Toby: Essentially. Rocket services are not for free. You need to pay it, to pay the services just like you would for external providers. However, what is really helpful is the speed with which you can get that advice, support and work done at Rocket. And that is what the true benefit comes from. You have got the best talent in the respected areas and functions at Rocket and it is your own choice whether you want to benefit from that or not. And we chose to use a lot of Rockets’ resources in the beginning and subsequently we hired our own team and we are using a lot less Rocket resources now than we did twelve months ago.
Martin: How many people are you employing currently?
Martin: Okay. You said that you raised €13 million in your series A. How the capital raising process worked and what was involvement of Rocket Internet in that?
Toby: Rocket has been helpful. Rockets’ network of investors is definitely very helpful in allowing a series A of that magnitude to happen.
Martin: And what was the specific process? So did Oliver called some kind of investors in Asia or the US and said, “We have an awesome project, Spotcap, that would revolutionize SMB loan business in Europe. This is why you need to invest” or was it more like, “Oli, I have got cool business idea and I need get in touch with those two people. Can you just make an intro?” So how did it actually work?
Toby: I would like to answer that in more general way and it is probably a combination of both and ultimately you need to prove the business model and the management team to attract the capital that you need to start a business. And Rockets’ network of investors is certainly very helpful.
ADVICE TO ENTREPRENEURS FROM TOBY TRIEBEL
Martin: Cool. Toby, what would be your advice for people who are just interested in starting a company and what are the pros and cons of starting the business by yourself just as bootstrapping or raising venture capital by yourself or on the other hand working directly with Rocket Internet?
Toby: Working with Rocket Internet directly definitely is a much quicker approach to building a business. We founded Spotcap last summer, we are now 65 people. If I have probably done it completely by myself I would now be 10 people, if I did a very good job in finding investors, raising money, attracting talent.
I don’t think there is a right way to do it. It depends on your preferences. What you would like to do. Can you afford to not pay yourself any salary for a year or two? If you can, then you might as well give it a go and try your luck to raise money. How many relationships do you have? There are a lot of questions that come to play that ultimately determine whether going to Rocket is good or whether you might be better off trying it yourself. I chose the Rocket way for the advantages that I outlined in terms of investor relations but also the expertise and knowledge that resides within the Rocket framework that is extremely helpful for starting up companies.
FUTURE OF SPOTCAP
Martin: Let’s have a look at the future of Spotcap. So currently you are active in three markets and what are your growth options or the growth path that you would like to go for? Is it more of a regional extension or is it a product wise extension or is it first and foremost just increasing the penetration in those three markets?
Toby: It is actually a combination of all three that you mentioned. We definitely see enormous potential in the three countries that we are operating in by further penetrating the market. We see growth potential coming from enhancing our product offering in those three markets and of course we see a lot of growth potential by going to further markets outside those three.
Martin: What makes you think of having the boundary currently at €100K in terms of loan application because it is for me quite arbitrary, so why not €250K or one million?
Toby: It is driven by the way we structured our product. Just to summarize that very briefly our product today is a credit line that has a certain commitment period and if you draw down your credit line you draw down so called loans and those loans have a tenor of six months and the loan amortizes monthly and linearly. It means that after each month you need to pay back 1/6 of your loan or the principle of your loan along with the necessary interest rates, interest expenses. So having a larger loan in place might mean that or will mean that you need to generate so much more cash in order to service that debt so that… Today it is not the market that we attract. By extending our product offering and extending the duration of our loans we will and we can and we will increase the size of our credit lines and loans to go beyond €100K. That will certainly happen at some point.
Martin: And in terms of region expansion how are you assessing which are the markets to enter next?
Toby: There are a number of reasons that made us go into the three markets that we are operating in today and those reasons also apply for the attractiveness of other markets.
- Number one is the opportunity, the market size in terms of the number of micro, small and medium sized businesses that are out there.
- Number two is the availability of capital for those enterprises from traditional lending providers such as banks.
- Number three is regulatory environment.
- Number four is competitive environment.
- And number five I would add is the availability of data in order for us to do our scoring.
Martin: Because another factor I would have considered is the profitability. I totally agree with all the other five factors that you mentioned but one other thing is even if I am thinking about Spain and I am giving a credit the default rate is much higher then maybe on average in Germany. So this is also one factor of having the credit spread so to speak build in.
Toby: Yes, profitability ultimately is something that is important as well so I agree with you. However, I was a credit investor myself before I built Spotcap so it is all about pricing the risk.
Martin: Yes, right. Cool, Toby, thank you very much for your time. And I think there is a great message out there for a small and medium sized businesses because now they can get maybe good or at least a fair amount of credit for their business.
Toby: Thank you very much, Martin.
Martin: Thanks again. Have a nice day.
Toby: Thank you, you too. Bye, bye!
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