September 10, 2020
Starting a business is a game of persistence. As our guest Sergio Furio says in this episode, “we build businesses to thrive over 10-20 years, but we don’t know what’s happening tomorrow.”
Sergio was born in Spain and moved to Brazil after his wife, Silvia, told him about the high interest rates in the country. He founded BankFácil in 2011, which later became Creditas.
Much later, in fact. Sergio had to adapt his strategy a few times, and has persisted a lot, but he’s staying ahead of the game. Creditas is now the largest fintech for secured loans in Brazil.
Today, Sergio talks about:
Hey, man! Thank you for making the time to have a chat. Usually I do these [podcasts] in Portuguese. But I think, for the benefit of our audience, hearing a gringo from California and a Spaniard, you know...
We both speak Portuguese like 7 years olds, so…
Exactly. We are going with the English which I speak O.K and you speak well. No, listen: thanks a lot for making the time. It’s great to have you.
Speaking of being a gringo, I’d love to hear from you: what are the advantages and disadvantages from your point of view, you know, being a gringo entrepreneur in Brazil, how has that been from that perspective?
Great. Thank you very much for having me, by the way.
In one sense, it’s great to be a gringo in Brazil, the culture really embraces gringos. They love gringos – they seem that they actually know much more than what they actually do. So you get some initial respect from everyone. Because of the accent, it looks cool.
But seriously, in general, foreigners are embraced by people in Brazil and it’s like a positive. If I would say, it’s definitely like a positive thing when you get into the country.
I didn’t view benefits from having an international or global view and then adapting it to what we are seeing in Brazil. I think that’s also definitely something that helps.
On the negative, I'll list a number of them. So setting up the company, I remember it took forever, almost like a year, to set up the company. Just because I didn’t have my RNE, right? I actually had to go to the “cartório”, I was going to get married in January 2013, and I went to the “cartório” in May 2012 just because I wanted to accelerate my visa. I am married to a Brazilian but still… It took me like forever. So the bureaucracy definitely doesn't help gringos in that case.
I think adapting to the culture is something that may take some time… I’m Spaniard, right? So it’s not that I’m, like, someone from the Netherlands or so. Climate is still warm. But you still need to adjust yourself to the way that people speak. There are not necessarily Brazilians brutally honest as probably Spaniards and Americans are, and there are some adjustments that you need to make, definitely, in those things.
Yeah, I also had the same struggles starting a company and, like you, I was the illegal immigrant in Brazil for some time while I was trying to get all my documents in order and unable to get a bank account and all that stuff, so it is a challenge. It’s not that easy. But I think hopefully it’s getting easier.
You mentioned that you married a Brazilian so, by the way, I bet your wife is an awesome person. Tell me about your wife because she’s played an important part in your journey.
Yeah, so… Spouses are always, like, super relevant for your career I think, right?
And I actually moved from Spain to New York, back in 2008. I met Silvia in December 2010. We used to work together. Actually she was a consultant in my team. We used to work in consulting. We built sort of a very nice friendship relationship and after a while we ended up dating.
And that was in 2011. Mid 2011. I was actually in that moment taking the decision of becoming an entrepreneur. I was asking people that I had met and I was saying “ok, I want to do this but what’s my unique value proposition, what’s my differential to do something in fintech in the US?”. And there are like so many people in the US that are amazing, they’re alreadu doing things, "so what can I do?", I asked, something different.
And then I looked at Silvia. And well, Silvia is Brazilian and she tells me – the first thing, the first contribution, was actually telling me – “you know interest rates in Brazil are astonishly high”. So that definitely was like the inspiration, or the muse, if you want. Because when I went to the Central Bank website and started searching about interest rates… What the hell. And I said “Silvia, this is like absolutely amazing! What if I just moved to Brazil, would you come with me?” And we have been dating for like 3 months, literally.
And Silvia looked at me and said: “what are you talking about? You have never been in Brazil. You don’t speak Portuguese”. “You have never been in Brazil”, again. “What are you gonna be doing there?”. “You know, interest rates are so high in Brazil, as you've told me”, and so on. So it went very funny. And after seeing that I was serious about that, she agreed to come with me. I did my first trip in December 2011 but I had already taken a decision without even visiting Brazil.
So that was the first contribution. The second one was… I launched a company in April 2012, just four months later. You know, I moved down to Brazil, rented an apartment and asked her to marry me and she said yes, that was like a great part of that story. But we said “hey, I don’t want to mix our financials… I want to take care of myself, I’m gonna be like an unemployed entrepreneur for a while”.
And so I sort of did my math and said “ok, so that’s what’s gonna happen”. But I didn’t have like an account yet in Brazil. It took me actually like four or five months. I was even going to the bank and saying “I want to open an account”, they were saying “what’s your salary?”, and I was saying “I have no salary”. “We don’t give accounts to people that don’t have a salary”. “But I’m like a good guy, I mean… I have money, I can send money”. “No, no, no, we don’t do this thing”. “What?”
So then I had to cheat. I had to tell them that I actually had like a salary. But, anyways, so in month four after like funding came, that was probably August or something, the way, my mechanics to pay early employees were like getting to an ATM using my credit card from the US, cashing out money, the limit was like, I don’t know, 1000 reais per day, or so, and I had to go like eight consecutive days to get like the money so I could pay the employees.
One month I couldn’t do that, for whatever reason, and then she lended me the money, she actually paid the employees. That was like 20000 reais for five employees that we had, or something like that. I didn’t gave her the money, so two months later, I said “why don’t you become my first investor?”
And then I wrote a very nice convertible note in a napkin, and that was the initial funding, external funding capital raise. She made very nice money. At least so far, on paper.
Yeah! Everybody needs their first investor, their first person to believe in them. And it’s funny, a lot of these stories you were describing reminded me of my journey also with the ATM, pulling the money out, you know, paying in cash initially… My wife, actually, we worked together as well and, you know, eventually we’re like “ok, we can't work together because we are just talking about the business the whole time."
But it is an important part of the journey. There’s a great book — I had Brad Feld in my podcast from Foundry Group, and he wrote a great book called "Surviving and Thriving in a Relationship with an Entrepreneur." I actually strategically left that on the counter, my wife picked that up years ago and it’s been a helpful part of our journey because, man, it’s a team sport and it’s a hard thing. But it’s great that your wife, Silvia, had the foresight, bet on you, and it turned out to be a good investment for her.
But, Brian, it’s even more than that. Sorry to just continue like that, but I think that the third thing was actually recruiting most of my security team today.
She was a silver value as an investor then, no?
Luana, who is our VP of Auto, Vivi, who is my VP of Home, Fabio, who is my VP of business development… All those guys are coming from Silvia. Either they were like workmates of Silvia or HBS classmates… That was, like, extraordinary for me. Because I was like, again, a gringo with no connections. So I had to use her connections.
And then the last one was when she used to work in consulting, as we were saying, and she was doing due diligence of a SoftBank investment in Brazil. That was like before she moved into SoftBank. And then, when I was raising series D, she said “don’t you want to talk to the guys of SoftBank?”. And I said, “well, yes, sure, but I don’t know anyone there”. “Oh, I know, I can introduce you to the guys”. So she introduced me to the guys and actually they ended up making their investment. So I think that definitely she deserves 50% of the business.
As they said, behind every great man there’s a great woman, and that’s obviously one of those cases. It’s fantastic. And now she is at SoftBank , which is kind of funny because you've raised money from SoftBank so I guess they invested before she joined SoftBank, just to clear the record here.
I remember in the early days, you pivoted a few times, right? What were the challenges that you faced when you started out and how did you end up landing on the Creditas model?
Yeah, so, we don’t like calling it a pivot. Not in our case. We like to call it extension of our business.
Yeah, I understand your bullshit pretty well. I’m just kidding. So it’s an extension, it's a stepping stone, right?
We started it as a joke, but yeah, it’s an extension. Definitely things changed like a lot. So today, we have a full-fledged ecosystem. We have a bank, but together we have a services and solutions platform. It's a whole thing that we are doing.
Sometimes I feel like even frustrated that we are not doing even more than that. But in those hard days it was impossible to try to think about it in those terms. The ecosystem was not ready, I didn’t have the funding, everything was too expensive. So we selected a model that was easy to implement and would start on point. “Let’s create a marketplace or financial services". Our north star was "we were gonna reshape financial services in Brazil. We’ll find a way of doing that."
We had a master plan that was: we start with leads, and the leads were coming from content, right? So the original Bankfacil started with content, to moving to leads, to moving to origination to end up with a full-fledged provider, right?
So what happened was that, in those early days, the economics really sucked, right? It was like nonsense. There was no way of creating a significant business just with a lead generation machine, without having the control of the value chain, and so on.
We realized early on, in 2013, when we were already one year, one year and a half, and probably a relevant thing that happened there was we ended up doing a very early M&A transaction. There was this guy, Alberto Gaidys, that had built a small startup doing lead generation for home equity loans. The name was "Grana AQUI”, or "money here".
I remember, I remember “Grana AQUI”.
We had a team of six people and I said, “hey, Alberto, why don’t we integrate our full operations?”, and we ended up doing that thing. I agreed with Alberto. Alberto was getting out of the operations, so I took over the entire thing.
And then I looked at the home equity loan and I said “well, that’s exactly what I wanted to do”. It’s democratizing access to cheap credit. Why don’t I take that model and start doing all the verticalization processes. Not only doing the lead, but doing the applications, the credit, formalization, the legal, everything [that] we had technology and a digital approach [to].
So that’s what we decided to do. Probably that's ten times difficult. I mean, one thing is saying that, a different story is doing that. So we said, “ok, let’s do this”. It took us two or three years from that point to actually have something that made sense.
It was like an origination platform. Just origination. And then, once we got there, that was the first moment when we got the fundings from VCs, then we said, “ok, this is not enough… We need to go one step beyond that. We need to have our own loans, not only loans that we originated from somebody else”.
That took us another two years. And then, when we got there, we said, “ok, you know what? It’s not only about we originating our own loans, it’s about building a full lending platform, investing in the loans, collecting the loans.
And then ultimately, more recently, we said: “ok, so it’s not even just that. We need to go one step beyond that. And we need to provide an end-to-end solution to the customer and, if that means that we need to buy or sell a car for the customer or buy or sell a house to the customer, then we will do that”. Right? So I think there were, like, a lot of different things every couple of years, when we were expanding the dream. And that’s where we are now.
And correct me if I'm wrong, when you start out and you have a general idea of what you’re doing, the market gives you the feedback, you go out, you do it, you learn.
And then, in market expansion, oftentimes I remember I did a – you know, I think we both might have done that – little Stanford course with Kaszek. I remember there was a class there and it talked about retrospective rationalization. Where you, basically… A lot of these business case studies are like “oh, we did this, and then we did this”. It’s this kind of perfect model where it’s like a stepping stone, a step function. “You do this, and then you get to do this."
Let’s be real about it: did you have exact clarity of what you were going to do, and how much of it was just learning in the process? I think it’s important for other founders to understand that because oftentimes you look at a business like Creditas and you’re like “oh, it’s super obvious what you’re doing now” but in the process you adjusted it and you moved in the process based on what you’ve learned, right?
Totally. And it’s not obvious at all. So if you think about it, everything was pointing the opposite direction. You were building a technology company, why the hell are you gonna be lending money to people? That's considered asset intensive. So you should be just doing technology, taking care of the customer and this beautiful experience, with a small team, pure technology, not having people, and so on. And we ended up going to the other route, right?
So it was definitely not the plan to do it in these terms. I think, when you’re setting the plan, if you want to change a reality, you don’t know how you are gonna be doing that.
So you start with, you know, being a customer in financial services sucks. You’re paying way too high and that margin is unjustified. And that’s what guides you. The way that you try to improve that reality is totally unknown.
We had some basic ideas of "we are gonna start small and then we will verticalize". But we didn't even know what “verticalization” meant at that point. Remember that it was 2012. In 2012, it was a pre-fintech term, right?
So fintech was not a term. I was like an ex-banker and then I became a specialist in consulting for banks. So the only thing that I knew how to do was, “ok, let’s build that technology company that does financial services."
But the whole idea of fintech today, the aggressiveness of fintechs, the mindset of “yeah, I can change the status quo, and I can be 10 times better than a bank.” That didn’t exist when we started. These things haven’t been figured out.
I have never thought before on the current view that we have, which banking in the future is gonna be much more than pure banking, it's gonna be solutions. And that means… We sell iPhones as part of our business. We have, like, a business unit to sell iPhones. I have never thought that before.
But now it makes sense. Just because it attacks a piece of my business model, which is the CAC. I think that, as you were saying, we shouldn’t be rationalizing the trajectory. Because it's not something that you had expected to happen in those terms. Not at all.
Yeah. You never set out from day zero and close your eyes and imagine what the future looks like and then… It's never whatever you think it's gonna be, right? In the old classic kind of, like, you know, your business plan is just old and stale as soon as the interest rise, right?
Because you got to just build stuff that customers want, and you don’t know what customers want until you go to the market, and then it tells you.
I also remember, Brian, that we built businesses to thrive over 10 years, 20 years, 50 years. And [now] we have no fucking idea of what’s gonna happen tomorrow. How am I gonna be creating a strategy that thrives for 10, 20 years? That doesn’t exist.
What can thrive is the culture. Those building blocks, right? The aggressiveness, the mindset… That persists. But, really, the strategy in the old days, when we said “let's create a business plan of 3 years, of 5 years”, that doesn’t make sense anymore. It [all] changes so fast, and customers change so fast, that you really need to be a master in adaptation.
And you mentioned something really interesting, which is: you looked at the financial services business, right? This is not a very good service, this is something that could be, you know, 10 times better. I was talking with Mauricio Feldman, from Volanty, the other day on this podcast, and he said that large markets have 7 lives, right? Like cats.
We were talking about one of the biggest sectors in Brazil, financial services. It gives you a better chance of surviving. You're gonna make mistakes, and if you go after a really niche market and you narrow … What are your general thoughts? Is that something you were aware of when you looked at it? How did the ideation happen?
I guess your trajectory as a consultant for banks was a strong indicator of, “hey I have some expertise here because I've been doing this for a little while." Talk a little bit more about markets, and how do you look at markets.
Yeah. So in creating this idea and doing an analysis on "oh, what's the size of the market," it’s financial services. Everyone knows that it’s a huge market. But I was not thinking in those terms. I was, like, a first time entrepreneur. I had no idea of what I was doing. That’s the reality. I had really no idea.
Today, when I invest, when we invest, we do within companies that we think that are in a relevant market. Because we know what relevant markets are what's gonna attract the VC money, it is what is gonna allow you to actually, as Marcelo was saying, to make mistakes.
It’s gonna happen all the time. If you take a very narrow approach to something and if you want to work in, I don't know, a new technology for swimming pools. Probably this market is gonna be too small. If you make a mistake and you don’t have a clear go-to-market or if you don’t find out the right type of customers, then probably you’re gonna fail. And you’re not gonna have enough time actually to survive.
So if you select a bigger audience and a bigger market you’ll have many more chances. Now, there’s a flip side of that: in a very broad market, you have the risk of becoming superfluous, of being irrelevant. And, actually, if you think about it, fintech in general is irrelevant in financial services.
Yeah, we make a lot of noise, we pivot lot of times, because we are the underdogs and then we try to kill the fat guy, you know, all that stuff. But honestly, just take the US, right? So, probably the fintechs represent a couple of percentage of the market. 98% is still like pure traditional incumbency, right?
So that is tricky, and we need to be careful with that.
And the other risk that you take when you are attacking a broad market is that you may suffer a lack of focus, right?
So I’m a fan of taking a huge market, where you can expand, but start with, like, a niche play in that broader market. I think that that’s something that really resonates in me, like, a lot. I didn't do it by choice, but if I'd have the chance of becoming an entrepreneur again, which I doubt, but if I had the chance for that, I would think a lot about exactly that. Which is selecting a big market and then taking like a narrow approach that I could use as a path to grow the business and move into adjacent spaces.
That's what happened with Creditas. We took a very niche approach, that was home equity loans, then we moved into something broader, auto equity loans, then me moved into payroll loans, which is much more democratic. Now we’re out of financing. So creating, like, a lot of different views on the same principle, we had a much larger market.
Oftentimes, your customer acquisition costs are lower because you already have a customer base, easier to move into different segments, and you already have kind of the process and the underwriting capacity. That's all applicable to other verticals.
You know, you mentioned fundraising. And the money came in, you know, you raised a little bit of capital. But after raising a series A and closing a big partnership, you had kind of a difficult year, if I remember, in 2015.
What were the main challenges that you had to get through, you know, to kind of get over the hump?
Yes, something I hear from other entrepreneurs, you know, younger entrepreneurs that sort of had like a business that are smaller at this point. And they say, “yeah, you are so lucky you were able to raise so much money”. And I say, “dude, you’re not understanding this movie. It’s not like that. Not at all”.
So, first, it took me like a year and a half to get my first check, besides Silvia’s, right?
And then I was like… I suffered, pretty seriously, because everything was saying to me “no”. And they were telling me “no” because my business actually sucked.
And then I ended up putting together a bunch of angel investors, you know, different groups and a couple of small, very very small and tiny VC types, Napkin Ventures from Luciano Tavares… A crowd to support us in those early days.
Now, we took their money and it took another two years to create something meaningful, so that we could get in front of the VCs and the VCs would tell us “yes, now we want to invest some money.” And that was, like, you know, valuations of that time. Not valuations of today. That was 2015, not 2019.
So at that point, I remember it was, like, a R$ 5M, R$ 6M check for a 20% dilution, that's often, right? Which was like, that type of thing like we used to do in those early days.
Now, we took the money, and I thought that was more money that I could ever had. And we shut the door and said “let’s work, work, work." We invested heavily in technology, but we didn't have enough time. And also we sucked in management.
So I had forgotten all the principles of management and I was just in garage mode. I started 2015 with a team of 12 or 13 people. I ended up 2015 with a team of 65. But we were applying the same rules. And that just doesn’t work.
When you start having more than 10-15 people in your team, communication is crucial. The culture, the way that you talk to people, the way that you behave in public, [all of] that becomes much more relevant. And I actually had forgotten that that was important. That was my previous life. Not the life of an entrepreneur. That’s what I thought.
So we got into a trap of spending money quickly with no business results, but a very nice plan. But on the other side we had a lot of problems in management, in culture… That was like, late 2015.
So in early 2016, I got in front of my investors, which at that point were Redpoint, Quona, and QED. Amazing investors, super partners. And we said, “hey, actually we’re burning like a lot of money for our size. I think we need to raise some money.”
Coincidently I met Hernan, from Kaszek, in an event in Cubo. That was like the early days of Cubo. I think it was like one of their first events, like in the end of 2015 or early 2016. And I explained to him what we were doing and what we were planning to do. And Hernan said “wow, that’s interesting."
So I started having discussions with Kaszek and I went back to my investors and said, “it looks like Kaszek is interested.” They said, “ok, go for it, go for it.”
So we started getting into due diligence and so on. It came to the critical moment of “okay, what's your ask, what are you asking for?” And we asked for a ticket that was, like, relevant at that point. Probably five times the ticket that we had before. Which implied, like, four times higher valuation than before.
And then Kaszek pretty rapidly came back and said, “well, yeah, you know, that’s not gonna happen. But very good luck with your business and please come back again in a couple of years. We really love you…” And, you know, all those things that investors [say]… And I was so frustrated with that, because then I was looking at the space at that point. And there were not that many investors to do, like, a follow-on on a series A.
I only had 3. So it had to become an internal round. And doing an internal round, as you know, is not ideal. Because it looks like you’re saving the company internally, right? So then the lobby started to work. I went back to my investors and I said, “hey, so what do we do?”. And they're like, “ok, so there are two choices: either we put the money or we convince Kaszek."
So we set up a strategy that was very detailed. You know, who is gonna call whom, what are we gonna say, what are the key points... And we ended up doing another pitch to Kaszek, with a significantly lower ask on our requirements and they ended up, like, loving what we were doing.
It was like an inflection point at that point. It was April 2016. Just a year later after the series A. One month later than that was when we issued our first proprietary loan. And that completely changed the dynamics of the company, right?
So in that moment we started growing. 7x the next year, then 5x the year after. So it was a dramatic change and we were very lucky, because if we wouldn't have gotten that money, we probably would have, like, a different story.
Was this like an extension of your series A then? When Kaszek came in?
Yeah, yeah. It was like an extension. We did a slight reprice of the round, so we moved a bit the share price, but not by that much.
Yeah. So you just got them on the cap table, [and that] gave you enough cash to kind of execute on that kind of next era of the business, which involved actual lending.
When you price something like that, you know, there's always a discussion about this and I guess it heavily depends on how much leverage you have as a founder, right? If you have a hot deal, pricing is easier, right?
Do you feel like founders, when they go and raise early amounts of capital, talking about a seed round, a series A, or even like an angel round. How do you feel about pricing? Do you think it's best to price it? Should the market price? If you got a lead investor, should you indicate exactly what you're looking to sell? How would you recommend, broadly speaking, that founders approach that?
I think it really depends, as you may imagine, right? But first is the context of the time that you live in, right? And, again, as we were saying, 2015/2016 has nothing to do with 2019.
No, it’s another world.
A totally different world. Almost a price of a C today could be as high as the price of a series B at that point. So, dramatical changes.
And it's on one side because of the competition, right? So there’s much more competition on the VC side. And then, number two, the adoption of digital solutions, from a customer perspective, is much faster now than it used to be like three, four years ago. Just take smartphones penetration, now it’s probably like 3x what we had back in 2016.
So, obviously, the business cases are much better now than before. So that's the first thing, right? What's the time in which you are living.
The second is who you are, right? So, first time entrepreneur, second time entrepreneur… These are totally different angles, right? If you are, like, a first time entrepreneur with very little experience in the startup world, you’re gonna get punched by the investors, especially in the first round.
I definitely suffered from that. No questions asked, I would have loved to have, like, a seed round with 4x valuation, and everyone would have been happy. Because, at the end of the day, the entry point at that level is not that relevant. It’s much more relevant "is the entrepreneur amazing? Is the business case impressive? Is the margin structure in the future going to be looking good or not?"
So I think these are the reactions now. We have been a company that has never gone beyond the space that we should be in. So I think that's great, as we have been more on less doing 2x to 2,5x every round in terms of value per share. Which is like an O.K. type of upticks in every single round, right? So now it's been five times that we have done that. So we create value to everyone, but at the same time it doesn’t inflate the expectations that you’re gonna have.
Now, is that by design? No. Everytime that you go and try to raise money, to be very honest, you try to get as much as you can. You try to become a hot deal. It’s just something in Creditas that never happened.
Creditas has always been the company that's ok, that has been growing, but it has never been that superstar that everyone wanted to… I never had more than 2 terms sheets in front of me. Just to be very clear, and that were in only two cases [two term sheets], in all my life.
So I think having a humble approach still works and I’m very happy with where we are now. The dellusion that we have got over those 5 rounds of funding is still something that is very meaningful, what we have today, me as a founder and the team as management team, and that’s what counts, right?
Now, in terms of strategy of phasing investors, I never ask what is my request in terms of valuation. I just let the market speak. There are other founders that tend to roll, “this is my ask”. We have never done that. We ask on, you know, what's the ticket that we want and then we wait for the market tell us what they want to pay for us.
Yeah, so there’s a couple of ways to look at this, right? It's like, you talk about how much you want and then you let the investor back into their valuation, right?
I do tend to think it’s important to declare what you want in terms of your capital, right? I see oftentimes founders… I’ve seen decks with "we're raising 5 to 10 million", and it's like, “how much are you raising?”.
Maybe if you come with, “we're raising, you know, 2 to 3 million for somewhere between 15 to 25% of my company”, obviously investors are going to look at that and say “okay, 2 million for 25%”, right?
So, it does sometimes help to give a guide to the investor, but just by stating the capital you're raising, you know, the investors are gonna do the math and they're gonna say “okay, the expected valuation of this founder is backed in 15 to 25% dilution”, so they'll come up with a number.
Yeah. That happens, Brian, definitely in seed, series A, and series B probably. C, D, and beyond it ends up happening less. So the dilution, in those cases, may go much lower or much higher, right?
Yeah. It speaks, true, more to the seed and the series A. And maybe the series B. But you're right, as you get further along, it's not strange to, you know, sell a 5% equity stake in a round for series C. Especially since you've already suffered some dilution, if you've raised capital up to that point. No, that’s great. Thank you for sharing that.
And so then Kaszek eventually got on board, and what was their hold up? Like, you said you had a shitty business or something at that point. How long did it take them from those first conversation, just out of curiosity?
So we had… From that first one [conversation] in December 2015, we signed the term sheet in April, and we got funded in May. It was practically fast at that point.
And in reality that was like with that window of inefficiency of a couple of months, when they had to say “no” to our business, right? Once we did the right request and the right approach it took, like, 60 days end-to-end.
There’s a good lesson there because they said “no” and then you ended up bringing them all as investors. So just because someone says “no” initially, you know… Similar to you, you know, I feel like we overhear some of the old guys talking about how they used to walk 7 miles in the snow, but the reality is, it was hard. And I remember getting rejected 30 times and that, like, can be demoralizing after a while.
But the reality is that it's a game of persistence, right? We've always talked about just those entrepreneurs that can, you know, outlast and continue to stay focused. Leeping their eyes on the prize, and head down executing. Eventually, you know, you overcomed.
Yeah. I'd love the overnight success, but it just didn't happen to me.
I know. It always look like that in hindsight when people see it. But they don’t see all of the struggles and the challenges throughout that.
Let’s recap a few things. So, how long did it take you to feel like you figured out the right model? If you go from day one. You're like, “okay, now we are, you know, we are asset-backed lending." Take us from lead gen business to asset-backed lending business, which it's, like, your new iteration of your business. Time spent, what was that?
Yeah, so we came up with the thesis and what the economics would look like in late 14, so that was, while we were doing the pitch of the series A, we had already incorporated that part of the business. But, in reality, to execute it, it brought us, I would say, like July or August 2016.
So it's four years. Since I founded Creditas, since I founded Bankfacil. And then I went through different things and it took me like four years to actually come out with the final model. Although it looked like it was a pretty obvious thing.
It always does, right? In hindsight. But it's hard. One thing that I wanted to, you know, kind of dig into a little bit more with you: the challenges of that 15 person company, versus the 65 person company. And how there was that moment where you went from, like, you know, kind of scrappy bootstrap and into management. Ironically, you came from management consulting. You have an executive background. And you were an executive before you were a founder, right?
I often talked to you and I recall the interviews you've done where it's, like, you weren't a founder starting out. I was never smart enough to get hired by anyone, so I ended up learning on my own, but you were one of those cases where you had this experience, this management experience already. What were the things that, if you look at, you forgot about or weren't doing that would have been critical going back, from 15 to 65? Like, that key moment that you were just not paying attention to, and you woke up and you were like, “oh, I need to be doing this.”
Yeah. So, I think the first one is the speed of growth in your head count. I think it is very relevant. So you have like a team of 15, and you’re trying to onboard, three or four guys in a month, that's fine. If you try to onboard 15 guys in a month, so doubling the team, it’s typically something that doesn’t work well. You just don’t have enough bandwidth to explain to everyone what’s going on and what they’re expected to do and so on. So that worked like chaos.
We didn’t even have someone doing HR. I hired my HR person when we were already 65 people or something. I was doing everything on my own. I was, like, sending the wire transfers individually to every single employee until we were 80 people in the team. That was like, every month I was stopping at 11 PM and then finishing at 2 AM in the morning because I was not able to do block transfers and so on.
So it was just like stupidity, right? It's, like, “dude, find people to help you." Leverage on people. I was so in garage mode that I was not realizing that it was a poor experience to everyone, a lack of attention to what actually matters, and a lack of focus. That’s definitely one thing that happened and didn’t go well.
Now more in the especifics, it's the importance of communication. If you are like 12, 13 people, typically, every single day you go to lunch together. I remember that, until we were like 15 or 20, all of us were going to a table at a crappy restaurant every single day and, you know, discussing, talking about work, talking about life, everyone was like super aligned.
When you get like 30, 40, 50 people, that just doesn’t happen anymore. Then you start not even remembering the name of that guy that is sitting there. You start to not do the right type of onboarding of that person. Why? Because you don’t have enough time. You should be leveraging on some other people, but everyone is so new. They don’t have context, so they cannot do the onboarding, right?
So those things are very relevant and I think that my biggest mistake was not hiring someone to take care of talent. Taking care of talents doesn't mean that the founder is not gonna be involved in talent. That doesn’t happen. But someone to help you. In leveraging and creating, and someone that you need to trust.
And the other side is it really depends on the founder. I’m a founder that doesn't necessarily like managing people. And I just realized it when I became an entrepreneur.
I love when I was an executive, but not managing people. What I loved about my work is that it was about solving problems. I loved doing that.
And there are other managers that are more like leaders. They love talking to people, and bringing in more talents, and doing performance reviews. That's not me. I’m more like the guy that is, like, nerdy and that solves the equation.
So, if you’re not passionate about that side of the business, you need to understand that it’s crucial. So you need to fix it. And you need to create an amazing culture.
And then finally, the importance of recognizing, as soon as possible, that you are gonna screw it up. Because you’re gonna screw it up, like, all the time. Every single week. I could write, like, a book just with how many times I screwed up with things today, right? So imagine it at that point, with the chaos.
And it was not even just… I was, like, half sleeping at night, just thinking “oh, dude, how could I say that to that guy?”, or “how could I be shouting to that guy? That poor guy, I never explained to him what he had to do”. It was just too much pressure.
What I realized then is that you actually need to go in front of everyone and say, “hey, I’m sorry. I didn't live up to my expectations. And you're doing a good job here. I need your support. I need your help. This is the first time that I’m doing this.”
And then when I started doing that later, in 2017, I realized that people love it. Because they see that you are human. And sometimes founders, when you start having 60, 70, 80 people, they look at you and say, “this amazing guy, he knows it all”. It’s true. The founder has super powers because they have the context of the business and they are the soul of the business. But they make a lot of mistakes, they suffer a lot, and recognizing this is very valuable
I agree. In 2020, it's almost like a cliche to talk about vulnerability, because it’s something that, you know, if you've seen see the Brené Brown's The Power of Vulnerability… I remember showing that to my team, you know, early on when that video just came out, and I was a fan of the topic.
And I think that one of the things that founders forget is to share the burden of the challenge, right? Like, people are impressed. I mean, look, you got Ann [Williams] in your team, withholding everything and, like, centralizing everything.
I mean, it’s good for a lot of stuff, and she's much better at certain things than you and you’ve got a whole team. You've made some great hires, it’s an awesome executive team, and it's just so critical to have those…
That's exactly it, right? So, Ann has everything that I don't have and actually she loves most of the things that I don't love. And you really need that type of person.
We need to hire people that are different from us. Different and better in certain areas so that you can actually create a good merge between those types of personalities. I think that that’s super relevant in diversity. Again, it’s a cliche these days.
But, I mean, you look at my executive team today, 50% are women. And we need them. Because they manage life in a different way. And they provide this vulnerability that we now, and everyone talks about it, is so much needed.
You don’t have that type of personality, everyone ends up being in a room and being the macho man that knows it all and that is gonna explain to the world how the world is gonna change over the next 20 years, right? So, avoiding that type of dialogues and bringing a diverse executive time, I think it’s super relevant to actually grow the business and create an amazing culture.
And the tipping point for that was, you know, Ann coming and taking over that challenge and we changing the brand from bankfacil to Creditas in February, 2017. What worked well in that case was, one, it was like a reshaped culture. Two, it was like a new business model. Three, it was like a different vibe in the company. So we were not just changing the brand.
Sometimes people come to me and say, “yeah, you changed the brand you went so well. So what did you do? It’s not just about the brand. It’s the entire company that you need to rethink about. And then you need to move it to another level.
Yeah, brand is a very layered topic, right, on many different levels. I never really understood this when I was building Viva Real. I never thought about brand. So many things that we did were just accidental, right? Good and bad. So, you know, as a second time entrepreneur thinking about my next thing, it’s so much easier to look back and be like, “oh, don't do this. Do more of this", and so.
I think one of the things that I wanna highlight is, in this process — and maybe I'll link it up in the show's notes here —, you talked about massively scaling up the hiring from 15 to 65, or whatever the number was. And that's really hard to do like month after month, right?
I remember having it, I can… It's one of those conversations, and I've actually mentioned this a couple times, I think it was at one of those hotels down there, and I was in the lobby with him [Hernan, from Kaszek] having a chat, and he said, “Brian, it's the ‘stop-and-go strategy’”. And I'm like, “what is that?”
"The 'stop-and-go strategy'. It's go hard, real quick, you hire a bunch of people, then you stop, and you absorb. It's about increased productivity. You go back to productivity, because when you're hiring, you instantly lose productivity." If you go through massive hiring it's like chaos, right?
Yeah. Is that something you ever thought of?
Yes. Definitely yes. We, later on, that was probably like 2017 already, we realized what was our critical number, as a percentage of increasing headcounts, that we could do every month, right?
And that number ended up being below 10%. So you cannot increase your accounts more than 10% in a month. And the rationale for the 10% was that our teams, in general, were made up of 10 people. So a team leader manages 10 people. Some teams have, like, six or seven. Some others have up to 15. But what happens is that the team leader has the huge responsibility of doing the onboarding of that person.
And what we realized was that you can actually do the onboarding of one person at a time. Two, maximum, over a period of 2 months, right? So you really need to be careful with that metric, figuring out what’s your number and your case and I guess just sticking to it.
Now, what Hernan is saying really resonates with me, like, a lot. In our case, we applied it in a slightly different way. So we have three business units. So what we do is, we take one business unit, accelerate the growth of headcount, and then slow it down.
And then, at that moment when we slow it down, we take other business unit and we accelerate the growth. So, at the end of the day, what you’re looking at is that the growth rates are always at 10%. That’s what we are having in heacount every month for the last two to three years.
But it was varying depending on the business unit, right? So if you have the time to take in the increase in the workforce you've taken, you have to be rethinking all your model, optimizing it, and then, once you have done that, it’s gonna take you like two to three months. And then you start again with the acceleration.
I remember Ann talking about it, it's like a stir, right? So you cannot move from, I don't know, like 10 million to 12 million, to 14, to 16, to 18... What happens is that you go into 10, then you go 10, 11, and then, suddenly, 20. Why? Because you reached the productivity, you reached to efficiency that you wanted. And then you can continue going to the next step.
I have a graphic that illustrates this that I did for my book, so I'll put it up here in the notes in this. I think it is super relevant.
That's awesome, you know, you've been successful, you've been able to scale this business, you've generated a lot of value, the team has generated a lot of value for the company, and the investors have done well in terms of increased value over time…
You started investing in a couple of companies, right? As an angel investor. We've invested in a handful together. Obviously, you're super busy, and 98% of your time is focused on making Creditas the ultimate company…
Some of the investments you’ve made, I’d love to hear from you: what's the last thing that you learned from a founder that you invested in? Because we always learn everyday from founders when we talk about... I mean, it's actually a way to stay relevant sometimes, because new founders are uncovering all kinds of things. What's something you’ve learned from founders or from your angel investing?
At the end of the day, we invest because we want to keep ourselves active and close to the ecosystem. And, especially, to learning. You are putting some pocket money, but in reality what you're getting from that is much more education than anything else, right?
So these days, I'm talking about Creditas more and more as a “quase” SaaS business. Because this is SaaS, if you think about it. Because Creditas has nothing to do with a SaaS business, but the economics ended up being very close to being a SaaS business because we don’t consume capital in the lending. We don’t consume capital anymore. We managed to get the entire capital from investors. And all the capital that we consume is from the CAC. The customer acquisition costs.
And then, once I get the customer on board, I get like a recurrent stream of cash flows. They stick with me and so the customer disappears, and it's a churn. Which essentially I’m describing is a SaaS business.
I’ve, fortunately, invested in a couple of SaaS businesses. And the reason why I’m speaking in those terms now is just because those founders have explained to me how a SaaS business operates. How it works, what are the components, what you need to take care of… They thought that I was advising them, and in reality I was stealing them the intellectual property that they were building.
But, you know, very honestly, you get so much knowledge from all investments that you make. You look into the entrepreneurs, the problems that they have, the problems that they face, you help them with your advice, but at the same time you are pushing yourself to the next level.
And, especially in these days, we in Creditas are fans of the intersection across different industries and we think that it’s gonna happen more and more. Which means that right now, it’s more important than ever to have a very active ecosystem.
For sure. One of your exits as an investor was an acquisition that you made yourself at Creditas. How did that work? I came across that when I was at Viva. We didn't end up buying the company, but I remember, you know, we kind of bid on the company and I was an investor. That was a kind of a funny situation.
Was that part of the plan when you invested? And, you know, why did you decide to buy the company?
Yeah, it's a good trick. You become a very successful investor and then you buy yourself. No, jokes apart. In 2015, I was doing this mapping of the opportunities, of where we were going to be, avenues for growth, the products that we wanted to launch. We had two products, Auto and Home. And then the third that I wanted to launch was private payroll loans.
The investors looked at me and said, “dude, you still don’t have those 2 products. You think that you have them but you don’t have them. So can you please just focus?” And I said “yeah, yeah, you are totally right. I need to focus on those two before trying to escalate this”.
But I was very frustrated, it was like an amazing opportunity, I really wanted to do it. Because it was like a very democratic type of product.
And then, what happened was that a year, or a year and a half later, Ramires, who was the founder of Creditoo, worked as an executive for a bank. I had met him like 4 years before. And then he came to me and said, “hey, I decided to become an entrepreneur and I want to do private payroll loans.” And I said, “no, you’re kidding me.” “Yeah, yeah, yeah, I found this other guy, he has some experience, and bla bla bla…” And I said, “well, don’t tell me more. Can I put some money? Can I help you? Do you wanna come to our office?”.
So we invited them to join Creditas in the office. So they had, like, their own logo inside Creditas. I gave him the first check, and then I helped them embracing the money, preparing the pitch, and so on.
So it was not a normal financial investment for me. It was more than that. I didn’t have, like, a hidden agenda at that point, but Ramires had always said that we had a lot of synergies to explore and things that we could do together.
So what happened was that it was a very nice business. And then, two years later, he was racing like another round with, you know, an amazing valuation, with a very decent ticket for a series A in Brazil, and I said — that was like last year —, “Ramires and Luis,” which is the co-founder, “we are just gonna get like a round of R$ 200M class, and we think that you would be like an amazing addition to the team. And I think that’s gonna be, like, now or never."
And then the plan was that acquisition was gonna work well, or we would have launched our own products. These were the two options. But the good thing was that we were very close to each other, I knew them very well, I trusted them, and that was essentially an M&A, right?
Absolutely. No, it’s fundamental. That’s ans awesome story and it was a good outcome for everybody in that case, you know? Because they made some money and, you know, you ended up also making some money on the investment, and so, it's a success case.
Cerrando con broche de oro. Just to put you on the spot here. You’re such a big time angel investor now, and I'm starting a new company. I'm not raising money right now but are you down to put a check in my new… In Latitud, when I decide to go to the market? You are being recorded right now, so no pressure.
It depends, Brian. No, come on, I'm kidding! Obviously, yes. I’m setting the valuation higher than what you think. That’s what is important.
Okay, I like that. I love advisors and investors that are telling me to increase my valuation. We’ve made some great Investments together and, you know, we’ve become friends through Endeavor, as struggling entrepreneurs from that cohort, when it was snowing and we'd walk 7 miles, you know, to get to the office.
But thank you for, one, sharing your expertise and your experience, you're somebody that I admire as an entrepreneur that I think, you know, really stuck with it. And, you know, it wasn't something that just happened overnight, which a lot of times people see. They only see the success and they don't see the struggle.
And I think that part of my objective with Latitud is to democratize access to more information, one, and also just let people know what the real deal is, right? Because there are more local stories, people, you know, in Latin America, in Brazil. And you're expanding this business regionally with your Mexico stuff. I’m sure you're gonna be all over the region.
So I think you're a great example as someone who's building a tremendous value for the region and, you know, has an incredible opportunity on your hands. So, you know, I wish I was a little capital around the time when you're raising that money because I probably would have identify the opportunity because I know how hard it was. So, anyways, thanks a lot for sharing your experience with everyone.
Thank you very much, Brian, and please send me the wire instructions, so I can make the transfer ASAP.
Okay. I will definitely do so. I would love to have you on the cap table. And it comes with some advice as well, not just money.
Thank you, Brian.