The world is changing, and the event industry is no different. Innovate Finance’s UK Fintech Week 2020 understandably had to eschew the traditional in-person gathering, for a more online flavour. And in a reflection of these new times, on 1st May, Innovate Finance were running a virtual Fireside Chat. Yael Simon from FinTel Security was the host and moderator, and she was joined by Shachar Bialick, Curve CEO, and Ben Marrell, Co-Founder & CEO at Breega.
The choice of speakers in this discussion was a particularly interesting one. Curve, with their novel and innovative banking app, are backed by Breega, who are a startup and founder-friendly VC. This partnership gave a unique flavour to this fireside chat, with Yael commenting on their uniquely close “bromance” in this space. During the hour and a half discussion, they tackled what values are important to hold in this space, the initiatives that they are currently working on, and what the future holds for startups and VCs, both during and after Covid-19.
Breega and Curve – the perfect pairing?
Commonly, VCs are thought of as being pretty ‘square’ and corporate in nature. One can contrast their approach them with Angel Investors, who get involved at the base level, getting their hands dirty from the very start. VCs, on the other hand, are often viewed as being involved much later in the process, joining in on the investment party at the point where the startup in question is already behaving and functioning like a larger corporate. Whilst much of that is perception, the role of VC is usually a hands-off one that is looking to provide a financial boost to help a startup on their way to the money-windfall that is an ‘exit’.
Breega, on the other hand, is a VC run by former founders, who have the aim of financing startups in the digital economy, and propelling them to global success. Ben Marrell, is a partner at Breega, and now spends his time focusing on their investments in the UK. A successful founder in his own right, he finds that this gives him a unique insight into how to properly work with high-growth startups and Fintechs.
Breega have been involved with Curve, the London-based Fintech startup, for a while now, participating in their largest-to-date funding round, totalling $55m. Curve connects all of a customer’s cards into one app and one card. Their aim is to offer their customers tonnes of features and savings, without requiring them to open up a new bank account, or switch accounts (in contract to Challenger banks).
Partnerships matter: the evolving relationship between VCs and startups
Shachar’s first response involved him outlining the traditional mentality of VCs, from a founders perspective, in that a VC “is an entity that their job is to increase the value of their shareholders and the way to do it is partnering with hyper-growth companies.” That’s the traditional viewpoint – the startup needs money from their growth, and the VC is focused on the value that they are gaining through the startup’s growth. But now, as Shachar illustrates, it is a relationship that is moving beyond a purely numerical basis, “VCs are really becoming your partners, they are the people that you’re gonna call when you’re down, you’re going to let them know when you’re up and you have some great news to tell them, they’re going to be the one who are gonna hold your hand through the journey. So it’s really important to choose your partners meticulously” This development has been in part aided by recent events, and also by the maturing of the startup world as a whole.
It is perhaps unsurprising that Ben agreed with Shachar views on this, stating that he wanted to speak out against the common misconception that “in the world of VC and startups, these two worlds should have oppose themselves, whereas, you need amazing entrepreneurs to build great VCs and vice versa, right […]so it’s a ying and a yang.”
The VC Hours
Next up, Yael Simon wanted Ben to delve a bit more into an initiative recently launched by Breega, the VC Hours. This program is being run as a way to allow startups (who are currently struggling due to the Covid-19 crisis) a chance to obtain valuable advice on a variety of issues from a variety of VCs and their partners.
According to Ben, at Breega they feel that they “have an obligation to give back to the ecosystem. We have to give back to the community.” This further underlines his belief in the need for strong relationships and community between startups and their funding partners. So with Breega’s VC Hours, a startup founder can anonymously book in for a 30 minute discussion with a VC, and discuss some of the current problems that their company is facing. Ben explained that “[The VC] doesn’t know much about the company or the team but you can share experiences of your portfolio companies, you can share experiences of the companies you’ve seen in the past […] and it’s very valuable, at least all the feedback we get is that it’s very valuable.”
Understandably, out of the thousands of applications from startups that Breega receives every year, they cannot say yes to everyone, to work with everyone. However, Ben clearly regards this venture as being part of a wider effort to also direct their efforts into helping to grow the entire startup & Fintech community, not just the specific ones that they are working with.
The Startup scene in a post-Covid world
Cash is King
The next topic that this discussion dealt with was on how startups are going to manage their situation during this crisis, and ultimately survive the ultimate test of character that is Covid-19. As Shachar points out, “The reason cash is king is because that’s the only reason company dies – no more cash, that’s the key reason so cash is king.”
And is it for that reason, that Ben feels that startups are better placed than most in surviving this period. He illustrated this by pointing out that “the average cash in the bank in number of days in Europe for SMEs is is 21 days, the vast majority of startups have months if not years in the bank, and the ones who have just raised right before the crisis, if they were lucky enough, they probably have two years in the bank. So startups have this chance of being able to forecast better than a normal business.” Therefore the way through this crisis, in his opinion, is to maximise the cash you have, to increase your runway as much as possible, if you can.
How quick will the economy and startups recover?
Shachar then went on to present a fairly positive outlook on how the situation will be looking for the startup industry overall, once the dust begins to settle on the Covid-19 outbreak. The reason why? He drew on examples such as in France and Spain, countries who go into a temporary shut-down during the summer months, but without the massively negative outcomes for the economy. The analogy that he turned to here was that “the economy is right now in a coma, everyone is looking at their home. No one is working and the government is trying to keep the economy alive.” Therefore, once lockdown has ended, he would expect to see a serious uplift in the overall economy, which would hopefully get close to pre-lockdown levels.
He did, however, offer some caveats to this initially optimistic viewpoint. Firstly, he acknowledged that a lot of SMEs have gone out of business during this time (primarily due to cash flow interruptions) and this in turn has led to a sharp rise in unemployment across the board. The rate of recovery would therefore be dependent on how serious these issues actually are. Secondly, he accepted that it is impossible to predict the behavioural shifts that will emerge out of this “New Normal” and what effects that they would have on businesses and the economy.
More narrowly speaking, there is the impact that all of this will have on VCs and startups. Due to the pre Covid-19 market, they are all sitting on “almost $2.5tn in cash” and would now seem primed to exploit the current bearish market to get some very advantageous investment deals. This would therefore lead to lower valuations than most startups would have been expecting. Shachar doesn’t necessarily see this as a problem, however, as “good founders know that it’s all about the partner, not the valuation. Yes, valuation is important because I want to maximise the shareholders returns, but in the end it’s really about the partner. So that’s why I think, for strong companies, with strong founders and strong results, will be able to basically continue to fundraise money during this crisis.”
Always look on the bright side
And, finally, Ben brought his contribution to this discussion to an end with some words of encouragement to all the VC-seeking startups that are out there struggling for investment right now “Now, I think you know getting a deal signed right now without even being able to meet people is really complicated especially early stage when you know, the vast majority of the decision is made of people but look, you know, we will we’ll make it. We’ll make it through guys.”