Amaury de Poret
Dr. Marcelo Carvalho de Andrade
Chairman of the Board
Let us tell you a story.
Some years ago, a young man started a company with two friends. The young man was mainly driven by the excitement of starting a new venture by making online shopping easier. He had no real exit in mind, really he was mostly focused on all the great problems that could be solved for sellers and buyers online. It was his idea but he still believed to share equally with his co-founders, the only thing he did was take the CEO job.
Times were different back then: The internet bubble had burst a few years earlier; the internet stock had gone from hot to cold; the concept of starting a company was geeky and untrendy as most other students dreamt about employment at any of the fancy international banks or consultancy firms. But hope is a waking dream.
The boys found an angel investor and raised enough money to get started. They also found some tech people that would build the first version of the companies tech. Here however the founder has his first lesson in "long term". As they gave 37% away to the tech people, the 3 co-founders believed the tech guys would stay on and build the business with them. That was not however how the tech guys had perceived it, so after just a few months they completed their job and left. But the co-founders worked on and managed to get the company profitable within the first six months.
But the three young men, quickly felt they wanted other shareholders, shareholders that were backers and believers in the company, and shareholders that could add more value, especially legitimacy as the business was young but handling lots of money. They did not really want to raise money as they already felt diluted enough, but they realised they could help do some secondary, namely getting the tech people to sell to some new investors.
Luckily, they found two very prominent businessmen who had tons of experience and led a notable investment firm. The two businessmen helped buy out former investors and were ready to follow this new company's growth, not asking for the quick buck. But just a few years later, the two prominent businessmen's firms collapsed due to irregularities in another part of their business (we will not bore you with the details), and boom, they were gone.
Fortunately, the company found another investor. Perhaps the only one that could honestly call itself long-term investors, the guiding star and perhaps the best investor in tech ever. Getting this star investor onboard shielded the company from the two prominent businessmen mentioned earlier, but it didn't shield the company from the two businessmen wanting to sell their stocks. The company's CEO started looking for new investors: Not to raise money for the profitable company but to help sell the shares of these two businessmen, again a secondary trade. And so came onboard some new investors, who also guaranteed a long-term relationship—who later also saw challenges and also wanted to pull out.
The CEO had to put more time into finding new investors, just to facilitate secondaries, and less on actually running the company. Scaling, establishing a great culture, and launching new products and markets were more complicated than expected. The CEO saw lost opportunities and poor customer experiences. He got frustrated with himself: What was he doing wrong? And it didn’t get better.
He had to find new buyers and this time one of the best-known private equity funds wanted to invest. They promised to support him and jointly invest in all the opportunities once the CEO had figured out how to turn investments into growth. They also said they were really long term... Unfortunately, their views on 'risk' were different: While the CEO was eager to take the bold bets and go big on new products and markets, the private equity wanted to reduce spending, improve profitability, and prepare for an IPO.
Thanks to the real long-term quality investor, the CEO was backed in his ambitions. His team and colleagues delivered on the expectations and they became the highest most valuable private tech company in Europe.
The end. Or not yet. We haven’t reached the lesson learned in this story.
What could've been a smooth journey became a long bumpy process. For the first 16 years of the young man's company's existence, he had to spend a disproportionate amount of time raising new financing rounds to help "long-term" shareholders liquidate their positions, creating a massive distraction for himself and his colleagues. Billions of SEK were raised, but only a tiny fraction of that had been allocated to invest in the company's development.
But sure did all this taught the CEO a lot:
This whole thing puzzled him, and he wanted to learn more. He started to ask, where did the professional investors' money come from? Was it their own money? Well, it turned out their money came from so-called limited partners. Limited partners were just another name for more funds and investors who themselves managed money from other investors and so forth. Until most of the money turned out to initially come from pensions, endowments from universities, and charities. It made him happy when he realized that all the value creation that he and his colleagues had created, would eventually benefit retirees, researchers, and students. Though, he was still disappointed that a lot of money would disappear between the layers and layers of professional investors and their various fees.
On the other hand, there were people out there who were not professional investors. Many of whom were dreaming of the returns on investment that these professional investors were often rewarded with. But they had no way to access it.
The young man’s story gave us an idea for launching something little different: Not a disruption, just a contrarian thought for the few out there that we thought wanted something a little bit different.
We are Flat.