How to grow your fintech? 🚀
With Federico Travella, co-founder & executive chairman of Novicap.
Hi everyone,
What an incredible conversation I had with Federico Travella, the co-founder and executive chairman of Novicap.
During his career, Federico has:
Pivoted from being trained as a geologist to a tech entrepreneur.
Built a talent machine, interviewing thousands, and hiring hundreds of people.
Prepared both an IPO and trade sale.
For the past 10 years, he has been running Novicap, a working capital fintech recognized by the Financial Times in 2021 and 2022 as one of the 1,000 fastest-growing companies in Europe.
We talked for 30 minutes about the evolving role of a CEO, building a strong team, preparing for a trade sale or an IPO, the relationship between fintech and banks, and the importance of planning ahead.
A masterclass.
Enjoy!
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⏱️ Reading time: 8 minutes
Hi Federico! Can you introduce yourself, please?
Hi Thomas, I’m Federico Travella. I'm a Belgian-Italian entrepreneur, and I’ve been building internet and technology companies since leaving uni. I started my career at Rocket Internet, the global venture builder, which gave me the opportunity to jump-start my entry into the tech world. My background is a bit different, as I'm trained as a marine geologist. However, at uni, I had a number of startup projects that drew my interest to the tech world.
I got to know Rocket Internet, which was looking for intrapreneurs. So, I joined Rocket Internet's team in Australia and New Zealand, where we built e-commerce companies across every vertical. Some of these businesses did well, and some did less well, and we would recycle the talent into a new business. It was a great way to see companies across multiple stages, which was valuable for an aspiring entrepreneur like myself.
After that experience in Sydney, I moved to Singapore and became part of the management team of Lazada, Rocket's general e-commerce play for Southeast Asia I wore many hats, and built out functions like business intelligence, marketing, and the consumer-to-consumer marketplace. Lazada became the largest e-commerce in Southeast Asia, and the biggest hit in Rocket's portfolio, eventually exiting to Alibaba. It was a fascinating experience because we executed the business very well across six markets.
While at Lazada, I noticed that as a marketplace connecting merchants with nascent consumer demand for online shopping, we started to squeeze our merchants on payment terms. We were always aiming to increase our Days Payable Outstanding (DPO), or paying our suppliers late. This led me to look at solutions to help merchants deal with their working capital finance. I realized banks were really outdated, and that’s how Novicap came about, and I got into the fintech game.
You trained as a geologist. A scientist. Now, you’re a tech entrepreneur. What did you learn as a geologist that is now helpful for you as a tech entrepreneur?
Generally speaking, geology, being a science, instils a scientific approach to problem-solving. This involves testing hypotheses and trying to understand what is true, which is a valuable skill to have.
It's true that building a company is much less academic in nature. In the early stages of a startup, there are fewer data points and less information available, and one often has to make decisions based on incomplete data. This is the big difference between the academic world and real, startup life.
Let's come back to Novicap. Can you tell us more about the problem you resolve?
The problem we're trying to resolve has largely remained unchanged over the last year.
Generally speaking, when you're a small or medium-sized business contracting with larger counterparts, they often negotiate long payment terms. Clients might buy goods or services from a small business and pay on 60, 90, or even 180 days. This creates a massive working capital issue because the small company typically has costs on a 30-day timeframe. You have your payroll, VAT, and your own suppliers, whom you often have to pay upfront because you lack negotiation power.
This situation leads to missed growth opportunities because the business is unable to grow. They can raise equity, but equity shouldn't be used to finance operating expenses. We originally built the first fully digital factoring solution. Over time, we've expanded our product to be the end-to-end operating system to manage, optimize, and finance your working capital.
I want to talk about your role and your responsibilities. You're the executive chairman of Novicap now?
I led the company as CEO for about 8 years, but then was looking for a wider professional scope, including a couple of external projects that I wanted to focus on.
I decided to initiate a gradual transition in which I promoted our CFO to CEO, with myself stepping sideways to exec chair. By building out a strong management team independent of myself, I set up the business for long-term success, allowing me flexibility, including starting a new company in the future.
What's your job today as an executive chairman, and how did you manage the evolution of your role and your responsibilities as a founder?
At the board, my job now focuses more on strategic and long-term matters, rather than day-to-day. I find this very refreshing, as it allows for fresh thinking and a wider mandate on my side.
In essence, your prime responsibility as a founder is securing the necessary resources for growth in every phase of your business. In a way, your role and responsibilities as a founder are always in transition, as you aim to complement yourself throughout the journey as well.
For a business like Novicap, the 'fin' in fintech is 50% of the business. Not coming from capital markets or finance, I built up core functions like capital markets, and brought the business from zero to profitability. At the same time, I felt that in the long-term, it'd be best for the company and shareholders that a management team that is passionate about finance would run the company. Today, we're probably best in class when it comes to managing funding requirements across the entire capital stack, an unfair competitive advantage vis-a-vis other fintechs.
Is this skill, structuring financing, very specific to fintech?
Yes, it is quite related to fintech even though now it also pops up in so-called embedded finance or lending plays like BNPL in e-commerce. There are other functions like finance, compliance, and legal that also don't come naturally for many entrepreneurs.
To address this, you need to build a strong team that knows how to address and mitigate regulatory risks, while maintaining a culture of innovation. There's no such thing as an innocent cutting of a regulatory corner.
You've just talked about building a strong team. Maybe we can talk about recruitment, especially for early-stage companies. In this newsletter, I've been meeting a lot of founders, and recruitment is their main challenge. Do you have any advice for them?
Recruitment is an area in which I've spent a lot of time. I must have interviewed thousands of candidates, hired hundreds - many at Rocket Internet companies because of the high growth. One thing I've learned is that it's not because you're a startup that you shouldn't have a proper, structured hiring process.
Of course, hiring someone is just the first part. The entire people function is crucial because the cost of employee churn is high, and the people you hire will define the company's success and culture. It all starts with having a structured process, which is where startups often fail. Many entrepreneurs hire based on gut feeling. While there is an element of cultural fit, it's essential to have a structured approach.
I like to think of hiring people who are "raw" – R-A-W:
Rewarding to work with: You want people who are rewarding to work with. This aligns with what people call the "no asshole rule." Having a positive team dynamic is vital, even more true in smaller teams.
Ability to do the job: This is arguably the most critical criterion. The person must have the ability to perform the job. Hiring someone based on potential without evidence that they can do the job can be an expensive mistake. Tailor the interview process to test hard skills very carefully.
Willingness to work hard: I feel this one has become more challenging in recent times. It's so important to find people who are energetic and motivated to build their careers with you. For the first 10-20-50 hires, be mindful of their energy and drive. You want people who are career-driven and obtain a lot of their personal energy from their work. In turn, as their employer, your job is to ensure this will be the best professional opportunity ever.
I see more and more founders building high-experience, tight-knit teams. What do you think?
In general, hire the best people you can afford.
If you can't afford a certain skill, and it's essential to get started, then you'll need to find a co-founder who can cover this blind spot and you can implicitly trust to get the job done.
Hiring senior talent can be tricky for startups, especially early. Even with equity, compensation doesn't always work, and it's hard to peel a senior professional away from their corporate habitat - it often works much better at a later stage, when the company is somewhat derisked.
But to your point, I think it’s true. For the same budget, I would always hire the more experienced candidate instead of three interns. More people usually means more (people) problems, too.
If I'm correct, during your career, you've experienced both an IPO and a buyout.
I saw the preparation of the Rocket Internet IPO, a dual listing. Rocket held all those stakes in e-commerce companies that it had incubated as a venture builder and looked at floating part of it. The preparations to list a company are naturally intense as you need to ensure all the financials are in order, across many different countries, with different accounting methods, and so on. At the same time, the scrutiny level of investors and bankers goes up to the next level. Rocket delisted many years later for various reasons, but the preparation for the IPO was a valuable experience.
Lazada was one of the winners in Rocket Internet's portfolio. It had raised significant amount of venture funding, and market conditions made it eventually find a home within Alibaba, the Chinese e-commerce giant. The trade sale was in stages, and my colleagues did an impressive job managing the integration after I had already left to start Novicap.
Comparing the two is difficult, but in the current market, companies with IPO-worthy numbers are preparing for IPOs. At several investment bank conferences earlier this year, there was a lot of excitement about companies preparing for IPOs. Increased liquidity, either via IPO or trade sale, can only benefit the wider tech ecosystem.
IPO, buyout… As an entrepreneur, is this part of the vision from the beginning, or do you focus on small steps first and then consider something bigger?
If you build something worthwhile that creates real value, interest will follow. It might sound cliché, but it's true.
It's valuable for founders to think about the potential direction of an exit. Some companies raise so much money and grow so large that an IPO becomes the only viable path forward because they are too expensive for most potential buyers. However, the reality is that most companies don't IPO - they get acquired. Of course, we're talking about success stories here, which are already a small subset.
Thinking about who might acquire you in the future is important. One recommendation I often make to entrepreneurs I work with is to think about the top 10 targets in your industry that could potentially be interested in buying your business at some point. It takes time to build those relationships, and you need to get in front of the right people, whether that's a board member, someone from the executive committee, or the CEO.
For example, if you're in insurtech and think AXA might acquire you one day, you should start building a relationship with AXA. Ideally, this would be through a partnership, which is the best way to start an M&A process. If not, aim for quarterly or bi-annual check-ins with one of their board members or the CEO. This strategy also acts as an insurance policy for the founder: if things don't go as planned, having these contacts allows you to activate them at the right time and find an exit.
So your advice could be to talk quickly with corporations and banks as a founder?
I think it's never too early to start those conversations because large organizations, including corporations and banks, move at very different speeds. Engaging with them early on is beneficial. The best path to an acquisition often starts with a partnership or a commercial agreement. For example, if a bank sees that your technology is solving a problem they can't address in-house, that's a great starting point.
However, you should be cautious with the intellectual property and technology you share, as there is a risk of copying. Banks constantly evaluate whether to build in-house, outsource, or partner with a fintech. So, while you should approach these discussions with common sense and a willingness to collaborate, you should also ensure you're protecting your IP.
One advantage of partnering with banks is the external validation of your technology. Banks typically have very structured processes, including compliance and the need for certifications. Passing these validations is powerful proof of your technology's robustness.
From the banks' perspective, they often seek technology they can't build in-house. M&A is typically more favourable than venture capital investments for them. But while some banks do make venture capital investments, they are generally slower with M&A, especially in Europe.
To end this conversation, what’s your advice for a founder of a fast-growing startup?
As a final point, I'd emphasize the importance of always thinking ahead about the resources you'll need for the next phase of growth. Whether it's capital, talent, or specific capabilities you don't currently have in-house, continuously mapping out these needs is crucial. Your ability as a founder to attract these resources will define your success.
You must keep thinking one step ahead. This forward-looking mindset is vital. Anticipating challenges and opportunities allows you to stay prepared and agile, ensuring your startup can sustain its growth trajectory.
Thank you very much for this discussion, Federico!