Do you want more funding?
Paul Becker is now on his second tech startup. He has successfully raised over $120M for both of his ventures. The most recent of which aims to help SaaS companies optimize their own funding and financing. re:cap has attracted funding from top-tier investors like Felix Capital, Project A Ventures, Mubadala Capital Ventures, and Entree Capital.
In this episode, you will learn:
- Equity versus debt funding
- The future of finance for SaaS companies
- How recap picked their investors at each round
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Read the Full Transcription of the Interview:
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Alejandro: Alrighty hello everyone and welcome to the deal maker show. So today. We have a pretty exciting founder. You know a founder out of Europe that has done it a few times and we’re gonna be talking about building and scaling and also building a really amazing team that is very close. So I guess without furtherther ado. Let’s welcome our our guests today Paul Becker: Becker welcome to the show. So originally born in Hamburg so give us a little of a walkthrough memory lane. How was life growing up there.
Paul Becker: Thanks for having me le under great to be here.
Paul Becker: Overall great and rainy. Um I think hamburg is equally famous for being a rainy city like like London for example, um, so I was was born in Hamburg spent half of my childhood and youth and Hamburg and the other half in a smaller city very nearby. Um, after school I went to university in Hamburg as well did a combined program and and business and computer science. Um, and it was during that time actually that I that I first got in touch with the idea of of starting um a new company. Um. And the story behind that is actually ah, quite funny I often like to like to refer to it because of the study program that I was included um that I was doing that included um, working at a company typically a large enterprise. Um, and as a trainee basically throughout the whole period of study and the idea is quite simple. Um, it is that you as a young student get to know work life as as early as possible and upon gradation that you can get a job at the exact same company. And while it indeed ah delivered a good insight into work life for me. Um, the result ah was that I did not want to work at a large enterprise. Ah so it kind of ah back kickcked and ah led me to the idea of of starting a new company. Um, just as an alternative. Um. And the second thing that was quite nice during the time I was is that I get to know Anna Jonas um with whom I then actually also started my first real company liquid and who are still my cofounders and among my closest friends today.
Alejandro: And how did you get into the whole world of computer science.
Paul Becker: Um, I would say actually because of a teacher that I really liked at school. Um, so I think it was in ninth grade. Although um, that for the first time we we had some um, computer science lessons at school and I just really enjoyed it. Um, it was actually one of the things I like most um at schools so it was quite natural when um, when a levels were coming close that when thinking about what you want to study that you then. Look at what you liked at school. Um, and that’s how I came to to study computer science. But it’s important I didn’t study just computer science at all, but it was kind of a combined degree business management and computer science. Um, and yeah I really like the. Mix back then but but it’s interesting if you if you today talk about um, ah that degree then everybody’s like ah that was so smart that you studied computer science back then? um I think and in 14011 when I decided for studying computer science at least in Germany everybody was looking at you like. But the heck why are you studying computer science go for engineering or something like that. But but not computer science. But yeah enheinstein it was the right decision for sure.
Alejandro: And tell us about getting started with Liquid. So Obviously you meet your cofounders and you know then you decide to go at it I know that it was quite a process you know and also now the way that you think about ideas and and companies you first start with an idea that you iterated a few times. And then you perhaps building building into something more tangible. So How was that process for you guys with getting to liquid.
Paul Becker: Yeah, so um, in the very early days and I think that was like 1 or two years at at university when when the when the very um beginnings of of liquid actually um, emerged. Um. Was Anna and Jonas who were more into finance than I was um, back then? um and they back then convinced me to to work on ah on an idea. Um, which we which we then called alha um, which was a financing solution for young professionals where the idea basically was to. To allow them to micro invests um into an etf portfolio. So maybe in the us you know acorns today. Um, it was a pretty similar idea back then? Um, and um, when when ah gradiation was nearing. Um, we started to look for investors um to to fund us. Um, and in 1 of those conversations. Um, we we actually met 1 guy. His name is Christian um, who who kind of questioned the target audience we were looking at so he he basically said like looking at young professionals. The limetime values are not that attractive. Um. Ah, do you really think that this makes sense in the long run. Why don’t you think about a slightly different target ah group. Um the so-called mass affluence which are basically private investors who have liquid assets somewhere between one hundred thousand and one million Euro depending on what definition you look at. Um, and we thought about that for a while and and then we thought why why? not? Um, and then we joined forces with with Christian and this is actually how how liquid then got started so I would say the the very core of the idea. Um. Offering an automated investment solution. Um for private investors. Um, stayed the same but we did a small but in hindsight quite significant pivot when looking at the Target audience.
Alejandro: Got it and in terms of the business model. What ended up being the business model. How are you guys making money with liquid.
Paul Becker: It’s quite simple. It’s basically like every other wealth or asset manager is making money. Um, so clients. Um invest a certain proportion of their wealth into one of the portfolios um of liquid. Um, and then they pay. Ah, flat fee. Um on the assets under management and depending on how much they invest and what the exact investment strategy looked like um the the fee is between point 2 to point nine Percent perano um and yeah, that’s. That’s to key revenue stream.
Alejandro: And how did you guys go about capitalizing the business.
Paul Becker: Um, yeah, we we raised a seat ground um quite early on from from project a ventures. Um, who who’s one of the very well-known german um vcs. And for us that was also one of the main reasons why back then the the team we assembled for liquid was was the right decision because for for Anna Jonas um and myself it was great to just build the company operationally. So. Ah, Jonas took part of the product ah of engineering and I did mostly marketing and business intelligence. Um, and Christian who was more experienced and we were and had just a larger network um was basically covering all investor relations. Um, and also um. Made that very first ah financing round happen. Um, and yeah, back then I think we we raised one point five Million Euro which was really a big amount for a seat investment and back in the days compared to today’s numbers it looks quite tiny but we were we were pretty proud and. Yeah, it was exactly what we needed back then in total I think now a 50,000,000? No um I think a hundred twenty.
Alejandro: And how much has the company raised to date.
Alejandro: That’s incredible. That’s incredible I’m probably now it has how many employees.
Paul Becker: Hundred thirty that’s that’s around the number. Yeah.
Alejandro: So here. You are you know you build a rocket ship you know making a killing and then all of a sudden you decide that is time to turn page and to start something new I mean walk us through the thought process behind you know. That decision. So
Paul Becker: Yeah that’s that’s a very good question and trust me, um, many people ask us back then and we we still get asked today. Um, and some do understand the reasoning others. Not so much. Um. I can just as a first comment say it. It was the right decision back then? Um, when I just look at everything what happened thereafter. Um, but put simply um when we started liquid the main goal for us was. To prove to ourself that we actually can can build a company from scratch and that we can show that the model works um and especially the latter I mean back in 18015 um, when we talked about the model convincing people to invest in excess of one hundred Thousand Euros online without. Ever meeting anyone. Nobody believed that this could work in Germany because ah, it’s a big trust game in the end and that was there was a great incentive for us that when talking about the idea we we were obviously very bullish about that but nobody believed it and so it was a. Clear goal for us to just make that happen. Um, and when you then fast forward a couple of years and you’ve reached that point where you manage I think in 2017 we managed a little more than 2 or 300000000 now it is. Two point five billion but at a 200000000 it was already clear just looking at the customers that this is working and that there were a couple of customers who just came out of nowhere and that the whole model is just a complete different thing than than private banking for example, um, and when you when you then. Just reflect a little bit about that. Um, and you realize um for for that first entrepreneurial journey. You just reached everything that you wanted to achieve and on the other side you have the feeling that the company is also let’s say and quite stable. Water right now and sufficiently mature to to survive without us and you have the chance to to get ah to get off it. It just felt like the right thing to do and as I said I know ah to some that might ah sound very counterintuitive. Um, because I mean there’ is so much more that ah you you could have done on your own and there’s so much more that that happened at liquid I mean it grew 10 x at least since we left. But again it felt like the right thing to do um and I would to me that’s that’s also a thing that I will definitely keep in mind. Just.
Paul Becker: Being being very sure about what you want to achieve with a company and ah being transparent about that and when you when you feel um that you that you did it and you you can’t convince yourself and that’s also part of the true story I mean the alternative would have been to commit yourself for another 3 4 5 6 years and that just didn’t feel right back then and then I can just recommend to everyone who’s in a similar situation if you have the chance then do what feels right.
Alejandro: So doing what fell right? So obviously you decide that it’s time to um to to to look into other you know, pay pastors you know like to look at new new opportunities or New Horizons so what was that? What did you do then.
Paul Becker: Um, so first of all when we when we faded out of liquid. Um, operationally there there was still like a period where we were half involved. Operationally, um, so it’s It’s just impossible to to get off out of company that you started from one day to another um and then we also decided that we don’t want to start our next venture capital backed rocket trip ah directly on on the next day but rather. Wanted to to take some some time off and that basically meant for us to to do some consulting projects to do some angel investments and just to look into some other industries. Um, and we did that for some month. Um, obviously ah. We we. We stayed in the financial industry and mostly worked together with family officers asset managers and wealth managers and so on um, but also um with some pe and venture capital funds. Um, and that was then also what in. 2020 um, led us to the to the origins. Um of recap which is the company which I’m currently working on so the the starting point were actually some commercial due diligence projects that we were hired on as consultants. Um. And obviously we’ve seen it from a founder’s perspective but not from a fund perspective so far. Um, and we were just interested in the process and thought there’s quite some unused potential just looking at how manual those projects are being um, executed and then we started thinking about. Whether there’s room to build software that supports or partially automates. Um due diligence projects and while digging deeper into that. Um, ah we we quickly came to that point. Um, okay, if certain company data. Is available in systems and you can um, exploit it via apis then you can ah build software that is also running analysis on that data in an automated fashion and then the obvious next question is do you actually want to build. Ah. Ah, commercial due diligence software or not what else can you do with it and it’s it’s pretty pretty similar to what I just said ah when how we got started with liquid. Um, so for for recap, the starting point where some commercial due diligence projects and then.
Paul Becker: Ah, we iterated around it for some time did market research to conversations. Um, and then we ended up with building. Um, and I turned it to financing solution for tech companies with a subscription model and there’s a perfect reasoning behind it because um, once you realize how? um. A software that can assess company risk and opportunities can actually work. You quickly come to the point that one of the biggest ah requirements is the companies having a proper data infrastructure in place and where. Is there. Any better place to to find companies like that than looking in the tech ecosystem probably not um and secondly when you start thinking um about financing um requirements um and instruments in general, you quickly come to the point that a short term. Um. Lending product is quite manageable from a risk perspective and then you come to the point that um, many Saas companies especially offer big discounts um to their customers for getting an annual upfront payment which is basically lending money from your customers at bad terms. And on the other side you have fixed income investors who don’t really know where to deploy the liquidity so prime arbitrage in the end and then kind of the whole puzzle. Um, fitted together. But it was definitely not like that. This idea was. Clear in the very beginning or we woke up one morning and thought let’s build a financing solution for tech companies. It was more like um, you you started thinking about it and then you fast forward a couple of months and suddenly um, a new business idea. Um, arrived out of nowhere. And you find yourself working on it. Um, it’s it’s pretty pretty simple. Um, so in the end. Um we charge a transaction fee um to ah to the companies. Um, who who ask for liquidity. Um.
Alejandro: And how do you guys monetize here.
Paul Becker: So We monetize the companies. Um and on the other hand Um, we charge the investors Also a fee. Um for managing the assets. So um to explain the business model a little bit. Um, we we conceptualize the whole business as a marketplace. Um. So Technically we are really just a facilitator between institutional investors and tech companies. But one of the things that we learned early on while ah doing a market research is that most of the institutional investors are actually not Interested. Um, in selecting single companies or single revenue streams um of companies but rather they want to invest in a portfolio. Um, and this is what we what we came up with so technically. Um the whole transaction um is ah managed over a securitization vehicle. Um. And this is also where we monetize investors so they contribute a certain amount of liquidity we get um again a kind of management fee on it and then we have the transaction fee um from from the companies on the other side.
Alejandro: Got it and and in terms of the financing I mean financing yourselves I mean on the on the last company on liquid you raised you know a fair amount of money and I’m sure that that gave you the opportunity of really understanding too for the first time at that point. Dynamics with investors and what investors bring to the table and and with that experience and those lessons learned. How did you think about engineering it now with this company you know and and and how you brought that group together to finance this business. Okay.
Paul Becker: Yeah, it’s definitely a totally different thing. Um, comparing you know when when we started liquid we thought like um, ah, all vcs come straight out of heaven and we thought it’s just great to work with any of those if if somebody would give us money to start a company That’s just awesome. That was kind of where we were back then? um and when we started recap. We obviously learned a lot and for example, just understood. Um that a Vc is also just a firm trying to make a living you know, um and they also have a clear business model behind it and um.
Alejandro: Yeah.
Paul Becker: And in our case, it was particularly helpful that we always worked in and fintech and specifically in asset management because it’s so close and then you really understand. Um, how how a Vc fund actually works and how fund managers are incentivized and so on and the the learning curve. It was. Very very steep and it’s incredibly valuable for us to just understand the mechanics. Um, but looking at recap there were just a couple of things that were very clear to us in the beginning. So first of all um, we we had a quite lengthy discussion and by that I mean like. 2 to four weeks about whether we actually want to play this as a venture capital case or not um and I think it’s very important as a founder to be clear about that I know way too many people who just find themselves. In a fundraising process but never really thought about whether it makes sense to to raise venture capital or not and for us. Um the decision then was just quite clear because we realized it’s a huge market. We need to be quick and there’s no other way and to raise sufficient funds for that if not going down the Vc route. Ah, so that was one very important thing. Um and the second important thing for us. Um, were firstly um, among the first investors we wanted to have um a b two b lending expert because even though we are in fintech for quite some time. Um, lending is a new field. And we wanted to to get someone on board who knows that better than we do um and secondly we didn’t want to invest too much time and and raising um our first financing round which and nowadays is called a preet I mean back in 2014 there was no preet for me. Um. Ah, the pree is kind of an an angel round. Maybe um, but now it’s labeled Preet. Um, and yeah, this is how we then ended up um with entree capital um, who has great experience. Um in and b two b lending. Um. And that was definitely the right way to go especially because they were able to move quite quickly so that in total I think we spent maybe 2 to 3 hree weeks in total um fundraising including the preparation and in total we we just had a couple of days where we actually talked to investors and that was it and. That’s important I think because it allowed us to move back um into execution mode very quickly. Um, which is just important, especially um in the early days so that was the important thing about the first financing round and then end of last year um we raised ah a seed round. Um.
Paul Becker: And for that seed round again for us. It was important um to to to have quite an international footprint on our cap table. Um again, so um, we we thought about um investors from from other countries. Not only um from Germany um, and ah. We wanted to again. Um get people on board who really understand the mechanics. Um and the reasoning behind our model. So um, ah yeah to to put it simple. Um when when talking to someone and you really need to convince them about why your model makes sense or not then. That’s not the right candidate for us that was how we how we thought about that we rather wanted to to um to talk to people who understand everything um about the model and know why it is interesting. Um and rather share. Um ah same perspective on the challenges like for example, speed regulatory environment. And you want to roll it out. Um, ah throughout Europe and so on um and it wasn’t that important for us anymore to to get investors who know the lending space that well or who are particularly strong and fintech. It was more about, um. They should be opinionated about our model in ah in a positive sense and that’s um, how we then? um, ended up with with felix and project a and obviously I mean project a was the first investor at liquid so it was a great opportunity for us to get them on board. Um, again because we know they are. They are great guys. Um, and it makes. Ah, a ton of sense to work with them. Um, it’s a little bit more complicated for rika because um, there’s also debt involved in in our and our model. Um, in total. It’s around 120,000,000.
Alejandro: So how much capital have you guys raised too late.
Paul Becker: Um, but the vast majority of it is just that fueling. Um the platform. Um and a smaller proportion of it is equity.
Alejandro: Now Why should an entrepreneur Um, think about you guys instead of going the traditional venture route.
Paul Becker: There there are many many reasons but 1 of the um, one of the anecdotes or stories I typically like to explain um is just look at larger companies. Um, you, you will rarely find a large enterprise that is using just equity to finance the whole business. Um, but rather has a more diversified ah capital structure. Um, and in theory is just using. Um the right financing tool for the right investment if you know what I mean. Um. And that that makes a lot of sense if if there’s for example, an investment with a very short and high return on investment. Um, it just doesn’t make sense to use equity to pay for it. Um, and on the other um side if if you have a very risky investment. Like developing a new product. Um or hiring a completely. Um, new team. Then it makes sense to to go for equity. Um, and um, having said that it just becomes clear why we believe that? Um. Also tech companies and also younger companies should have access to alternative financing. Um, besides besides venture capital and to be clear. Um, we we never set out to be the new venture capital and we are definitely not against venture capital I mean we raised it our own and I think it makes a lot of sense. But I also don’t think it is the solution. Um, for for everything um and and another way of of explaining it. Um, it’s it’s a quote from from ah from a venture capitalist. Um I know who said, um, it just doesn’t make sense um to pay for. Initiatives with ah cap value. Add um with instruments with uncapt cost if you know what I mean and that’s a very simple way of thinking about it and that just makes it clear. Why um that or non-dillutive capital how it’s currently referred to and makes a lot of sense. And of course I mean it’s just so much easier. Um, going through our onboarding takes you a couple of minutes and you can expect to receive feedback on it quite quickly so also compared to like venture debt or a traditional credit facility. It’s just way less effort involved.
Alejandro: Got it now. Imagine you go to sleep tonight Paul Becker: and you wake up in a world Five years later where the vision of recap is fully realized what does the world look like so.
Paul Becker: So um, in in my view. Um I’m I’m pretty sure that many of the at least in in the debt context and many of these very manual um processes of of raising funds. Um. Will be gone and I think um like with many other um corporate processes that you see um it will be um, more um, more automated and I think for many companies there will be more transparency um about their um. Financial. So ah, just to to give you an example. Um, when we currently talk to companies especially in Germany um, the the financial literacy among many of those ah teams is still comparatively low. Um, and ah. We think that in the next couple of years and in in 5 years for sure. There will be more knowledge um spread out across um those different teams and I think that those entrepreneurs will more wisely. Um. Think about what types of financing they they will use for for what use case and I think that we um as recap can play an important role in making um and making that happen.
Alejandro: Love it now obviously to 2 2 different chapters now that you’ve had as an entrepreneur now first with liquid now with recap, you know, full of lessons full of experiences full of apps full of downs and I’m sure that they. In between you know, like you. There’s been like a lot of um you know growth you know for you personally professionally now imagine if I was to put you into a time machine and I bring you back in time to that you know point where you know that younger pole is you know has met you know this this group of cool guys and. And it’s thinking about them starting something imagine if you were able to sit down with that younger Paul Becker: and give that younger Paul Becker: one piece of advice before launching a business. What would that be and why given what you know now.
Paul Becker: Ah, that’s ah, that’s that’s a very good question and it’s hard to to boil it down to one single piece of advice. Um, but I would actually say don’t take it too serious. Um, and and yeah, don’t take it too serious and try try to be ah connected to yourself. Um, and also think about something else other than work. Um, ah I Think. At least for me that was one of the biggest journey that I that I did or that I that I may be still on um is just understanding when when you’re really into a company when you really like to work a lot and you’re dedicated to it. You still need to understand that there is a certain. Um, limit and it sometimes just doesn’t make sense to push on push on push on and take things too personally um that that doesn’t help you in any in any case and I know um that a couple of years ago. Um I I was more. I Think my workload was maybe lower but I was stressed to a larger extent than I am right now and I can I can only explain it to myself that way that I kind of matured and kind of learned how to distant my distance myself. Every now and then um from all the pressure. Um, and yeah, that would be probably my my biggest piece of advice. However I must say I’m not sure if you can explain it to someone and just um, don’t take things too personally don’t take it too Seriously, it’s It’s a tough thing if. Probably back then if somebody would have told me that and maybe somebody even did I don’t remember not sure if if that would have changed anything that I did um but again for me that’s that’s one of the most important learnings throughout that time.
Alejandro: I love it. Don’t take things too personally and don’t take them too seriously I love that Paul Becker: well thank you so much that was super super profound now for the people that are listening. What is the best way for them to reach out and say hi.
Paul Becker: And they can just write me an email. It’s Paul Becker: at http://recap.com um just drop me an email.
Alejandro: Amazing. Well hey Paul Becker: thank you so much for being on the dealmaker show. It has been an honor to have you with us today. Thanks.
Paul Becker: Thank you so much.
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