"Fintechs have to make the sector's value chain more robust", Francisco Mariscal, CEO of Fellow Funders
02 de April de 2019
02 de April de 2019
A Telecommunications Engineer and graduate of the Executive MBA at EAE Business School, Francisco Mariscal shares his knowledge of finance and discusses his professional career as a businessman, investor and entrepreneur.
As an expert on the workings of finance thanks to your experience in private banking, what is more important when it comes to investing: theoretical or practical training?
They are both important. The theory is essential for understanding lots of things, but practice enables us to manage our emotions better, which are often our worst enemy. Therefore, I always recommend moving forward slowly and gradually, until we feel more comfortable and confident with our decisions.
In the case of alternative investment, perhaps there is a greater emphasis on the practical part. As such, it is always advisable to start working alongside professionals with lots of experience, to avoid making the typical mistakes. To simplify the whole process, we can start using platforms like ours (Fellow Funders), on which we just have to worry about diversifying our portfolio and we can do everything on our computer.
How many investment projects fail?
If we look at the whole life cycle, the failure rate is over 90%. However, if we just work a little on the dealflow and diversify the entry phase, we can reduce this rate to 80% or even lower.
Is it easy to anticipate these failures?
It is not at all easy to anticipate these failures, In fact, just the opposite. In the last few years, we have seen companies worth around 100 million failing. What we can do is identify certain points that tend not to work, which enables us to reduce some risks. The truth is that the dealflow has become considerably more professionalized in recent years, particularly in Spain, but there is still a long way to go in this respect.
To what extent do you invest on a sure thing?
In general, in the case of alternative investment, it is hard to invest on a sure thing. In a round of investment, we may see that the price is low or the company is in really good shape but, in reality, until we divest, you can't be sure of anything. Moreover, the main reason that it shouldn't account for too a high proportion of our portfolio (10/15%) is the lack of liquidity. This means that portfolio turnover is not as trivial a matter as in the case of listed securities. In addition, as the name suggests, if we need liquidity, it is not an easy thing to achieve and even less so for higher amounts.
What are the cutting-edge sectors in investment in Spain right now?
Every year, we see sectors on the rise, although there are a few this year where we are seeing particularly strong growth, not only in terms of dealflow, but also with respect to corporate venture capitalists: logistics, health and fintech. You have to be very careful because often a growing sector leads to price inflation and this is less important in the case of liquid securities than non-liquid securities. An alternative investment portfolio should be created with a timeframe of 5/7 years.
To what extent do the teams that comprise a startup matter to an investor like you?
The team always matters a great deal but, depending on the status of the company, you have to give it more or less weight. In a recently-created company, the team is everything. However, in a listed company, the team is also important. We tend to think that digital businesses don't have this need for a team but that is really not the case. A business model has to be investable but, in the early phases, what you are investing in is the team.
Francisco Mariscal, entrepreneur
Mistakes and uncertainty form part of entrepreneurial activity. How should we approach and learn from them?
That is what being an entrepreneur is all about: learning from the mistakes we make. Unfortunately, we learn more from our mistakes that from getting it right. Living with this fact is essential. The best we can do is to measure things as it enables us to calibrate our mistakes and the scope of each of our decisions.
For better or worse, all entrepreneurs have to learn to live on this rollercoaster and managing it as well as possible. We are often so wrapped up in the day-to-day running of the venture that we lose our point of reference and tend not to evaluate things objectively. If we add uncertainty on top of that, we have the cocktail shaker that goes on in every entrepreneur's head. If we manage these two aspects, the rest all comes down to building a good team, having the necessary resources, taking care of the client and generating value for them.
What are the key objectives that an entrepreneur should set?
We need to have short-, medium- and long-term objectives. In the short term, we aim not to get desperate and have some happy times; in the medium term, to see whether we are on the right track or whether we need to make some adjustments; and in the long term, to have a clear idea of the direction we are heading in. There are lots of stages and each has lots of its own objectives. The important thing is to relativize the whole process to prevent the day-to-day rollercoaster from obscuring our execution. I suppose that is the hardest part: managing to keep your global vision without being contaminated from the day-to-day grind.
Francisco Mariscal, co-founder of Fellow Funders
How did the Fellow Funders project come about?
Fellow Funders came to the boil slowly. Over the course of a couple of years, we studied different risk and valuation models for newly-founded companies. When we had everything read (2016), we applied for our CNMV licence (the Spanish regulator) and, in 2017, we began operating publicly with the first two financed projects. However, in our case, the whole idea originated from what we were already doing. The only difference was to change our targets, both in terms of the company and the investor.
Three partners (Francisco Mariscal, Guillermo Azqueta and Óscar Vallés) head the Fellow Funders project. What contribution does each member of the team make?
Our model is a marketplace. On the one hand, we have the projects and, on the other, the investors, on top of which, we have to add the management of the whole thing. So, there were three people when we started the model: Sales (Guillermo), Risks (Óscar) and Management and Pricing (me). It may have been a good idea to have another couple of profiles on board in the beginning, but we managed to create our MVP with a great deal of effort. Therefore, before long, some new members joined the team. In fact, we continue to incorporate new members into the company today. As we mentioned earlier, the team is really important and we must never stop striving to improve and strengthen the team.
Your marketplace brings investors together with businesspeople and entrepreneurs. Were you confident that this crowdfunding model was viable in Spain? How have things evolved since its launch?
Right now, in Spain, there is still not much knowledge/service. We could say that the market is waking up gradually. When we started operating, we thought that things would be easier or go faster than expected. Therefore, we placed more emphasis on the concept of private banking, family offices and professional investor, as they are very used to this kind of investments. Reaching the retail stage was a matter of time. Over the last few months, we are seeing some really good signs that support the whole idea. While this type of investments is more common in other countries, we also have to understand that, in general, the average Spanish retail user is not very used to investing directly and building a portfolio.
Do the traditional financing models and new platforms coexist without any trouble or do they clash on many occasions? How many obstacles have there been along the way?
The theory tells us that they should be able to coexist and work together. In the case of Spain, they are used to some really high levels of dependence, although they have started to lose some ground in recent years. That is why they don't take teamwork into consideration, as they can't account for it in monetary terms. At the other end of the scale, new companies are looking for a gap for themselves, although in some cases they don't fit in where they should. However, this will all change over time.
For instance, with respect to the debt part, the logical thing to do would be for the current assets to be covered by a bank, while the long-term part (capex) is down to the investor. This would be in line with the regulations and everybody would benefit. However, unfortunately, in a transition phase, it is not as simple as that and so mistakes are made.
Where is fintech heading?
It is impossible to generalize. The sector may seem small but it is really enormous and, within each area of operation, there are different agents involved, depending in the levels. Moreover, it is too early to draw conclusions. What we can say about fintechs is that they are a seventh layer (experience and agility), while the robustness and back office must be taken care of by large institutions. For instance, in the world of debt, logic would suggest that, depending on the term of the loan, there would be one agent or another, but that is still not the case. In conclusion, although it is a bit premature, fintechs have to make the sector's value chain more robust and reduce the time taken to make decisions, thereby enhancing flexibility and reducing the banking dependence on the various products.
Former student of the Executive MBA at EAE Business School
You took the Executive MBA at EAE Business School. Tell us about your studies at the School.
I was really pleased with the program because it enabled me to round of my base profile. I had an engineering degree and went on to specialize in the branch of quantitative finance. Thanks to the MBA, I gained a more comprehensive overview of things, without which it may have been a mistake, or at least far more difficult, to embark on the Fellow Funders.
As a member of EAE's alumni, do you keep in touch with the Business School and former classmates?
The truth is that, in my case, I have to hold my hands up and accept the blame, perhaps due to a lack of time, but I don't have much contact in general. However, there are certain classmates a few lecturers that I keep in closer touch with, maybe because of our professional relationship.
You have shared your professional experience with the School's future entrepreneurs at the EAE Lab. What advice did you give them?
I think that my advice always tends to focus on the same aspects: bring the client value, take care of them and build a good team. The rest is all a matter of the challenges that we have to overcome gradually. We often see companies focusing on climbing when their value proposition is perhaps not that solid, the team is not right or, hardest of all, that there is no market.
You mustn't be afraid to do an about-face or make mistakes. The only important thing is that decisions are taken based on common sense and comparative data. You have to measure everything as it enables us to understand things better. As a result, we can improve, climb and therefore grow