One of the bosses of a UK FinTech valued at more than $2 billion has urged entrepreneurs in the sector to not sell their too early – and said too much money in the bank is “a bad thing” for a start-up.
Joel Perlman is co-founder and chief strategy officer of challenger bank OakNorth, which has recently closed a $100 million investment round to continue its UK expansion and accelerate international growth.
OakNorth was launched by Perlman and co-founder Rishi Khosla three years ago and has already hit a whopping valuation of $2.3 billion following its latest funding round.
Since the start of 2018, it has doubled its loan book to $2.2 billion and expects to lend a further $600 million this year.
Speaking to BusinessCloud about what makes a successful FinTech start-up, Perlman’s first piece of advice was: Don’t sell too soon.
He said: “As mine and Rishi’s first business (Copal) grew, we began to get noticed. We had one offer to sell for a million dollars that was considered. Luckily, that buyer walked away. Then, in 2006, we had another offer for $20 million.
“We thought seriously about selling the company then – it was quite a lot of money and tempting, but we decided not to sell as we knew we had way further to go.”
When the pair eventually sold the business in 2014, it was for a nine-figure sum that would return over 175X capital to their original investors.
“My advice would be to think about ways of taking cash out of the business without having to sell it,” he said. “For example, a dividend recap allows founders to take cash out without having to sell their business.”
Perlman also says that too much money in the bank when starting out is “a bad thing” for FinTech start-ups.
“When a company has too much capital available upfront, it tends to be built on fundamentally bloated cost structures,” he said.
“Spending more money than is necessary becomes a part of the company’s DNA and changing this is hard. Having little to no money forces businesses to operate from a mentality of scarcity, and these businesses end up operating much more efficiently.
“Rishi and I started Copal with just £40k so even though it was much easier to raise capital to start OakNorth, we still took a very frugal approach, ensuring we didn’t spend a penny more than we absolutely needed to.”
Thanks to this philosophy, Perlman says OakNorth was able to break even in just 11 months and make more than £10.5 million in pre-tax profit last year, its second year of full operations.
In addition to scaling its lending efforts in the UK, the new investment will also be used to drive the growth of ACORN machine, its fast-growing FinTech platform which is unlocking the underserved SME lending market with the help of AI and machine learning.
The platform now has clients across three continents and is expected to have more than $5 billion in assets under service by the end of 2018.
“We will be growing ACORN machine’s UK team by another 30 people by the end of the year – with new hires being made in our growth and operations, engineering and data science teams,” Perlman said.