00:13:20 · Guillaume Moubeche, Martino Cadoni
[00:13:20] S1: And on the on the balance sheet obsession, can you, like, explain a few things that you managed to optimize? Or, like, if you had to go inside a company, like, what are the things that you look for, like, directly and where you you are, like, almost certain that they are, like, optimization that you can find? [00:13:36] S0: They are like... The the basic stuff is like accounts payable, for example. I mean, all the companies that go, usually, there are... Because what happens in most company, you get an invoice, You look at the invoice, and you go and you pay. Right? So so... And and... But that's wrong because you need to understand when is the invoice due and what's the best timing to pay that invoice. Right? So most companies, they pay a lot of invoice too too late as... And a lot of invoice too early. Well, actually, you wanna optimize and pay them a due date because if if you pay too early, you are missing out on interest that can be generated with the extra cash staying in the balance sheet for longer. If you pay too late, then you are, you know, doing something which might undermine your relationship with the supplier. So optimizing the timing of the payment is usually an easy win. [00:14:41] S1: Okay.
00:14:41 · Guillaume Moubeche, Martino Cadoni
[00:14:41] S1: Okay. [00:14:42] S0: Then another thing which is usually underrated is FX fees. Right? A lot of startups often, they invoice only in one currency or in a few currencies. They don't really look at FX until very late and high stage of maturities. So I think it's it's important, actually, there are easy wins there. Right? So... And then things like in the checkout, you can look at authorization rates, decline rates. And so, yeah, understanding anything about payments can save you a lot of times in general. [00:15:23] S1: And when it comes to, like, FX, how exactly do you, like, manage the arbitrage of the currency? So if we take, like, the example, for example, of euro dollar exchange rate, it has changed quite a lot, like, in the last year or so. So if you decide like to invoice, for example, in dollar, like, do you do you keep like your dollar in a bank account and and just like spending dollar whenever you can, and you you keep like same currency to avoid like change in FX? Or sometimes do you make arbitrage and say, okay, like the dollar is strong for now. I'm gonna change everything to euro because I'm a European company. And and when dollar is weak, maybe I'm buying more dollars from my euros. Like, how exactly do you make changes and arbitrage? [00:16:13] S0: So first of all, from an accounting point of view, unless you are a trading company, you should not be targeting to make money. Right? It's against the accounting principle. You should be trying to hedge and offset, but not to speculate on the effects. Right? [00:16:30] S1: I get it.
00:16:30 · Guillaume Moubeche, Martino Cadoni
[00:16:30] S1: I get it. [00:16:30] S0: And what's what's critical here is if you have a good cash forecast process, you need to understand for each of the currencies what are your upcoming payments to be made in the currency and how much revenue you expect in that currency. Because ideally, you wanna match the currency. You wanna match maturity. So if you know you need a lot of US dollars next month, you can do something to optimize that. Right? And then, obviously, there are FX hedging products that can help mitigate these FX risk. But often, step one, which is [00:17:12] S1: trying to forecast how much of the currency you have in and out is already a good amount of money saved. Okay. Okay. Really interesting. I want to go back to, like, the... A little bit of your, like, story at Klarna, because IPO was a bit below, like, the the last valuation, etcetera, and... Of the fundraise. So I want to understand, like, how do you approach a fundraise, and how do you approach an IPO, and how can you explain like the difference of valuation that can happen?
00:17:48 · Martino Cadoni
[00:17:48] S0: Yeah. I mean, so there are a lot of similarities between the two processes, but there are also differences. The similarities is it doesn't matter if it's an IPO or fundraising or m and a exit. I always say you need to work about this general concept of readiness. Right? So which means your house needs to be in order and and across all the different areas. Right? And from a finance point of view, obviously, the major things, particularly if it's an IPO, if it's an IPO in The US, is you have all these SOX framework, which is a a long list of compliance rules you need to comply with. Right? And for the rest, you need to have financial performance, which is obviously positive. So it's growing. But more importantly, I think to be ready to be public, you need to have a financial per... Performer, which is predictable with a high rate of confidence. Right? Because the last thing that retail investors or public investor want is a stock which is difficult to to predict. Right? So it's always good to go public when you have a performance that, you know, you are growing, but you are growing in a direction which is predictable. You can then do what's, you know, the classic beat and raise. You you are able to give strong guidance, and you are able to meet or beat the guidance. Because if you fail to do so, then you are in trouble as a as a public company. Right? And so... And then... And to do so, you need to have an equity story, which is very clean, very clear, so people fully understand what you are doing today and what you wanna do tomorrow in order to create value for for the shareholders. And this process is super critical also in fundraising. Right? Because it's obviously important your today performance and yesterday performance, but it's all about you being able to sell to the new investors what's your vision and how you're gonna go from where you are today to a place in three to five years where your valuation is at least three to five x higher because, particularly in late stage, that's the target for the investor. The investor usually have five to seven years holding period, and they wanna make that 30, 40% annual return that compounds. So you need to be able, you know, to do a three x or five x in late stage before you go public or before your next your next round. Right? The valuation per se is obviously a function of different things.
00:21:08 · Martino Cadoni, Guillaume Moubeche
And one of that, unfortunately, is also economic cycles. And that's why we have seen these ups and down in different sectors. We've seen it in fintech. Right? Valuation were extremely rich between 2020, 2021. And then in 2022, with interest rates going up and uncertainty in the macro and geopolitical scenarios. And there was big adjustment where some companies got impacted more than others. Right? But I think each case should be also analyzed on on an individual basis because there are some drivers which are specific to a to a vertical or or to a specific company. Right? When it comes to fintech of the the interest rate environment plays a huge role, and and that's what, you know, impacted the valuation of a lot of fintech in in 2022 and beyond. [00:22:11] S1: Can you explain, like, why the the interest rate has an impact, you know, on on valuation? And basically, like, maybe share, you know, the narrative from an investor perspective.
00:22:24 · Martino Cadoni
[00:22:24] S0: Yeah. I mean, so very simple. So what a bank or a fintech does, or let's say a lending fintech does. Right? You are taking money, and then you are lending to somebody else. Right? So it's very critical at... When you are taking money at which rate, at which cost you are taking the money to then give it to others. Right? And what happens particularly if you are a bank, you have the ability to raise deposits from the public. So usually, the cost of money for those deposits is a function of the interest rates, which is set by the central banks. Right? So if I'm a bank and you have a bank account with me and you put your money in... Into my bank, if the central bank rates are very low, I'm able to pay you a very low interest rate. Let's say, I don't know, below 1% or even close to zero back then. So for me, it's very cheap to take your money and then lending it to somebody else at good enough high rate. I can make money on the spread. But if instead of the zero point something percent, I need to pay you four or 5% because that's what the market dictates, then it becomes much more expensive for me to take your money and relending. Also, because most likely, the spread they're gonna make on that loan is gonna be lower than it used to. Right? And also, there are demand offer. Yep. People also will be less interested in taking a loan if the interest rates are so high. Right? So there is a a funding... And that's why you had double issue in fintech because one is what I just described, where it's about the deposits. But also, there are a lot of companies in fintech, which they don't have a banking license, and therefore, they cannot take deposits. So instead of taking the money from you, they take it from, for example, from private credit investors where they are much more expensive even. And so you had fintech. I have worked with some of those as an adviser where they were trying to raise private credit money, but because the interest rates were so high, they couldn't find anything below 15 or 20%. But then you cannot do much when the cost of capital is so high. It's not really a good use of capital. So, yeah, for fintech specifically, high interest rates, yeah, is not a great scenario from a funding point of view. Right?