Building the capital operating system for fast-growing tech companies with Paul Becker, Co-Founder & CEO of re:cap

0:00Hello and welcome to another episode of Ryder Unicorns. Today we're joined by Paul Becker is the co-founder and CEO of Recap. Paul, it's great to have you on. Thank you so much for joining us. It would be great if you could just introduce ReCap in your own words. Hey, James. Thanks for having me, first of all. And yes, sure. Happy to give a little intro to ReCap. So we're a fintech company headquartered in Berlin. Roughly three years on the market. The main products we offer is what we refer to as capital OS. You can see it as a platform that earlier stage tech companies typically C to Series B stage can use to understand where they are financially.

0:44They can forecast different financial scenarios and then they can also receive a financing directly on our platform to hopefully realize their plans. That's pretty much it in the box. And that's also what makes us kind of special to have all of these things integrated in one place. Yeah, I was having a look at your product suite. It's amazing what you guys do now because it gives you that kind of full view of your financial status and situation. But then you also unlock things like capital requirements and things like that. What was the first part of your product? Maybe it was your MVP. And how did you navigate a sort of large vision whilst also remaining focused on delivering value with each of these new features?

1:36Yeah, that's a good question. And I personally always like to think back to the very early days. The starting point for ReCap was mid of 2020. The company was officially started in 2021, but we started bouncing ideas around this in mid of 2020. And in the end, what we wanted to do originally was to build due diligence software. That was the starting point. The observation was very simple and it probably doesn't sound like super inspirational, but for us, it was good enough to get excited. And that was just more and more company data is stored in cloud enterprise systems. These systems typically have APIs, so you can extract the data.

2:23And we think that's a good basis to make financial decisions a lot more accurate and a lot more automated compared to going in a data room and scraping PDFs, Excel spreadsheets, and so on. That was the starting point. And I probably asked, like, what the heck has happened since then? And yeah, the short version, and I'm happy to dive deeper into that later on if time permits. But the short version is, as it often happens in my experience, your idea looks great in theory. And people also like it when you explain it to them. But then you may not directly find somebody who's willing to pay for it.

3:04And so it also happened to us with that first idea. But the conviction didn't really change. And then we just did a slight but notable pivot initially. And that is, we said, okay, if nobody wants to use this now, then we just use it ourselves and use it to deploy capital to companies ourselves. That's pretty much it. And that's also how Retail then was originally or officially started in 2021. We jumped on the revenue-based finance track, which was quite a hype topic at the time. And the thesis was always like, we do this for a time. And then hopefully we show that you can actually make good investment decisions based on that different way of underwriting, different way of due diligence.

3:56And then sooner or later, we hopefully get to a point where we can enable both investors, but also companies to use the raw data enriched on our platform to make better financial decisions themselves. And fast forward to today, I would say some aspects of it you can see on the platform right now. So looking at what I initially said, analyzing your financials and making sense of it, that is something that wasn't available back in 2022 when we launched the first product. But now it is. And there are companies who just get onto our platform to do this step and don't draw any financing. So they just extract value from the platform by connecting data, getting analysis and using it for better decision making.

4:46It's still early days. And the truth is also that the funding bit of our platform is still the key growth driver and revenue contributor. But we see that slowly but slowly, we kind of move back to the future, if you want to say it that way. And that's also an interesting lesson for me personally, that sometimes you just need to accept that a little U-turn might be needed here and there. But if you don't give up on your persistency, then sooner or later, you can actually move towards what originally excited you to get going on a venture. Yeah, and actually it makes complete sense. If this data is available, let's make it accessible for real big financial decisions.

5:32And this wasn't your first company. So maybe you could tell us a little bit about your experience leading up to founding Recap. And I think you'd worked with your co-founder previously as well. And what those experiences gave you in terms of insight into why this was so critical as a thesis of using real data to make better informed financial decisions. Yeah, absolutely. So I would say the biggest disclaimer for me is probably, I mean, I do think there are people who actually have experienced the stories that they tell. Like, I woke up in the morning and then I had this great idea how the world will look like in the future.

6:15And suddenly I knew what I needed to do, yada, yada, yada. It was never like this for me and for my co-founders. And I also doubt that it actually happens like this to others. But fine for me, if that actually is the case. So for us, how we originally got going, working on startups, working on fintech, it was, to be honest, just lack of a better alternative. We were at university. We were supposed, like we had in Germany, there is a so-called dual studies program where you are employed at an enterprise and you study in parallel. and the idea is in the end that you join the company and hopefully get like in the middle ranks of the management or so.

6:57And that's kind of the career perspective. We liked that idea when we started our studies, but it quickly turned out that we were actually not too excited. And while I'm talking, I'm just seeing, I forgot to mention that Arne Jonas and I, we actually know each other almost for 15 years, like since university, since then the trio of us has worked together. And then basically we just thought, okay, we don't want to work in enterprise. What else can we do? Then there was the investing club at university and some levered knockout certificates we had our fun with. And that was kind of the starting point where we thought, okay, maybe fintech is an interesting place to do some side projects.

7:40And that was actually like the very early beginning. And from there, one step led to another. The first company we founded together, the first real company is called Liquid. It's a robo-advisor, digital wealth manager, a bit like maybe Nutmeg in the UK or Wealthfront in the US. Some might have heard of these names already. That's a company we co-founded and built up to quite a good size. As of now, they are managing roughly 4 billion euros from mass-assluent private investors. so for a robo advisor it's a decent number that we did thereafter we had a little consulting firm and that was actually also the starting point where we had first engagements and the due diligence context which then led to recap so that's kind of if i would summarize it in a few words by accident we got into fintech and we never got out of the sector ever since and learnings many learnings.

8:43I would say the biggest thing that I can, as an entrepreneur for myself, what I can say is that your goals and expectations change with each chapter of your journey. Like when we started Liquid, our only dream was to build a real product that gets one real customer on it. That was the greatest thing. If we could achieve that, we would be so happy, right? And we we did it great and then fast forward to recap that was like the bare minimum like it was the expectation if we if we don't get at least one customer on a more or less working mvp who the heck are we um and then there are like bigger goals that are behind that which maybe now are a bit more relating to how big can you can you get such a company and i'm pretty sure it will continue like that so my advice in this context my learning but i also remind myself i was like step by step for as long as you have clarity around what you want to achieve that can help a lot to calm your mind and know what you're ending for.

9:51Yeah, super interesting. And there's so many little threads I want to pull on there. So it's hard for me to choose where to go next. But I'm going to ask about founders as friends and friends as founders because you guys have started multiple companies together now. And obviously that sounds so fun and exciting to do. But you also want your co-founders to have really complementary skills and to be able to take ownership of your own designated parts of the business. So did you guys just get really lucky or have you all sort of specialized over the years in your certain area and become this like super team?

10:30And that's first of all, I'm so fortunate that I have met these two guys. And I know from so many friends and fellow founders how tough it is to get to a point where you have a well-working founding team. So it's a real gift that we actually got to the point. But to your question, so we all studied computer science and business administration, kind of a combined degree. And that also shows you there is a spectrum to it. And guess what? Each of us has like a different position in that spectrum. Like Anna is like on the very end of the computer science engineering part. Jonas is a bit in the middle, like the product guy in our team.

11:14And I'm more sitting on the business end. And that has been like that basically since day one. So there is some complementarity with regards to what we like doing and what we think we're good at. But then there are also things where I think we are very much aligned. And this is more like on the ethical level, like what's important to us, how do we think about spending our lifetime and what would get us to a point where we think it doesn't make sense to keep pushing in a direction. I think in that context, we have a view, but that, I mean, develops over time. When we got to know each other, we were in our early 20s or even younger.

12:00And now, you know, there are different parts in life also where people get married, buy houses and get children, right? And obviously you developed over time and that's the same in this relationship. But I think the defining moment for us was certainly when we decided we make that move at the end of the university going to Berlin. We were all broke. We had no money, no nothing. Luckily, the guy we rented the apartment from forgot to actually charge us. So we were able to live in Berlin free of jobs for the first three months until we actually closed around for liquid so we could afford to pay rent.

12:49And yeah, since then, we also shared an apartment for seven years. So we not only worked a lot together, but we literally lived together. and that is you could probably describe it as some sort of brotherhood and something that i i guess will never really end that's incredible that you've got lots of stories about how you guys have developed and got closer over the years and i will just say you are very lucky to have those people in your life because you've all come together and shared a mission together over a long period which is amazing and then so obviously you have the first company is successful I mean four billion AUM is successful in anyone's books and then you've gone on to do the consultancy and now recap recap is is going to be the most successful of those businesses so my question is really from an investor's perspective would you be backing first-time founders in this like you once were or would you be waiting for them to maybe make some of the mistakes over the first first or second company and then be going for for pool and co when you're launching recap how do you how do investors get comfortable with with that kind of like these people are amazing that they need to go and earn a few scars before I really dive all in behind them.

14:22I think there is no definite answer. That is true for any first-time founding team or more experienced founding team. My personal view is always, I face grit and hunger over experience. And that is true for every role, whether it's somebody who wants to start a company or somebody we consider hiring for for recap with that context obviously if a first-time founder wouldn't be like a no for me um at all however when i just look at myself i know that i now am capable of certain things that i was not capable back then but also vice versa like when i think back to um like the early days at liquid it's not that i'm no longer a workaholic i'm unfortunately still a workaholic um but i would say the amount of work the time that i invested back then i literally did nothing else and and that's something that i think is pretty hard for people to afford when they are like no longer in their early 20s and also have other obligations in life.

15:37And so I think it depends a bit like each of your phases in life and status of experiences has its pros and cons. And I think the key item is that you ideally need to see if a founder has a decent level of self-reflection to understand what is he or she capable of and what not and how can that be compensated? For example, by having the right supporters or doing the right hires early on. And that is more of a thing what I would look for. Obviously, I know the statistics that claim like the most successful founders, I am their mid-40s or so. But again, if you ask me for my opinion, I would say all stages can work and you just need to build for what you can offer.

16:33yeah 100 i love that answer because actually there are things that there's certain risks and time and things that you can do when you're when you're young and naive and starting out and you're just so hungry to to learn and to just work as hard as you can and then obviously things do slightly evolve people do have families and things like that and you but you but you're maybe you've got more experience but you know there are different pressures on your time it's really interesting yeah to chat one more comment on that what I also observe when looking when reflecting and looking at myself I do think even if I may be working less in the sense that I now also do certain other things in life I would still say I am now capable to handle more stress and more responsibility compared to when I was younger.

17:33Probably I would have just collapsed under it. And also other things that weren't exciting to me, no matter if I would have been good at it or not. Like back in the liquid days, for example, that idea of thinking more about how to enable others to ship a result was not very attractive to me. I just wanted to do stuff on my own. And that is something that changed over time. So that's not really just about skill or experience, but more like what is exciting to you. Yeah, yeah, super interesting. Now let's get on to some really exciting things, which is I want to talk about metrics. So I think it's, you know, often advised to founders, pick a North Star metric and just kind of stick to it.

18:23report the same metrics over and over. I think that's fairly good practice. What are the metrics that you guys have really focused on? And what do you guys care about? What do investors care about? What has kept you on the right trajectory? I mean, since we reported revenue for the first time, people are always drawn towards revenue. And I think for any early growth stage company, top line metrics, what people most care about, there are obviously many contributing metrics that talk about revenue quality in some extent. Like for us, for example, I don't want to get too much into the details would take like too much time to explain it.

19:12But the way we reshaped our model over time, like from initially moving into a direct lending role and then step by step going a bit out of it and like enabling other investors to actually do or take over this role, that has tremendous impact into how exactly we earn money. And in our case, for example, there is an interesting trend that if you just look at revenue in our financial statements, there were actually times where it decreased while the gross profit increased. And I'm talking about absolute numbers, right? So effectively, we grew the business. But if you just look at revenue standalone, then it would look like it's shrinking.

20:03And the reason for that is that we adjusted the revenue model over time to a higher quality revenue, which makes total sense, but can be complicated. Like if you talk to any investor and you just show revenue and it's going in any direction that is not up, that person will most likely not be very excited about this. So I would say for us, the key figures when talking about growth over the past two to three years were always revenue and gross margin, full stop. Yeah. And how do you balance gross? I think gross margin is such an important metric, maybe the most important. And I feel like some founders can obsess over it.

20:50So how do you balance that with also growth and expansion and wanting to push and test and continue to innovate? Because it's tempting just to protect, you know, we've hit what we wanted to hit and now we don't want to disrupt that with new innovation. yeah what what i what i personally find sometimes tough is um you know as a as a founder you obviously have different stakeholders to look after and one key group being your investors and your board um and maybe also future investors and the truth in my view is that what they deem important can change from one day to another specifically like for fintech companies um and especially the ones who like us had credit risk exposure the past three years were an interesting environment right where what investors wanted to see and what they advise you to optimize for yeah i would almost say like it changed 180 degrees from top line is everything that matters up to, yeah, but now let's understand what's actually then left with the company in terms of profit, right?

22:12And I find this can be misleading, confusing and frustrating. So what I try to remember myself is in the end, if something from an economical standpoint makes sense to me, then this is the thing I should strive for. And if that's for a certain time, a contrarian view, because now everybody says like, for as long as you have a big revenue figure, that's everything, then I would still stick to it. And I do believe that over time it pays off for as long as you can show consistency in your own views and obviously have a more or less sound economic understanding, right? Then I think that is the thing you should strive for.

23:01And maybe even more specifically, I personally am not convinced in inflated revenue figures with low gross margin. I never was and I never will be. And that's also the reason why I do think that certain revenue figures in the current AI craze, at least to be seen quite skeptical, everybody can do the math and just understand like maybe there is literally not only little profit left, but maybe those unit economics will be negative. And then I don't care if you can quadruple or increase your revenue tenfold in a quarter if there is no profit in it. right and and it's so obvious but it feels when hype is going up people just forget about it for whatever reason so yeah yeah 100 i won't name which platform it is but i've been using a platform on and off for six months or so and it it got better and better and better with in better models and just improving and then there seemed to be a tipping point where they'd obviously switched to like a cheaper model or something because they are worried about margins and the hallucinations were just crazy and i was this is a vibe coding platform and uh and i was just like this ruins the whole thing the whole thing is useless now i every change i make makes the product worse which is the opposite of what i was hoping for um but it's clearly pressure on margins that is driving decisions like that so it's super interesting and i think it's very easy for people to see on LinkedIn, you know, and get FOMO or whatever.

24:41But you don't really know the quality of the revenue until you're inside the business. Yeah, absolutely. But again, like, based on how I explained that, you can already see, like, I might have a bit more conservative view on certain innovative business models. Because at the same time, history has shown that having shitty unit economics temporarily is not a buck but a feature of what you need to be willing to pay in order to go for the greater goods right and it could well be that whatever technological innovations will actually bring you to the outcome that these models can be super profitable i i personally i i guess i'm i i never started a company where i didn't had a clear understanding on day one how I could make money with it.

25:33And I think I will probably never do this. And this is, again, coming back to what I said about Arne Jonas and I. In this context, we are, for example, very much aligned. The three of us, we are just not a team that would start a business without having a single clue how this could ever produce a profit. That's not who we are. Yeah, yeah. I think it's really interesting. And obviously, this is segueing slightly, But I wonder whether the speed of growth brings pressure on the margins earlier than they would actually like to. So, you know, if you if you in the pre-AI valuation world, you maybe have time to sort out your unit economics because you might take two years between your Series B and your Series C.

26:19And so you're you're optimizing through that period, whereas now a lot of these companies seem to be raising every six months. And then it doesn't feel like they're making any improvements. it's just growth at all costs but at some point they have to make the switch and it's a bit more it's a lot more of a hard hit like the switch than than gradually making changes over a couple of years to get those economics right yeah yeah i agree um and what what i like my view is that you could question like why are companies at a certain stage suddenly beginning to look at their margins and unit economics more than in the earlier phases.

27:03Why is that? There are reasons for that because, you know, if you have product market fit, only then it makes sense to really try to scale it. And only if you know how to roughly grow it, then you should think about profitability and so on. But another part of the story is also that the investors you're talking to, you're typically talking to in different stages, also have different expectations. I mean like a typical growth equity firm or the closer you get to the traditional PE mindset in private markets, the more number crunching and understanding of unit economics and margins and so on will be part of the discussion.

27:38And what I do think can actually be like the, how do you say, the white knight or so for these companies who are now more, and I agree with your statement, like more pressured and have less time to go for margins is that some of the very large VC platforms have so much capital at their hand that they can actually fund these companies all through IPO and beyond. So there might actually be ways where you still raise B, C or D round with questionable unit economics, because there are still folks who are just believing what this can be in the end and are willing to provide significant amounts of funding to you.

28:20Right. So my question would be more like, are these are they really pressured to just raise an example where they seem to have changed the model because of because of that reason. But the outcome could also be that these companies just get a lot bigger until the problem will surface, you know, and that would then have even crazier consequences. And that reminds me a bit of what we've seen like 21, where we like in the instant grocery context have also seen some companies where there was just a thinking like, OK, I mean, they raised billions in funding. They must be indestructible at this point.

29:01Guess what? They are not. If it's a business that can't earn money on its own, it's not sustainable. Right. and that's certainly a question that I have for some of these models that if it has crossed it will work out. Yeah, I hope so. I mean, some of the user experiences are incredible, but they are, yeah, I think growth at own cost, I think the point that we're both making is growth at all costs only works up to a certain point when then real sort of finance literate investors come in and they look at the margins and they go, you guys need to sort this out if you want any more money. But maybe to your point, maybe some of these funds have so much money, they can fund that beyond IPO almost to the point where it's retail investors and stuff.

29:49So who knows? But yeah, it's an interesting point. And I think for our audience, the main point is margins do matter. Investors will have different levels of tolerance to margin leakage at different stages of your business. but the earlier you can resolve that the better really because that's what a real business lands on so Paul let's talk a little bit about the team so obviously you guys very close founding team but you've now grown into a pretty large organization and that must have been a real journey you know trying to retain culture and things like that can you share some of your experience around that what's it like being you know what's it been like attracting great talent and trying to create some continuity around culture and values and things like that as you scaled.

30:41Yeah. Yes, we are an organization of a decent size, but we're also just 60 people, so it's still manageable if you compare it to really large organizations. But it's beyond that tipping point where you can just get around with no structure at all, right? Yeah, I would say the amount of time that I actually invest into thinking about how this team should be looking like and how to structure it has increased quite a bit over the past year. What is special in our setup is probably that we are a remote company. So when we founded ReCap, it was pretty much at the time where Arne Jonas and I all moved out of Berlin.

31:31So the infamous apartment is no longer there, unfortunately, but I love to think back to it. And we moved into different directions. And then we thought, OK, let's start this company as a remote first company. And that obviously has some challenges that come with it, specifically with regards to culture. I think what we always tried to do, and I guess what most founders do, either consciously or unconsciously, is you have your own codex or ideas of how you want to spend time and work together. and we try to codify them in the beginning where certain aspects like having a straight talk with each other, getting to the point, aspects like this are a part of it, but also aspects like we always like to rather be focused on getting stuff done rather than discussing about what it could be.

32:31So aspects like that we codified early on and they helped us for most of the time up until now, even in a remote setup to keep the team together. And I would also say we are at a point where we personally are obviously no longer involved in our hiring decisions and still the outcome, the people that join us, you can clearly show there is a pattern around the culture that we define. Having said that, I do think that over the past year, saying cracks are showing up sounds to negative, but it feels the current phase is a bit different. And that mainly has to do with the stage we are in and the complexity of the business, specifically that we are pulling different expansion levers in parallel, both new markets and new product features or even new product lines.

33:28And that makes it tough to keep all people actually pushing in the same direction. And we had like examples where a new MVP was actually shipped. And then it, for example, attracted a slightly different target audience as customers. And then we found ourselves in a situation where we're a part of the company and still we are only or we're 50 at the time. So relatively small, but still a certain part of the company was suddenly more incentivized to chase a different audience than the rest of the company. And that can lead to tension and shows to you that culture is a fragile thing. And if you don't look after it, it can quickly go in the wrong direction.

34:19How did you resolve that? Did you kill that project or did you find a way to sort of make it more aligned and integrated with the rest of the business? That's a big decision. Yeah, it is. Specifically, if people spend their time into it and they believe in it, you can't just tell them, thank you, you closed customers, but we don't want them. I mean, technically, yes, you can do that. And probably looking back at what I just said, being straight and getting to the point, we should do that. And we also did it to some extent, but it was more that we tried to understand how can we get it closer to what we have already and how can we move it so that the original ICP is actually also interested in this.