The general partner of a multibillion-dollar VC stared at my cofounder and me sternly across the table at the Four Seasons hotel in Paris's 8th arrondissement while a cold January wind blew outside.
“This is fundamentally a bad business — unless you’re the first to launch. But that won’t be your case. To be clear, we won’t follow you for your Series A.”
Not exactly the kind of feedback you want from an investor on the Midas List. But this was more than just criticism — we didn’t know that this was going to be the start of our first pivot. We were about to learn that our idea to build what we knew — a neobank — was not the right approach. And our lives as founders were about to get a lot more chaotic.
This is the second part of a deep dive into our pivot journey and why we think Europe needs to be more accepting when founders change direction.
But how did we get here? I’ll explain…
Pivot: one week in (January 2022)
The meeting started at 5pm. Bu 5:05pm it looked like we had already reached a dead end.
This partner had invested in our pre-seed, and my cofounder and I had just pitched him our first pivot idea.
His chilly reaction was not what we expected. I felt a wave of frustration and anger. What did he know about building a company? And why the Four Seasons anyway?
This is where I used to spend my days and nights as a management consultant, but since switching to startups I had never set foot in this neighbourhood better known as the haunt of bankers and consultants. I deeply resented this place, this neighbourhood, this meeting. So I started pushing back.
“Ramp wasn’t the first to launch, and looks like they're crushing it. What do you think of that?”
He came back quickly: “I passed on Ramp at a $150m valuation [it was valued at $8bn in March 2022] and I don’t regret it. But you know what, the early investors in Qonto still love neobanks so I’m sure they’ll be excited if you ping them.”
Something only a man who had minted dozens of unicorns before raising his own fund would have the confidence to say.
I took a deep breath and figured that if my cofounder Raffi and I had already made the effort to get ourselves all the way to bankerland in the 8th, maybe we could learn a thing or two from him.
“So why aren’t neobanks and corporate credit cards good businesses?”
“If you’re the first to market like Qonto, you can keep the cost of customer acquisition low, and build the brand. Now that the barriers are lower to launch neobanks with Banking-as-a-Service platforms, it’s become a marketing war, and you’ll be doomed to be the one who raises the most, over and over again. ”
This resonated a lot. Raffi and I were both among the earliest employees at Qonto (I was the first). When Qonto was at seed, investors were wary because acquiring a SME customer cost around €3,000. But the Qonto team managed to cut this cost by at least 50 times — consistently and at scale. I’m not sure it’s still doable today given the market is more mature.
So what did a good business look like to him?
“A real complex product, either because it’s very technical, in infrastructure, or a vertical SaaS that is building a moat by focusing on the unique needs of a segment. I’m still waiting to see an equivalent of Toast or Service Titan in Europe for instance.”
Back to square one — or even zero
Just when we thought we had reached a low, we reached another all-time low.
After we took some time to "process" the advice we had received, we realised that we were not that excited about building that type of business again. Indeed, a neobank is a very operations-heavy business: Know Your Customer compliance, fraud monitoring, loads of customer support — and the margins can be thin. Also, as founders, we were more attracted to building a software company that could expand globally than a very local business.
So there we were, almost in February, completely stuck.
The promised land of Web3
We jumped into the next shiny thing we saw: Web3.
In February 2022, it was still a very hot space. We had FOMO. Our hurt egos needed something shiny and exciting to work on. We jumped right in for three weeks during which we learned many things — including that we were not the right team for Web3.
To thrive in this space, you need to be a hardcore believer. The use cases are scarce, there’s no certainty. It makes this area exciting, but we did not have a strong enough conviction as a team. We might regret it in the future, but we had to keep going!
The looming threat of ayahuasca
As the weeks passed by, we learned a tonne, but we still had not decided.
One of our VCs told us: “Use a framework, stick to it, and if you’re still stuck in a few weeks, it’s time for ayahuasca.” He was only half joking. If you’re wondering what ayahuasca is, here's the Wikipedia article.
But we didn’t think our mental and physical exhaustion would have mixed well with psychoactive chemicals. So we rolled up our sleeves and decided to start evaluating ideas with a more structured approach.
Choosing what you’ll do for the next five years takes more than a framework, but we all agreed we really lacked structure and had to speed up the decision.
We’ll share our framework in the next post, and also the notes we still have on each idea exploration. They included ideas that have been pursued by other teams since then:
- Neobank for digital nomads/location independent businesses (Sammy)
- Financial OS for ecommerce (Juni)
- Neobank for nurses (Lume)
- Customer data platform for DAOs (SuperDao)
- Hugging Face for smart contracts (not sure we found an equivalent yet)
- Stytch (Auth) for Web3: Stytch actually shipped a Web3 product recently!
- Skillshare for start up employees
- Next gen AngelList (Roundtable)
- Something around food and surf, because we just like that too! The company would look like the perfect kid of Boardcave (surf marketplace) and Soul & Surf (A hipster-ish surf and yoga retreat company)
Lago is doing great today, but we did reach very low lows. The mental health challenges that come with being a founding team member are real — and we should be more open about talking about them. At every step though, the team and I didn’t see ourselves doing anything else but building together, so we stuck to it.
*Ramp was valued north of $8bn in March 2022