In the rapidly evolving world of FinTech, one industry leader warns against hasty decisions. Joel Perlman, co-founder and chief strategy officer of a UK FinTech valued at over $2 billion, cautions entrepreneurs on the pitfalls of selling their ventures prematurely.
Perlman, who co-founded the prominent challenger bank with Rishi Khosla three years ago, shared valuable insights from his journey. Their firm, having recently secured a $100 million investment round, boasts a valuation of $2.3 billion. Reflecting on their earlier business experiences, Perlman emphasized the importance of restraint in selling. “As mine and Rishi’s first business 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,” he recounted.
When the co-founders ultimately sold their previous business in 2014, they achieved a substantial return, delivering over 175 times the capital to their original investors. Perlman’s advice to burgeoning entrepreneurs is to explore strategies to extract cash from their businesses without opting for a sale. He suggests considering options such as a dividend recap, which allows founders to withdraw funds while retaining ownership.
Perlman also highlighted the potential drawbacks of having excessive capital at a startup’s disposal. He articulated, “When a company has too much capital available upfront, it tends to be built on fundamentally bloated cost structures. 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.” This cautious approach, he noted, was instrumental in OakNorth’s swift progress, allowing it to break even within 11 months and achieve a pre-tax profit of over £10.5 million in its second year of full operations.
The latest investment round will fuel OakNorth’s ongoing UK expansion and international growth, particularly focusing on ACORN machine, its innovative FinTech platform. This platform utilises AI and machine learning, tapping into the underserved SME lending market. With clients spanning three continents, it is projected to manage assets exceeding $5 billion by the end of 2018. To support this growth, Perlman mentioned plans to expand ACORN machine’s UK team by 30 people, specifically in growth and operations, engineering, and data science.
Perlman’s prudent and strategic guidance reflects a forward-thinking approach in the FinTech sector, urging entrepreneurs to balance ambition with caution to maximise long-term success.
Joel Perlman’s insights offer a valuable perspective for FinTech entrepreneurs, emphasising the significance of measured decision-making and efficient capital use. His experience underscores the potential long-term benefits of maintaining control and thoughtful growth strategies.