Fintech Tomorrow raised around three million euros from its customers in just five hours. In an interview, founder Michael Schweikart explains what the start-up expects from this, whether venture capital will become superfluous and why it was about much more than just money.
Mr. Schweikart, in your November 2020 funding round, you not only raised money from professional investors, but also from customers of your bank. Was there a lack of professional backers?
Absolutely not. Now, venture capital money is not on the street either, but we could well have raised funding from purely professional investors. So opening up the round to private investors was by no means a decision made out of necessity.
Professional investors bring more to the table than just money. Aren't you missing out on some of the advantages?
The advantage to professional investors is relatively easy to pinpoint. They bring money, sure, plus a network and expertise. So such an investment brings a start-up like us reputation and good contacts. But we have already had all of that through the Series A. We are glad that our existing investors went along with us, but in this intermediate round we also wanted to involve and bring on board the people who accompany us every day. They are invested - in the truest sense of the word.
That's not so easy in Germany if you're not a stock corporation.
In fact, there are no digital shares or digital stakes in limited liability companies in Germany, which is why we spent a long time thinking about how we could still involve private investors in such a way that they have the same rights as other shareholders. Convertible bonds were out of the question for us because people only get interest there, but don't earn anything if the company goes public or is sold.
How big was the rush?
The servers crashed in the first few minutes, so many people wanted to invest. So we spent the first two hours trying to fix that. After two more hours, we had raised two million euros, so actually our goal. But because there were still so many requests open, we set the limit at three million. After a total of five hours, all three million euros had been allocated, although we were actually still in the pre-sale for Tomorrow customers.
What do investors get for three million euros?
The round was valued at 50 million euros. That means that the 2,000 investors own roughly six percent of the company. That's nice for the money, no question. But it's also a huge treasure we want to unearth.
What treasure is that?
These 2,000 investors are like ambassadors for us. We already had a core group before who showered us with feedback on a daily basis, which helps us a lot. Through their investment, they are now much more engaged, will recommend us and possibly defend us against criticism. At the same time, we can learn from them because they are all people who value Tomorrow very much. Which feature should come? What is currently going wrong? What is the situation in the company, what are the numbers like? We want to discuss these questions openly, in digital townhall meetings and also via a Trello board where users can comment on current plans. We are creating a loyal fan base with this, which is a big plus besides the money raised.
N26 also had a large fan base, but criticism has often come from them recently. Are you worried that the close ties will also bring disadvantages?
N26 has grown very successfully because they had good products to begin with and got people excited about them. But the communication was often in one direction, just from the company to the "community". We want to make sure that the communication works both ways, so we introduce new products but also take feedback from our private investors.
A start-up investment like this is certainly tempting for many people because it sounds like big money. But it also involves a lot of risk. Do the 2,000 investors know what they have let themselves in for?
We have discussed this very thoroughly, sometimes even controversially. Of course, this is a high-risk investment and the money can be gone at any time. The signs don't look like it and we don't believe it, but the possibility exists. That's exactly what we told our investors many times, at digital conferences in the run-up and also during the process. There were disclaimers in many places and on the crowdfunding platform we used, investors had to click more than 15 checkboxes, many of which indicated a possible loss. That was important to us. At the end of the day, that's a responsibility we have to live and sleep with.
After the initial dust settles. Will you repeat such hybrid financing?
I don't think it's a secret if I say yes. We still have to figure out the 'when' and 'how', but there will also be a second round of this hybrid. But maybe there will be other start-ups before us that will follow suit, which would make us happy. We see ourselves as a role model and have also shown that there is not only one way of financing. This is not meant to be a declaration of war on the VC industry, but there are obviously other ways for young companies to get money.
Thank you very much for the interview.
Personal details: Michael Schweikart (39) is co-founder of the sustainable banking provider Tomorrow. Previously, he was CEO at MigrantHire and Jobs 4 refugees. The two non-profit organizations facilitate the entry of refugees into the labor market through an online platform. Previously, Schweikart worked as an industrial engineer and corporate finance consultant at the management consultancy Concentro Management AG.
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