Why does Eckhardt Weber, MD and Co-Founder of Heartbeat Labs, believe in company building despite players like project a and rocket internet having moved away from it?. How does he convince co-founders to join Heartbeat Labs when their equity stake in the companies is relatively low? What was the secret sauce in making FinLeap the leading fintech company builder in Europe?
Eckhardt Weber talks to Emil Beck in the Startup Notes podcast:
Emil Beck: How you did you become who you are today?
Eckhardt Weber: I am a lawyer by education. After studying law in Munich, I started working in a law firm in Munich, focussing on venture capital deals. I worked on both sites, for the companies and for the investors. Often I was more interested in what the companies are working on than the actual transaction or deal. One of the big mandates was the Hitfox group, with Jan beckers as the main driver. And he helped me to switch from the legal to the entrepreneurial site.
Emil Beck: FinLeap has raised over 200 Million Euro, its companies employ over 500 people, and it is definitely the European hub for fintech. What was the secret sauce in finleap success?
Eckhardt Weber: Timing was a big reason. In Germany that is a very important, because it is harder here sometimes to raise capital. With respect to fintech it was a great moment to start: the financial industry was just ready for it.
Then boldness of course. I remember when Jan said: ‘We gonna build a bank’. And especially people from the financial industry and from outside Berlin, were responding: ‘Are you crazy?’. I remember, I was asked: ‘Please Eckhardt, can you do this?’ Because apparently it is something that lawyers can do and I am a lawyer. So I looked at how we can get this started, what do you need to run a bank? You need a banking license. And we asked people who can help us and they asked us: ‘Have you done this before’. And we had not of course. But if you have a really bold vision and a bold goal of what you want to achieve, it brings the team together behind this boldness.
And thirdly, a successful management transition from the first generation of managers and founders to next generation with Matthias [Lange] and Carolin [Gabor] and now Michael [Hock]. and that is why I am really positive that Finleap will move progress as the biggest company builder for FinTech in Europe.
Emil Beck: Rocket Internet changed their business model, to start less of their own businesses and act more as an investor. Same for project a, an operational VC. There are only few company builders left in Europe, and now, with Heartbeat Labs, you start a third company builder. Why are you so bullish about this business model?
Eckhardt Weber: If we look at vertical company company building, i see the advantages outweigh the disadvantages. Company building has worked in situations or industries where there are a lot of learnings to be made and then be repeated. And finance and healthcare are like that: heavily complex and very very tough markets. Yes the know-how and experience of founders is higher today than it was ten years ago. For that alone you would not need a company builder anymore. But if I look at healthcare, and I see it on myself, how I learn every day, I believe in our platform, that we are building up knowledge and a brand that helps our companies and investments to succeed more easily than other incumbents. Company building still works, I heavily believe in.
Emil Beck: How do you motivate great founders to join Heartbeat Labs if they have just a relatively low equity stake from the start.
Eckhardt Weber: That’s the main question we always get asked and we expect co-founders to ask that question who want to work with us. We need to a create an opportunity that says, it is right to co-found with us. It goes back to be the industry specific platform. Of course we have people in HR, recruiting, marketing, finance like other company builders. But additionally we also have doctors, people from pharma and legal experts that have worked several years in health law. I will explain him [the co-founder] that he will run into a lot of complexities that we have already figured out, that we get out of the way for him and that we can help him move forward faster and in the right direction with healthcare. I also think, yes everybody is talking about equity participation, but everybody on the cap table has to have the feeling, it is not only the carrot in front of him, to run after. This should never be the only reason to build a company, but that you are engaged in the right way, that you have the responsibility, the accountability and the freedom to act.
Emil Beck: When people ask you for funding, what do you want to know from them?
Eckhardt Weber: How do you choose your investors, how did you choose them in the past. There is money in the market, but I have the feeling young aspiring founders do not question where the money coming from. And why that person wants to invest. This is important form early on. If I see already 20 people on the cap table, I ask, what is your reason to be on that table. I believe you should make sure that your shareholders really buy in your vision, believe in you, give you the benefit of the doubt, support you but not be in it for the wrong reasons.
Emil Beck: Some time ago Uwe Horstmann said that digital health is a super interesting market but also especially in Germany extremely challenging due to regulation. What is your view on that? [project a only currently only holds non-german health investments]
Eckhardt Weber: Yes there are complexities in the market but when I look back at the Finleap time, entry barriers, be it regulation, they are hard to jump over but once you made it, you separate yourself from the rest. I take this as a challenge and I am here to tackle that challenge – as you can see with our first company Kinderheldin but also with other business models that we will establish here in Germany. Of course we also look at emerging markets, which are a great indicator of what could be the next thing coming. There healthcare systems are not so well developed and therefore are jumping ahead. Indonesia or the Philippines for instance never had a comparable healthcare system with hospitals and doctors in place, and they went from almost nothing to telemedical services. It is like what happened in Africa: mobile payments were the thing after cash payments, they jumped over the banking transaction system. Indians have jumped over computers and laptops right onto smartphones.
Emil Beck: You, Hendrik Krawinkel, Jan Beckers [MDs of Heartbeat Labs], you are still together founding companies, if you compare it to other company builders like rocket internet, they have strong people who then do their own thing. What is the secret sauce building the company culture with you guys?
Eckhardt Weber: Maybe it is the way how they approached me, how they got me to join. When Jan [Beckers] approached me for the first time, when he asked me, do you want to do more than drafting our legal documents, he invited me to go to Tomorrowland, this festival in belgium. We stayed there for a couple of days, and we talked about what they are doing and how they are doing it – with a bit of a hangover.
This is of course a very personal site, I have been knowing Jan for 10 years and Hendrik [Krawinkel] for 5 years. I looked at pros and cons of doing my own thing after FinLeap or working with hitfox as a strong brand and with the two guys. I looked at how we can have impact in healthcare i thought: We are just stronger in it together, we know how we work together, we trust each other, we are loyal to each other and this helped us to stay together.
Emil Beck: Three things you would advise young founders:
Eckhardt Weber: Don’t follow the easy money. Regarding investments, when you are in crunch time and need additional investments and there is money on the table from someone you just got to know. Do not forget: choose your investors carefully.
The other aspect of easy money is monetization: Revenue streams in healthcare, like in fintech, are not easy to find. When you want to scale, maybe you will find some people to sell to. But do not follow money on the sales site without having a clear revenue strategy. It can look nice, you get the numbers for your business case, but think of opportunity costs, if you run after a couple of euros there, it does not really help you to get forward. Follow the easy money can distract you and get you off the track for your company.
Being an entrepreneur, that is the most obvious statement. What do i mean by it? An entrepreneur figures out new ways to achieve a goal. Just recently we were recruiting for a position at one of our ventures that was hard to fill. The text book would give you 3 ways to solve this. From an entrepreneur I would expect 7 ways. The person driving the project at our office, she found at least 10 ways, including posting the job spec on her tinder profile. There is always a different way to look at it to achieve your goals.
Be in it for the right reason: Founder, that is something so many people want to be today. But for what reason? Just for the carrot, the dollars, this is not the right one.