Budapest Letters #9
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Cheers, Aron
📢 TL;DR
This weeks main stories are as follows: ✍️ French postal service launches an investment arm, while similar companies in CEE toy with crypto ✍️ SonarHome and Team Odeon raised 💰💰💰, while Leta Capital aims to invest in Russian speaking founders, outside the Russia speaking word ✍️ HeavyFinance, a crowdfunding platform connects farmers and investors ✍️ Earned wage access is a service that might help millions of people overcoming financial anxiety
🔥 Story of the Week
When I read the news that the French postal service (La Poste) is setting up an investment arm (La Poste Ventures) to explore new business models (i.e. buy competition and/or anticipate market changes that could internal developments) I found myself smiling. Mostly, because this is an approach that is already widespread in another age-old industry that I happen to operate in: banking.
Based on this experience, I am not sure how La Poste Ventures will fair but for now, until a performance assesment can me made, I am sticking with a flop.
Why? It is simple. Initiating change within legacy players in regulated industries are a hard nut to crack. Let it be internal innovation departments to boost new ways of thinking/doing business, building/launching startups within (dedicated staff but large corp structures, incl. budget approvals) or buying startups and then integrating them, these projects mostly fail. Just ask BBVA (Azlo) or RBS (Bo).
Still, there is a slimmer of hope for La Poste because you never know, maybe they are different. Or maybe not and this venture will fail too. But on a positive note, at least they are trying something new and will most certainly learn a lot on the way.
And that is good. And thankfully, that is an approach that more and more legacy postal players in CEE take as well from Hungary to Croatia. Heck, the latter, like its counterpart in Austria, is experimenting with crypto technology which is 💯
This is great news for all of us as postal services in most countries = disaster. Low to no digitalization, high prices, opaque pricing structures, bad (sometime even rude) customer service, super long delivery times with lame (if any) tracking technology. You name it. So as I see it, postal services are ripe for change.
A seismic one, if possible. And maybe, just maybe, we are not far off.
Show Me Da 💶
👏 SonarHome, a realtech startup from 🇵🇱, that operates a platform that simplifies, digitalizes and speeds up buying/selling real estate received €5.6M, led by Market One Capital, a local VC firm. The company aims to use its fresh funding for CEE expansion, with emphasis on the property markets of Budapest, Bratislava, Bucharest and Prague, and enhancing its AI / ML-based technology.
👏 Team Odeon, an 🇮🇱/🇨🇿 startup from Prague, that helps people choose between career paths received €2M from investors, including Lighthouse Ventures, a well-known Czech VC. The company, which is led by Ory Weihs, a seasoned entrepreneur and investor, provides aggregated employment and education data to users (+ expert advice) via an easy to use platform to better build their careers.
👏 While not technically a story from CEE, the new project of Leta Capital, a successful VC fund from 🇷🇺, is worth noting here because it has an angle, at least in my opinion, that could be relevant to VCs across this region. The catch? Leta announced its plan to invest $100M in growth stage startups that are led by Russian speaking founders, outside the Russian speaking world (principally: Western Europe, UK and US). Based on the VC firms own estimate, this could mean a founder pool of 17k. Impressive. Even more so if we add that startups such as Revolut fits such a description. And having in mind that ambitious founders left/might leave their CEE birth countries too, this might be a valid plan here.
🚨 Startup Alert
This weeks alert is on HeavyFinance, an agrotech crowdfunding platform from 🇱🇹, which I found when searching for unconventional Baltic startups. Yup, I have some funny pass time activites. Anyhow, the company, like your average startup with a similar focus, developed a platform that connects farmers and investors.
The hook here, apart from providing the possibility for city rats (like me) to invest in interesting agro projects is that all deals are collateraized by heavy machinery; hence the startups name. And this is cool, very cool. Most crowdfunding platforms are without such an arrangement. You check the pitch videos. Read about the founders, their backstory and maybe see some financials. But overall, it is a jump into the dark. Here on the other hand, you get a solid collateral = real de-risking.
So I will definitely keep on eye on Laimonas Noreika & Co. And you should too.
🧠 Food
In the 7th edition of Budapest Letters I wrote about financial health, a hyped concept that flooded the financial services industry (via professional services firms) in recent years. I am, as you might recall from that piece, slightly bitter about it. In short, I think it could be plausible, valuable even for customers and societies, but in most cases (mostly due to the nature of capitalism, i.e. short-termism) these are mostly PR stunts without actual content and real-world benefits. But financial health, when we put the shallow bits aside, has some parts that are interesting. And one such part is “earned wage access” or “EWA”.
In practice, this is a financial service that enables employees to access parts (or in some cases all) of their salary before the end of the payroll cycle.
The solution was, and still is, championed in the US but it is gaining popularity in the European startup scene as well. Wagestream (UK), Payflow (Spain), Flipful (Latvia), Salarify (HU), Symmetrical (Poland) or Monzo, all provide it.
Business models vary. Some offer it for free and only a day before pay day (Monzo). Some offer it for a small fee and/or some interest but on-demand, meaning any time before pay day the customer prefers to access it, she/he could do it. Of course, latter approach requires strong integration with corporate payroll systems, thus no surprise that most of these startups collaborate with large corporates. Nonetheless, this is a great solution that could ease anxiety related to financial distress or could provide a realistic option to harmful lenders (i.e. loan sharks).
🧐 Personal take: According to a recent study by financial charities and Wagestream notes that EWA has a major positive impact on its users.
Key findings of this analyses include:
Stress decreases, for 77% of those using EWA;
Financial confidence improves, with 72% feeling more in control;
Budgeting improves, for 55% (only 2% struggled to adjust Savings behaviors).
Plus, it was also revealed that most users do not spend their hard-earned cash on luxury items (in contrast to some negative but popular beliefs) but on the absolute necessities, like bills and groceries.
For me, the above is a true testament to what good EWA - if done right - could do to people. The possibility that with this: loan sharks could be avoided; savings could be increased (i.e. no or limited credit card fees); and financial emergencies could be forgotten for good, makes this a great way of improving the wellbeing of private individuals. And this, as we all known, not only impacts financials but everything else in life, starting from – above all – health.
Big win on all sides. And I just hope it will live up these expectations.