Founder Story: The Key Decisions When Building a Fintech

Paolo Dotta

12 November 2020

The best business ideas don’t come from the entrepreneurs who are focusing their efforts on becoming the next Gates, Zuckerberg or Branson.

They come from entrepreneurs who can see unsolved problems and inefficiencies in the market.

Just like Christian Nothacker.

Christian Nothacker, Entrepreneur & Founder of Fintech Startup product PrestaCap

It was a gap in the market that inspired him to launch his fintech startup, PrestaCap

While working as an early employee of another fintech, mobile payments company SumUp, he noticed that small business owners were facing major inefficiencies when it came to the financing process offered by traditional banks

We heard stories of customers queuing at their bank with a paper invoice, handing it over at the counter and waiting five days for a reply.

After researching, Christian found there were no other players in the market. So he built a team and set out to digitalise these processes for business owners through fintech.

He quickly found that his value proposition was accurate, the business model behind it wasn’t. The series of key decisions he made to align these two factors led to PrestaCap being acquired just five years later, by one of the largest private-equity-backed banks in Italy, DEPObank for over $20M. 

I sat down with him to take a look at how he built and scaled his fintech startup, PrestaCap. I also picked his brains on the tips and insights he has for founders starting their entrepreneurial journey.


How Christian Nothacker Built & Scaled His Fintech Startup

Q: Did you always want to be an entrepreneur? 

A: I think being an entrepreneur is in my genes. I’m from a very entrepreneurial family. It’s always been clear to me that I would set up my own company as soon as I’d acquired enough experience to do so. 

Q: How did you manage that transition? When did you realise you could quit your day job and take on PrestaCap full time? 

A: It was early on in the process. I’d seen the market opportunity in 2014, the year before we founded the company. I saw there was no player in the market and I had a team I could build this solution with. 

The transition was quite drastic. We jumped into it with both feet and there was a definite line where my old job ended and PrestaCap began.

This is an unusual way to start a company. Normally, when you start a company you work on it at weekends and in your spare time.

I was in a rare situation where I saw the opportunity, had all the research and had a team behind me that could execute the business vision.  

Q: What was the initial business vision for PrestaCap? 

A: In the beginning, we wanted to be a “P2B” lending platform – private investor to business lending. 

At the time, in 2015, from a regulatory and license perspective dealing with private investors was a nightmare, and still is even though it’s improved. Onboarding investors just wasn’t working.

We quickly decided this P2B model wasn’t a very feasible business plan, so we took the decision to pivot to a more let’s say, institutional model. 

We had one or two institutional investors lending to SMEs (Small to Medium Enterprises). Our focus was on making sure the financing could be offered within two or three days, this was always our goal. 

This institutional model allowed us to get the backing of some institutional investors which then allowed us to scale the business in 2016. 

For three years we were a lending platform, the banks we were talking to obtain the financing got more interested in the tech we’d developed, especially in the lending space. Then as a side business, we started offering our software solution as a white-label service or SaaS to leading banks in Italy. 

That side project quickly became one of the main driving resources for us. It’s essentially a digital hub for banks. 

In short, our business has changed quite significantly over the years. The interesting thing is nowadays we are less a lending platform and more a technology partner for banks. 

Q: How did you adapt the business vision to accommodate this pivot? 

A: The funny thing is, the core vision remained the same throughout. The key advantages we were aiming to achieve vs. the traditional market offering has been constant. 

We saw a lot of inefficiencies in the way customers and SMEs interacted with banks. Whether they were opening an account or asking for a loan, submitting an invoice, etc. 

For example, we’ve heard stories of customers queuing at their bank with a paper invoice, handing it over at the counter and waiting five days for the information to appear on their bank account. This is just one inefficiency we saw in the relationship with a business owner and their financial needs and the bank. 

That’s why our vision has always been to digitalise the day-to-day interaction between SMEs and their banks.

We always wanted to make it faster, easier and cheaper from a certain perspective. 

Even though we pivoted from the lending side to a “digital factory” for banks it’s still following that same concept. The vision has remained the same, what’s changed is the application and how we implement that vision.

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Q: As there were no other digital solutions in the market, how did your stakeholder deal with the problem before you existed?

A: Until 2018, Italian banks weren’t offering online credit to SMEs. 

This meant if you requested a loan you’d have to make an appointment at your nearest branch. Creating that appointment was the only thing you could do online. 

It was very much an online to offline solution – there was no end-to-end online solution. As of today many Italian banks still don’t offer that end-to-end service. 

Q: So that means you were about to ask for a behaviour change to your target market. You had to find a way to prove they were willing to do it. And that was only one assumption. 

How did you validate the main assumptions you had in the beginning?

A: I did some market research as part of my previous employment – focusing more on payments. I would ask customers directly about their main needs, preoccupations and problems. 

This was a big insight for me. We got a lot of responses regarding the financing side as opposed to the payments side. 

We realised that financing was the biggest pain point for a lot of these business owners.

From a product perspective, effectively we benchmarked what other fintech startups were doing, mainly in the UK and the US. 

Thanks to that research we didn’t have to reinvent the wheel for many aspects of the business. However, as a regulated entity some aspects had to be reinvented completely. 

For example, we were the first entity applying for certain licenses at a European level. We were the first ones applying for a lending fund from Luxembourg. This was a difficult process to lockdown and we had to invent certain things to ensure we achieved this.

From a product feature perspective, how the signup would work and how the platform would work, etc. We benchmarked competitors and adapted it to our local market needs and regulatory requirements. 

Q: That research is a key first step when building a startup, but it can only get you so far. The only way to validate assumptions surrounding customer retention and other key metrics is to build the MVP.

Which assumptions (if any) needed to be proven with the product itself? 

A: Certainly there were a couple of assumptions that couldn’t be proved with research alone. Many of the problems were related to the product and financing itself, not the technology.

By this I mean:

  • Financing
  • Pricing
  • Fee Structures
  • Contractual intricacies 

All of these assumptions needed to be validated by the product itself. We were wrong about a few – and we had to fix that quickly. This was again due to the number of stakeholders we were dealing with and the number of contracts going back and forth. 

These were the assumptions that had the biggest feedback loop.

Q: As you were developing the product, did you follow a Lean method with just the core features? Or did you design a full-feature product based on the competitor benchmarks of other fintech companies? 

A: We developed the majority of it. It didn’t have all of the features but we decided back then to have an end-to-end platform, from sign-up to collection. 

So we needed to create all of the frontend pages and the backend infrastructure from reconciliations for fintech compliance, for investors to see and so on. 

We required a lot of the functionalities from day zero or we wouldn’t have been able to move it forward. 

This was a big investment that took us a considerable amount of time to build. 

That being said We kept it to the bare minimum in terms of features in the beginning. 

It’s just that our bare minimum ended up being quite a lot because of the fintech services we were offering and the stakeholders involved.

Q: We often see founders trying to follow the Lean Methodology building too many features, which are often left unadopted by users. 

How did you prioritise the features that were the most valuable to your users to avoid this common hurdle? 

A: We certainly had several features that we developed in the fintech product that users’ didn’t like. Initially, it was a trial and error. 

We would test features for a couple of sprints. If we saw that certain features:

  • Weren’t accepted 
  • Were too complicated 
  • Not what the customer required 

We iterated, disregarding those features and taking them offline. 

It was very much a testing phase when it came to features. While we didn’t have internal processes set up as such to do this, as we were such a small team, we had done a lot of work beforehand to eliminate as many of these features before the customers saw the product. 

The testing really was the last step of this process. 

Q: Once you had polished and launched your MVP, what was the key Value Proposition for your users? 

A: To give entrepreneurs and SMEs an answer within three days. 

This was achievable thanks to our signup flow, or let’s say onboarding process, you had to produce and upload all of the required information to receive a loan right at the start of the process. 

Having all of this information digitalised and centralised makes all stakeholders lives easier and speeds up the process. 

The issue with this value proposition is that each lending case is different, so the time it takes to give an answer varies. 

Many times we were able to deliver our value proposition, often giving entrepreneurs an answer faster than our three-day goal. 

On the other side of the coin, we often couldn’t reply that quickly. This was again due to the specific case, but also because as volumes went up we were spinning more plates. When that happened we would sometimes only have time to answer after a week. 

This, unfortunately, is the nature of startups. You’re a small team wearing many hats, and while growing pains are a good problem, they’re a problem nevertheless. 

Q: How long after your launch did you achieve product-market fit? 

A: Almost two years after launch. Both the investors and small businesses were giving us consistently good feedback loops. 

Our numbers were getting more interesting, we were getting closer to break-even. 

We were iterating the features in our fintech product. As well as adapting the way we approached and found the customers we wanted to lend to. We started to retain them, seeing them using our platform for multiple loans. 

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Tips & Advice for Entrepreneurs Launching a Startup

Q: What advice do you have for entrepreneurs on the importance of product? 

A: I think that at the end of the day the quality of your product determines how long you will last. By this I mean, you can have a great sales team, great marketing, great conversion, etc. But if your product is no good your clients will eventually go somewhere else.

Product is one of the key drivers for success. 

In the fintech industry, I think there are a lot of startups that don’t have an optimal product. There is, let’s say, quite a lot of room for improvement. But the main limit there is from a regulatory perspective. As well as that traditional “Bank” mentality and system that’s difficult to change and integrate with fintech. 

A CPO or dedicated Product Expert can be great when it comes to bridging the business vision and technology. It’s very important to know where the product is today and the direction in which it’s heading.

If you don’t know these things it’s extremely difficult to keep your product relevant and up to date. 

Q: What advice can you give Entrepreneurs when it comes to Marketing?

A: After we launched other fintech startups came to the market. 

These fintech lenders focused more on marketing towards customers, the small businesses/SMEs. They took a more aggressive approach than we did. 

In the early days of our fintech startup, we knew our product wasn’t perfect yet, it wasn’t fine-tuned. On top of this, we were dealing with credit. It takes a good two to three years to show that you’re a good “credit machine”. People need to see those repayments coming in, etc. 

For that reason, we did little marketing for the masses. We focused on direct marketing to potential customers we thought were right for us. 

On the other side, we did a lot of direct marketing to banks, to show them that we were a good investment opportunity. 

The result of this direct marketing led to a pivot further down the line. The more interest the banks took in us and our technology, the more we realised that this should be the focus. 

By the time we got to the stage that we could’ve created mass marketing campaigns for small businesses and SMEs, we were already in talks with the bank that ended up acquiring us. 

Q: What advice can you give Entrepreneurs when it comes to the importance of a Startup Team?

A: The main aspect is the team. Building a startup is a rollercoaster. You can be successful one day, wake up the next morning and there are major problems everywhere. 

There are a lot of problems that a startup can face, things you don’t imagine will happen. 

If you have the right team, you can get through any barrier and achieve everything you want to. I can’t stress enough how important your team is.” 

Obviously, you need your product, market and funding. But without a solid team behind you, those things are far less valuable. 

There are many factors when it comes to the hiring process itself there’s no recipe for finding the right person. 

I will say, you need someone who’s fully dedicated to the project long term. That stands true for new hires and co-founders especially.

Always look in your backyard for the people you want to work with to start with. If you know them, chances are you know how they’re going to deal with stress and how they will behave in the worst times. 

Only start looking further afield if you don’t have contacts that can fill those key positions. 

One important piece of advice is to really think about incentives and how they look long-term. Will there be share splits between the co-founders? What can you offer your co-founders that will keep them motivated four years down the line? 

In my experience thinking long-term is one of the hardest things for startups to do but it’s a necessity. You need to make sure that your incentives are decent from day one. 

Q: What advice can you give Entrepreneurs when it comes to Funding?

A: I think the toughest part is getting that first funding round in. 

You’re probably still a small team, you’re still figuring out your place in the market and how you want to do what you do. This usually takes longer than you expect. 

Whatever you expect your timeline to be before securing that first round of funding, double it. And make sure you have enough capital to get you to that date. 

Once you get that first round, if you’re a first-time founder you’ll most likely secure 12 months of funding. 

That being said, if you’ve already gained traction and your MVP is out in the market I would always try and secure 2 years. 

That will give you enough time to recalibrate your product if required. It gives you enough funding if you need to reshuffle something within the organisation. It gives you leeway to try new things or pivot the business. The list goes on. 

Q: From your experience, how would you advise an entrepreneur when it comes to approaching investors? 

A: Avoid cold calling or cold emailing. It’s almost impossible now to succeed this way, especially emailing. It could actually harm building a relationship with an investor. 

Always get a warm introduction if you can. If you don’t have the contacts to reach out to incubators or accelerators, they have a network of angel investors and VCs. More than that they can advise you as to which investors will be best for your startup. 

Thank You, Christian 

I appreciate Christian taking the time to sit down with me and share his story of building a fintech startup.

Paolo Dotta
Paolo started working in banking in Milan and London. After the financial career, he created a startup and then joined Altar where he mainly deals with business development and fintech projects.

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