Fintech M&A Strategy: Exit Timing | Mayerlin Garcia

Alex: Hello everybody and welcome to the Curiosity Code podcast. I'm your host Alex Khomyakov and today I'm joined by Mayerlin Garcia, Managing Director at Senahill Advisors and a seasoned leader in investment banking, M&A and corporate development. We'll explore how large institutions think about M&A, fintech innovation, digital transformation and what it really takes to build and scale strategic deals today. Welcome to the show, Mayerlin.

Mayerlin: Thank you, Alex.

Alex: Marilyn, you work with founders at very early stages. What are the biggest mistakes fintech founders make when turning idea into an actual business?

Mayerlin: Alex? I wouldn't call them mistakes, but I would say learning experiences. Some of the ones that I would like to highlight will be potentially choosing the wrong partners. Underestimating the efforts is a huge one. Some people are very excited about the opportunity. But don't envision what's coming next or what are the steps that it needs to happen to be able to go from a vision to actually launching a business, not building a business plan, not putting together a budget or a financial model, and also not defining well the market.

Alex: Interesting perspective. I also am an entrepreneur and I've been there myself and sometimes it gets so carried away by product idea, you know, you get so excited that yeah, these things, they become secondary and you don't think about it. And I totally agree with you on the founder perspective. Having a right co founder near you is crucial.

Mayerlin: Yeah, I mean it's a long journey, Alex. So I think if you want to spend the majority of the time with somebody building a business, you better be thinking in the right way.

Alex: Right, right, right. So as I said, and probably I'll be asking questions more from my perspective because I'm really, you know, excited startup community and that's what's happening to it these days. And again, I more like a product person in my heart. But from your perspective, from the investment banking perspective, what does a well structured fintech company actually look like beyond, you know, the pitch decks that usually people do as soon as they want to get somebody else involved in terms of financing.

Mayerlin: So I think one of the values that I bring to my clients is working on helping them build a good foundation. And this starts for defining the value proposition to future Investors getting a good assessment on the competitions and how they fit in the ecosystem. Getting a good understanding of the products and services and how they're going to be delivered as well as the pricing model. And how is that going to be defined, whether it's a bottoms up approach or top down. Understand their technology and how it's going to deliver to the clients. Understand how strategic players and potential equity investors are going to play a role in helping the company grow. Also understanding where the market is heading and where the client needs are. So I often see companies where they say, I have this product, but they haven't really defined how it's going to be delivered in the market. So you're stuck being an entrepreneur, great idea, but never really takes off.

Alex: Yeah. And as I said, I can totally relate to that. But what do you do about it? So again, most of us, we're so excited about our idea. We focus on product, we get to our first users, clients, sales, Yay. The business is going. But we rarely, and probably we use it too much a word. But most of the entrepreneurs rarely think about things that you just listed. So how do you do that? How do you, you get moving in that direction while you're still excited?

Mayerlin: Okay, that's an excellent question, Alice. And I tell you this, one of the first thing I do when we sign up a client is they pitch the idea to us and then we make an assessment whether this is something that we want to represent and have some legs because there's some banking calls associated with it and energy that is put in place. And then we try to create a map of some of the things they need depending on the stage that they are some of it. I have a client who literally gave me a call a month and a half saying this is happening in the industry and I deliver this service right now, but it's going to be digitized and I'm going to plug into what is happening in, in the digital space. I said, what you got? You know, Well, I know this is happening. I said, well then we have a lot of work to do. Right. So we started putting a business plan in place. So he kind of start kind of aligning the way he was thinking and kind of understanding of if he does have enough knowledge about what is happening in the industry and what are the competitors and how the services are being delivered right now and then take it from there. Let's say build your financial model, build your introduction to potential equity investors, you know, show me your workflow of the technology, how it's going to be playing to this ecosystem. So like I said, depending on the stage of the clients, some clients we have that are more ahead of the game where they have already say the product is already up and running and they have a copilot or a pilot program or is already part of poc, so it's already have a client trying it out. So then how are we going to get the next stage which will be potentially funding? Again, that all depends on where the client is at and what are the needs? Do they need capital, you know, or funding? Do they need introductions to strategic players? Do they need to land a commercial partnership? Do they need, what do they actually need and where are they heading?

Alex: Yeah, you know, it sounds to me like first time founders having external help is just crucial for the success. Maybe if you're seasoned founder and you've done it many, many times, you will be able to pull it out yourself. But you know, all the work and all the scope that you just mentioned is just tremendous. It's huge.

Mayerlin: I do agree with you, Alex. And here is the thing. I think one of the things that I'm very thankful for. I'm in an industry where there's a lot of entrepreneurs that are amazing, very smart people who have a lot of success or track record, they just know the product or the industry very well, but they don't do this for a living. Right. There is a lot of obstacles along the way and there's a lot of things that a person like me that has done it multiple times say, okay, that might work, this might work. You know, here are the players in the ecosystem. I'm going to introduce you to this person, I want to introduce you to this other. You can create a partnership here. You know, so those are kind of the ideas that a person who is truly invested and trying to build a business could benefit potentially from hiring the right banker for them.

Alex: Marilyn, let's talk about scalability because you know, starting the startup is one thing. So you build your product, you validate the idea, you get it first customers, you get some tractions. But then at some point, unavoidably, you face, you know, operations and infrastructure challenges. Where do you most often see things break as company scales?

Mayerlin: So one of the things is funding needs and the ability to raise funds. So oftentimes the company say, okay, we need scale, but in order for us to expand, we need funds. And it's almost like a chicken and an egg question or issue because companies need to see revenues, but the company needs the funds to be able to spend to create that revenue source. So it's almost like you know which one comes first and that's where having a banker could, could become very critical.

Alex: So it's almost like a chicken and egg problem. And again you need revenue and finance to scale and when you scale if you don't have enough revenue you still need financing and it's oh man. Infinite loop.

Mayerlin: That's correct.

Alex: Well let's talk about market expansions because what's interesting about what you've done on cross border deals and expansions across Latam, Africa, Asia. So I'm curious to learn from your experience what changes when a fintech scales outside its whole market.

Mayerlin: So I think is this is very interesting. It all depends on the client and where they play in the entire ecosystem. So I have I give you a few examples. One of my clients is in our in Brazil. You know these clients serves, they provides front office capabilities to asset managers if they want to expand to the aos. It's going to be extremely difficult because the players here are stronger. It's highly saturated, it's concentrated market. So the play here will be potentially exploring opportunities to expand within Latin, potentially introducing players from the US who are interested in expanding in Brazil. So there's still opportunities for those players but it's more how you going to position your company. I give you another example. I have a client who is launching a bond trading platform in Africa. So the angle here will be not precisely that that company will be expanding here in the US but mostly US and UK might potentially view them as an area of additional exposure and expansion tap in the market without having any kind of control beyond or 100% control but so much exposure to it.

Alex: So it's more like a partnership deals.

Mayerlin: It could be partnership, it could be a combination of equity and partnership. It could potentially be you know, M and a XA or a potential acquisition for the US company is there in the future. So it all depends on various factors where what the direction of the founders is, what are the funding needs. Some companies are doing extremely well. They're pretty much saying I can do this alone but for the right equity partner I welcome some funds so long as it brings something to the table.

Alex: So it's almost like the expansion in most cases comes from stronger player to smaller player in a way. Right. That's how I understood what you're saying. So it's not going to be like the African startup would be expanding to the oversaturated US market. It's going to be something reverse where strong company in the US will be Partnering with this smaller player in Africa to capture that market. Yes.

Mayerlin: But I can say it all depends on is in a case by case basis. You know, I had another company offering AML services and onboarding through a really wonderful platform that started in Sydney in Australia and they were trying to move that capability, which is superb in so many ways to the U.S. you know, so finding the right commercial partner who will be delivering those services to potential institutions can be a way for expansion into the UX market. So it all depends on the company, the type of product they have, the type of technology and how advanced the technology is. There's many, many companies outside the US that are very like they're coming up with great technology and we see it all the time. I have a client who's in Singapore who is trying to get, you know, funding here and they have a very, very good robust technology for asset manager. So I guess it all depends on the company and it's on a case by case basis.

Alex: At what point should founders start thinking about M and A or exit and how early is too early.

Mayerlin: I think founders should start thinking adding section because that will help you structure the company from a legal perspective, investment perspect in the right track. I have clients who literally, I mean it all depends on the needs of the client. Clients that I have clients that they win. They did an IPO in six months through a reverse merger. But I also have clients who don't want to sell and they own over 90% of a global company and they're just interested in acquisitions and partnerships as a way of kind of expansion. But I have all the clients who are one are semi retired so they want to get some other funds out and they're willing to give up up to 30% of their ownership just to get some funds in their bank. So it all depends but I would say in general begin with the end in mind. I think it's is the right approach.

Alex: Interesting. I guess that's another thing to add it to the list about complexity when you start a startup as a founder that you have to even think about what kind of entity you want to form. From a legal perspective when you, when it just, you just want to build a product. And that's most of my fellow founders way of thinking, hey, I just have a cool idea, I just want to try it out and see how it goes. But in reality it's quite complex and from always around we covered the financing, we covered the operations and infrastructure and now even you know, the fact that you need to think about how you want to exit right at the beginning. That's quite interesting perspective on the subject. I never thought about it like that.

Mayerlin: You know, and Alice, I don't think the regular investors don't think about those specific things. Usually the ones that are have been founders from previous company have some experience or those who hire a banker will be having those conversations. Should we incorporate in an LLC or a C corp and you know, what are the differences? What are the tax ramifications? You know, how are we going to attract investors? Are the investors prefer to be part of an LLC or you know, should we open an spv? You know, I mean it just all kinds of different ways of structuring your company that might have implications down the road that for the normal founder is not the top of the head. They just incorporate. They don't even know sometimes. Also depending on the type of service, you might need to be incorporated in Delaware, you might need to be incorporated in Bermuda. I mean depends on your tax structure. There's so many intricacies depending on the business that you're at and depending on your goals. That's why I'm saying that having a good understanding and surrounding yourself by the right advisors and the right bankers is it becomes really, really important.

Alex: Yeah, I totally agree on this. I've been there myself. Starting companies without that knowledge that becomes quite challenging in a few years. You've advised on both acquisitions and integrations in your opinion why so many fintech deals fall to deliver to the outcomes promised at the deal stage?

Mayerlin: I think a lot of is planning a lot of has to do with underestimating the technology cost timeline and integration to other to the clients and potentially to if you're exiting also to companies that are buying you not having joined marketing campaign or getting the assisting clients back in from the very beginning. Not putting an integration plan in place with timeline and a budget, not getting the right approvals or understanding, you know, the operation needs and costs. Also overestimating the synergies. I see a lot of leaders who always overestimate the impact on what they deliver. So the estimates on the financial models are completely off. I usually try to tone it down and I also say okay, sensitize it, let's reduce it at least 30% or whatever they're describing because most likely is very, very hard unless you have your very methodic and you're an experienced player to deliver the synergies that you are pitching.

Alex: Yeah, again we're coming back to the entrepreneurship experience. I think that's topic that's coming back and pretty much every question I ask in this recording and just highlights the importance of advisors and right people beside you in this journey and we slowly getting to the end of this conversation and I'd like to wrap it up with following questions. So for the founders listening today who want to build a fintech business with a real exit in mind, what should they start doing differently tomorrow?

Mayerlin: Have a clear vision of your desired destination and try to think about potential problems that will arise in the future. Like for example, owning the IP is key for technology companies, right? Register your trademark, have an appropriate incorporation which is spoke about this far. Bring the right players in your cap table or equity investors that bring you a strategic value. It will create a tremendous amount of value and opportunity for a fintech to expand. And don't do this alone, you know, surround yourself with people who support your vision and advise you the appropriate way. Surround yourself with the right advisors and of course surround yourself with good bankers.

Alex: Love it, love it. Thank you Marilyn, it's been great conversation. Thank you for taking the time to chat.

Mayerlin: Thank you Alex and I appreciate getting invited to the podcast.

Alex: And as usual, don't forget to hit the like button. I'm talking to the listeners and subscribe to the channel and see you in the next episodes. Bye bye.