Articles Dragos Novac

What software company will spoil the fintech startups party from Europe.

Name a software company from Europe which runs a fintech operation bringing in about $100M in revenue every quarter. Hint: it’s from Norway!

There are not too many options but the answer you are looking for is Opera Software. In Q1 2020 Opera brought in $94.7 million driven by 8.6 million financial loans. Yes, the browser company.

A little history

The story goes that in 2016 Opera was in discussions to be acquired for $1.2bn by a Chinese group. Due to privacy concerns, Opera and the Chinese have instead came up with an alternative deal worth $600 million which stripped out some products and services in order to overcome regulatory hurdles.

As such, the Chinese took over the Opera brand, along with the mobile phone and desktop computer browser business, its performance and privacy apps division, its technology licensing business, as well as its stake in Chinese joint venture nHorizon.

Opera’s advertising and marketing business, the TV operations, and game-related apps remained as a standalone biz operating as Otello Corporation.

In 2018, two years after acquiring Opera, the Chinese listed it on Nasdaq in US.

Since then, the company, which is led by CEO Yahui Zhou and COO Lin Song, transitioned the core business from selling advertising to selling consumer financial services, getting from 0 to 70% of its revenue in two years. In Q1 2020 the ads biz generated some $40 mil.

The business

More interestingly, Opera’s current focus is in Africa and Asia, where most of their users come from. The company’s core products are a multi-device browser, an AI-based news product and financial micro-loans - mostly targeted at African users.

Now, the move from ads to other service-related business has deep strategic background. When you have an operation solely based on a browser competing with Google, going head-to-head for user share and related ad revenue seems to be a waste of resources. Even in markets where Google is not as strong such as Africa or Asia, it is just a matter of time until you collide and uhm, can’t just be part of a growing story.

And in this position, it seems reasonably strategic to evaluate your core assets and strengths and leverage them towards a more lucrative and growing market. In Opera’s case, the main assets are the good tech, good brand and a 300+ million MAU number, which may be not a big one in the browsers market but in other markets can be a huge figure.

The switch from advertising to a financial services provider was criticized by retail investors, going as far as producing a research report accusing Opera of offering predatory short-term loan products (that means obscenely high interest rates; but legal nonetheless) and further accusing Google being complicit by providing lax Play Store’s policies on short-term and misleading lending apps.

While it is true that the Chinese culture is different and public markets require more transparency, when you attack strategically a new market aiming to totally reinvent your front end business perhaps it is not very wise to lay out your cards upfront. But, especially when in public markets, a lil’ scrutiny is welcome.

However, none of the allegations seemed substantiated and it looks like the market priced accordingly the Opera’s stock, not too far from the 2018 point when it IPO-ed and later made the pivot.

Why the switch to financial services though? Some background arguments: 

i) the Chinese shareholders - the group’s largest investor and current Opera Chairman/CEO were recently involved in a Chinese lending business that listed in the U.S. It’s also notable that the above mentioned report mentions this business saw its shares plunge more than 80% in just 2 years amid allegations of fraud and illegal lending practices - again, the Chinese culture is very different than the Western one.

ii) Africa is a lucrative emerging market - large, untapped and with not that much competition, and open to financial services provided via mobile apps because of low tech education/adoption. 

iii) the financial services market is at an absolute behemoth size, with its core still very much un-touched by technology. The consumer side has already started to be disrupted in the past 5 years or so. But that’s just scratch on the surface and, besides that, the outdated legacy financial technology companies are next in line to face competition from a new wave of startups.

The strategy book

In the past 6 months, Opera bought two neo-banks from the Baltics: PocoSys, which is a developer of banking technologies from Estonia, and Fjord Bank, a full-digital consumer finance bank from Lithuania. 

Not by coincidence, PocoSys also holds a payment institution license and provides financial services in the European Union. Fjord Bank has a specialized bank license issued by the European Central Bank and they too can operate across the Euro market.

And so it is interesting to consider Opera’s options. 

On one hand you have an economic mechanism in place, with a foot in the African door, a proof of concept and 300 million users you can cross-sell financial services to. It is a testing market segment at worst and a solid revenue leg at best (today it’s the only one). 

On the other, you built tech, business capabilities and experience so you can operate in Europe, a very fragmented and inviting market. Arguably more crowded and lucrative than Africa - but what the Euro neo-banks and other fintech startups are doing* is just the tip of a huge financial service iceberg stuck in the 90s paradigm. 

It kinda makes sense for Opera to want a seat at the table, doesn’t it?

Its new acquisition, PocoSys, will launch a consumer card called Pocopay as an European alternative sometimes this year. 

The other new acquisition, Fjord Bank, is aiming to launch its first deposit and loan service in Lithuania during this summer too.

And voila, Opera has sneakily become an European contender with a compelling value proposition.

Africa’s business gives Opera revenue, optionality and breathing room for the stock market. And, equally important, the stock market provides access to liquidity. 

The strategy book and choices are wide open. The funny thing is that beyond all the European protectionism against foreign buyers of local tech, you have Chinese operating an interesting European tech company, listed in US, doing business in Africa and Asia and with Euro optionality given by a powerful combo of tech and banking licenses. Globalism. 

Will the browser-based tech and African biz experience combo managed by Chinese work for selling financial services in Europe? Hard to tell, Opera, after all, has a minuscule market share in Europe and did I mention that the Chinese culture is different? :-)

Keep in mind though: 

i) the browser is a valuable internet point of entry for consumers, a gate which is heavily protected by Google’s cvasi-monopoly with the Android + Chrome + Chromebook play. 

ii) a news product, which Opera already operates, is earned media - done right, it can fortify the marketing muscle.

iii) Opera has built Estonia as its fintech hub, besides an existing one in Göteborg, and Estonia is a very good, friendly place to conquer Europe from.

iv) Opera is still an European company, from the Nordics, a region with strong fintech tradition.

Once you have the operating stack in place and all cards in hand, you just need smart marketing and a good pair of strategic balls. What the Chinese did with Opera so far certainly seems to show evidence of the latter.


Revolut made $73M in 2018, raised a total of $836M, last at $5.5bn in 2020.
N26 made $50M in 2018, raised a total of $783M, last at $3.5 billion in 2020.
Monzo Bank made $50M in 2018, raised a total of $483M, last at $1.5bn in 2020.
Opera Software made $138 million in Q1 2020, $95M of which from financial services.

Karma Kitchen is WeWork for dark kitchens

Karma Kitchen has raised £252 million in series A for building a business for shared and private commercial kitchen spaces to rent. Yes, two hundred, not a typo. 

There are not too many public details available except for a paywalled article* and one with a rather general spiel, raising more questions than providing answers. 

Karma buys spaces and sets them up as cooking facilities, renting out portions of them to teams of cooks not interested in setting up restaurants on their own premises. A backend operation, very asset heavy, including buying the real estate, so that the huge valuation makes sense. It looks like WeWork for dark kitchens, at a similar scale, and we all know how that ended. 

Many risks to mitigate on both sides of the market and not clear what part of the chain Karma innovates. The real estate investor backing the deal will get the physical spaces against the financial risk in the worse case scenario with the upside of trying a new rental model on top of real estate. And so Karma is a vertical real estate startup with a different GTM**, more complicated than WeWork but as risky. 

Demand side is maybe higher (#restos > #tech startups?) but there is radical behavior change involved - costly and time consuming. The covid context is a rather favorable conjecture, it’s difficult to imagine the biz at scale in Europe though, also given the huge cultural food fragmentation, city regulations etc (London is different than Madrid or Stockholm or Bucharest). 

But there’s something there, the due diligence was done and risk has been taken. To paraphrase a movie quote, it is either an incredibly risky or an incredibly smart idea. :-) 

* I will never understand how startups do PR to get earned media behind paywalled media, but that’s for another time.
** Arguably, it is similar to Travis Kalanick’s CloudKitchens - but the US market is very different and CK’s secret sauce is innovating a completely integrated tech-based backend, for which you need vision.

Good strategy is when you transform a marketing expense into a revenue line.

I really like Bsit’s approach of launching Parentalist, a new standalone product based on a secondary business need. 

Bsit is a marketplace for babysitters active in France and Benelux and Parentalist’s aim is to become a knowledge sharing community for parents. From what I gather, Parentalist was rather a result of the Covid situation than a grand strategic scheme - nonetheless the beauty of this play is that it is a secondary product on its own, and depending on its evolution, you can derive other revenue lines later on.

Nowadays, especially in the consumer business, good marketing means a lot of earned media as a result of building a community around your users and providing additional utility, on top of the one derived from the core product’s main proposition. Once you have that community in place, the up-sell and conversion are more natural, easier and with better results. If it also generates money, that means you transform a marketing expense into a revenue line, which is even better.

Not too many similar strategic plays in Euro startupland to my knowledge.

Is the Euro startup media producing enough?

Here is a very meta thread, discussing why Europeans don’t have enough discussions about the European startup ecosystem. You get it? You know, like dudes in Silicon Valley do. :D

This simply indicates that perhaps there is a higher need of more media outlets aggregating a very fragmented European ecosystem of opinions and reflecting real work done by entrepreneurs.

Is the today’s Euro startup media output enough? Assuming the Euro startup world increases 3-5x in the next 5 to 10 years, shouldn’t the media covering it grow at a similar pace? Who is going to aggregate the new new media?

Yes, lots of questions to add to the discussion. Hussein puts it very well:

There are those who talk about what should happen and there are those who go on and make it happen. If anything Europe has too many of the former, and too few of the latter.

Does Google finally admit that now it is a media company?

In the Google land, they announced they will start paying publishers for news.

This has nothing to do with Google’s DNA and the way they do business. My guess is that it’s a legal tactic with business consequences emerged from the chess game with the regulators breathing down Google’s neck.

The company has already signed deals with a number of publishers in Germany, Brazil, and Australia and included Spiegel Group in the PR spiel. Does Google finally admit that now it is a media company?

Facebook has a PR problem. Again.

Unilever says it will halt U.S. advertising on Facebook and Twitter for at least the remainder of 2020, citing divisive content on the platforms.

It is not the only one as it joins some other 90 brands such as Coca Cola, Levi’s, Dockers, North Face, Ben & Jerrys, Verizon etc.

Two things:

1. Financially Facebook is not too affected as the bulk of its money comes from circa 8 million small businesses spenders while the top 100 advertisers bring in less than 20% of revenues.

Also notable, in 2017-2019 YT had the same problem and came out ok.

2. But this puts pressure on Facebook, as this doesn't have only a monetary impact but also a product one, and Facebook’s reaction looks really defensive. They keep saying they will change and become better at doing their business, just like a broken record - if you know how media works and still believe an iota from what FB says, it’s on you.

Also interesting to think about timing i.e. whether in times of economic boom big brands would have done the same - these days the consumer demand is pretty weak anyways as the economy is bad.

Startup education as a service or the Harvard for startups

Reading this about the current EU startup landscape and imagining it 5 years down the road, an evident missing piece is a platform that could provide guidance, benchmarks and role models for wannabe founders across Europe. An educational pillar of sort, providing a common denominator for founders from 27 different countries.

The balance is not at equilibrium - corporate vs. startup world, old money vs. new money, traditional media vs. new media, schools vs. <insert the future here>.

Training people for taking risks at scale requires a large talent pool able to network, learn from the best and from each other and move fast.

In Europe we have hundreds of useless startup accelerators, an outdated educational system and a young customer base, tech savvy and hungry to create, with English as their default language learnt via Roblox, Minecraft and the likes.

Who is going to build a suitable system for those guys looking to find models, mentors and a fertile ground for building stuff?

Who is going to teach them that it is ok to fail, still a stigma across the entire Europe.

Is it a business opportunity at all? An EU thing? Something schools should do? An incumbent?

Is it going to happen at all or we will all end up using Startup School, which looks very well positioned to become the Harvard for startups.

The new new media

Here’s a kind of revealing read showing Sifted’s editorial strategy and product positioning. Nothing out of the ordinary for people familiar with how media is done but pretty interesting nonetheless for guys like me, who did this for a living.

Also the fact that they get “hundreds of story pitches every day” indicates that:

i) they have some market validation for their output; 
ii) there’s plenty of value to create outside a copy-pasted press release of “X company has raised X money to do X”, which is pretty much the paradigm of how the English-based tech startup media operates in Europe.

The only little problem in the whole equation is monetization. Give it a year or so for the “new new media” creators wave (podcasts and Substack authors) to consolidate positions and find a consistent pace and we’ll likely see an aggregation of the most prominent ones as independent brands covering tech-related stuff or under umbrellas of traditional media orgs.

Just like it happened 15 years ago with bloggers and podcasters, which at that time were called new media. Buzzfeed, Techcrunch, Business Insider, The Verge - all those “old brands” emerged as extension of or based on bloggers work.

Fun fact: 15-ish years ago I used to run a weekly podcast show about tech startups. I did it for about 18 months, the tech back then was rudimentary but it was fun and nobody would do micropayments like nowadays.

Podcasts ads was even a more difficult case, ad spenders were just starting to get comfortable with terms like CPMs and CPAs and in general there were fewer people on the internet, there was no mobile internet except for Symbian, which was horrible in retrospect, Facebook was starting to get cool, Twitter was an unreliable SMS service, Google had just acquired YT and Instagram and iPhones were not even invented. Being in the loop meant reading online versions of printed papers.

Today we’re 2-3 cycles more advanced and there’s increased evidence of content paying behavior as even some of the new new media already charges. There is a difference though between paying for content to support individuals trying to contribute versus for big media brands covering a space.

But looking at the 12-24 months ahead, I wouldn’t be surprised about an aggregating move to a bundled proposition which will lead to scale and a better off solution for consumers. If you add in the mix the data-based and online event-based content providers, the aggregation need will be even more accentuated as the demand side can’t keep up w/ what the supply is publishing.

Making a business of it will require a solid value proposition backed by a good brand with a correct positioning. Europe is a particular, difficult case - winners will have balls, vision and strong voices but that is what makes the difference in life in general, I guess.

Fwiw, Sifted was launched about 18 months ago and, besides FT’s money and structure, has also some angel backing. What they lack the most is probably a sparring partner.

About The Family

Robin wrote a polite overview about how the French startup accelerator The Family failed to make a business with European founders as customers.

From what I gather, The Family was in fact an event company which also had some money to invest - unlike the tons of accelerators out there, they actually managed to raise €15 million on the side, to be able to invest in some of their customers as well.

But that didn’t change the business model and now they had to fire employees and to stop paying office rent. The Family employed 24 people based in 3 countries - maybe a decent size for an event organizer but huge for a 15 mil. investor.

And I don’t know about you guys, but I’d find it a bit odd to take business advice from an investor when his own business is not working out.

The disconnect between tech and politics and the invisible hand.

Here’s a scenario for Europe:

1. There’s a big worldwide fragmentation going on i.e. US vs everybody, within EU, Russia and China meddling etc and that would lead to trade barriers, travel frictions and cultural misunderstandings.

2. Politics would lead to a slow down of cross-border investments, American investors will be deterred to have a global approach and favor a US-centric focus, w/ more ops triggered by the covid crisis within the 52 states.

3. EU founders will have to learn to live without the rest of the world and will have free rein on their own local markets, inventing Europe-centric models.

4. The EU investors will learn to cope with less impressive returns, and investors from outside the tech world will back startups whose risk-adjusted returns they recognize as more familiar.

Authored by Nicolas Colin, you can read the entire piece here.

It is a scenario that looks a bit like a politician’s calculation. And then you read about how France plays the prey role for foreign buyers, shake your head and think Nicolas could be right, we’d better gun up.

Here’s what I think: that drama ain’t going to happen. The French are over-reacting (both Nicolas and the state) and the world of tech, both as business and as asset class, is a bit bigger and more complex than that.

And here’s why: there is a big disconnect between politics and the tech world.

Tech is decoupled from politics

The tech ecosystem has developed tremendously in the past 15 years, in spite of the shitty politics from across both ponds.

That is the very reason for which governments want to regulate Google and Facebook. The gap is so big between the two worlds that the politics is out of control.

More regulation and protectionism will not narrow it down, au contraire, it will force tech to be more creative, they invent things for a living after all. And yes, US is a very different beast than Europe but smart people adapt.

Europe is already local-centric and it’s not really working out

There’s two types of entrepreneurs - the ones who think locally and the ones with global ambitions.

Europe’s default was very local until we started to have access to the internet and real benchmarks. Arguably, today we have not gone that far and most of the founders here are still too country-centric, doing stuff locally and waiting for outside inspiration, copying or adapting from the Silicon Valley. This is as opposed to being a leader, pioneering and creating something on our own and conquer the world with it. It is a mentality thing, we talked about this. Copying Silicon Valley has become an obsession - being competitive is good but I mean how about inventing something from your head and lead the way, like they do.

Heavy protectionism is exactly not being competitive. Copying the other guys but without competing with them will be worse off for consumers - less worse choice - and for the investors - where will the exits come from? Add to that that most of the early stage investment funds are already heavily subsidized by the EU. The loop is closed.

And btw what the hell stopped Euro startups until now to get “free rein on their own local markets”?

Nothing, really - that is just another way to complain that they can’t keep up with competition as they’re out-innovated.

Think about it - Europe is the place where the Germans founded Rocket Internet to copy all SV ideas and where the French keep cloning Google, Airbnb and Amazon or whatever cool toys the smart kids invent and they can’t. Throwing money at a problem doesn’t automatically solve it - you also need a different mentality.

Uhm, Johnny, have you seen this cool stuff those guys did in America, it makes a lot of money, let’s copy it quickly in Europe and trick those suckers to buy us if they come over here!

Anonymous European VC investor looking at scooters circa 2018.

That is the usual European approach - and don’t get me wrong, being opportunistic is not bad at all and can definitely be a very lucrative strategy.

And, besides this mentality, we complain that we have the inability to expand to foreign markets, which is usually bad management, caused by not understanding the cultural differences. And not only from UK or Germany to US but also from France to Italy or Scandinavia. Of course, it’s also the other way around i.e. Yelp, Uber coming to EU etc etc. They even teach international expansion in schools nowadays.

There’s also good news

There is more and more European founders thinking big rather than small. Every day more evidence shows up - it is an irreversible process, again, in spite of politics, Trump and Brexit and the racist idiots from around us making life a zero sum game.

Yes, geo-politically we are at a global turning point. Brexit, Trump, China, Russia - all because the politicians would like to explore opportunities globally with new kinds of regulation and public policy. It’s a stress test for EU’s unity as well. This may not be a bad thing either.

But follow the money - the top guys are backed by the power poles, namely the investors. Arguably, politicians raison d'être is to help people with money make more money. And now, as opposed to 15-20 years ago, there’s more money to be made internationally than locally, it’s a simple arbitrage fact. Especially in tech, which is easier to scale.

As an anecdote, I have never seen my friends who run hedge funds or big fat pension funds more bullish in spite of the covid situation. That is because:

i) in general the balance sheets are clean and
ii) there’s never been such an aligned and concerted governmental effort to get over the hump since WWII.

Even the US stock market is not really affected by the BLM-related events happening these days over there. It is weird but that is the investors sentiment - probably because the latest US employment numbers are better than expected.

There is a lot of fresh powder on both sides of the ocean.

When I say I lot, I mean probably the most VC money it has ever been available to deploy in the world. And when the stakes are so high, no professional VC investor from anywhere will settle for “less impressive returns and local familiar business”. Do you think VCs convinced their LPs to give them billions of dollars with fund-the-next-Google and the-world-is-flat theories to just settle and “cope with less impressive returns”? VCs have a mandate to take risks and their job is to maximize the portfolio’s returns, as simple as that.

The whole logic of raising venture money is scale and grow as quickly as possible across as many markets as possible. You don’t even need VC money to build a mobility service available in Paris and Lyon, with optionality to expand to the south of France. A few angels will do.

Location has become less important.

You can build stuff from anywhere and sell it anywhere without even traveling there. The WFH has become normal these days because of covid, but that’s a train that was already coming.

It has never been easier to open companies, set bank accounts, get customers and build networks in a foreign country. It’s a fact.

Another anecdote - in the past few years I have moved and lived in three different countries on three different continents for a few months in each and have built network and business without knowing anybody there. And I am just a small cookie.

The tech infrastructure as the invisible hand in the startup world.

I don’t agree with Nicolas’ hypothesis but I do share some of his underlining skepticism and sometimes have an acute sensation of end of the world when I check the news. It is in real time, and simultaneously from different parts of the world - it is as if you’re in the middle of all of it and you get swallowed by a bad movie.

We need to change many things in the world but when you get back to work, you realize that actually change starts with you and your own contribution and attitude, and that the ball is still rolling on and we progress each day.

But I don’t think, tech-wise, we will see a geo-fragmentation. Even the covid period shows us that if there is a will there is a way and biz starts to get done all over the world, in spite of the quarantine, lack of travel, BLM protests or even people dying because of the flu. We adapt and that is the beauty of tech-enabled business - the tech stack has become a solid infrastructure which acts as an invisible hand for the startup world.

Add to that plenty of smart people willing to tackle big important problems in a collaborative way. And, unlike in politics, in the tech world people mostly create value don’t destroy it, as they work together and help each other no matter their location. And, not least important, there’s plenty of money available to fund solving those problems.

It’s a great time to be alive.