Successful entrepreneurial cases: CRIF acquires Strands
WE INTERVIEWED ERIK BRIEVA, CEO OF STRANDS
At Bcombinator we continue the series of interviews with successful entrepreneurs who have sold their companies and tell us their stories and experiences that could help and inspire new entrepreneurs to grow.
In this interview, conducted by Luis I. Cortes, Red Hat executive courtesy, Bcombinator partner, business angel and advisor, Brieva tells us the history of Strands, how it was to embark on a company in crisis, how to pivot, how to put it in growth, the importance of the team, the sales process and its obstacles, and his current relationship with CRIF.
Strands was founded in 2004, by a group of experts in Artificial Intelligence, with Erik Brieva as co-founder. At that time, Brieva was at the head of Polymita Technologies, a company he dedicated 100% to until it was acquired by Red Hat.
Strands was initially dedicated to designing applications to disrupt the music market through artificial intelligence algorithms. It was a mix between Spotify, Shazam and Apple Genius. "On that premise, the company was able to raise 55 million euros of investment", that is one of the geniuses that Brieva highlights from the first founding CEO of the company.
"In this sense Strands was an example, the company was able to raise that investment to put in the project, but a few years later failed because of mismanagement of money that evaporated in 3 years," says Brieva. The product was a pioneer but very anticipated to the market, in 2004, when the company was founded, there were still no smartphones.
From that moment on, the company began to pivot, looking for a new Product-Market Fit, trying to find something with the limited money they had left, until it finally found a niche in the world of banking by applying the learning of artificial intelligence.
"When you look at things from a business point of view and understand technology, you can understand that the same technology can serve several markets. That's the magic", he says.
"They are recommendation algorithms, it doesn't matter if it's a music sequence, a consumer good or a financial product," explains Brieva. This is what Strands appreciated.
Edward Chang, Erik's predecessor as CEO, was able to sell the music technology patents to Apple, generating a significant income that helped him pivot from music to fintech.
That's what the investors told the team: "If this technology has been useful to Apple and the engineers behind it were able to create it, surely a good product can be developed for another market".
Taking the control of a company
In 2014, when investors called Erik, the company had been transformed but was on the verge of bankruptcy. It was losing 3 million euros a year. "In the current fiscal year of that year, I could finish using up the cash that was in the company," he says. The scenario was black. Investors were looking to Erik for one last salvation before throwing in the towel.
When Erik took over the leadership of Strands, "the investors were very tired, they were desperate", he says. Erik looked at the options the company had and told the investors, "We can do something important with Strands, we can put it to good use by innovating, and we can sell the product all over the world," and that was the assignment: fix the company, grow it, put a bow on it, and sell it.
"I found the project exciting," says Erik. I thought that with some not too complicated moves I could put the company on the path to growth. "Strands had an office in Silicon Valley and an office in Barcelona. When I joined, I went to San Francisco, and I realized that we didn't have to be in Silicon Valley," Brieva admits.
That location was eating up 60% of the company's expenses, so one of his first decisions was to close those offices. "I decided to start over in Barcelona with the few engineers that were there, which, in the end, was where the knowledge was".
Seeing the product, the references it had, the cost structure of the company, Erik made a composition: "I close San Francisco, I stay in Barcelona only with this team of 15 people, I think the product is good and I put marketing. There are internal struggles between San Francisco and Barcelona. The San Francisco team is super expensive, I make a few selective layoffs and put back a motivated team. This was the reason I agreed to get on this boat," he admits.
When does the company become profitable?
With all the changes that Erik Brieva proposed, by the end of the year 2014 the cash flow was positive, earning 500 thousand euros. In short, after having lost about 60 million in the last ten years, gaining 500 thousand was very good. "That was already spring for the company," Brieva said.
That same year, the company started to make a lot of noise in marketing, winning more clients, competitors started to feel threats. Potential clients started to be interested in Strands, what it had to offer and multinational companies started to wonder what was there.
At the end of 2014, potential buyers began to feel attracted to the company, but the management team together with Erik decided to make it grow, as it finally did and bring it to 12 million turnover with almost 5 million profit.
The sales process
In mid 2019, the board of directors decided to launch a sales process, knowing that it was going to be a very good year. That's when several multinationals became interested and entered into a bidding process to take over the company.
With CRIF, an Italian multinational, Strands already had a business relationship, so they knew each other better. "From the first moment CRIF showed interest, I knew it would be ideal for them to go. For a more human reason and from a business point of view it made a lot of sense".
"With CRIF there was a very important human component and that was that the interaction with its team was a pleasure, they are very friendly and close people," admits Brieva. And he adds: "When you sell a company, you not only have to think about the timely return you are going to receive, but also about who you are going to leave the company with, who you are going to leave the team with, that this team is in a good environment, that it can continue with the project in a creative way, innovating and taking it to the next level of value. CRIF offered this, both because of the business model, the fit of our product, and also from the human point of view. I saw it very clearly. CRIF was the best option”.
Obstacles in the process
When asked about obstacles that had to be overcome along the way Erik Brieva admits that without a doubt one of Strands' founders and former employee was a problem all along. He had gone very wrong with the company as an employee, but he was still a shareholder. "It was very difficult to manage," he says. "The previous CEO (Edward Chang) suffered through it, and I suffered through it. And he admits that he was also an obstacle in the whole sale process.
Fortunately, they managed that situation and were finally able to close the deal. "It's very hard when you have a company shareholder with such a level of hostility.
Consequently, Erik recommends: "When you have a partner with such a level of hostility, you have to get him out of the company. When you have hundreds of decent people who are willing to work hard, who are looking forward to it, they don't deserve to have someone who is always boycotting them and wasting their energy.
Selling the company in the middle of a pandemic
"I am aware and I know of many cases that fell because of the pandemic and the closure of countries. I know of several examples that were lost in the process, but there were others that kept going," Brieva says.
And he adds: "I think that life is circumstantial, and if everything is in line and there is fit, will and vision, you should not miss an opportunity that strategically makes so much sense". "If all the elements were there, it would have been cowardly not to do it, and instead he went away very brave doing it", he concluded.
The sales process took approximately 10 months, until finally on April 1, the contract was signed. During and after the sales phases, Spain and Italy were completely confined and closed. Both were among the worst countries in Europe related to the Covid-19. Everything had been 100% online.
The day after the sale
Strands and CRIF could not see each other's faces until the end of June, when the Italian company came to visit them in Barcelona. CRIF had decided that Strands would continue to operate as if nothing had happened. "There will be time to make integrations and plans," they said from Italy.
"They were very smart in making that decision. We continue working as usual, as if the sale had not been made", says Erik. As of today, they have already advanced a lot and have many things integrated. "We have earned their trust all these months, the company has continued to develop its roadmap of innovation, has continued to serve our customers with the highest level of demand".
And he says: "That is why CRIF does not intend to absorb Strands definitively but to maintain it as an independent company within the group, even with strategic decision-making powers in many aspects of digital banking, all this has been the result of seeing us work even remotely, we have been able to gain their trust. We continue to manage the company to make it better and better".
The success of the team
"One of the things I have loved about CRIF is the way it manages its human resources. It has a personalized, career-oriented approach for each member of the team," says Erik.
"Most of our team members are engineers. All these engineers are innovating. The greatest incentive an engineer can have is to keep innovating and to have the necessary tools to keep innovating, so that the effort of his or her work is valued and demonstrated both by the company and by market recognition", he explains.
"CRIF is very clear about this and places a strong emphasis on human resource management so that everyone can develop and make a career in the company".
If you could go back 6 years...
"When I entered the company there was a broken equipment, a very big cleanup was done in that sense. But I made bets for people I shouldn't have.
Erik describes himself as a person who likes to talk to people, take care of them and help them in their growth process. But he admits that there were two or three people who didn't deserve the effort that was made for them. "I think it was a lot of wear and tear for everyone to put so much energy into those people. Not only do you have to know how to pivot the product in the marketplace, but you have to pivot people when they are not aligned and rowing in the opposite direction of the vast majority. Looking back on it, "I think it would have been better to clean up the mess," he accepts.
However, I prefer to stay with the best, which is what has led us to success, I refer to the majority who always knew how to find the motivation in each step, and those who accepted different roles because they understood that circumstances are changing and the dynamic requires change.
Today Erik is planning a long journey with CRIF and he believes a lot in his work. He says: "I keep seeing myself in this Strands/CRIF project. In the next few years I will do my best to make Strands even better and continue to grow. My personal goal is to give my all so that what they get is much better than what they bought", exclaims Erik.
In addition, I am lucky that in parallel, CRIF allows me to continue managing Bcombinator. A few years ago, Erik Brieva founded Bcombinator, a coworking space that helps entrepreneurs grow and take their businesses to another level, regardless of their stage of development. It is located in Poblenou, in the 22@ district just a few streets from Bogatell beach. "Fortunately in these two years we have great success stories. We have helped many entrepreneurs and their startups grow, at an international level", he concluded.
Where do you see the combination of CRIF and Strands in 5 years
"CRIF is a world leader in financial data and information management, and Strands is a world leader in developing technologies to aid in data analysis and use it for the benefit of users. So I believe the combination is perfect for transforming the future of the financial industry, and better serving citizens and businesses.