One Mistake Led This Entrepreneur To Build A $3.5 Billion Business
Kristo Käärmann is the co-founder and CEO of TransferWise. A fintech startup that has gone from bootstrapping to saving users over $1 billion a year when transferring money. By tackling a common problem and taking action on it, Käärmann and his co-founder, Taavet Hinrikus, have gone from zero to a multi-billion dollar business in just a few years. Kristo recently appeared as a guest on the DealMakers Podcast. He shared his journey, his experience raising $400 million from some of the most respected investors, and how he created a global business that is disrupting the status quo. Learning to Code Kristo Käärmann was born and raised in Estonia during the days of the Soviet Union. It wasn’t until the late 80s, early 90s when they saw the first personal computers. As a kid, he first got his hands on a Spectrum - Zedd X. Later it was a Commodore on which he wrote his first pieces of code. From there he was inspired to get his college degree in mathematics and computer science. It was then that Käärmann followed the path I’ve seen many successful startup founders take. He went to work as a consultant with PwC. Why Being a Rockstar at Spreadsheets Isn’t Enough Having freshly broken away from the Soviet Union, the oldest company in Estonia at the time was only about 15 years old. Desiring to gain the insights of more mature companies, Kristo moved to London in 2007 to work as a management consultant with Deloitte. There he got to see inside the machine of 100-year-old companies. As for his take on why consultants end up making good founders, he shared that “When you're starting up a new business, you have to be organized. Consultants are usually good at organizing and structuring the work to get things done fast.” Within the first year of launching Transferwise, the volumes they were processing very quickly outran what spreadsheets can handle. At this scale, the work is more databases, code, and industrializing. The benefits of being organized are clearly very useful in the entrepreneurial journey, especially when everything has to run like clockwork. It is clearly an advantage in any startup set on achieving scale. The Billion Dollar Mistake When Kristo met his co-founder Taavet, who was also one of the first hires at Skype, they shared a similar problem. Kristo’s challenge was that he had a great salary in the UK, but his savings account was still back in Estonia. He found he was actually losing money through the transfer due to an exorbitant amount of bank fees. To get into specifics, he was losing about 500 euros. He thought it would cost him 12 pounds to make the transfer. What he didn't know was that his bank was using an exchange rate that was 5% less than you see on Reuters, Bloomberg, or any other website. Those 12 pounds aren't really how banks make their money. It's about the fees that are hidden in the exchange rate. This was his mistake. Taavet had the exact opposite problem. He was moving money from Estonia to London. He was still paid in euros into his Estonia bank account, but his living expenses were all in pounds. After these cofounders shared their frustrations with how banks were handling their transfers, they decided to come up with a solution. TransferWise was born. They launched in January 2011 with a simple blog post on TechCrunch. They immediately got a ton of mail from people around the world. Many saying, "Hey, we had exactly the same idea with my friends back in university, but we never did anything with it. We never really built it into a product."
TransferWise started in 2011 making payments between the UK and eurozone. People in the UK could send money to Europe, and people in the eurozone could send money to the UK. That was it. Six months after launching they were doing 800 transactions a week. Now they’re moving about $5 billion across the border, across 1,600 different currency routes, moving through 70 different jurisdictions, with different local regulations and local banking systems. They are now servicing 5 million customers around the world. Startup Fundraising Right away, these two co-founders knew the challenge they were solving was much bigger than the two of them. So, they went out to hire a great team. They began by bootstrapping and were paying the salaries of early employees from their own salaries and savings. Raising money in Europe in late 2011 was really hard. They wasted more time on it than they wanted. Eventually, they flew to New York and raised a seed round of $1.3 million from IA Ventures. The seed round had a big impact on helping them put everything together.
To date, they’ve raised around $689 million with a $3.5 billion valuation. Institutional investors include SV Angel, Index Ventures, Andreessen Horowitz, Kima Ventures, IVP, Sapphire Ventures, IA Ventures, Valar Ventures, or Mosaic Ventures to name a few. Other individual investors include Richard Branson or Max Levchin. The Danger Of Perfection Today, Kristo’s one piece of business advice for other early-stage entrepreneurs is not to waste time. He says at TransferWise they spent six months deliberating the idea, whether to launch and polishing version one. He says, “we definitely did overthink this in the beginning.” Many times, you just want to have the perfect product, but at the end of the day, there’s nothing like having it on the market and being able to listen to your customers and optimize as you go. Kristo‘s recommendation to other entrepreneurs is to spend the early days thinking about how to build a product that customers want, and that the customers are willing to pay for. Once you have that, then investors are going to come running to you. Listen in to the full podcast episode or check out the transcript to hear Kristo’s take on:
Turning frustrations into billion dollar companies · Raising capital from the best · How to think about building teams for startups · Digital currencies
