kennek: A Founder's story

Nina Mohanty [00:00:04] Thanks for joining us for another episode of Architects of Change, a podcast brought to you by Mambu, the cloud banking platform to help you evolve your business. I'm your host for this episode, Nina Mohanty, founder of Blue Money. In this special episode, I'm chatting one on one with Xavier de Pauw, the co-founder of kennek. A vertically integrated lending solution for lenders and loan investors offered as a software as a service platform. Throughout this conversation, we'll discuss Xavier's humble beginnings up to the present day to the extremely successful entrepreneur he is today. We hope you find inspiration from Xavier Story along with valuable lessons and insight within the fintech industry. Welcome, Xavier. How are you?

Xavier de Pauw [00:00:51] I'm very well, thank you. Thanks for having me.

Nina Mohanty [00:00:53] Well Xavier, let's start with a little bit about your background. You're Belgian, but your early life wasn't based just there, was it?

Xavier de Pauw [00:01:01] That's right. So a Belgian national. But from the age of 9 to 17, I grew up in Cameroon, which was which was super interesting, shaped a lot of who I am today. I mean, those are the formative years. So I went to a French high school there. It's one of the reasons why I ended up also in London, because I was really looking for an international, cosmopolitan city, a place to live and working.

Nina Mohanty [00:01:27] When you went through your education and started to understand a little bit about the world, some of the influences, perhaps from your upbringing, both in Belgium and Cameroon, was the goal always for you to make it in the finance world?

Xavier de Pauw [00:01:42] So certainly growing up in Cameroon, one of one of my uncles has started a company there. And so  my father joined that that company, which is why we moved there. That's that was my first kind of entrepreneurial exposure, if you like. And I thought it was really interesting running a business, seeing seeing how that happened and how that worked. When I went to uni, that really became more of, you know, doing business and looking more at the financial markets more than anything else. So that's really what what piqued my interest.

Nina Mohanty [00:02:17] On that note, though, you mentioned your uncle was an entrepreneur. Would you say that that had an influence on your entrepreneurial spirit or were you just entrepreneurial from the get go?

Xavier de Pauw [00:02:29] I don't think it was entrepreneurial from the get go. You know, I never as a kid never set up a lemonade stand or something like that, I'm trying to get my kids to do actually, because they they are showing good, entrepreneurial kind of, you know, signs there. So I'm trying to get them to do some of these things. Though for me, it really started, I think later on as a teenager or as I said, I saw family running a company. I got into economics and finance and and so really, you know, you read about the number of people read about stories in the capital markets. And that really got me interested. And then throughout my career, if I look back at almost 25 years now whilst working at a financial behemoth like Merrill's, there was still a lot of entrepreneurial stuff that was happening that I was following. So I guess doing, doing deals, structuring deals especially is something I've really developed a keen interest in.

Nina Mohanty [00:03:31] So I wonder if you could tell us a little bit more about where your finance journey began? Because I want to talk about the companies that you founded, of course. But maybe let's go back in time to where you actually started to hone your craft within financial services.

Xavier de Pauw [00:03:50] So I started in 99 at Merrill Lynch in London in what was called fixed income, structured finance. So we were trying to simplify this. We were our clients were banks and and nonfinancial or non-bank lenders who had portfolios of loans and needed financing solutions or capital solutions. And so we would put together in hindsight, quite complex transactions where either we would we Merrill Lynch would fund some of these portfolios or we would issue bonds in the capital markets which were backed by these portfolios of loans. Those were deals, to give you an idea that, you know, required three to sometimes six or seven months of structuring work from from cradle to grave. So they were quite complex. And that's actually what I what I really loved about that job is there was a lot of analytical work involved, but also legal work structuring. So it was a very multifaceted type of role. I'm somebody who who loves to do various different things. And that kind of role was really perfect for that.

Nina Mohanty [00:05:00] And if I recall correctly, were you still at Merrill when the financial crash happened?

Xavier de Pauw [00:05:07] Oh yes. The proverbial what goes up must go down. So we built a team from single digits, four quarters, seven, eight people to 65 people by 2007. And then when the crisis happened and really started in the summer of 07 and then 2008, we went back down to five people. So I was one of the last five sitting there. So yeah a pretty brutal situation. But you know, at that time you're sitting there and you see wave after wave of of people losing their jobs, you know, irrespective of whether they're doing a good job or not. It didn't matter at the time, but then that the volatility in the market was so extreme and so overdone to a certain extent that it presented opportunities. And so out of that came, you know, we were first issuing our jobs had been to issue bonds in the markets. Now, all of a sudden, those bonds, which most of them I would say almost all of them were money good. So we thought, okay, these these things will we will end up repaying what they do to repay. But you can buy them today at a 30% discount to par. So that's where the idea came to start a bank where we would build a bank backwards. So start with a treasury. The stuff that I knew really well, you know, build a treasury buy some bonds, finance those bonds, and then create a margin of positive margin in the balance sheets, which would then finance the growth of and the build out of a bank, which is what we ended up doing with backing from a private equity firm.

Nina Mohanty [00:06:47] Wow. I want to talk about kennek, but before that, I want to actually talk about the digital bank MeDirect tact that you built from scratch. And so you built that over nine years. You developed a banking group active in three European countries, 300 staff, a €2.5 billion balance sheet. And then you also then co-founded the sub bank, Bank Belgium.

Xavier de Pauw [00:07:15] Yes. So in terms of my career, I started at Merrill Lynch in 99 and stayed there exactly ten years. Day for day. So until 2009. Yeah, the secret there was the financial crisis which started in the summer of 2007. Really, really went through 2008. And that's the period where, you know, the volatility in the market created it really an opportunity to start a bank and start building a bank backwards switch, which we did in the summer of 2009 with the with the launch of MeDirect out of the banking group MeDirect, we started with the bank in Malta, set up a London office, and then decided to start building banks across Europe. And the first one was the MeDirect bank in Belgium, which I led as a CEO for five years.

Nina Mohanty [00:08:08] I mean, having been in Merrill Lynch for some time, seeing the ups and downs of that and then going in, you know, saying, actually, we're going to do this on our own. What was your secret? What's the secret sauce here?

Xavier de Pauw [00:08:23] First of all, just like now with kennek back then, I was one of a few co-founders. So kennek there's three of us who started the company. MeDirect there was four of us, four essentially co-founders. So that's one enough. It's a secret, but that's certainly something that I believe in, is doing things with not by yourself first of all. What I like to say also is you work hard, you're probably lucky to be smart, to have done the right studies and then pursued the right kind of career path. So you have to do everything right, but then you also have to have a bit of luck. And I like to be humble enough to say well yes I've done everything right but then you still need that element of luck of being in the right place at the right time. You know, I had the idea I wanted to do this and I was lucky enough to meet a private equity fund and co-founders who who had a similar idea, if I didn't have that one moment there, it probably might have stayed an idea right? So I think you have to optimise and maximise your chances of success or of doing something by doing everything right. And then you still need that little spark at some points in time.

Nina Mohanty [00:09:36] So a lot of preparation with a small dose of luck.

Xavier de Pauw [00:09:39] Yes. I think, you know, ultimately in anything in life, right. If you apply for a job, you might be the best qualified candidate. I think in this case, I had that idea. I met the product and had the same idea. So I walked into that meeting thinking, surely there is a match here because I have the business idea that they believe in and that they are also starting .So we should start this venture together. But you need that element of the spark where they think ,yes, this is the right individual and not somebody else. So that's one thing there. And I think ultimately perseverance, my favourite word is tenacity and And when we were hiring at Merrill's, we were always saying, you know, you'd go on campus to some of the, the best universities in the world. And people would say, you know what makes a difference? And you look at 50 people, you know, different backgrounds, but ultimately same studies. Everybody's smart, everybody's studied, everybody's on this and that. And I would  say, well, but it's how tenacious or how eager are you to get there right to go for the next to the next mile so to speak.

Nina Mohanty [00:10:47] Now, I'm going to make myself sound old by saying this. But, you know, it really feels like nowadays people kind of expect things to happen overnight. One of the things that I've noticed recently and, you know, I would probably be classified as one of these young entrepreneurs. But you see a lot of these wonderkids, you know, Forbes 30 under 30, these young founders who have a great idea perhaps, but maybe don't have the experience that you have and perhaps don't understand the enormous responsibility that comes with managing a fund, managing other people's money, don't have those important relationships or connections or understanding of little regulatory quirks. Right. I mean, we're talking about fintech here and it is other people's money, so it does matter where things land and making sure that we're taking all the boxes and it's annoying. But what were some of the key benefits of your experience at Merrill Lynch and prior to being a founder? And what would you say to those that are younger who perhaps think that they can take on the world and say, you know, death to the banks or whatever it may be?

Xavier de Pauw [00:12:08] One of the best compliments I had was from one of the guys that joined in, one of the young guys who joined us at Merrill's and joined my team. I had been drilled to work to a very high standard. And this is what you were expected to do there. And he later on became an entrepreneur or he was entrepreneur, joined us for a number of years and went back to entrepreneurship and said to me recently, thanks for being so hard on me because that means that I now go for the high standard and it helps me when  I'm an entrepreneur. So I guess just generally when when you join one of these large organisations, investment banks or some of the big consultancy firms, etc., it does give you a good kind of basis to start from. I'm not saying it's necessary. I'm not saying it's necessary at all. But it does bring that kind of experience. To your other point. Look, in capital markets, we've seen the proverbial kind of 25 year olds, you know, building some tech in a garage, going to one of my former colleagues on, you know, in a in a large investment fund and saying, hey, the way you're doing things is is obsolete. This is how you should do things. And in B2B, that's a very tough sell. It's usually badly received because people sit there, rightly or wrongly. But the reality is your potential clients sit there and think, well, you don't know you don't know what we do day to day. You haven't seen this. And so the disruptors amongst us will say, well, maybe it's good that a different viewpoint arrives in this market. Why don't we look at it differently? But the reality is, when you have an investor and you are managing billions for other clients, your appetite for risk and for doing things completely differently is reduced. So the element of age, experience, trust from having worked in those markets for many years in the B2B space certainly helps. I think the kind of superhero single founder that you read about in the press, whether it's fintech or other, you know, e-commerce, whatnot, I see that mainly as a as a B2C phenomenon, number one. Number two, it's also you see the tiny tip of the iceberg, right. For for every Mark Zuckerberg, there's probably 999 people that you've never heard of who tried the same thing. My philosophy and our philosophy at kennek is is actually, I guess, a bit more risk averse to a certain extent. I mean, we started a company from scratch again, so we are risk takers. Right. But there's a spectrum there of risk taking. So already starting with three people rather than one, we think it's important, actually. We're really five co-founders with with two late co-founders who've joined us. That means that there is a breadth of experience and of knowhow in the company, which means, you know, we help each other and we're humble enough to say, well, I don't know everything. I know what I don't know. And so that already takes the probability of failure down. We then apply that also externally. So not just amongst ourselves, we're not trying to maximise necessarily the percentage of shares that we have. It's what we're trying to do is make the pie as big as possible. Right? We're building a pie. We're making the pie as big as possible and then we'll split the pie. And obviously then we want as big a share of that pie as possible. But let's first make sure there is a big pie to share amongst ourselves. And what I see a lot of times and with, you know, people who think, oh, I'm going to be the next Mark Zuckerberg as they try to keep 100% of something and they end up with, you know, yes, great. You have a small cupcake all to yourself. But you haven't really  achieved anything in terms of, you know, building a company around us. So so we do that internally. We also look at that at the world externally. So, for example, you know, we're not building everything ourselves. There are phenomenal solutions systems out there. Mambu is one of them. We build on the lending engine of Mambu. And that for us is a collaboration. I would call it, you know, almost a partnership because we build on something quite important from Mambu to be able to give a certain service to our clients. And we do that with a number of other vendors. And again, it's about reducing the risk of failure, because when you start a company, the odds are stacked against you. That's just what the stats say. Right. So, so try to reduce that, rather reduce the probability of failure, then try to maximise for something else like percentage of the company or whatnot which is just in my mind certainly the wrong focus.

Nina Mohanty [00:17:00] Yeah. I really like this idea that you've brought up of, you know, let's build, let's bake a bigger pie instead of having a tiny little cupcake for yourself. I like that. Let's talk more about kennek. And actually, this is probably a good time to make sure that I'm saying it properly. So is it kennek? Is it kennek? please walk me through

Xavier de Pauw [00:17:27] We say kennek. I'm somebody whose first name has been pronounced in 20 different ways here in London. So we're not we're not too focussed on how people pronounce it. But we've done some work with a great branding marketing company on the name. What kennek stand for is that it comes from the word connecting, right? And we're connecting a number of different things. First and foremost, we're connecting our clients who are all sorts of lenders, alternative credit providers. We're connecting them with much better data. So we're helping them do their jobs better by connecting data from from various sources, open banking, accounting, etc.. But we then also connecting those lenders with institutional investors who provide funding to those lenders, which then which then goes into the real economy. So those connections are there around us. So we're very fortunate to have great angel investors backing us and advisors backing us. And again, it's kind of an ecosystem where we connect people and that exchange goes in both directions. That's why we wanted the name, which is a palindrome, which you can read in both directions. So that's where that comes from.

Nina Mohanty [00:18:41] Okay. So now that we've got it right, kennek. So I was saying it right, that's good. Tell me where kennek story starts because you've got all this experience. You obviously know what you're doing in capital markets. Set the scene for us. Where does kennek actually begin?

Xavier de Pauw [00:18:56] Well, it begins really with with a big shout out to my my two co-founders Thibault Lancksweert and Edmund Parsons. We really started talking with Thibault at the beginning of 2021, looking at what he was doing with Edmund in the alternative credit space. And that's what led to starting kennek in June 2021. So they they had been in a lender, a non-bank lender. They had built systems there for lending to SMEs in the UK and there wasn't a Mambu around there at the time. We're talking about it almost ten years ago. So they had built stuff and seen how hard it was. They had left the lender. They had been advising individual platforms because what they saw was that there was a lack of proper systems, procedures, policies, data systems in place for those smaller lenders. We were talking about this, the three of us, and so Edmund and Thibault were putting in place all your systems when they had done a lot of that work, then came to time to connect a lender with institutional investors. And that's where where I came in with my background from Merrill Lynch and MeDirect. And as we were doing that, we thought, well, we can keep doing this one by one. But actually what we're really looking at is a number of things. So it's a why now question. Technology has advanced tremendously. Platforms like, again, you know, banking systems like Mambu that you can take off the shelf and start building on top of. That means that we, you know, we will go live with our MVP within six months, which is unheard of. You know, it would be impossible without those building blocks being there. There was a huge amount of growth in that alternative credit space. It's a highly fragmented market, lots of lenders. They all need the same thing. And so for us, it was clear that they need technology. They also need funding. And the funding, you know, the large funds that we talk to, the large banks that we talk to need some form of trust in the system, that data and the continuity of those platforms. And so we resolve that by not going into them one by one, but actually building one software as a service platform, which is a plug and play credit infrastructure. So our clients still build the front end and this is important. The IP of most of these lenders, their IP is origination sales, you know, finding the niche that they understand better where they can deploy capital and that they can they can evaluate the credit quality of those borrowers. That's that's what they do. They are digging for gold, if you like. We are giving them the shovels. We're giving them the shovels to do that digging.

Nina Mohanty [00:21:45] One of the things I think is so important these days, especially, is what is your purpose? What is your mission?

Xavier de Pauw [00:21:52] The ultimate goal and I guess north star, if you want to call it, is something I touched on before is we're building something, we're building lending infrastructure. We're not just building it, well we're building it because that's what we really know how to do. But ultimately, the goal is to to connect more capital with the real economy. There are huge statistics on what is called a funding gap. So the need for funding by SMEs, corporates that need funding to grow to hire people, to create jobs, to invest in sustainability and all these things. And there's a gap between that need and the actual supply of  funding. That's the reason why the alternative credit market has started. Alternative credit market essentially means it means various things. But simplified, it's the credit provided outside of the traditional banks, if you like. So our goal is to bring more funding through to the real economy. So if you think about, you know, the ESG, you know, we're probably on the S&G more than more than the E, we're not planting trees every time a loan is granted but we but we like to think that when we help the the certainly the SMEs gets better funding get more funding that creates jobs. And those are also the companies that innovate and beneficial to everything.

Nina Mohanty [00:23:16] And I'm curious when you talk about SMEs like a SMEs as in, you know, my hairstylist as in the coffee shop I visit every morning or what do you mean when you say this, these SMEs.

Xavier de Pauw [00:23:28] As I mentioned before, we, we build the infrastructure and we build it. And I'm going to refer back to, to, to Mambu who has a has a phenomenal lending engine, which is configurable. And we have. You know, certainly Thibault and Edmund in the past have built technology for SMEs, which are mid-sized companies borrowing between two and £5 million. That kind of size of enterprise here. And what they saw is that when they wanted to change product, well, they had to go back to their engineers and build and invest money and time to develop a new product. So our thesis is we build the technology. We give a tool to any type of lender, whether they focus on real estate lending. And we have a number of real estate rich financing kind of clients who lend to two developers. We have a lot of platforms who do some sort of invoice discounting service to clients who are looking to provide a service. They have a cash flow coming to them in 60 to 90 days and they want that cash upfront. That's a sort of credit and then term loans, term loans to  midsized companies. So it can be really any type of credit. What's really interesting is if you think about this even further, there are corporates. So one of our potential clients, we're quite advanced with them at this stage. They  place people in, you know, for example, Amazon needs a hundred people in a warehouse. They will put a hundred people there, pay those people, and then wait for Amazon to pay them, you know, 60 or 90 days later. They then repackage those those receivables, if you like, and use that to finance themselves. That's again, a credit.

Nina Mohanty [00:25:14] So you've talked about Mambu and reference a few times, but you believe very strongly in the power of strong partnerships. Right. And you spoken about the types of partnerships you have and the importance of them. But what would you say has been the epitome of your desire to work in this way with your partners?

Xavier de Pauw [00:25:38] We work with a few larger, you know, fintechs and companies. Mambu is one we look at Codat, which is an accounting data aggregator. We work with Looker which is a Google company now. So when I look at those guys and those companies, I like to say we're building on the shoulders of giants. They've already established themselves there. Let's not try to beat what they're doing. They're doing it really well. And it would take us years to build something of a similar quality. So let's let's work together. What's interesting is if you look at the history of fintech, right. Ten years or so, roughly the kind of new wave of fintechs. Right. Because there were fintechs before that name was even invented, really. But the new fintechs were really businesses typically that came to to steal the banks launch. Right. That there was a that was essentially what were disrupting or breaking up the banks or whatnot. A few years down the line those fintechs realise actually it's not that easy to acquire an audience. And the banks realised it's not actually not that easy to innovate and be faster than those that those fintechs. So there was a lot of cooperation that went from fighting to cooperating. And I think in these days, so a few years later, that cooperation, those partnerships are ever more important. People work together. You know, one plus one equals three, so to speak, right. When you work together, you just reinforce each other and you manage to serve a different client base, which is accretive to both parties rather than, you know, it's not a zero sum game. It's not if I do this and if I help you here, then it's detrimental to our business. It's usually the opposites, really. And so we we do that with the large players. We also work together with some some smaller companies where where we see benefits in helping out each other. And ultimately, there's a bit of good karma there that, you know, if we help each other with some good things will come out of that.

Nina Mohanty [00:27:45] So not to make you choose your favourite child.

Xavier de Pauw [00:27:49] Oh gosh.

Nina Mohanty [00:27:51] But I wonder if you could share with us your biggest success story or a big success story when it comes to connecting with your clients.

Xavier de Pauw [00:28:02] Most recently, I won't pick out one single name of a client, but one. What was really great is, you know, we talk about how do you build these start-up right? You have to iterate fast and and show something to a client and and learn, you know, either they like it or they hate it or that any feedback is great because you learn, you adapt and and then you're iterate and become better. And I think one of the great successes recently as we're doing a lot of demos with clients is just a phenomenal feedback that we've been having from Frontline saying, well, number one, we. We don't see any system like this. Nobody's really offering that one stop plug and play solution for lenders. So we've been trying to plug a number of solutions together, but you guys are doing it in a vertically integrated way, which is super useful. And by the way, the whole user experience is fantastic. That's music to our ears, right? Because when you think about B2B, typically, you know, I was a user of Bloomberg terminals for 15, 20 years. I mean, 20 years ago, there was no UX of Bloomberg right. It was just a very strange looking screen.

Nina Mohanty [00:29:19] It's good to know that, you know, B2B companies like yourself are also taking your UX or user experience just as seriously as, you know, B2C companies. So before we wrap up this episode, I have to ask you, where is kennek going? What are your future aspirations and how are you visualising its continued relevance in the world?

Xavier de Pauw [00:29:45] I'm glad you said world because that's that's ultimately where we're going. We started building kennek in the UK because it's in Europe. By far the largest market in terms of alternative credits and an alternative lender. So it's a it's a natural place to start this business, but the demand is global. We see we see in Europe, continental Europe, we see a lot of lenders being set up and needing systems, you know, smaller banks or, you know, even the whole asset management industry, the direct lending funds also need these systems. So I guess what I'm trying to say is where we have ambitions, both in terms of broadening the client base that we work with and certainly also the geographies. So when we launched our websites or the first version as there's a second version coming out in a few weeks, but the first version website that came out we had within the first week we had enquiries out of Hong Kong, Brazil, Continental Europe and the U.S. and so we're building ultimately something that that should be able to go and actually that can go globally. And that's certainly the ambition. So yeah, when we when we talk about baking a large cake to then share amongst ourselves that the cake has to be global.

Nina Mohanty [00:31:04] The cake has to be global. Perhaps that's your ticket back to Cameroon.

Xavier de Pauw [00:31:09] Well, you're joking, but there's a lot of a lot of fintech innovation happening in Africa. So who knows? Who knows?

Nina Mohanty [00:31:18] Yes. I'm finally just speaking more broadly, I guess, a bit of advice from someone with your years of experience or deep knowledge. How do you see the lending investing landscape changing over the next few years? You've mentioned it's quite fragmented, but how do you see it changing?

Xavier de Pauw [00:31:37] I think ultimately, look, companies need capital to grow, so there will always be demand there. The banks or I was CEO of a bank for five years. I can tell you the regulatory burden on a bank is tremendous. So banks are it's harder and harder for banks to lend. And so there needs to be an alternative. And that alternative is growing, it's the alternative credit space. I would say don't be discouraged by some of the headlines that you see because it's not the full macro picture. Right. Every company has its own story and every subsector. So so I think there's a lot of innovation coming. We like to think about embedded credit, but it's finance. So we talk a lot about lenders and we talked about corporates who become lenders. And that happens through some of these embedded lenders, which are the new kind of fintechs that have been emerging. When we think about our infrastructure, that could just power any company to become a lender. And so ultimately, I'll probably end up on that thought is that you know, lenders are growing, more and more lenders are appearing. But I would say the the frontier between what is a lender and what is not will become quite grey. And any company should be able to be offering financial products and credits.

Nina Mohanty [00:32:56] Well, you heard it here first. Thank you so much for your time and for your incredible expertise on this episode. It's been really eye opening and I can't thank you enough for joining us.

Xavier de Pauw [00:33:09] Thanks. It was a pleasure to be here.

Nina Mohanty [00:33:11] Wow. Quite the story there. It has been such a great time speaking to Xavier, talking about his early experience working at Merrill Lynch, going through the great financial crash as well. But a lot of the learnings that he had which helped him set up a business that became MeDirect and that was also where he became the CEO of that business. I think what really struck me was his constant calls to building a bigger pie, baking a bigger pie even. Where you want to bring as many people in as possible about respecting your co-founders, about respecting your partners. And that's something that can be quite rare to find in this day and age. So it was brilliant to hear his thoughts on that and also, frankly, to learn a bit more about what they're building at kennek and why it's so important to our day to day lives in the economy and how they're helping small businesses access the funding that they need. And that brings us to the end of this Architects of Change episode brought to you by Mambu. Thank you to my brilliant guest, Xavier de Pauw. If you'd like to delve into more of his work and find out more about kennek, please head to kennek.io .For more Mambu podcasts, including the latest episode. Small businesses, big ideas, little funding. Head to wherever you get your podcasts. And don't forget to subscribe to our channel so you don't miss an episode. I've been your host, Nina Mohanty. See you on the next episode.