26 Mar We were able to predict defaults earlier than banks
Interview with Sergio Torres, founder of Sparkholder
Sparkholder officially launched only two months ago, but Sergio Torres and his business partner Bastiaan Burgwal already have a history in working together; in 2011 they started a credit union.
This credit union became the first Dutch credit union that could provide loans to SME’s under the so called ‘Regeling Borgstelling MBK Krediet’. With this regulation, loans are backed under strict conditions to a maximum of 50% by the Dutch Government. Despite this initial success as a credit union, the real value of the efforts of Torres and Burgwal appeared to be the monitoring system they developed under the name of Sparkholder. As Torres already experienced working as a consultant for mergers and acquisitions, providing the necessary information memorandum for investors and financiers and monitoring reported information is a very time consuming activity. “However, being transparent and inform investors and other stakeholders about your business is vital for your company. I believe in the speed of trust. The better investors know your company, the easier deals can be made”, says Torres.
We were able to predict defaults earlier than banks
Torres: “Just like many other companies we started the credit union also started with a basis administration in an excel spreadsheet. But soon we developed a sophisticated monitoring tool.” He really understood the value of this tool when they discovered a default in their outstanding loans twice, using their monitoring software, before the bank did. This sparked the start of a new enterprise called Sparkholder. Nowadays, Torres and Burgwal fully dedicate their time to Sparkholder. Like with the credit union their focus is still on speeding up the finance to small SME’s. Torres tells that more than 60% of GDP is realized by SME’s; it is therefore important for society as a whole to make sure that SME’s get funded.
Instead of providing loans themselves they now focus on servicing other companies with tooling for fully automated financial analytics on SME’s. They service three types of customers. First of all, entrepreneurs that need capital from investors and other financiers. Secondly, Sparkholder services investors and financiers that are seeking new investment or finance opportunities and/or need to track their current portfolio. Thirdly, advisors and accountant can use Sparkholder’s services to gain better information that improves their advice to other customers.
Reducing the burden of collecting information
The basis of Sparkholder’s application is real time data instead of aggregated data from annual and other periodic reports. “For example corrections in journal entries, before closing the ledger to publish the annual report, provide more information than the annual report itself”, explains Torres. This information is not only relevant for the financiers but also for the SME itself.
“SME’s may be riskier in nature than larger companies, but the risk can be mitigated by providing faster and better information. However the burden of collecting and providing this information is heavier for them because of their scale. Getting timely information, at lower costs, is key in getting SME’s financed. In order to solve this problem, you need to automate the process”. Next to Torres, who is an banker from origin, and Burgwal, with a background in economics, the rest of the team of Sparkholder exists of developers. These developers are responsible for both the front end and the back end of the application.
Applying smart coding and using API’s
Applying smart coding is important, but Torres also believes that it is important to provide flexibility in services. “Offering standard solutions is not useful because every organization has their own view on user interface and experience.” That is also the reason Sparkholder works with an open API, so that the financial analytics on Sparkholder can be used in the customer’s own product or service. “This way they can use our intelligence and data, but they can show it in their own environment and user interface.” Using the API, a company can access data from other companies on Sparkholder that provides access to their information. Of course, the entrepreneur providing the data always stays in control, so it’s not possible to access data from random companies.
Sparkholder does not only focus on quantitative information. The composition of the management team, successors of today’s owners and other qualitative information is also taking into account in their financial analytics. Much attention is paid to the correlation between macro and micro data. “If you are able to see the correlation between these different levels, then you have a tool that predicts future events. It enables you to act in time.”
The crowdfunding platform KapitaalOpMaat uses Sparkholder’s financial analytics. This month, the Dutch Rabobank started a pilot in using Sparkholder. And, of course, Sparkholder’s own investor makes use of their financial analytics to hold track on Sparkholder’s performance.
Interview by Carlien Roodink, partner Holland FinTech
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