Pär-Jörgen Pärson sat down with one of our portfolio’s most impressive founders: iZettle’s Magnus Nilsson.
Founded in Sweden in 2010 and acquired by PayPal in 2018, iZettle helps small businesses increase their payments capabilities. Over the past ten years, the team has managed to stay on top of its game, and the company was acquired just days before filing for what would have been an IPO. Find out how this unlikely founding team turned a great idea into a successful business, how they coped with risk and adversity, and what they learned along the way.
Pär-Jörgen Pärson: Magnus, let’s start by going back to the very early days, and how you and Jacob decided that you liked each other enough to build a business together. I would say it’s quite an unusual story.
Magnus Nilsson: Indeed, when we started on this journey, I didn’t know Jacob [De Geer] very well. Not to mention, we have a 20-year age difference, which comes with many different points of reference and a wide range of different experiences. Jacob’s mother actually connected us during a dinner, and wanted us to meet, for me to provide some advice to Jacob. Two weeks later, I got a call from Jacob saying “I’m sorry to call you Magnus, but if you and I don’t meet, my mother won’t stop. Can we just have a cup of coffee?” That’s exactly what we eventually did, and we spent about an hour together. He already had a very clear vision on what he wanted to do, so he didn’t really need my help. To be honest, I didn’t want to start a business, but Jacob insisted: “Have you heard of a company called Square? I think we should start up in Europe because it’s going to take them ages to penetrate the US market and European markets are a bit different from a technology point of view.” He planted the seed and I became obsessed with the idea. I called him back to say yes.
I know it wasn’t an easy decision for you because you had already had your fair share of entrepreneurial journeys, and in the beginning at least, you were skeptical about your age difference.
I thought that he should go out and find one of his pals who is bright and in tune with what is happening, but it wasn’t my biggest fear, to be honest. One, we didn’t know each other; two, we knew nothing about payments; and three, neither him nor I was going to start a business. And you know Jacob is very convincing. He knew exactly how to counter any of the arguments above. So we spent a month together trying to figure out what this was all about, and eventually decided to start a business together.
The first example of where this age difference was actually helpful is in our network. Many of my friends were senior executives in different places and we needed to talk to them. We also started to interview local shops to understand how they were processing payments. We realised early on how small business owners were underserved in all kinds of aspects, whether it’s accounting, payments, marketing tools… We decided to start with payments.
In the end, what do you think made you two gel as individuals? And if you were to give advice to an entrepreneur on how to find a partner, what would you say?
It’s a very hard question. Jacob and I have never really argued. In 10 years, we never had an argument. We have respect for each other, willingness to listen, and we’re not the same type of person. When we started, Jacob was 35 and I was 55, so we had independently seen many different things in our careers. I’m not sure we would have hit it off if we had been the same age.
The piece of advice I’ll give is for you to find people that complement you, because in the end, you need to divide things up. We also decided early on who was going to be the lead person, which really improves communication. I think it’s much more difficult, and I say this out of experience, to start a company with three founders. The kind of interaction that occurs when you’re three instead of two is massively different.
From two people running iZettle from your office to 1,000 iZettle employees now being part of PayPal, a massive organisation of ~25,000 people, what personal developments stand out and how proactive were you about them?
We launched in 2011, and in 2015, Jacob and I were still pretty much involved in all the different aspects of the company, so we decided to professionalise leadership and prepare ourselves for an IPO. Still today, my biggest job is to empower people to dare to make decisions and move on, even when they’re part of a big organisation like PayPal. There’s only 24 hours in a day, and in the end, you just can’t multiply or divide yourself up any more. At one point, we had several people who wanted to take on a bigger role, but felt that Jacob and I were overly present. We eventually also brought in external people who had not grown up with us. I think Jacob was incredible at keeping the culture alive while bringing those people on board.
How did you, while scaling, keep the mission and culture intact? And did you keep the mission intact?
We put different words to it but the basic mission, of being the small business owner’s best friend, remains. That’s why I got into the business to begin with, because I grew up in a small business owner family, and I know what it means: never enough time, never enough money, always trying to get new customers through the door. We are very lucky with PayPal because they have exactly the same point of view. I got an email yesterday from a person who’s leaving, unfortunately, who’s been with us for five and a half years. She made her best friends at iZettle, and it’s really hard for her to leave. There are many such stories.
That’s fascinating to witness. Just changing the subject a little here, towards risk tolerance and the fact that you actually managed to raise capital under incredibly difficult circumstances and not only once but many times. Could you describe your perception of risk there and how you kept your hopes up and communicated this internally?
Yes, it changed over time, didn’t it? In the beginning, Jacob and I put in some money to get the business up and running. We made a list of people we intended to approach and were going to compare who would raise the most money. The target was 2 million euros. I think we ended up with a few thousand euros difference in what we raised.
Back then, people didn’t know much about mobile payments. Everybody imagined someone literally paying with their mobile phone. Once we explained things, we got our 2 million euros quite quickly. Then we made a movie to really launch the product — a super creative project done by students at Berghs School of Communication. It turned out great, and Apple even called us to ask who produced it and how much we spent on it. In the Series B round, Northzone came along and invested. As always, it wasn’t easy to negotiate your way to a deal, but we raised around 10 million euros in our Series A round and more than twice that amount with you in the Series B round. A lot was based on hope at the time. After that, we raised money almost every year, so it was constantly on my mind. We stumbled a few times, but we always felt an incredible demand and loyalty from our customers. We had some external issues, too. Visa Europe was not that excited about our plans for quite some time. Maybe we should have spent more time explaining to them how we were opening up completely new markets. Today it is a very different story of course.
Visa Europe openly disapproving of your solution – that happened three months after we invested.
It was terrible. Having said that, of course now, we’re all dealing with more expensive hardware that we’re selling. We just had to learn earlier than anyone else how to do that digitally. I would say the worst experience when it comes to fundraising occured around a Christmas holiday. We were planning to raise a lot of money and decided to use an advisor. We went to the US and Square was not in favour at the time, so we had to differentiate ourselves from Square and the like, which was very hard. And suddenly we’re in November, we were supposed to close in October and we had to question if we could afford to have the Christmas party – a yearly highlight in the company.
But Jacob and I were not going to cut the company down, we just needed to find the time to raise money in a different way. The only risk we felt we had was that you, as shareholders, would heavily dilute us, but still we will get the money. So we got a bridge loan on good terms from all the existing investors that basically gave us another six months and three to four months later, we had raised money on our own.
Then PayPal negotiations came along. What was that process like?
I still don’t quite understand how it all went down – there was so little time. We were not pursuing a dual-track strategy. Jacob and our CFO at that time were spending all of their time on the IPO. I happened to be in the Valley early 2018 and met with partners and potential partners while being there. Rumour was already out that we were going public. Nothing much happened during that trip but later ,only weeks before we were going to publish our IPO prospectus it became apparent that PayPal had an interest in exploring an acquisition. We were dead serious about going public so the time pressure was enormous and in the end, we signed with PayPal the day before we were to publish our IPO prospectus on the 17th May of 2018.
Be honest: aside from the money, what added value would you say your investors really brought you during this process?
I think initially, Index Ventures really helped to provide contacts into the industry. They got us into Visa Inc in the US, we met the chairman, the CEO, we wouldn’t have been there without that help. And through our board meetings over time, with the help of two industrialists combined with board members from the VCs, Jacob and I learned to be tougher on ourselves. You’ve witnessed so many companies go through countless different scenarios, and you share that expertise and that knowledge. Bjørn Stray from Northzone, when he was on the board, pointed to weak spots in a helpful, factual way, and that really helped Jacob and me a lot.
Now you’re an investor in our fund, which we’re very happy about, but you’re still very much committed to iZettle and PayPal. Is there another run on the horizon for you?
Psychologically, yes. But from a sanity point of view, no. I have business ideas every day but I much prefer to support other entrepreneurs now rather than go on another entrepreneurial journey. I mean, I’m turning 65 now. However, I should add, right now I am 100% committed to making the iZettle – PayPal a really successful combination. That is where I spend my time.