Avaloq co-founder Francisco Fernandez tells finews.com about his bitterest defeats and sweetest triumphs in the last 35 years – and why he cleaned toilets in the factory his mother worked in as a teenager.
You’ve had a fairly big year, right?
Some people say 2020 is one to forget. I don't think so – it's an important year in my life.
You founded this company – which you fostered from a start-up to $2.23 billion sale to NEC – before you and your wife had kids.
Before I even met my wife, actually. I have sort of a family here and then a private family – and I feel responsible for both, of course. Selling Avaloq is a big milestone in my work life as well as in the history of the company itself.
You said that your seven-year-old daughter cried when you told her you were selling Avaloq.
I was surprised – she said she wanted to take over one day. She’s good at math. But we couldn’t wait for another 20 years of course!
You originally wanted your older daughter to take over, but she didn’t want to.
My older daughter decided to go a completely different route [Laura Fernandez Gromova is the first soloist at the Stanislavsky Theatre in Moscow]. I tried initially at the beginning, but that was without any chance. It doesn't fit her plans at all to sit in an office and manage companies. She has as high of ambitions in her professional life as I had in my business life.
When you look back at nearly 30 years now, when did you know you wanted to be an entrepreneur?
Oh that matured very, very early [laughs], in the first couple of weeks.
You were working for Martin Ebner’s BZ Bank.
Yes, this man impressed me with his entrepreneurial skills and attitude to want to change things, never accept the status quo. And the other thing to become an entrepreneur is falling in love with the right problem that inspires you.
«Put your money where your mouth is. I loved this!»
That's the engineering DNA. I had that when I was a child: I could spend hours and days with Lego because you could express yourself building new things that didn't exist before.
Walk me through the conversations between Martin Ebner and yourself as a recent ETH grad working for him.
When we complained about the company, my mentor at the time just asked us the relatively simple question in response: «Can you do any better?» And I said, «Yes.» So he said, «Okay, do it. Put your money where your mouth is, invest in the company and become an entrepreneur.» I just loved this! It took me less than 24 hours to say yes and that’s how I got here.
Avaloq set the agenda for you for nearly 30 years. What's your raison d'etre now?
I create new goals by falling in love with problems I want to solve – and I have plenty of them. Take housing: only a privileged few can own their own home, and to own something to live off of the rental income is the preserve of wealthy and institutional investors.
«Putting money aside to keep my family safe»
So democratizing assets, making them accessible like at Crowdhouse with fractionalizing and co-owning. Or reinventing the food chain in a more sustainable way, which we are trying to do with Innoterra. It’s doing good, solving a problem, and money happens to me.
You’re about to become fairly liquidly ridiculously wealthy – you are in line for nearly $650 million from the sale.
So it's another problem! What bothers me right now is how to use this money sensibly, converting a good portion into further entrepreneurial activity, because this is who I am. The other thing is how to put some money aside to keep my family safe.
What does this mean for them?
When I met my wife, I asked her if she knows what it means to marry an entrepreneur. As a wife, you will often be alone and have to manage your life as well as that of our family with frequent absences by your husband. And the second thing is, you have to be prepared that we could go bankrupt, from one day to the other. Will you stick with me, are you prepared for this? And she said yes, so we could marry [laughs].
You’re in the process of setting up a family office structure for yourself.
All my life, I’ve been all-in: on paper, I'm supposed to be rich, but I’ve always had everything invested in companies. And now for the first time in my life, suddenly I’m getting cash. You do that when you're in your 20s or 30s, but when you approach 60, you should not be all in anymore.
«A few things I think I can do better than banks»
Therefore I'm creating my family office to structure the wealth. I’ve had my four verticals for a few years now: fintech; agritech; property; and esports. So I won't have any problem converting the cash into entrepreneurial activity.
Why not give it to a bank to manage?
[laughs] I will collaborate with banks but after 30 years in the financial industry, I think there are a couple of decisions I want to be able to do myself. And maybe I believe that I can do a couple of things better than banks.
What were the most difficult moments at Avaloq?
One was the global financial crisis of 2008/09. After 20 years of growth, I had to fire roughly 110 people. It was a very painful moment for me. We stood in front of the whole Avaloq staff and described the situation very openly and said we will have to select about 110 people that will leave us.
How did that go down?
To my astonishment, they applauded. That was a very strange moment: painful and rewarding at the same time. I told the managers that we have to take responsibility of helping all the people find jobs. We spoke with customers and partners and in the end we had more demand for our people than we have people to lay off. Looking back at that painful exercise, we did an honest and decent job in that layoff.
What were our sweetest moments in the last 30 years of this company?
So it's definitely not the sale of Avaloq! Probably I still have to digest what just happened. It's definitely going to change my life to a good extent even though I am keeping a role in Avaloq. I would say the sweetest moments in my life was the birth of my first child or meeting my wife.
It can also be small things when I have been studying a new music piece, where you suffer for three months before you finally reach a state where its like, «now I can play it.» Other moments of deep satisfaction is explaining to a seven year old child a complex problem for her age. And see the moment where it clicks. Wow!
And for your business life?
I remember when we won Pictet. Decision-making is very special at Pictet: the partners sit around a table, and if one says no, they don't do it! And I was pitching in this hallowed room, my people were seated at the walls.
«They told me 'never ever Fernandez – you're nuts!»
Everybody had been telling us it's impossible, that Pictet is so proud of their own IT and their own developments, and that we’re a small startup wanting to tell Pictet how to write software, «Never ever Fernandez, you're nuts!». I wanted to give it a try. And we won it. So those moments are overwhelming, it makes you proud for one or two hours, and then you move forward [laughs].
Working against odds is a bit of a theme for you.
Raiffeisen, after the bank, having failed an attempt for the fourth time, even with a major tech company, everybody said, «Nobody can do this.» And we did it.
What is the toughest opponent or situation that you've faced?
I always respected the legitimacy of competition. You should watch, respect and learn from the competition and even copy the good things from them.
«I took the most humiliating work you can imagine»
Rafael Nadal is a good friend of Roger Federer, they love each other, and they love to compete against each other. I sat down with many of my competitors and had a good talk or a good dinner together. The next day, we compete again.
This sounds idyllic. Surely it hasn’t all been this seamless.
What I would call an opponent in the negative sense are people I encountered in business who are playing politics and power games, without substance. And in the financial industry, you meet a couple of these guys. It's also skill set, but it's not my skill set. I try to avoid confrontation with this type of opponent.
Your parents emigrated from Spain in 1955. How did they equip you to cope?
With isolation. My parents were a unit, and our friends were Spanish and Italians. They did not close friendships with Swiss people.
Your father has passed away but your mother is 87 – and enormously proud of you, I assume.
Yes, I think so. Work was never a good experience for her. When I was 16, I took a job on school holidays cleaning toilets in the factory where my mom worked, to learn how she felt. The most humiliating work you can imagine.
«My mother was mortified. I didn't dare tell my father»
It’s very tough: you start at five in the morning and at quarter past five you look at your watch to see when the day ends and realize you have another eight hours to go. And you might have been doing that for years! Then you start realizing what a privilege it is to say, «I do what I love for work.»
What did your mother say when her teenage son showed up at her job?
She was terribly embarrassed that her son showed up in her factory cleaning toilets!
And your father?
I didn't dare to tell him. I just said I had a holiday job at the Viscosuisse.
What's the most useful advice your parents gave you?
Discipline. The first few years I played the piano were not fun, it was an obligation to my father. I had to practice an hour a day, every day, while my friends were out playing football. I'm so grateful to my father that he has pushed me through this phase, I wouldn’t want to miss it today.
You refer to this as your ultimate passion, but it doesn’t sound like you will have more time for it now.
I can't be without the piano, not even on holidays or I get nervous. I have spread my pianos everywhere: there's a piano here at Avaloq, one at Crowdhouse, at my mom's, at my home in Majorca.
Your parents steered you towards studying math instead of music.
I remember solving mathematical problems and puzzles as the most intimate moments with my father during my childhood. That’s where my love for maths and technology came from.
Fast forward to 2017, and what Warburg Pincus taught you in the last three years.
Another way of risk management and financial discipline. They have different timing. It's long term versus short term. That sounds simple, but whether you are driven by quarterly results and the goal is financial results, versus solving problems and eventually, money happens to you is extremely fundamental.
Do you want to elaborate on that at all?
Not really [laughs].
Do you regret selling a sizable stake to private equity in 2017?
No, because it allowed me to create new companies with the first money I received after bringing them on board. Secondly, I learned what it means to think and work the other way around.
You prefer the big picture – how does it look for the financial services industry?
I think digitization is still at an early stage – information or technology is 40 to 50 years old, it's still a baby. Blockchain and distributed ledger technology will be hugely disruptive for multiple industries, the financial industry first. We’re also seeing very aggressive progress in artificial intelligence.
What's your legacy as you close this chapter of your life?
I think I was able to make the financial industry more efficient and less error-prone, more robust, with more potential when it comes to compliance controls or fraud, and better prepared for future change. In the last ten years, we’ve been making banking solutions for consumers, giving them tools to take some of the control and monitoring of their finances back in a completely different interaction with the banks.
You will never see an Amazon or an Apple salesperson knocking on your door or calling you up. They just invite you to pull the product of your choice, not push new products down your throat. And this is where banks need to be going.
Francisco Fernandez co-founded Avaloq, a Swiss banking software firm acquired this year by NEC for 2.05 billion Swiss francs ($2.3 billion). The 58-year-old Swiss-Spanish national began working for BZ, a Swiss bank owned by Martin Ebner, in 1985. He founded Avaloq together with Ronald Straessler after splitting from BZ via a partial, then a full management buyout. The father of two daughters aged seven and 23, Fernandez is estimated by Swiss publication «Bilanz» to be worth 750 million Swiss francs ($846 million). He sold part of his stake in Avaloq to Warburg Pincus in 2017 and the remainder to NEC in a deal that wrapped on Tuesday. As part of the acquisition, Fernandez ceded his job as Avaloq chairman but remains on the company's board. Fernandez, who eschewed studies in music in favor of information technology at Zurich's prestigious ETH, remains a passionate pianist.
