Entrepreneurs Stefan and Martin Florea On Entering Latin America, Exiting a Business, and Giving Back

From growing up in a family of immigrants to becoming entrepreneurs navigating hyper-growth, expansion, and investment rounds across emerging markets, Stefan and Martin Florea prove that with the right mindset to grow and pay it forward, everything is possible.

In our interview today, Stefan and Martin, identical twins born to a Czech mother and a Romanian father who grew up in Germany, share the adventurous  journey that led them to the creation of VALOREO, a start-up company that acquires merchants, helping them to sell on online marketplaces and expand their reach.

In less than a couple of years, VALOREO established itself as one of the fastest-growing consumer holdings in LATAM and was recently acquired by one of the leading holdings globally, Razor Group with over 100 brands in its portfolio.

Of the importance of understanding cultural differences when entering new markets, building resilience while overcoming business challenges, and creating value as well as paying it forward, read the full interview:

Stefan and Martin, let’s start with the obvious. You’re twins, and over the past years, you’ve co-founded numerous ventures and supported startup communities. How has your sibling relationship influenced your success?

Stefan: I believe that our sibling relationship has actually been a strong factor contributing to our success to date.

As identical twins, we have always had a very strong bond and trust each other blindly. This trust in one another allows us to work very efficiently together as we provide each other constantly with transparent feedback. I know that every piece of feedback I receive from Martin comes with the objective of helping me become the best version I can be. This is rare but invaluable. Furthermore, we are both very ambitious and push each other to “step up our game” constantly and become better every day. Even though we share a lot of common experiences, our approaches and natural inclinations can actually vary quite a lot, allowing us to be very complementary working together.

You co-founded VALOREO and managed to navigate hyper-growth, expansion, investment rounds, and acquisitions of premier brands. What motivated you to embark on an entrepreneurship journey?

Martin: We always had a very entrepreneurial drive. As the sons of immigrants in Germany, we had to have a self-starter mentally as you typically are the underdog and have to work hard for your dreams. As such, for instance, we  offered mathematics and statistics tutorings during high school and university, started playing tennis internationally upon graduating from high school, and started a number of businesses in the technology space in the past. All of this gave us a taste of entrepreneurship early on, which ultimately culminated in us taking the decision to found VALOREO, while we were still based in London, and saw a huge opportunity to create a next-generation technology consumer powerhouse in Latin America.

In the end, I believe that entrepreneurship is about genuinely wanting to add value and not being afraid to take action. Lots of people have great ideas but there is often a fear of failure holding them back. Having taken this step to leave the investment industry in London and start our own business in Latin America on a larger scale is something we believe can help inspire others to realize that nothing is impossible and that you can address these fears with the right team around you.

A good concept here is Jeff Bezos’ regret minimization principle, a mental framework to make decisions and go for the decision that is minimizing future regret.

Why Latin America? What challenges did you spot there? And in what ways is the Latin American market different from the European market?

Martin: As mentioned, we were competitive tennis players growing up and started playing tennis internationally upon graduating from high school. In the context of our tennis career, we were fortunate to meet people from all over the world and built strong friendships with people from other countries, including in Latin America. This sparked our interest in the region early on and we saw lots of cultural parallels with Eastern Europe where our parents originate. We also grew up speaking multiple languages, including Spanish and Portuguese, which helped us form a better understanding of Latin America.

As we then looked deeper into starting VALOREO, we identified that aside from the passion for the region from a cultural perspective, there are very interesting growth tailwinds that make the region very attractive.

One is the large and young demographic with more than 650 million inhabitants of which more than 60% are under the age of forty; the second one is the emergence of a strong middle class across Latin America, resulting in increases in GDP per capita from below 10k USD to catching up with levels observed in developed markets over the long-term; the third one is the low e-commerce penetration of less than 10% compared to levels of 20% for the US and close to 30% for China – with LATAM being at a structural inflection point. To exemplify, LATAM was the fastest-growing e-commerce region globally in 2020 when we started our business.

Despite these interesting structural tailwinds, there are, however, lots of problems with doing business in the region, including high levels of informality and lack of access to capital – that make the Latin American market quite different from the (Western) European market. This means that it is much harder to get a successful business off the ground and requires more resilience to build the foundation for a viable enterprise. Our mindset, however, is to see opportunities where others see problems. As such, we saw these “problems” as interesting opportunities to create potential moats (à la Warren Buffett). While it is difficult at first to “crack the code” on how to successfully grow a technology company in the region, once you do, you have a huge growth opportunity ahead of you.

One example that showcases the discrepancy between developed and emerging markets relates to carriers such as FedEX. When you have an appointment scheduled with a carrier in developed markets at a certain time, they might be delayed but they would come eventually. In emerging markets, it can certainly happen (and indeed happened to us) that they might not show up at all without any prior notice. These are cases you need to prepare for (especially if you are a business in the e-commerce space that is dependent on other third-party providers) and that might catch you off-guard if you just look at things through your “developed markets lens”.

What were some of the challenges on the way? Were there moments you were about to give up, and how did you keep going?

Stefan: While we never give up, there were many situations where we were at the edge and had to take decisive actions with incomplete information. This is why I now understand much better why VC investors are ultimately investing in a team of individuals and not just in an idea. As an entrepreneur, you need to be extremely resilient.

One of our investors in VALOREO once told me something that stuck with me ever since. Per definition, as an entrepreneur, you are trying to build something where the odds are stacked against you. Specifically, most start-ups fail within the first five years of existence so by building a start-up you need to be a little bit “crazy” to try to defy these odds and create something new that will stand the test of time. Two pieces of advice to keep going, even in difficult moments, are: 1) have a strong team where people support one another, and 2) have a mission worth pursuing,even if times are tough. Because believe me, launching a start-up is a rollercoaster where the highs are much higher than in a normal job or life, and the lows can also be much lower because you have much more responsibility yourself.

While we have experienced many highs and lows throughout our VALOREO journey, the drastic market change that occurred throughout 2022 was a big challenge we had to master. Going from a mindset of growth at all costs in 2021 almost overnight to a drastic focus on cash preservation and profitability in 2022 was extremely sensitive as it had multiple implications. As such, we had to heavily adjust the team size and make critical strategic decisions that allowed us to weather the storm successfully. We learned that it is important to build a business that is resilient throughout market cycles as these will inevitably occur sooner or later. Further, we understood that it is important to not only be mindful of the total costs one incurs as a business but also of the nature of such costs. Specifically, how variabilizing the cost base gives more flexibility to navigate market cycles vis-a-vis businesses with a largely fixed cost base. Therefore I advise founders to think about how flexible they can be when it comes to reacting to sudden changes in demand.

You have  Romanian origins. To what extent do you think your family roots have contributed to your passion, resilience, and success?

Martin: It has been instrumental – growing up as an immigrant (we grew up as immigrants in Germany; our father is from Romania and our mother from the Czech Republic) forces you to think outside the box and find solutions where others only see problems. As such, we did not have a lot of money growing up but this actually enabled us to be proactive in shaping our own destiny. One example is my studies at the University of Cambridge, which was only possible due to a scholarship  I received from the German Academic Scholarship Foundation. While others said that it is not worth the hassle and the chances are slim (it is the most competitive scholarship program in Germany), we always had the mindset of “how to make something work” and I, therefore, tried it anyways, preparing myself for the selection center rigorously with due care.

Further, I believe that our multicultural upbringing allowed us to develop empathy for other people with different backgrounds, which was invaluable when we started VALOREO in an altogether new region for us where relationships and understanding of the culture are hugely important.

Specifically, seeing our parents integrating themselves well into a completely new country for them, inspired us to have the same humility when moving to Mexico. We have seen first-hand how important it is to be open to the new culture and adapt oneself to fully immerse into a new country. All this allowed us to construct a high-performance team of more than 250 FTEs across Mexico, Colombia, and Brazil in less than two years. I believe that our appreciation of cultural differences allowed us to transmit this to the team and work together as one VALOREO while still persevering the local specificities and not seeing LATAM as just one region.

Lastly, our father is a Romanian software engineer. Romania has some of the best engineering talent – being the Eastern European country with the 2nd largest IT sector in the CEE region with more than 100k developers – and we adopted early on a very methodical mindset of building businesses. We are very proud of our Romanian roots and thrilled to get the chance to support Romanian entrepreneurs.

VALOREO was acquired by Razor Group, which has over 100 brands in its portfolio. What helped you reach this successful exit?

Stefan: I believe that it is all about building something of value. In our case, having built one of the leading e-commerce groups in Latin America with a strong local set-up was particularly appealing to potential buyers (including Razor) that were interested in expanding into this high-growth region.

This is the case because building such a strong local set-up takes time, effort, and sacrifice. In our case, it was the result of hard work with a strong team every single day to build VALOREO into the company it is today. Many people talk about events happening as an “overnight success” but don’t realize the dedication, sacrifice and effort required for many years to build something that has a strong value.

We were fortunate in this regard that we were able to experience an entire start-up life-cycle (foundation, multiple rounds of investments raising 100m USD in equity and debt, expansion into multiple geographies, regional M&A, successful exit and post-merger integration into the acquiring business) in less than three years.

When Razor Group approached us, we not only had an appealing business that could be leveraged as the platform to expand into Latin America, but also a strong cultural alignment between the leadership of both companies. This allowed us to have a smooth integration and has been a critical factor given that most integrations in M&A transactions actually fail because of not being able to create a unified culture.

Lastly, it is also important to highlight the support of our investors that have supported us from day one and enabled us to transform VALOREO into a LATAM powerhouse . We had great investors ranging from angel investors to large institutional investors that guided us with valuable advice and allowed us to successfully navigate the challenges in Latin America. One example is Kaszek Ventures, the leading VC investor in Latin America that was also an early-stage investor in VALOREO and is led by Hernan Kazah and Nicolas Szekasy, two renowned Endeavor Entrepreneurs, who provided invaluable local market expertise. Our investor base allowed us to benefit from their learnings and not repeat many of the mistakes they have witnessed with portfolio companies. Having the right partner is probably one of the most important decisions, as it is in personal life. As you cannot just change your mind if you don’t like a certain investor, you should be very mindful to build relationships with investors as early as possible to see if someone is the right person to partner with, as opposed to selecting opportunistically when raising a new financing round.

You are also Endeavor mentors, helping Endeavour Entrepreneurs globally. What convinced you to join the initiative and what has it offered you so far?  

Martin: We’ve always believed in giving back. Endeavor is about dreaming bigger, scaling faster, and paying it forward. The core belief that high-impact entrepreneurs transform economies clearly resonated with us. We were very fortunate to have had contact with multiple Endeavor Entrepreneurs and Mentors in the past (including various of our own investors) that have consistently highlighted the impact that Endeavor can have to transform economies by paying it forward. As such, there was not a lot of convincing necessary for us to take the decision to join the initiative. We joined just a few weeks ago but already had the chance to connect with other members who provided great advice on how to have the highest impact, and we are looking forward to supporting the ecosystem going forward!

What challenges have you seen startups and scaleups face and what did you advise them?

Martin: I believe it is difficult to generalize as every company is unique. Having said that, companies ultimately need to add value for their stakeholders (notably adding value to customers) and over time generate returns for shareholders to legitimize their existence.

Understanding that returns to shareholders are linked to cash flow is critical and often underestimated (i.e., the value of a company is the discounted value of the expected future cash flows). As such, I believe it is fundamental for start-ups to understand how they will generate cash flow (eventually). For early-stage start-ups, this means making sure they have product-market fit. If you don’t have product-market fit, you are oftentimes just pushing something into the market and not creating sustainable value. If you don’t create value, it is difficult to translate your venture into cash flow as usually, people pay for the value you capture by offering a distinct proposition (better price, better quality, combination of both, etc.). For scale-ups (i.e., later-stage start-ups), this means understanding the unit economics in extreme detail to make sure you are steering the scale-up in the right direction. This is important because you typically operate with larger sums as a later-stage start-up where even small differences in the unit economics can be magnified both positively and negatively and have relevant cash flow implications.

Adding to that, a key learning is the importance of culture. Nubank, one of the most successful LATAM start-ups to date, has had a “culture deck” next to a “pitch deck” right from the start. It is tempting to have a nice office, cool perks and more, however, this is not culture. In fact, you should be as frugal as possible from the beginning, independent of whether you are bootstrapped or venture-funded. Instead, culture is about the way the team members are working together.

In this context, the mention of “culture terrorists” is important and often underestimated. These are people that are good at their work, but not culturally aligned or have their own agenda – for these cases, independent of how good they are, you cannot separate from them too early. It is important to realize that by keeping people on board, people that do not share the values and culture of your company, you are doing a disservice to both the company and the individuals.

Lastly, there are two other points that are important, especially for VC-backed start-ups: 1.) investor relations and 2.) focus.

On the investor relations side, you cannot be sufficiently prepared for investor conversations and understanding how investors think and what their incentives are (which can sometimes be misaligned with that of other shareholders). One of our investors told us early on to “keep in mind that there are no innocent conversations with investors”, so make sure you are prepared for whatever investor conversation you have.

On the importance of focus, this is true for all start-ups, even though bootstrapped companies often don’t have the “luxury” to expand aggressively into new geographies or categories as they might not have the fire-power to go after this. For VC-backed start-ups, there is often a temptation to grow aggressively and do so by expanding into new geographies or categories. Here it is important to have a strong product-market fit first and dominate one’s core before expanding to adjacent areas. Investors don’t want to invest in businesses that are mediocre across different areas but in market-leading companies in their respective fields.

To wrap up this insightful conversation, can we take a peek at your plans for the near future?

Stefan: We just relocated back to Europe and are spending most of our time in Berlin. We certainly do have many interesting new business ideas that we spotted being both operators and investors across developed and emerging markets. However, we are very happy currently with being part of Razor Group and being able to support the integration of VALOREO into the group as well as drive interesting new projects within the group. We’ll see what the future holds!