As the head of Poteza since 1992, a private fund specialised in making equity-related investments in companies based in southeastern Europe, Branko Drobnak (64) made a strategic mistake that left his company with less than 1% of its assets and eventually led its bankruptcy. An explosive cocktail of risky business decisions and bad economic circumstances put the experienced entrepreneur through a severe emotional and physical breakdown.
One wrong move
Before the turmoil, Poteza had been focused on growing to be the first investment bank in Slovenia, and one of the most important ones in Ex-Yugoslavia, says Drobnak, elaborating on the company’s past. When Ljubljanskag Banka (LB) publicly opened 5% of its capital to investors in 2007, Drobnak and his partners, who already had a 3% share in the bank, saw a golden opportunity to fuel Poteza’s development.
“Back then, we didn’t expect any major turbulence on the market, we were of course aware of the speculation bubble in the US, but we thought it would concern the property market only ” he explains.
In a dicey move, the company decided to invest all its cash as well as to take a loan to purchase an additional 5% of LB capital. The 8% share in LB made up for a very substantial part of their portfolio, what Drobnak described as “putting too many eggs in the same basket”. They did not foresee that the collapse of Lehman Brothers a year later would wipe out Slovenia’s equity market and economy.
Branko Drobnak’s emotional talk about his personal experience at the Fear and Fail event; Photo credit: Jose Morales
“From 400€ a share when we bought them, the price went down to 200€ in late 2008, then to 166€ in 2009 and eventually to80-90€ in 2011. I travelled all over the globe to sell our shares, but they lost so much value that they were impossible to sell.”
While the country’s equity market went down by 40% and then by 60% in 2009, the interest rates went up, Drobnak says, explaining how Poteza soon found itself with a whopping 200-million euros loss and heavily indebted.
Poteza underwent a long and dreadful process of downsizing and restructuring, as repaying creditors as fast as possible became the company’s main priority. Letting go of employees he hired himself was particularly painful to Drobnak, for they worked as a close team. From his 140-strong staff, only 9 employees remained on board. However, the steps taken to cut costs only slightly delayed the liquidation. “In 2009, it became clear to me that the stock exchange wouldn’t recover and that Poteza wouldn’t survive the crisis.”
I recognised I had to help myself as soon as possible.
The investment branch of the group declared bankruptcy in 2010, followed by the rest of the company a year later, meaning for Drobnak the failure of a business he spent over a decade building. If 200 million euros were a considerable loss, for him this financial forfeiture wasn’t the worst aspect of the event.
“I lost my self-respect, my confidence, my activity, my colleagues, almost everything I had built for the past 20 years,” he says.
Drobnak explicates that, over-stressed and deeply affected, he locked himself in a depressed state, a condition that soon started reflecting on both his mental and physical health.
Getting out of the cave
- 2007: Poteza purchases 8% of Ljubljanska Banka’s capital
- 2008: global economic crisis and collapse of equity markets
- 2010: bankruptcy of Poteza’s investmentbranch
- 2011: bankruptcy of the Poteza group
- 2013: Ljubljanska Banka is eventually bailed out by the Slovenian Government
Together with support from his relatives, a visit to the clinic for cancer patients on the advice of a friend triggered his recovery process. “It sounds cliché but I went there to try to understand the real suffering of people. I recognised I had to help myself as soon as possible.” Following this epiphany, Drobnak started doing regular physical activity coupled with efforts to restore his mental health by reading books, consulting healers and undergoing a few acupuncture treatments.
Becoming aware that his business failure had not negatively affected the opinion of his peers at the Rotary Club also helped Drobnak change his self-loathing attitude and “get out of the cave”, as he puts it.
“I understood that I shouldn’t judge myself just based on one single activity that failed: the purchase of the Ljubljanska Banka shares. Besides, at that time, nearly 80% of Slovenia’s financial institutions went bankrupt and the country counted over 10,000 personal bankruptcies.”
Back on track
Once back in shape, Drobnak resumed his professional activities. “As Poteza had been sponsoring the Business Angels of Slovenia for nearly a decade, the fear that I would fail again in investing in a new venture was something I had to overcome.”
As “some kind of a remedy”, Drobnak poured 150,000 euros in Double Recall, a Slovenian startup developing new-class online advertising in 2011, and 50.000 euros in Agencija za pospeševanje likvidnosti (APL), a peer-to-peer financing startup in 2012.
The fear that I would fail again in investing in a new venture was something I had to overcome.
After raising 1.4 million dollars from several investors in the USA and pivotingin 2013, Double Recall deemed its products unfit for the market and closed in Palo Alto in 2014. It was a failure that Drobnak accepts with philosophy, while APL, he said, made 140.000 euros in profit and a six-million turnover last year and expects these figures to double this year.
President and Member of the Board of the Business Angels of Slovenia since 2012 and Mentor at the Centre for Entrepreneurship Education and Development (CEED Slovenia), Drobnak says he wants to give young companies what he missed during his own development and share his knowledge.
“I built my business on my own mistakes – it was painful and costly, that is why I now gladly tell people what to avoid doing,” he says.
“What I want people to get away from my experience is not only that taking care of one’s mental and physical health is crucial to be able to function normally, but most importantly, I can’t stress enough how essential it is to realise that failing a business doesn’t mean failing as a person. We are much more than our work – or the result of our work,” he concludes.