If you have been following my recent posts then you already understand that it is not easy to be fintech anymore.
This case is especially true when it comes to fundraising.
Investors are getting pickier and pickier when it comes to fintech, says Shaun Puckrin, chief product officer, Global Processing Services.
Firstly, research from Innovate Finance shows that investment in UK fintech dropped by 39% in the first half of 2020, compared to the same period in 2019.
In H1 2020, $1.8bn of venture capital was invested in 167 startups compared to H1 2019, when $3bn was invested in 263 startups.
However, $1.8bn UK fintech investment earlier this year was still a 22% increase over the second half of 2019 when funding totaled $1.5bn so there is still a chance.
So what are investors looking for in new fintechs?
Shaun Puckrin says there are four things investors interested in most.
- A strong, differentiated proposition
The fintech marketplace is crowded and filled with mature innovators setting a high standard for everyone else.
Against this backdrop, “challenging the incumbents” is, unfortunately, no longer a USP.
I agree with the idea because this gap doesn't exist anymore because incumbents are evolving and becoming good at innovation.
- A path to profitability or exit
In the current environment, an attractive fintech must be able to demonstrate a concrete, long-term plan for the financial viability of the business.
The trends so far were to acquire as many customers as possible then start to monetize them by increasing the fees but I believe challenger banks can no longer rely on transaction fees.
- Strong leadership and core team
Ultimately, securing investment is about building relationships and what often tips the scales is having the right people in the room. This is why a great team is crucial.
I am never tired of repeating that the team is the most important aspect of any company because the team comes before the customers and they build the products for the customers.
- The right partnerships
Partnering with the right organizations can give you strategic access to the solutions that will help build and scale your offering.
Their expertise and experience are often invaluable; many partners have been in the game for years and may have already solved problems you might be encountering for the first time.
The practice shows you can no longer exist without a partnership with either company. Partnerships help to speed up the product development processes and increase trust in you because every company tries to build links with a strong company.
Investors are still willing to invest in fintechs but they are very picky in their choices.
Fintechs need to focus on a clear differentiation proposition, plan for profitability, building a strong team, and lasting partnerships to get under the radar of investors.