How financial services professionals can secure VC funding for a fintech startup
So, securing fintech funding is on your mind…
Jumping into fintech with your years of banking or other financial services experience behind you? Got a solution or a great team to build up a project and convinced you can deliver? Do you have a network that can validate your concept and help build an MVP? Want to take the leap of faith mid-career to become the savior of others from inefficiencies you have witnessed?
If you checked most of the above boxes and are still contemplating “doing your own thing” at a fintech startup, here are some notes I can offer to help you get started on the right path.
Create a framework for your pitch
If you’re looking to raise capital for your fintech startup, first do industry research, feasibility analysis and proof of concept (POC) if applicable at that stage, then you need to pinpoint your target audience and articulate what you will be using the capital for.
Fintech is a diverse category, covering wealth management, payments, trading, market data, accounting and front-, middle- and back-office processes. Get to work on understanding the framework of your own solution, including the processes and market. Give it some real thought and study the competition well along with the problem sets you are going after.
There is often a lot of overlap and many consulting firms offer a range of solutions spanning bespoke product-development opportunities to managed services and platform-as-a-service (PaaS) or software-as-a-service (SaaS) offerings – so you really have to get into a serious research mode to know your play well.
Describe how you will address financial services firms' pain points
Also, because so much has already happened over the last six or seven years in fintech, founders should spend some time thinking about the problem they truly want to solve. No serious investor would offer their time to listen to a pitch which doesn't describe an actual use case that is addressing a current or potential pain point in existing standards of operation across platforms or organizations and if it’s something they have heard a few times before the platform must have something better that is worth investing in.
No matter how much you bully an investor into a corner to hear your pitch repeatedly, they will not write a check unless they are convinced of your startup's potential and all else is a go on their end.
At that point if you feel you have done your best, move to the next best option and leave a note with the previous investor asking for advice or introductions to land better chances for closing your round. Telling investors that they missed a great opportunity is a pretty old and useless tactic. I still can’t believe how often I hear this when I decline a proposal respectfully.
Don't assume all VCs are the same
Experienced professionals often take for granted that they understand investors as a category of people well. This happens a lot where founders feel they “have been around the block” a while. Their research of certain investors and their capital-raising process is a bit outdated and this is a waste of considerable amount of their and the investor’s time and energy.
I've found this to be true mostly because the deadline to raise capital is so important to founders, they tend to focus on the process of qualifying investors in numbers as it’s a hit-or-miss methodology for most of these conversations. Founders must learn more about the appetite of the investor, because the investors are usually overwhelmed with several similar, competing pitches. It is worthwhile taking a more thoughtful approach.
Important things to learn are – what capital source do they represent, investment history, investing partners, strategic outlook and their ecosystem. Although it’s a bit time-consuming, the success rate here would be far better.
This doesn’t mean that founders should limit the scope of their capital-raising efforts. However, do think about the efficiencies you will be building as an operating principal within your company from the very start and the useful relationships that will matter down the road.
Abhi Anuket is the founder, principal and managing director of Magnivia Ventures, a venture-capital and private-equity firm.
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