Dreamstake, a London based company that matches investors to start ups, held an event at Campus focused on financial technology. Financial technology or Fin-tech, has grown rapidly in the wake of the Global Financial Crisis. A report from Accenture shows investment into Fin-tech has tripled from $4.05bn in 2013 to $12.2Bn in 2014. Furthermore the rate of investment is triple that of its venture capital peers. To discuss this and other current trends, a panel of respected fin-tech leaders sat ready for questions.
Panel Profiles
Nicolas Cary – Co-founder of Blockchain.info. Raised $30m. (USD) last year, and is nearing 5 million users.
Iqbal Gandham – CMO Nutmeg, the worlds first online investment manager. Led Nutmeg through 2 rounds of venture funding.
Nick Williamson – Ex professional poker player and CEO & Founder of Credits.
Why London?
Gandham: “Easy answer, its the heart of finance in the world.” He went on to highlight a key benefit of the city is what it offers in customer acquisition. London provides a wide spectrum of customers to test business models on. You couldn’t find a better few square miles anywhere than maybe New York.”
Cary: “London has a great legal and regulatory environment. There are no more trees left, no more coal, and the only thing you can do here is build on services. The best bet is to create a space where entrepreneurs can try to build incredible businesses in.”
Hottest sub sector in FinTech?
The Blockchain protocol was the hottest according to Cary, and Williamson – who both work within the sector. The takeaway of Blockchain is its ability to take out friction from daily purchases and transactions, and store data. If your like most and have no idea what the Bitcoin protocol is check out Data-driven Intelligences explanatory article.
Gandham disagreed and actually highlighted a few sub-sectors: Digital banks, currency transfers, wealth management and both lender and borrower funding platforms.
Banking, friend or foe?
Gandham: “They’re obviously competition, but work in totally different time horizons. Three or four quarters for a bank is a short time frame but for a start up, that could be a life or death.”
Cary: “Recently there has been digitisation of many things such as music. Finance is one that hasn’t really been touched much. The financial sector has large moats around it such as high capital requirements and regulatory issues.” Cary went on to state that it may not be one firm that disrupts the sector but “Death by a thousand cuts.”
Most common mistake when raising capital?
Gandham: “Not raising enough, Fintech is for those with deep pockets. It’s a long process as you have to build trust with customers which takes time and money. Think of what your capital as a runway and at what burn rate of cash can you operate to gain those needed customers”
How did you approach raising capital?
The panel was well placed for this question as Cary’s Blockchain.info recently raised $30m (USD) while Gandham led Nutmeg through two rounds of funding with the most recent being £20m.
Cary: “Your company needs a story & culture.” Blockchain.info was started in “starvation mode” as the founders shared a small apartment in the northern city of York and reinvested everything back into the business. They were well positioned as they “captured lightening in a bottle” being the largest bitcoin company globally. Timing was also an issue he raised stating that they were able to get the high valuation as their competitors had recently raised enormous funds with very little users. So having a strong user base near the peak of the Bitcoin spot price was crucial.
Cary stressed the importance of transparency both internally and when seeking investors. “You need to know every aspect of everyone within your team. Hire a private investigator – The VC may do so and try to use it against you in negotiations,” he says. “In the technology sector you’re after more than just capital but access to their skill sets. Ask your self how are your investors going to not just give you money but support you,”.
Finding a metric to value yourself was also a key message.“You need something to sell – Ideas are fine but you need something to sell. You can build around your one metric, if everything else is inline.”
Lastly he said that most people simply quit too soon.
Gandham: Gandham led marketing and client acquisition at Nutmeg through two rounds of funding. “To be honest the second round was a piece of piss, but the first was difficult as. After the first round we set target numbers and just hit them each month, and surpassed market estimates. At that point we looked at comparison funds for a number to ask for and got it.”
“Exit strategies?”
Williamson: “We don’t have a strategy at this point. There is no use saying that this is the 16 step plan to be acquired by X at Y. “
Cary: “I think Nicks right, there is no crystal ball on what it will look like. If your at scale, there are few acquirers out there and you will build relationships with them and just build them and try to get your price up as high as possible to get the best return for your shareholders.”
“With concerns of a bubble in Silicon Valley, is there a way to survive?”
Cary quickly jumped in saying ” Have a strong amount of capital and manage your balance sheet. Thats it.”
Only time will tell if the rate of investment continues. If it does concerns of a bubble will grow as “silly money” piles into a “sexy” sector. Until then fin-tech firms need to address the difficulties of building trust, regulatory requirements, and managing their capital efficiently.