Anyone who is looking at the future and is combining technology in an innovative manner has an edge over other companies.
Prashant Pansare, Entrepreneur & Co-Founder, Eagle10 Ventures
Angel Investment is the lifeblood for any startup. This is the first step which helps them to scale up towards the growth with external validation of their execution and begin to head towards achieving the growth.
The fintech industry comes with a unique set of challenges for startups, as the market is complex.
So far, the finance market has been largely closed to external innovations. Thus, for incumbents to break in the system, the startup needs to find a great distribution strategy to win the market. Considering the battle between B2B vs B2C, I am likely to believe that the former will have an edge with limited funds.
Can the startup quickly get some strategic partnerships or entities, that have customers, join hands with them? The large players in industry thus far probably are like elephants in the room--strong and holds the game closely.
Can the incumbents be agile cheetahs who can help the elephants with their agility and speed to win?
These are some questions that decide the fate of the startup in this space.
Secondly, given the nature of the industry, the startup also needs to ensure that basic compliances are in place. Compliance is necessary for growth, and defining growth is essential for investment.
The ease of integrations with the existing ecosystem as well as the regulatory framework is essential. This ease also defines how quickly the startup can scale up.
The fundamental aspect to grow and scale would depend on how quickly the startup integrates with the ecosystem and existing framework. The harder the integration, slower will be growth and adoption. The finance sector has been very closely regulated thus far for obvious reasons and any disruptions which align with regulatory framework have higher chances of scoring a home run.
Alignment of large Fintech market plus new technologies and regulations will be a key for any startup to become a big player. Regulations in fact remains a major flag bearer for evaluation. Startups which may have a thin line here will find it difficult to raise funds.
Once these are in place, there are three things that decide the fate of the investment:
A great team with a diverse background is critical in a company’s growth. Founders who understand the industry and have plans to not only build a solution for its present struggles, but for its future problems as well is worth a gold mine for investors.
The usual investment wisdom summarized by ice hockey legend Wayne Gretzky says: “I skate to where the puck is going to be, not where it has been.”
This leads us to the next question - What is the problem the startup is trying to solve? i.e.., the large-scale problems of today and tomorrow. Fintech, as an industry, is slightly lagging in this aspect as they have been focusing more on legacy systems. Anyone who is looking at the future and is combining technology in an innovative manner has an edge over other companies.
However, innovation alone is not enough to catch attention. Everyone begins to focus on innovation, which leads the investor to ask - how easy is it to adopt this solution? How quickly can this solution be deployed? The critical factor for any startup is how easy it is for customers to find and adopt a particular solution? Fintech as a market is very large and one needs to ensure that customers can adopt faster and use it easily.
The pace of adoption defines the very existence of a startup in the fintech space. Slow adoption will kill a company sooner than later. One of the key factors for evaluation is how quickly can the startup get growth and keep growing continuously. A startup should be able to define its growth plan effectively.
The third critical factor is Defensibility of the Solution. Disruptions without much defensibility will be outcompeted by large players faster than they imagine. It is very important to have a defensibility for the startup in the finance sector, where large crocodiles already exist.
The above factors are critical to be addressed for any fintech company looking for angel investment.