FinTech is the (terribly named) intersection between tech and Financial Services. While this new industry has been growing for awhile, it became a real big deal in 2014, 2015, and more recently, 2016. Most notably, investment in FinTech saw a 66% rise from 2014 ($12 billion) to 2015 ($20 billion).
Why is there such a fervor behind this burgeoning market? First, there’s the obvious: technology, specifically AI and Machine Learning, can massively increase the revenue stream of any business. AI is simply better at identifying, analyzing, and profiting from trends. Honestly, if a business isn’t using some sort of software with AI, they are missing out on a big potential. If your SMB is one of these, reach out for more information.
But more to the point, technological advancements that will be introduced into the US banking system over the next few years may result in a catastrophic damage to old-school banks. This represents a significant challenge that the US financial system will need to overcome in order to continue being successful.
Enter technology, legendary disrupter. There are two kinds of tech startups: the first is the SnapChat’s and Instagram’s of the world. These are companies attempting to offer a brand new service, something that we haven’t really seen before. The second kind are like Jet.com, which was recently purchased by Wal-Mart for $3 billion.
The second type of startup is probably the more common (at least for the startups with which we work), but the starting point is essentially the same – as it is for all businesses. There’s a problem, and there’s a solution (i.e. the startup). So whether the end goal of a Startup is to be bought up for billions, or to trail blaze new paths through the financial world, there are a few key elements that should be included in a FinTech business plan.
Our experts have identified 3 of what they consider the most important for FinTech Startups to attract Venture Capitalists. Let’s take a closer look at what those are.
Obviously, when you’re handling highly sensitive personal information such as financial details, security is of the utmost importance. Investors won’t even bother to hear an entire business plan if a pitch doesn’t highlight security upfront. Think about it – a data breach for a company dealing in potential trillions is a death knell for a Financial Services business.
This doesn’t mean just preventing Man-in-the-Middle attacks and other hacks. A recent slew of articles points to a rapidly arising target market: the Baby Boomers. While some of the hype maybe just that, there is some data to back up this assertion; after all, Baby Boomers have (hypothetically) more fluid cash to invest.
Unfortunately (and no offence to the Boomers out there) this also means a FinTech Startup needs to protect those who aren’t even remotely tech savvy. This by no means includes all or even most baby boomers, but Fraud through simple deception is a real problem and must be addressed.
Additionally, Baby Boomers aren’t the only ones at risk; plenty of Millennials gave to a certain Nigerian prince. In fact, there is data to support that Millennials are more likely to be scammed online. So protection from common schemes like a Tech Support scam are as essential as measures against outright hacking attacks.
As a tech company, we hear this word a lot. To the point of annoyance, if we’re being honest. But the word does effectively convey Tech’s ability to overthrow and replace old systems and ways of doing things. VCs and Angel Investors (who tend to invest more in early “Seed” stages of a startup, where VCs are more likely to invest in Series B and beyond investment rounds) like companies that are disruptive, so this needs to be a key part of a FinTech Business Plan.
Why do Investors love disruptive companies? Simply put, disruption causes opportunity. For the startup with the right plans and ideas, this could mean potential billions in cold hard cash. So, to attract investment, a VC pitch needs to highlight why the featured Startup provides a new and innovative approach to delivering traditional financial services.
Communication, Clarity, and Honesty
This refers to more of a guiding principle than a specific item to include in a business plan. Investors are, broadly speaking, exceptionally smart people. More importantly, they are smart people who’s sole job in this world is to figure out when people aren’t being forthright. Chances are, they’ve had more exposure to FinTech business plans than any one startup founder. Sure the founder has lived and breathed their Startup’s industry.
But VCs see hundreds (or more) startup pitches every year. So the chances are that they know what the numbers should look like. In other words, they know how to sniff out a rat, so a business plan should be a frank appraisal. Honesty will behoove the supplicant here. To do this adequately requires a lot of data, frequently more than can be conveyed in a simple pitch. This is why we tend to recommend building a website pitch. This is basically a standard pitch, but on a website. This allows you to provide a URL for investors to look at later, where they can not only find the pitch, but deeper pages with more details and delicious data.
Want to learn more about all of the information discussed today? Give us a call at 408.802.2885/408.621.8481 – or click to contact us!