According to a recent report from Statista research, the total value of investments into fintech companies worldwide increased drastically between 2010 and 2019, when it reached 216.8 billion U.S. dollars.
As the industry continues to flourish, it is crucial for fintech startups to adopt strategies that will pave the way for their long-term success. In this regard, I have an expert source who can shed light on the top challenges faced by enterprise B2B fintech startups.
Can you tell us about yourself and your background in financial services?
RA: I’m a co-founder and general partner of Information Venture Partners, a Toronto-based venture capital firm focused on backing the next generation of leaders in B2B fintech/tech for fin and enterprise SaaS.
I’ve spent my entire career in financial services. I started my career in equity research and went to equity sales and trading. I spent much of my time in equity capital markets, and then merchant banking and investment banking, specifically focusing on mergers and acquisitions.
In the late 1990s, with the explosion of the internet and the growth of venture capital, I moved to Silicon Valley and became a venture capitalist and have been ever since.
My co-founder and general partner, Dave Unsworth, has a background in retail banking, commercial banking and strategy inside of head office (of a large Canadian bank) before becoming a venture capitalist. Our different backgrounds are incredibly complementary; therefore, we work well together in our approach to venture capital. Our backgrounds also enable us to find and understand unique technology opportunities within financial services.
What inspired you to co-found Information Venture Partners?
RA: I’ve always had a passion for helping companies grow, which is something I conceptually discovered when I was a teenager. I always knew I wanted to be a professional investor, whether in private equity or venture capital, so I found myself driven to be in this business.
While working at financial institutions before founding Information Venture Partners, I saw significant changes in technology and technology infrastructure, specifically within the banking industry. We were embarking on a multi-decade transitionary period where banks and financial institutions used to build and control a lot of technology they employed. Now most progressive financial institutions understand they only need to own technology that is important to their core strategy and can work with third-party technologies for the rest.
The other evolution that led us to co-founding Information Venture Partners is the innovation within financial services, as these institutions have come to an understanding that they will become obsolete if they don’t rely on third-party technology for innovation and improving operations. We’ve also seen a greater intention to spend on technologies in the financial sector to help improve the customer experience. Information technology budgets 10-20 years ago are a fraction of today’s budgets as they increasingly spend more on innovation driven by third-party vendors.
As an investor, these trends were fundamental reasons to join this industry and provide us the ongoing opportunity to help businesses focus on succeeding in the financial sector.
Tell us more about Information Venture Partners and your investment thesis?
RA: Information Venture Partners is a Toronto-based venture capital firm focused on backing the next generation of leaders in B2B fintech and enterprise SaaS.
Our current investments include Arteria AI, BigID, Cinchy, Coconut Software, Empyrean Solutions, Flybits, FX HedgePool, Helcim, Influitive, Jirav, LendingFront, Lydia AI, Nue.io, Procurify, Q4, Strike Graph, and ThoughtExchange.
Our investment thesis focuses on investing in companies that fit into the following four key areas:
- Tech for Fin: Technology that helps financial institutions increase competitiveness, as both pure fintech and enterprise SaaS
- Embedded finance: Technology that allows non-financial businesses to provide financial products
- Financial software: Technology that improves the productivity and workflow of finance leaders in an organization
- Security & Compliance: Technology that protects the most valuable assets of any business: its finances, data, and technology
Can you talk about some of the challenges for enterprise B2B fintech startups?
RA: In recent years, we’ve seen the following top three challenges for B2B fintech startups:
- How to navigate the extended sales cycles of large financial institutions
- How to establish credibility with influential financial institutions
- How to adapt to and change with fluid budgetary dynamics
To discuss the first challenge. What strategies and tactics can fintech startups employ to effectively navigate the extended sales cycles typically associated with large financial institutions?
RA: There are several actions fintech startups can employ to navigate the extended sales cycles at large financial institutions.
First and foremost, fintech startups must demonstrate ROI and time to value, as financial institutions are more likely to buy solutions with a demonstrable ROI. Plus, it’s essential to understand what defines a short timeline for financial institutions and how to adjust your implementation strategy to get the product or service into the institution. The days of lengthy implementation for technology are in the past; therefore, while rollouts to these large financial institutions may be longer than smaller organizations, it’s important to know that nobody wants multi-year, multi-million dollar projects anymore.
Secondly, fintech startups must remove friction in their sales process by establishing their security credentials and demonstrating scalability. These items will provide credibility, remove the chance for objections, and make the deal easier to procure.
How can startups establish credibility with influential financial institutions that may be hesitant to adopt new technologies or partner with relatively newer players in the industry?
RA: Fintech startups must have domain expertise. Many founders and CEOs we work with have prior experience working in the financial sector, so many of them know how to speak the language of the financial institution and the customer. The domain expertise gives the financial institution and customer confidence that you know what you’re doing, as the founders themselves have experienced the problem firsthand, which can help accelerate the sales cycle.
Additionally, we recommend fintech startups partner with people who can add to their credibility, whether it’s other financial institutions, consulting firms or technology partners. For example, we have a portfolio company that partners with one of the big tech companies, which has established confidence with a large financial institution and its customers. This startup has yet to gain the customer’s confidence, but its association with the big tech partner provides instant credibility that will transform how quickly a customer might implement the product.
What approaches can enterprise B2B fintech startups adopt to adapt their pricing models and demonstrate value while ensuring sustainability and profitability?
RA: From my experience, I’ve yet to see a startup get its pricing model right on the first try. The good thing is this ability to adapt pricing models stems from the idea that startups are continuously evolving their value proposition and demonstrable return on investment to challenge themselves to improve. We encourage our founders in our portfolio to have a mindset where they’re consistently challenging themselves and being flexible and adaptable.
From a flexibility standpoint, there are no absolute pricing models for financial services accepted by the entire industry. When working with Goldman Sachs, Citi or other large financial institutions, they generally have a fair amount of power over startups regarding pricing. To combat this, startups should be open to working with these large financial institutions within their developed pricing framework to avoid creating bespoke one-off pricing. This concept will contribute to the culture of the startup’s organization to ensure they are creating a product or service that is a win-win for both them and the customer.
In what ways can B2B fintech startups effectively differentiate themselves from traditional financial institutions to attract and retain customers?
RA: At Information Venture Partners, we encourage our investments to partner and work with financial institutions as opposed to against financial institutions. This partnership idea helps differentiate our investments from other fintech startups, as we’ve seen that those who collaborate with financial institutions can be a better partner and help achieve their customers’ objectives.
Our goal is to help our investments win, so by working with us, we can help them establish credibility with financial institutions and set them apart from other fintechs. This is the only area we invest in. We understand this market and can help navigate the challenges all startups will face in this sector.
What are the key hurdles faced by fintech startups in securing funding, given the evolving nature of the financial technology industry?
RA: Right now, there are a lot of structural problems in the venture capital industry. It’s a challenging time to raise money as there is a lack of activity. Companies have lost momentum and do not have the ability to demonstrate appropriate growth.
I believe fintech has been overfunded, so it’s been challenging to differentiate between recently funded startups. We know there will only be a couple of companies at the top of each sector; therefore, to stand out in this tough investing environment and achieve funding, startups need to demonstrate momentum and share the meaningful milestones they’ve accomplished thus far.
A key trait of successful companies who have achieved funding during this time is their founders focused on surpassing milestones they set out to achieve and completing them as efficiently as possible. Otherwise, the companies need to demonstrate a path to profitability (and still growing) with the current financial resources available to them.
Is there anything else you would like to share?
RA: As a B2B startup, you must be certain about your identity and what you’re trying to do as a business. This process might include establishing your company culture and product but also understanding if you will take an evolutionary or revolutionary approach as it impacts who your customers are and how you plan to go to market.
Few financial institutions are progressive enough to ingest revolutionary technologies en masse. Most of them look for evolutionary technologies, so it’s critical to understand who you are and how you position yourself to be successful.
Use this time to refine your business model. Start with the fundamentals. Establish a healthy culture, work with your customers and be the partner you always wanted to have. Entrepreneurship and building great companies is a long journey. There are no shortcuts. There are many tough days, so make sure you are having fun and loving what you do.