Despite the pandemic, the UK remains the top-ranking investment destination in Europe. But growth in the sector also means increased competition. So how do early-stage fintech's go about securing the funding that is so crucial to their growth?
The Importance of Data
Investors rely heavily on data in their decision-making process, which provides opportunities for fintechs that speak their language.
It all depends on the model, of course, but the majority of fintechs are underpinned by subscriptions but driven by transactions. Analysing the number of transactions that occur, for example within a specific geographic region in the space of a year will
be crucially important in terms of understanding the potential upside. Ensuring that this data is a focal point in investor decks will immediately garner attention.
More broadly, an understanding of how the company proposition is based on readily available data is hugely important. For example, does it work with open banking, or would all of the data need to be generated within the platform itself? The latter certainly
wouldn't be a con, as it means the data may end up hugely more valuable, but it will take more time and money to build.
Choosing a Segment
The fintech sector is something of a broad catch-all term, but there are many segments within it. Many are hugely over-saturated, while others are emerging and ripe for investment. Investors are interested in:
- Competitive edge – are your features and functions superior?
- Moat – is this suitable enough to protect the business' long-term profits?
- Defensibility –can you maintain true defensibilities to help the business stay at the top?
Having an answer to all three will help put ease the minds of potential investors.
Be Mindful of Incumbents
Particularly in B2B propositions, incumbents are now increasingly looking to build their solutions to compete with emerging fintechs. Rewind just a few years ago and this was seen as too expensive. But the tide appears to be turning. If successful, this
saves a huge amount on cost and resources but if they fail, it kickstarts an acquisition strategy. This is reflected in the growth of M&A activity in the fintech space.
The Investor Landscape Has Shifted
Investment in any startup has traditionally been seen as something of a closed shop, based more around what you know than who you know. The pandemic changed all of that. With face-to-face meetings all but off the table for the better part of a year, the
very nature of how deals are done has changed, which will have a profound impact on the startup scene.
According to research, the average startup investor receives as many as 20 pitches per month, while spending the equivalent of an extra day a week searching for deals on LinkedIn, as an example.
Accelerated by the coronavirus, investors are increasingly happy and confident making decisions virtually. This is breaking down those traditional barriers that blocked startups who didn't have an 'in' with the establishment. As a result, fintech startups
are connecting with investors – and business mentors such as non-executive directors – online, matching based on data and shared interests.
The above is likely to have a profound impact on diversity. Data from a recent study that we ran revealed the overwhelming majority of startup founders and investors had witnessed discrimination in their career based on a person's age, race, gender, and
location. Such factors are no longer relevant in a virtual environment, which will bring fresh ideas and impetus to the UK startup scene.
All the signs point towards a booming UK fintech sector. But for many, investor relations is a skill that can take many years to master. By combining a true competitive advantage, an understanding of the data that investors are demanding and knowledge of
how the landscape has shifted, this will doubtless continue for many years to come.