Fintechs: Five considerations for a VC investment partner

We speak to Gareth Jefferies, Partner at RTP Global, about the things fintechs should carefully consider before looking for investment opportunities. 

Should fintechs be looking for investment now?

After numerous sources have reported a slump in fintech investments during the first half of the year, it would be easy to assume that VCs are losing interest in the sector and, instead, are turning their attention to other technologies like generative AI. But that’s not necessarily accurate. 

There are plenty of investment opportunities for fintech founders if they show their ambition, how they are transforming B2B or B2C processes and experiences, and that their business would thrive being backed by VC. They need to show why they are investable. 

However, founders also need to make sure they are approaching the right investors – the ones that can be long-term partners to them, both through the good and bad times. For any early-stage entrepreneur, the journey to the top is never easy or linear.

What five things should fintechs be considering?

1) Fintechs need to ask themselves, do VCs understand what sets your business apart? Creating the foundations for a strong relationship between founder and VC means being on the same page about what the business is about and its differentiators. 

Solid proof points and metrics help here. Different investors may care about different things; for me, I’m trying to find that ‘green light’ signal with every investment I make.

A recent example is Yonder, a B2C consumer credit card startup. During our discussions, they showcased the high percentage of customers using the product to transact daily and importantly – these numbers have remained stable. 

Yonder also stood out for its proposition, offering a lifestyle credit card looking to widen the accessibility of credit.

In B2B, enterprise payments have historically been much harder for new companies to disrupt, so when I saw the levels of enterprise adoption Fintecture was seeing, I knew there was something special there. 

Some of the largest companies in Europe like Edenred, Bricoman and several others were using Fintecture’s payment methods even before Series A. It was a no-brainer. 

2) Remember that terminal upside potential is still the number one priority: Some founders are led to believe that VCs are only interested in profitability in today’s market. However, business models built on the idea of free capital are no longer viable. 

Capital efficiency matters more than it has in recent years and ‘growth at all costs’ is no longer in fashion. 

However, don’t lose sight of the fact that VC is a decade-long hold period asset class for a reason. We invest based on our belief that this company can scale to a US$5-10bn outcome or even more if everything goes right.

3) Quiz your investor on your industry: Series A and B can be the beginning of a five or 10-year relationship with your investors. 

So, you ask yourself, are they the people you feel comfortable working with or having involved in your business long term? Do they have the experience to help you navigate the potential opportunities and risks?

This is especially true for fintech when you consider the layers of regulations, a lot of esoteric knowledge, and the nuances of the different business models. 

These aren’t always obvious to all investors, especially in parts of fintech like lending and payments. Ask qualifying questions to ensure they ‘get’ your industry.

4) Speak to other fintech founders: Gather references from other founders in the fintech space who have worked with the investment partner. 

You’ll want to hear about the success stories but also ask those founders about the times when things didn’t always go according to plan. 

Every founder goes through tricky and turbulent times, and by hearing those stories, you’ll get a sense of how that investment partner can support you during the difficult as well as the jubilant times.

5) Understand the value they can add: Ask what value the investor will bring to your business in addition to just capital. 

For example, do you need support with hiring talent? Do you want advice on building your business development plan? Or are you looking to access the VC’s network to expand globally? 

You need to shop around for the right individual and the right partnership that will provide the support you’ll most value.

VCs are always looking for the next $10bn business along with the fintech founders that have the ambition and potential to achieve this growth. 

But remember it’s important to consider what will work for you as a founder too. 

You’re finding a partner for a long journey, so ask the right questions to ensure that you’re bringing on board a partner that’s right for you and that has the credentials to give you the best chance of success.

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For more insights from FinTech Magazine, you can see our latest edition of FinTech Magazine here, or you can follow us on LinkedIn and Twitter.

You may also be interested in our sister site, InsurTech Digital, which you can also follow on LinkedIn and Twitter.

Please also take a look at our upcoming virtual event, FinTech LIVE London, coming on 8-9 November 2023.

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