INVESTMENT
What INVESTORS are Looking for
Are investors getting pickier when it comes to fintech? It’s hard to say for sure, but there are recent developments that point towards a shift in investor interests. Firstly, research from Innovate Finance shows that investment in UK fintech dropped by 39% in the first half of 2020, compared to the same period in 2019. In H1 2020, $1.8bn of venture capital was invested in 167 startups compared to H1 2019, when $3bn was invested in 263 startups. However, it’s worth mentioning that the $1.8bn UK fintech investment earlier this year was still a 22% increase over the second half of 2019, when funding totalled $1.5bn. Therefore, all signs suggest that investors will make significant increases in capital investments during the rest of the year. Secondly, it appears that the current investor appetite is for more mature, later-stage fintechs: more than half of the $1.8bn went
14
in the NEXT
FINTECH
to just five companies: Revolut, Checkout. com, Starling Bank, Onfido and Thought Machine. Perhaps it is the ongoing economic uncertainty surrounding the COVID-19 crisis that is prompting inventors towards perceived “safer bets”, but what we do know for a fact is that early-stage fintechs raised just 8% of the total investments.
1. A strong, differentiated proposition
Is there a silver lining? The coronavirus crisis has rapidly accelerated the digitisation of financial services, with lockdown restrictions encouraging those previously resistant to engage with digital financial services. The stage is set for fintechs to thrive and deliver offerings that meet shifting consumer demands. To be in with a shot of wooing investors, fintechs will need to demonstrate certain qualities that set them apart from other companies. So, what are the four things investors are looking for in the next big fintech?
The fintech marketplace is crowded and filled with mature innovators setting a high standard for everyone else. Against this backdrop, “challenging the incumbents” is, unfortunately, no longer a USP. To really catch the attention of investors, you must be addressing a clear, pressing market need that no one else is tackling. Not just that, your proposition must be easily articulated and backed to the hilt with market research that proves the opportunity is worth pursuing. Ultimately, investors are going to ask the question: why you? What are you doing that’s unique? What do you have that means you – and only you - can do this? They will also want to know how defendable that proposition is once you’ve built it. What is your moat? Getting this right means a foot in the door with investors.
