By Tim Levene
I am often asked what the key attributes are that we look for in Fintech businesses. Picking a future “unicorn” is far from an exact science, and the earlier you invest the greater the risk you are taking on. If we were to invest in 20 “Series A” companies in our next fund, statistically, we would expect 6-7 of them to generate the return required to deliver our investors a great outcome. They would have to compensate for those that have not fulfilled their potential. Assuming we pick the right cohort, we will have engaged with over 2000 companies to get to that point. Our future is contingent on ensuring we filter our pipeline effectively, but also to make sure that those we work with are businesses we can truly add value to. It is inevitable that we will reject businesses that will become great successes, and one only needs to look at Bessemer Ventures’ “anti-portfolio” to emphasise that point.
We are looking for disruptive Fintech businesses with great potential, that can truly scale to become leaders in their space. It is often not the idea that we reject, but the approach that the start-up is taking, or more likely that the team seemingly lacks the right blend of experience to deliver an incredibly ambitious idea that requires seamless execution.
Financial Services is complicated, beset with regulatory challenges and usually riddled with technical complexity. For those building consumer Fintech propositions, many start-ups hugely underestimate the difficulty and cost of acquiring customers, and just how sticky customers of incumbents really are despite their deep levels of dissatisfaction. Those building B2B Fintech businesses that rely on large institutions to become key customers, need to deliver a convincing argument as to why the sales cycle will not be a long, slow and often torturous path that offers “jam for tomorrow” – one that seemingly might never come.
To increase the likelihood of receiving positive feedback and ultimately offers of capital, will depend on how effective you are in addressing the issues above as well as many more that are not addressed here.
Personally, I want to back a talented, resilient, data driven and dynamic team that understands and appreciates the complexity of what lies ahead. They must also exhibit a broad range of skillsets that can address the many product, technical and commercial challenges that will inevitably ensue. If we can find an early stage company that has those characteristics then the chances of success are far greater.
For those businesses that meet these criteria, then I have no doubt that we will not be alone in writing a term sheet. It is then up to us to convince those founders as to why we can be a positive force and the best partners to help them fulfil their vision.