How Does VC Become The Right Money For Fintech?

Get A View Of Fintech Investment In Crypto World.

In the context of today’s busy world financial technology has never been a more exciting or innovative category especially in New York City and oddly, tech is not the driving force in many of these ventures as the blockchain and Bitcoin notwithstanding thereby is most of what we’re seeing now as a financial product evolution as well as the unbundling of the large bank with most of these companies could have been built 20 years ago. 

Whereas outside cryptocurrency as well as a few tools that enable better trading decisions with most of these startups developed a proprietary model to score the credit risks of potential customers and paired it with a clever go-to-market strategy appearing to a new class of debt holders. 

Thereby in the consumer space, this could be financing for home flippers, school loans, high deductible health plans, or even Uber drivers wanting to buy new cars as a means of earning income. Therefore on the B2B side, these companies have formed to help small businesses get funding by creating obscure products like securities based on accounts receivable financing.

More so often they come as a seed-stage VC investing across many categories with hard businesses to assess. Therefore these industries they serve are varied, obscure, and almost impossible to do due diligence on as their technology typically feels like a black box requiring blind faith in their assertions whereas on the surface it would seem unattractive.

This is why most of these businesses have made hundreds of thousands of dollars in transactional volume with promising metrics like repayment rates, and customer acquisition costs. Therefore from the stand pint of initial traction, there is evidence of a product-market fit as they look attractive. 

The Question Is Would I Rather Be A Customer Or Investor?

Consequently from this equity investment perspective, it is a must that one starts looking at the financial whereas, in these types of ventures, the gross loan portfolio appears large considering that the actual net revenue or return from these businesses is anywhere from the tenth of a basis point topping out at 1-2percent. As a result, it has to be a venture worthy investment billions of dollars must be loaned wherein finance, size matters

From this industry, the yields are generally double-digit as a retail investor with clever debt structuring products that can return a10 percent a year with little volatility. Thereby perhaps that why a lot of smart hedge fund and institutional money is flowing to these platforms whereas demand outstrips the supply of loans on many of these platforms.

Being good businesses, it is often harder to see how these deals become attractive from an equity perspective whereas A VC investor is the potential for 10X returns in under a decade. Therefore a few lucky winners will IPO as it is hard to envision who these businesses will ultimately sell to where the lion’s share is of the returns come from M&A. it is a fact that even if the startups do find a buyer, these kinds of companies often have low valuation multiples, making them less attractive venture capital investments. 

What Are The Strengths And Weaknesses Of Stockbrokers Turned Startup Founders

The main question faced by founders is do they want to play the VC game? As many come from Wall Street it is contrary to popular belief in the startup ecosystem that many of these folks are quite entrepreneurial and almost definitional risk-takers.

By now it is a truth that these Fintech entrepreneurs all said are less focused as well as experienced in product development as finance is centered around transactions rather than building cumulative experiences with probably the right focus for such ventures as well as other company founders had such focus on generating profits. Whether it runs contra to building a business where you have to put off a dollar today to make10 next month. 

Therefore conceptually the founders sometimes can be fixated on making the company growing linearly by getting more paper under management rather than developing a solution that unlocks exponential growth. 

Whereas this mindset is even reflected in the way they incorporate their businesses further compounding the challenge for equity investors which is that some of these attractive companies are incorporated as LLC, because of the nature of these cash flows losses from these ventures can be used to offset gains from the founders and other investors in the venture. Therefore most VCs where we included almost exclusively invest in C-corporations. 

Why Great Businesses Are Not Always Great VC Bets

While it is known as the segment is just too large a part of the US economy ignored by VCs. Therefore there will be a new generation of Bloombergs, consumer financial products as well as B2B financial instruments in the coming years as the ETF revolutionized the way customers can index a plethora of investing strategies with a whole new class of innovation come to the fore. 

The Conclusion

Thereby in many cases of Bitcoin investment, such businesses come down to whether they can buy capital for less they can lend it out. Whereby this arbitrage forming the basis of a financial firm that could leave principals and agents pleased for years, even decades. There have been some great businesses that will lack the combination of volatility, speed, and scale that are the marker of great VC investment. There is in such cases it would be better to hold debt than be an equity investor.