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There’s a long-standing belief among Fintech founders that you need VC (Venture Capitalist) investment when starting out to make the biggest splash. But this just isn’t the case.
I know this from first-hand experience. “It’ll never take off,” is what I was told bluntly by one VC as he tucked into lobster linguine in a central-London restaurant. Naturally, being told this from an ‘industry expert’ at the start of our journey was difficult
to hear. But it did prompt me to look elsewhere to raise capital for 3S Money from other sources.
Why Fintechs shouldn’t rely on VCs
The capital’s
tech companies raised £18 billion out of a total £29.4 billion across the whole of the UK last year, and it’s unsurprising that many founders and entrepreneurs willingly accepted VC cash. The more money a VC invests, the higher the company valuation. And
as high valuations are incredibly tempting, many are happy signing on the dotted line to get VCs cash injections.
The problem is that this also means signing over control, including board seats, stocks and liquidation preference, and special rights dividends relating to shares. This risks dilution and founders can lose sight of their project and mission. They can even
fall down the pecking order in their own business just to bag the most investor cash.
Investment alternatives
Lucilky, there are alternatives for Fintech founders. The Fintech space today is a founder’s market, where entrepreneurs have a deep understanding of the space. This makes it extremely attractive for wealth managers, family offices and high net worth individuals
to invest in.
In
India, for example, a report that surveyed 100 family offices and ultra-High Net Work (HNW) individuals found 40% had doubled their investment in private markets in the past five years. There is no reason why this can’t be brought across into UK Fintech.
Another alternative we know and love well is crowdfunding. Using crowdfunding platforms means start-ups don’t need ‘industry experts’ to invest to be successful. When 3S Money raised in 2018 via crowdfunding, many VCs were interested in getting involved.
But we told them that, if they wanted to be a part of 3S Money, they would be treated like everyone else in the community who wanted to back us. Three VCs joined the crowdfund despite not being granted special privileges. If your proposition is strong enough,
you will find the right investment.
The power is in your hands
Fintech has a proven track record of disrupting for the benefit of consumers and society – enhancing financial health, wellbeing and inclusion for all. Fintech founders should understand that their offerings and services are a necessary must in today’s modern
world and that the power is in their hands. With this in mind, they must wise up to VCs. There are alternative ways to thrive.
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