In Q3 of 2020, CBInsights reported significant increases in large-scale fintech funding. Fintech mega-rounds (agreements worth $100 million+) accounted for 60% of all fintech funding for that quarter, its highest percentage share for over two years.
The rising number of these mega-rounds comes as no surprise to the fintech community, which has already seen the total transaction value of digital payments grow from $4.1 trillion to $5.2 trillion in the space of a year. Incidentally, this is expected to rise to $6.7 trillion by 2023.
As a result, the greater need for B2B fintech solutions is seeing more and more fintech startups being created across the globe.
However, new fintech entrants have hurdles to jump before they can win the right investment to scale their growth. Whether it’s a VC or a startup accelerator, startups need to prove credibility and authority to fintech investors, while also demonstrating that there’s sufficient market opportunity for their product.
With that in mind, we’ve decided to explore four key pitfalls between you and successfully securing fintech startup funding.
1. Proving that you’re a fintech expert
To foster credibility in the eyes of potential investors, showing your knowledge of shifting fintech trends and emerging solutions will need to be on show.
Sure, you can rattle off the auxiliary benefits that PPP loans will have on small to mid-sized lenders, but how does this link to the uptick in digital borrowing and fintech usage? By addressing the latest fintech trends and industry pain points, you’ll place yourself as a thought leader and place fintech influencers’ attention squarely on you, instead of your rivals.
Sounds great, but what’s the best way to establish fintech thought leadership? Through guest article writing and responding to source requests from top-tier fintech publications. Banking platform developer Prometeo’s expert insights on the likes of TechCrunch is a great blueprint for using guest blogging to turn your company into a fintech guru.
2. Articulating your fintech’s potential
Showing your fintech’s potential is more than a list of capabilities. It’s a value proposition that emanates from all your marketing communications.
Likewise, secure funding for your fintech is about identifying the different audiences it will impact. Investors will need proof of your target audience’s intent to buy also. This is where product testing with key groups can be especially useful.
By selecting specific consumer profiles to do beta tests and following this up with screener surveys, you’ll get a window into your target users’ need and pain points, while identifying any potential bugs within your fintech.
Moreover, product testing is where you see the early adopter effect come into play, creating organic brand awareness that catches the eye of financial suitors. It’s this type of fintech PR that can be the difference between gaining investment for your startup or not.
3. Separating yourself from your fintech rivals
Showing your fintech expertise and fintech potential are important first steps towards standing out from the crowd. However, they’re not the only actions you need to take.
For investors to know that your fintech is truely special, they need to see your business’ personality, and how this is mirrored in your product.
Take global payments app Bottlepay, which has just managed to secure $11 million in its latest funding round. As big rivals to Revolut, Bottlepay needed to focus on what differentiated itself from its competitor – flexibility. Bottlepay allows its users to make payments through both fiat currencies and Bitcoin.
Not only this, but it also facilitates instant payment through social media platforms like Twitter and Reddit. Its ease of use, speedy payment features and flexibility towards currency transfers are reflected across its branding. These kinds of characteristics are what allowed Bottlepay to beat its main competition to investment.
4. Addressing your compliance with fintech regulations
There are several pitfalls for new and growing fintechs to consider in the legal world.
Anti-money laundering (AML) compliance, CFPB regulations and FDIC committees are just a few things that fintech needs to be mindful of. And failing to show legal alignment with these bodies can have dire financial consequences. For instance, fintechs that fail to put the correct AML measures in place can face up to a $700,000 fine from FinCEN, a division of the Treasury Department.
Financial industries become increasingly scruitinized whenever there’s an incident of mass fraud, so investors will naturally pay close attention to your credentials and history of compliance.
What’s the antidote to fintech regulation? Other than playing by the rules – good publicity.
High praise from fintech specialist and top-tier tech publications is your best route to showing fintech compliance. If powerful media outlets are willing to endorse you, it sends a loud and positive message to VCs and accelerators that investing in your startup is low risk.
The Bottom Line: Securing fintech funding is as much about your impression as it is your product
Securing fintech funding is having a healthy balance between the right fintech PR and and the right product.
You know why your startup is special, and that’s half the battle. Marketing this to the fintech community in a way that grabs investor attention is the next big step that you’ll need to take. Fostering thought leadership, articulating product potential, setting yourself apart and demonstrating regulatory compliance are all crucial challenges to overcome. What’s most key, though, is that you’re digital communications align with what your fintech is all about solving.
The water’s warm for fintech startups looking for the right backing. Now’s the time to mould your perception as being the next big disruptor in the fintech industry.