Investment in Fintech skyrocketing Worldwide
There are a lot of significant changes that have been taking place in the Fintech sector. For instance, people can now use smart apps to pay for purchases, send money and check their account balances. These days, you can even withdraw money or get a loan using a smart app. All these tasks can be completed in a few minutes, thanks to the Fintech boom.
Investment in Fintech has skyrocketed worldwide in the last decade. Because of this, Fintech companies continue to transform all aspects of the traditional banking industry. This has also led to Fintech going mainstream. For instance, more than 75% of people have used a Fintech product in one way or the other. This kind of innovation has led to the development of many products that are now available to the unbanked and underbanked.
In a way, venture capital can learn a lot from Fintech. While tech startups are increasing in number globally, a lot can be learned from the way Fintech companies keep acquiring capital. Fortunately, by merely observing Fintech, you can see ways in which the VC model might adapt to this new reality.
Revisiting existing products with a new approach
In the past, financial services and products used to be offered by large incumbent institutions only. These companies had a monopoly and only presented a limited selection of financial products. Fintech companies have transformed traditional financial services by coming up with new business models that allow even smaller players to offer impressive service packages. For instance, instead of the traditional investor/VC relationship, Chime offers free checking accounts. The company then monetizes its offerings via debit and rebundling.
Other companies like M-Pesa that offer low-cost payments have made it possible for people to perform money transfers through feature phones. All this innovation keeps expanding Fintech’s customer base, and that’s one of the reasons why Fintech companies keep attracting massive valuations. You will also notice that there are various fintech firms that offer loans. However, unlike in the past, when they would have depended on traditional bank capital and customer deposits, these companies have found access to capital in other forms.
Fintech products are centered around key needs
One of the factors making Fintech increasingly popular with investors is that Fintech companies keep adding entirely new product categories that are centered around key needs. For instance, companies like Opendoor provide cash offers for homes. The market for homes for cash is massive, and companies like these are taking advantage, and their products make it easier for homeowners to sell their homes. On the other hand, fintech companies like Zola bundle loans and mobile repayments with Pay-As-You-Go financing to increase demand.
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Fintech capital raise pitch decks to attract massive funding
Fintech companies are working with impressive pitch decks to increase their valuation. Companies with organized and properly crafted pitch decks are attracting investors who are, in turn, placing big bets on Fintech startups. Most of these Fintech businesses are seeing broad tailwinds from the adoption of digital payments. There’s also an increase in appetite among financial institutions for the latest financial technology.
Two weeks into the current year, Fintech companies had already recorded ten deals that are worth more than $100 million. This is a huge leap from the previous year when, in the same two-week period, Fintech companies managed to land three deals. The success of these Fintech companies in terms of increasing their valuations can be attributed in part to the use of effective and professional pitch decks.
Effective pitch strategies used by fintech companies
Most of the success of Fintech companies can be attributed to effective pitch strategies. For instance, Lunar, a pan-Nordic digital bank, managed to gather 20 million euros by using an effective pitch deck presentation and pitch strategy.
Lunar’s 13-page pitch deck presentation begins by outlining its vision, which is to build the first financial super app. The pitch deck then goes on to outline why Lunar chose that particular market and some of its accomplishments. The pitch deck also contains a competition analysis, which then describes to investors that the current market that Lunar wishes to explore is ruled by incumbents, which would make it easy for the Fintech startup to establish itself and move fast.
When it comes to Lunar’s pitch strategy, here are some funding tips that you can implement to enjoy similar success
- Start having strong, continuous dialog with your investors early on. It is also important to be fully transparent. When it comes to Lunar’s case, even the smallest investors have access to what is happening at the operational level.
- Stick to your initial presented plan. Lunar chose to only pursue regional play and only target Scandinavia instead of switching to an international customer base.
- Make sure your company is priced fairly. While most companies decide to pursue inflated Fintech prices, Lunar did not give its valuation.
- Maintain a close relationship with your existing investors. If possible, you might even resort to alternative ways of raising capital so you don’t lose touch with your current investors. For instance, some fintech companies opt for venture debt or crowdfunding.
Lunar managed to welcome two investors with their pitch deck. These investors were welcomed separately.
Fintech companies are building and maintaining investor networks as part of their strategy for attracting massive valuations
One of the most important tasks in any company is to attract investors. There can be no massive valuations without capital. Most Fintech companies have grasped this concept, and as they are working their way up to building their following, these companies always try to build networks of investors.
Most of these companies use pitch decks to acquire new investors; then, they implement several strategies to maintain relationships with these investors as they grow. By doing these things, Fintech companies have become powerful, and they have secured a reliable way to raise capital.
Finding new investors
There are several tactics employed by Fintech companies to search for investors. There are currently three social tactics being used by Fintech companies to find capital for their deals. These tactics can also work for you.
Investment crowdfunding sites
These are platforms that allow a massive number of investors to make relatively small capital injections and individual contributions. This is an effective tactic used by some Fintech companies to get off the ground. This tactic can be used by companies that are looking to launch a new project or introduce a new product as an addition to an existing service. Some of the investor networks used by Fintech companies include FundRise, RealtyMogul, and ProdigyNetwork.
There are many angel investors always on the watch for great investment opportunities. These people are usually part of networks of high-net-worth industry players. Apart from capital, Fintech companies also use these angel investors to gain some friendly introductions and experience that the investors have to offer.
There are a lot of events for angel investors that you can attend to tap into their networks. For instance, you can find such events on platforms like Funded.com and the Angel Investment Network.
Incubators and accelerators
Fintech companies have figured out that one of the best ways to gain access to investors is to stick with other firms that are raising capital. As a result, you will find that some startups start off sharing office space provided by incubators and accelerators. Within this shared space, inspiration and opportunities can be availed. You will also discover that these incubators usually hold several events attracting investors from all sectors. In these meetings, some companies meet people to whom they can later present their pitch decks.
Maintaining investor relationships
A successful pitch deck is one thing, and maintaining a relationship with an investor is another. Once a company lands an investor, its efforts should be directed at maintaining a good relationship with those investors. It is important to keep in mind that investors are more than just a source of funding. Current investors are a great resource for referrals and introductions. They can also provide additional capital for a company’s future needs. It is, therefore, crucial to keep open communication with all investors, no matter how small their input might be. Investors should also stay updated about wins and milestones. Apart from that, they should also be aware when the company they are investing in has some challenges. With all this openness, it will be easy for them to provide valuable advice that helps the company find success.
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Fintech companies target the underserved and focus on impact
An area that has been the focus of many Fintech companies is the underbanked. There are over 1.5 billion global citizens that are underbanked. This is because most of the existing products and services targeted at this sector of the population are not economically viable. As a result, Fintech continues to tap into this market which has created a very large category of growth and valuation. This is a huge market and a high possibility for upward movement, and fintech companies keep taking advantage of these opportunities. As a result, the companies are able to make a huge impact which has also led to a lot of success and an increase in valuation.
There is a similar gap in every other field. Most startups do not target middle and emerging markets. For instance, the entire Midwest of the United States accounted for just 0.7 percent of national venture capital investment. On the other hand, 40% is going to the West coast. This has led to a lot of high-impact segments being left unfunded.
Many companies are learning from Fintech in this regard, and they are starting to shift their focus to massive growth opportunities outside of Silicon Valley.
Fintech and working capital management
Successful Fintech companies are good at managing their working capital. One of the most significant factors that affects cash flow is capital management. Companies that have figured this out always have money to pay for their short-term expenses. Failure to do this has led to the liquidation and eventual bankruptcy of many startups. Therefore, if you are running a company, it is crucial to monitor and effectively manage your capital to make sure that there is enough funding for the business’s daily expenses.
To start with, as a Fintech company, you must have a good idea of how long it takes to make profits in your industry. If the general rule is that Fintech companies get paid every 90 days, therefore, you must be able to stretch your funds until all your invoices are paid. Unfortunately, most businesses do not learn about the concept of working capital management until it’s too late.
Fintechs are attracting massive valuations because incumbents in the market are resistant to change
There are many banks and incumbent financial institutions fighting for the same market as Fintech companies. Most of these organizations have one similarity: they do not want to accept change. While these companies are very powerful, they are also very complacent. To them, it seems that most Fintech startups do not pose a real threat to them. This is true in part. The banking industry is very conservative and guarded. However, Fintech companies are managing to cause a lot of disruption, and most of them are defying the odds. They are, in fact, posing real competition to banks and other large financial institutions.
Instead of competing for the same markets and providing the same exact services, Fintech companies are reshaping the banking industry. New Fintechs have spotted an opportunity in disaggregating traditional banking services, and they enter by offering targeted solutions with improved servicing to retail consumers and organizations alike. As a result, the threat posed by Fintech startups is now amassing the ability to disrupt four categories of incumbents. This includes market share, profit margins, information privacy, and customer churn.
While commitment to innovation used to be detrimental to the banking and financial sectors, Fintech companies have transformed this narrative. Because of this, the larger, slower-moving financial players have no choice but to change the way they provide their services. In the process, they bring themselves to the level of Fintech companies. However, because Fintech companies start by offering innovative services instead of adopting them at a later stage, it’s easier for them to attract massive valuations.
The current marketplace demands a lot of innovation, which Fintech is able to provide. For instance, people now want to use smartphones for all their needs. No one born in the past 20 years has really used a check or wants to go to the bank to conduct transactions. They all want to use their phones. This is how technology has transformed banking, and that is what Fintech companies take advantage of when they present their pitch decks. Investors now realize the opportunity for such innovation, and most of them are now willing to place their bets on Fintech companies in the hopes of high returns.
As a result of the disruption caused by smaller Fintech startups, large banks are now also investing in technology that makes online applications for things like loans possible. Also, there are many APIs that have been created to make it easier for people to do their banking transactions online. All these investments, APIs, and changes are enabling Fintech to grow at a faster pace. This is all because Fintech firms are innovative, daring, and becoming increasingly successful. Investors are now looking at Fintech as less of a gamble and more as the future of finance.
The current state of U.S. Fintech valuations
In the first quarter of 2021, Fintech companies managed to raise $12.8 billion. This is a massive increase when compared to the same period in the year 2020. It’s not just investments that are up; there has been a massive jump in Fintech company valuations. The average valuation of the topmost U.S. Fintech is currently $19.5 billion. That is more than twice the average for 2020.
Even the most successful Fintech companies are now able to make it into the top ten. Companies like Coinbase, which used to be part of the top ten in 2020, are now traded publicly, leaving room for newer Fintechs to take the lead. This has left room for companies like Nubank. This is a digital bank from São Paulo, Brazil, that has a valuation of about $25 billion. The company offers its customers no-fee credit cards, and it has become the most favored alternative to the country’s stodgy traditional banks. Nubank’s operations have now spilled into Argentina, Colombia, and Mexico.
There are many factors that are contributing to why Fintech companies keep attracting massive valuations. These companies offer innovative products and targeting of previously unexplored sections of the population. They have also upped the game as far as their pitching strategies are concerned. As a result, Fintech keeps growing and becoming a large threat for the incumbents. This means valuations are expected to keep increasing in the near future.
Coming up with an impressive Fintech pitch deck doesn’t have to be complicated. If you are stuck with your pitch deck or are worried that it might not give you the results you are aiming for, don’t hesitate to contact us.
About the author
Leslie Morales is the CEO of Launch Module and a Certified High Performance Coach. Learn more about Leslie and her team on our About Us page.