TooBigToFail

The largest the bank, the less they (should, would, will) care ?

Despite the fact that I have some 23 hours plane on my way to Sydney, this post will be a short one, because in the meantime I posted another one. Plus now I am beyond busy finalising FinTechStage.
It’s just a conversation I had recently with someone I do consider very highly and respect a lot.

As I partner in a venture fund, a billion dollar exit would be considered a success, no doubts. Well, it’s reasonable to think a fund like the one I am managing with Mircea would still hold some low 2-digit stake in the exited company. So we could make at least our limited partners recover their money and by all means accomplished a very important part of our mission : not to loose money.
Usually, the timing for such an exit would be somewhere between 5 and 7 years from the build up of the investment vehicle.

Now, look at is with another angle : “I am a global bank and my NET profit, yearly, IS in Billions.”
Therefore, the risk associated with a disruptive start-up aiming to have a billion dollar exit is it worth the danger of being fined, the  reputation loss, the technological risk (not applicable to all ideas, but mostly on the most “disruptive”).

Every innovation movement has its own internal and external detractors. We observe Fintech funds associated to financial institutions not an exception.
Make money obviously cannot be the ONLY reason to invest in start-ups if we look at it with the eyes of a big player, even if there are a couple of funds claiming the financial return their sole objective. It does not seem to be impactful enough.

The fine balance – in my humble opinion – is to have a self-sustained financial vehicle that make a wise mix between what can allow the fund to keep existing, what can really change the bank and what has the potential to change the world.

In the next 18 months, we will have another 10 funds and roughly another 2 Billion USD, set up by banks or insurances, my crystal ball is telling me. It will be extremely interesting to see how their construct and scope evolve.

Stay tuned

M

Bank and Startup

The 5 things any corporation (especially banks) should keep in mind if they want to deal with startups

Advising banks on how to deal with startups is one of my favourite domain of expertise, here are few tips : these are free, consider them as a the introductory page of a manual 😉

– the first thing that a startup will teach you is that you (bank) are not a startup. Everything will be challenged, so talk to them with an open mind.
This is not a vague vanilla concept.
As an example, if you treat the startup as “another provider” from day one, you will not only fail miserably, but you will create an internal frustration for your guys trying to get some fresh air into your company.

– if you want to take from a startup something more than a good hour of (cheap or free) entertainment, set something up where these guys can try things and evolve. And I mean tech infrastructure, procedures. working space and agile prototyping to start with.

don’t judge. And be brave enough to bring that young geek to your CEO. You would be surprised how refreshing for him that talk will be. (This is part of a very complex topic about  how to create an executive “push” for the startup, obviously)

fighting your own internal legacy is going to be your biggest challenge. And not only IT legacy, basically having your security, audit and compliance department screaming all over, but of equal importance the cultural legacy. Usually, ring fence a vertical market (by geography or a business segment) is not a bad idea, before you scale.

– if you (bank) have a fund, and likely to become a customer at the same time, think more of the opportunity to be the first mover and shaper of that innovation than be fearful of the potential threat of your competitors having the same solution.
The implication of a bank-funded fund is a complex matter, will talk about it in a separate post.

Behind each one of these points there is a story, an experience, a set of data building up on the brief thesis.
Seven years ago, when I started to deal with innovation in Fintech, almost no one in the space had a structure to deal with startups (Innovation was a little more than a buzzword everywhere).
Now I believe that the consciousness of look for external teams to help both the traditional banking business and the new value creation is far more aware.

Stay tuned

Matteo

MPOS_Slide

MPOS business for dummies

I recently published a post – here – about Personal Finance Management tools (PFM).
MPOS (Mobile Point of Sale) have a lot in common with it, in my opinion.

What are they (to start with) ?
THINK SQUARE. Think of a device plugged into your phone to transform any mobile device into a payment processing device, to swipe your card, or to do chip & PIN.

IMG_0115.JPG

The number of startups into this market is very big. Crowded market.

I would like to think there is at least one startup or grown up company per developed country and in many places more then one.

The newest trend – a much wiser one – is now to do the same without device, seamlessly, an example of it being Mobeewave.

My point is : is this enough ?
Several banks have now tried to integrate MPOS in their Eco-system, many of them actually commercialising their own devices (partnering with a technology provider).
See here the example of Sabbadell
Granted : if a bank pushes. It might work.
In Italy, the government has enforced a law against “underground” economy and obliged all merchants to have an electronic way to execute payments (read about it here).
Granted : of legislation pushes, it might work.
My point : just not enough.

Devices will become a commodity and all you do is to move same old payments through a new system. If you don’t combine it with real innovation, you are just replacing a device (granted, with a cheaper, already in the market, and faster).
What do I mean by “more” ? Loyalty programs would be a good example.
Not only card loyalty, but consumer loyalty. Buy 10 pizzas have 1 free or being able to pay a pizza with your miles, for example.

Every single MPOS player claim that the DATA will be a mainstream source of revenue for them, as the information they will collect will be unprecedented. It should not only generate new business for financial institutions, but for insurances, or simply raise financial inclusion particularly in developing countries.

Another interesting angle of this debate is to figure out where MPOS have better chance to flourish. One could argue that developed countries could use this technology to develop their networks of small merchants, fight against black economy and money laundering. You could also think of it as a way to promote financial inclusion in countries where in practice there are no other form or payments outside cash. The debate is open.

What is certain, is that MPOS is a very high cash burning business, by nature (not to mention the fact the the biggest factory producing these devices are in China and I believe the biggest is the same one producing all iPhone components), therefore it has to find quick other form of monetisation, and most importantly sync up with the pace at which banks will be able to adopt it.

Stay tuned

Matteo

9 advices on how to approach a VC (with a Fintech flavour)…

Why 9 ? Don’t know.
On a plane back from Lisbon and in a very intense period of startup coaching, mentoring, scouting and showcases (NEXTBANK EU, Latam, Sibos, OpenAxel and DACH forum, plus Bootcamp ongoing).

So here s my contribution to how to approach a VC, from my humble experience so far :

1- talk with someone who knows the VC and can vouch for you. Not for the idea, for YOU as an entrepreneur. Sending a “hey Matteo, I have this great idea and here’s my PowerPoint” is a 3 times a day story, especially in this context with Fintech money not being very huge (yet…). If you don’t know the VC, get there. Follow them, see where they are talking, get info on the portfolio and the fund. In other words, give context.

2- send a one pager to start with. Do not overflow. Imagine that very often the first thing any of the partner you approach will do is to talk to the other partners. So the easiest you make that, the better chance you will have to catch their attention.

3- facilitate the work of the VC. Send already history of similar companies, valuation, acquisitions, IPOs. The easiest the diligence, the more straightforward the answer.
Fintech is a world with little or no history or data for VC, so the difference or the game you want to play is about the team and the fact you control well the domain you are getting on.

4- read a Term Sheet generic template you can download from Internet. There are protective provisions and you need to be prepared to accept them. This is crucial especially if you never raised money before. Nothing pisses off more a VC than having to explain what the very basic of a deal is, in series A.

5- in series A we focus on opportunity, not actuals. Highlight what problem the raised money is going to solve. Again, because of lack of history and data, valuation of a startup varies a lot. Your revenue might not be enormous and it makes a difference if you actually have more than a pilot.

6- there are thousands of banks in the planet… Say upfront whom can you sell to now and whom you cannot. Show you thought about it. We all understand that is complicated and lengthy and costly. But if you segment well your banking customers by needs, geography, connections amongst themselves and emulation factor, you show awareness and inspire confidence.

7- share your burning rate. Show it. Always good to understand how much did it take you to get where you are. VCs love entrepreneurs and love more cost conscious entrepreneurs.

8- highlight the Magic. But it’s ok if you don’t have it. As long as it s not too easy to copy it. If you have patents, say it. I you don’t, pls say you thought about it, because maybe the simple answer for you to give is “if we go fast enough we won’t need a patent”.

9- Never close up on a VC. VC loves startup who are progressing, with or without money, so if you do progress, give heads up.
Think of it : Fintech VC business has just started. Partners will change, new funds will rise. Keep the network alive without being invasive. It’s all about timing, remember.

I don’t want to give any lesson here and you can always claim that its so easier when you are on the right side of the money, but i really wanted to give a personal view on what works…

Stay tuned

Matteo