The FinTech wave… all about timing.

I already said in a previous post – here – that the main reason for me to move on from my beloved Innotribe was – basically – my failure in trying to move thinks towards a more self-funded, independent, proactive and financially relevant setting and as many things in life you have to acknowledge when time is right and when is not.

I think we can proudly say that the Innotribe Startup challenge was the first global FINTECH startup Eco-system (I promise, I’ll stop using this word but you can put it on my poor English).

Think of it :
Transferwise, reported to raise now 50M USD on a close to a Billion valuation,
– TrueAxis, sold to Mastercard for some 85M USD (could be 65 but can t bother to check now, it does not really matter for this discussion),
Guardtime,
– Azimo, recently funded with a good 10M USD series A round,
– MatchMove, recently announcing their 10 M series A round,
– Digital Shadows, also raising recently series A.
The list – believe me – goes on and on.
Many of these guys are already in series B/C and I reckon have a good chance to exit (for us now, the game is to find the ones with the same appeal but at an early enough stage to make the investment compelling).

SWIFT turnover is, today, roughly 700M EUR.

If you take the Fintech Startup Bootcamp model, startups give up 8% of their equity to participate in a 4 months accelerator program, culminating with Demoday (that took place last week  in London, kudos to the team and to the 10 startups,or was really a cool event). They give 8% TODAY and the market is way more tougher and mature than 5 years ago.
They do it not for the (little) money Bootcamp is giving them, but more importantly for the mentoring, the coaching, the connection, and the strategic help they are getting.

Innotribe and SWIFT could have put on the top of all this the best possible financial institutions sales network that a Fintech startup could have dreamt of. And – believe me I was there – many finalists of the startup challenge, including some of the ones I mentioned earlier, were exactly at the same stage of the Bootcamp ones, especially in the early stage category.

What am I trying to say ?
Very simple : roughly a third (conservative) of today SWIFT annual turnover is the potential value of what Innotribe could have been worth if the opportunity to create a community investment vehicle would have been set.
Then, the “Innotribe Venture Fund” could have take either some single digit with no cash or even some warrants to be exercised, these are details for the sake of the discussion. The rest is math.
But that was then.
Back then, the opportunity to use the SWIFT leverage to foster start-ups growth was a unique opportunity for a financial return (and the objective of developing Innotribe at industry scale).

Today would be too late for the “mentoring versus equity” thing. Because the market is too crowded already. At least the one for generic Fintech startups.

How do I see it evolving ?
There is still room for series A/B round Fintech funds and for Fintech vertical opportunities, my favourite one being Financial Inclusion.

Conclusion…
It’s all about timing and we are at the beginning of the second Fintech wave.
The one Billion dollar question is : how many waves we will see?

 

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

Fintech funds : two questions, two answers.

At Sibos this year, we will talk about Fintech funds, in a session on Thursday morning.
Why is it relevant ?

Exactly one year ago, at Sibos in Dubai, I started my new professional adventure in SBT Venture Capital. You can read about it here.
Back then, aside from the mythical Citi Ventures (must admit never got close enough to understand how it works) and BBVA (credit to them for being there already), no bank had its own startup fund (although maybe Atlante Ventures, from my friends at Intesa San Paolo could exists already).
Certainly, no one (including the one I mentioned so far) had a Fintech fund in place, which is the reason why I believe I joined SBT. There is no real proudness of being the first, as barrier to entry is not that big (if you have the money) but what was interesting was the intention.

I am on a bumpy flight to Moscow now, so I believe this post will be written in a couple of phases (and maybe I two separate posts even) but what I want to wrote about, in case I fall asleep now, is an answer to the following questions :
1- What is the difference between a fund and a “bucket of money set aside to make investments” ?
2- What is the #1 challenge any bank faces once the fund is up and running ?

Answer #1
A fund is typically structured as a separate entity, with a management company (another entity) hired by the fund with the mission to set up the strategy of the fund, find the right companies to invest, and manage the portfolio of invested companies to give a return to the fund (a profit) on the top of returning the invested money of course, plus a compounded interest (called the hurdle).
The management company receives a fraction of the fund to pay resources and expenses, and obviously the partners of this entity are not employees of the bank, and strongly motivated to maximise the profit of the fund as most of the time their reward is strongly measured on this.
I am not making a crash course on how to build a fund, because this is not the point, but I wanted to give some details as this is not the way other banks decided to do this.
Another way of investing in Startups, on paper way simpler, is to set aside in the bank’s balance sheet a money pot, and use it to make investments. Is that simple.
Often, banks call it a fund, as this is what the money is for. To take equity In startups or to buy them, using bank’s capital.
As opposed to the previous case, money is managed by (very senior) employees, the amount of the fund is “declared” but flexible, and one of the challenges (but not the main one as that is #2 answer) is to establish a legal framework for which entity is actually the one taking the equity stake in the companies.

Now : I will be happy to talk extensively about the above to whomever believe this could be of value to them (meaning bring me on board for a while and allow me to issue an invoice) but it s time now to move to the second answer …

Answer #2
In theory, it could be resumed in three words :
Strategic vs profit
Few considerations, before to expand :
No one likes to loose money and banks hated it particularly. If they do by definition, they are in trouble,
Everyone wants to appear (or need, in most of the cases to survive)to innovate or improve its services (true for everyone, banks included),
– More often than not a Fintech startup manages to do cheaper and faster what a bank would implement in the sextuple of the time and at ten times the cost (at least),
– Not invented here syndrome added to fear of change added to “if they do it we can do it as well” makes startup adoption not very easy.

In summary and especially in Fintech, what is strategic for the bank does not coincide with what can – potentially – give the higher return for the money being invested.
So the biggest challenge is to manage the tension between the (product, market, geography, business) strategy of the bank and the fact that if the “fund” does not make a profit, then you might as well use it to sponsor Wimbledon tournament for four years, at least your customers will say thanks to be able to see Roger playing while drinking some champagne at the lounge…

A concrete example : crypto currencies are one of the hottest spots for Startups this year. My friend Chris Skinner rightly pointed out – here – that more funding went to Bitcoin in 2014 than to the whole internet in 1995 (whatever means to compare investments with 20 years ago, but I still think it s impressive).
No bank has made a major investment in crypto currency Startups (I am pretty sure about it as I made a 3 seconds search on Google..) simply because it s hard to tell which role banks will play in this (although at Sibos there is a full Innotribe day dedicated to this topic).
Yet, with a venture capital hat, that seems to me like a wise position to take, providing you find the right startup to invest in.

I took this example which is – granted – as compelling as a bit easy to spot, as the dichotomy between banks strategy and market potential value is obvious… there are more examples, but will talk about it in the Freemium version 😉

Very happy to continue this dialogue on stage @Sibos2014 with some old and new friends.

Stay tuned

Matteo

It is time to share what my next life will look like …

I am sitting in a plane with a beautiful September sunrise, and all of a sudden my iPhone decides to play some music at me, more exactly the songs I used to listen in my 20ies, and even more exactly a song called “Incontro”… Talking about the freedom you feel when you are young, when you have no means but plenty of hope and energy, and (the song saying) when you are all grown up, your life is settled around you, you would give a lot to make love (like old times) in the back of your car, or at a movie, to grasp even for a little moment what you understand NOW being the salt of life… emotions.

My next plans are not about retire and listening to old Italian songs, but the reason for this intro is the transition the song provoked in my mind… I am about to begin another cycle, where I change EVERYTHING.

Few people know already: I have resigned from SWIFT, after 12 years of great adventures in Sales, Comms and Innovation.

My next challenge is a 100 M USD Venture Fund, called SBT VENTURE CAPITAL (www.sbt-VC.com) that I join as a General Partner.
We will invest mainly in Series A startups, in need of 1-10 M USD, within the fin-tech industry. In other words, not only we keep partnering with the Innotribe Startup Challenge, but I hope I will have the opportunity to stay in touch with many of the brilliant minds I have met during these 5 fabulous Innotribe years.

This is a question my kids might ask, in 10 years from now, if ever they will read these lines: what is your job about? (The only conversation I had about this with my 9YO son, I turned to be someone who s traveling the world to take pictures then selling them on Facebook).

The General Partner of a venture fund has the overall mission to make sure the fund gives back the invested money and some sizable profit to the limited partners who put the money into the fund itself. In this case, Sberbank – by far the largest Russian bank and one of the biggest banking players in the world – is the sole limited partner of the fund.
The GP job is about screening, build the deal flow (the portfolio of startups), make sure each company is vetted (financially, in their business model, and legally) and most importantly helping the companies in the fund’s portfolio with sales introductions, network, strategic insights, and some white hair in their board ( not applicable to me ).

I will start at Sibos, in Dubai, where the Startup Challenge Finale might bring good investment opportunity for us.
I will be based where the business brings me…. “where are you based?” Is an overrated question anyway.

Why do I change EVERYTHING? That s the title of my next post 😉

I will change now my about.me, LinkedIn, twitter and Facebook profile.
For the ones who want to reach me, my mobile phone number stays the same, and if you take my first name and sbtventurecapital (.com) you can figure my email address. LinkedIn works too.

stay tuned, more news in a short while

Matteo

20130906-165149.jpg