This interview is part of Scaling Enterprise FinTech | The Handbook, launched in Mar. 2021 in partnership with SixThirty Ventures and Finovate Europe. The Handbook includes proprietary research on ca. 65 Enterprise FinTech scaleups in Europe, Q&As with 16 founders on their journey to scale, as well as insights from 10 leading investors and financial institutions. Whether you are a founder with an idea, an early stage startup looking for inspiration and learnings, or an investor or financial institution looking to understand the difficult but rewarding journey to building a world-class Enterprise FinTech firm – download the Handbook here http://www.fintechforum.de/sef/
1. A year since the first lockdowns- is this is a good time to be building or scaling an Enterprise FinTech (/ InsurTech) firm in Europe?
As a preamble, let me point out that it’s never a one-line straight answer.
From what we’ve seen, the initial effect that lockdowns have caused in many sectors, including the Financial sector, was a freeze. With huge uncertainty as to what the future was holding for the global and local economies, no one was daring to move – projects were frozen, budgets were frozen and openness to Fintech/Insurtech solutions was not a priority. Very soon we watched the situation reverse, especially for enterprise solutions in cases where these were the key to enable the digital presence of organizations, thus its perseverance through a lockdown.
I believe this push towards digitization has led to a higher degree of trust on the potential of these ‘technological commers’ which are responding to unique challenges in each sub-vertical, as solutions such as digital financial services, ecommerce, cyberinsurance, among others, gained huge relevance and spotlight, but also as technology enables to create and seize new opportunities. Urgency has led to greater adoption, which in turn has led enterprises to realize the real and living need of financial technology and the potential of partnerships and collaborations.
I believe it is undoubtedly a delicate time for Europe, from which the Financial Sector will not be exempt. But I also believe that Fintech, being a catalyzer for adaptability and innovation, will be crucial in the transformation we are facing ahead not only in the Financial Industry, but any industry that somehow uses Financial Services.
2. What’s working and what’s not in B2B / Enterprise sales in the current environment?
As I mentioned previously, where Fintech is empowering the sector throughout its transformation into a more digital and efficient one and enabling mature players to address customers through a 100% digital journey and to tap into growing trends, there has been a lot of traction.
Also, as in everything, you can ensure sustained success if you are able to address the long-term trends. Although the current environment has pushed us closer to the future in terms of digital adoption for example, empowering enterprises to take advantage of that opportunity shall focus on the long run to ‘work’ and for that it is important to keep a close track of the behavior of the market to understand what is changing and what is temporary.
In terms of openness to partner and collaborate, we have never seen so many partnerships between mature players and Fintechs. Global Corporate Venture Capital funding is breaking records and, moreover, the increasing dynamic of the M&A market has been incredibly strong, with the second half of 2020 picking back on its momentum after a drop in the first half.
To dive deeper into some of the trends we see in the market: orchestration in payments and consolidation of the payments’ stack enabling merchants to offer good payment experience while increasing efficiency has gained relevance, as well as the enablement of ‘buy-now-pay-later’ experiences; embedded insurance and insurance provided at the point-of-sale has also been growing a lot being a bet of providing personalized insurance in the context where it is needed most and representing an additional distribution channel for insurers; addressing the complexity of regulation is a trend that will grow side by side with the increasing scrutiny and heaviness of regulators and lawmakers; the interest in social investment and ESG scores is driving the search for focused solutions in the space; it is impossible not to mention the huge spotlight that is on digital assets, as we see more and more traditional institutions stepping in as service providers in the space.
All in all, no one really knows how the post-pandemic world will be like, and there is no recipe that you can follow to have a successful idea. There are, I would point out, practices that can help you along the way: staying focused, being sure to know every relevant stakeholder in the industry the best way possible, surrounding yourself with experts of the area, starting with clients or partners that can help you build a name and a clear path, and building and fostering a great team that shares your vision and will help you achieve it.
3. In terms of investment focus: what’s in and what’s out for you?
At BiG Start Ventures we are very verticalized in terms of thesis as we invest in early-stage B2B companies operating in the financial sector (Fintech, Insurtech, Regtech, Cybersecurity, Wealthtech and Proptech to name a few sub-verticals). Our focus also comes a lot from our perspective of being able to help our portfolio companies with our network and knowledge, as such we are very inflexible in terms of industry (FS) and model (B2B), and tend to be more flexible in terms of region for example, investing globally, and even stage, where we go from Pre-Seed up to Series A.
I would dare to say anything within this thesis is in for us.
4. What does it take to get to Series A today?
First let me point out a growing concern of ours which I believe is also worrying other early-stage investors watching current trends of increasing round sizes and valuations. More and more we see funding in the initial stages exceeding what would be expected in terms of market values – there are different drivers, the accumulated investment capacity fostered by the initial pandemic freeze, the search for financial returns in a low interest environment, – which, even unintentionally, ends up inflating the perception of the value of the company, leaving investors with expectations in terms of metrics and milestones which can be very challenging to reach. My message here is: the context you create before the Series A, will dictate a lot of the requirements investors are expecting to see.
At Big Start Ventures we try not to get stuck with specific metrics such as the typical ‘€ 1 M ARR’ (what would make it so different from 0.8 M ARR? Or even € 1.2 M ARR?), we are more focused on understanding the paths you took and the roadmap you foresee. Don’t get me wrong, traction is relevant, we just think that it is assessable in a specific context which we try to understand, to see if with your resources (knowledge, team, money) and given time you are upfront or behind what would be expectable. As such, I think it is important to be able to indicate product-market fit and market opportunity through metrics such as churn, tracking and measuring growth, assessing the customer acquisition cost. Additionally, it is very common at the Series A stage that investors do referral calls with clients to test their perception of the solutions’ usefulness and their willingness to expand their usage over time – we expect a product that is ready to scale, with which mature players can work with and that
is already generating value for the industry. Also, you should be able to explain how resources are being spent, more specifically, how cash is being spent and what is the cash burn rate. Lastly, your roadmap and how you expect to achieve each milestone is very important as not only it gives the investors the ‘what to expect’, but also shows them how you think, how you balance being ambitious with having your feet on the ground.
5. What should startups expect or plan for in the coming months?
The first quarter of 2021 hasn’t even ended by now, and it is already breaking records in terms of Fintech funding. At the same time, from the funding of 2020 in Fintech, approximately 54% is driven by mega-rounds which could only reflect huge investor appetite for the Fintech industry, specifically in later-stage. This means increasing competitiveness for early-stage startups as the funding gap vs. later stages shows no signs of shrinkage.
Regardless of the confidence being put on vaccines, we have a big hit to recover from particularly in Europe. Nevertheless, the financial technology boom powered by the pandemic in its transformational (and not momentary) trends will not move backwards. The number of partnerships being announced between banks and Fintechs show how they now see how effective these relations can be in delivering digital transformation faster.
As such, I believe opportunities and specific conditions have been created in the Fintech/enterprise space of which startups should be taking advantage of.
Matilde is currently an investor at BiG Start Ventures, a Lisbon-based B2B focused VC, investing globally in Fintech, Insurtech, Regtech and Cybersecurity. Having joined the Portugal Fintech team with the shared commitment to creating the best conditions for the development of Fintech startups, takes responsibility for the coordination of the Portugal Fintech Report. Matilde has a background in Economics and Finance.