Fintech startups can become some of the most valuable companies, but they can also be the most challenging startups to get off the ground.
First, just the operational complexity is enough to challenge to grapple with. Take fundraising for example. CEOs need to raise equity from VCs, but unique to fintech – they often also need to raise debt (e.g., capital to make loans) from an entirely different set of capital partners. This is often double the time and effort spent fundraising, and it’s not something that is done just once!
In addition to having to spend twice as much time working on financing – many fintech companies require deep domain expertise (this is not unlike other complex areas) and can take significant time to ramp up.
If you are going to start a fintech infrastructure company (very valuable!), it takes time to accumulate domain expertise in understanding how the existing systems work at a deep enough level such that you can improve upon them.
Not only that, financial services are heavily regulated. Startup founders need a strong understanding of the regulatory landscape, constraints, reporting requirements, and things like AML and KYC.
Getting off the ground can be much faster if you have a deep background in your given area. But there are plenty of well-known exceptions of course! Square, for example, has said none of their early founding team had a financial background.
Then there’s customer acquisition also challenging in many industries, but particularly challenging in financial services. How often do you think about your insurance co? Exactly.
There’s an expression we use a lot which is “the battle between the startup and the incumbent comes down to whether the startup gets distribution before the incumbent gets innovation”.
As a startup, you can have a much better product – but you will also need an angle to get customers. Financial service & Insurance keywords are some of the most expensive.
Affirm, for example, integrates at the point of sale. So while they need to make the enterprise sale with the merchant, they then have the benefit of customers being exposed to their offering in the checkout flow.