Investment in FinTech businesses has grown exponentially over the past decade and the growth continues to be on the rise. According to a 2021 report by Dealroom, FinTech startups raised $125B in VC funding globally, exceeding the total 2020 funding by 2.8 times. While this growth has been mainly driven by megarounds, early-stage funding has also been booming, especially in Europe and emerging markets. For example, 2021 saw almost 1,800 early-stage FinTech rounds, nearly twice as many as there were in 2016. NFTs, crypto exchanges & custody, revenue-based financing, neo brokers and BNPL made 2021 the year of FinTech.
With the growing number of FinTech projects and investor interest in FinTech startups on the rise, the process of selecting startups for investing is also becoming more complicated. While seasoned investors have their proven and trusted tactics, those looking to get into the field may not know where to start. As a global communications expert working with venture capital funds and startups alike, I compiled a few tips on what emerging investors should pay attention to before investing in FinTech and crypto, from a communications perspective.
Company’s Positioning & Strategy
Before taking any steps towards investment, it’s important to take a pause and look for answers to these questions: What is the product or service offering? How is a company pricing it? How is it taking to the market? What are its distribution channels?
Regardless of the startup stage, answers to these questions must be clear and strong. It’s common for FinTech and crypto founders to change their positioning during the development process as they continue accumulating market insights and finesse their strategy. Before investing do your research: the project positioning should be easy to understand and not changed every few months.
People
Having a one of its kind business idea is great, however, behind every great idea stands a person or a team. It’s important to take a deeper look into the people behind the business.
Run a Google search to learn more not only about the founders, but also the C-Suite team. Find out more about their background and how their expertise is relevant to drive the business vision and strategy. Also, it’s important to see if they have appeared in the media on behalf of the company and if they are thought leaders in their respective fields. But don’t stop your search on the C-level executives – make an effort to find out more about other members of the team – who they are and what their professional skills and level of expertise are. Pay attention to turnover as frequent changes in the team indicate a lack of strategy or lack of common vision and mission. While causes for turnover may vary from team to team, it may serve as an indicator of uncertainty, creating a challenging working environment.
It's also important to get to know the startup’s advisory board. Look beyond the names and big titles. Instead, research how the startup team collaborates with them and how they contribute to the company’s vision and growth.
KYC verification process
Know Your Customer (KYC) or Know Your Business (KYB) is a set of identity verification processes that FinTech and crypto projects must follow. That includes identity verification check of all individuals and businesses who want to work with the company, protecting against major financial crimes like tax evasion and terrorist financing.
Before investing, I recommend using the below checklist:
- Are these processes in place?
- What elements does it include?
- Does the startup have its own KYC policy?
- How do they protect personal data?
- What technologies do they have in place to ensure it?
Investing in emerging crypto and FinTech startups may sound like a lucrative deal, however, it’s important to do your due diligence. When doing your research, pay special attention to the company’s vision, mission and steps it takes to execute its strategy. At the end of the day, all products are created for users and it’s essential to understand how these products are bringing value and enriching their lives and businesses, and how they impact the overall economic landscape and ecosystem.
