Closing the fintech innovation gap: DFS Lab’s bootcamps
The uptake in mobile money in developing markets is generating unprecedented opportunities for innovations in digital financial services, products, and business models.
According to Disrupt Africa and VC4Africa, just three countries, South Africa, Nigeria, and Kenya accounted for over 80 percent of startup funds secured with Kenya and Nigeria especially high in the number of investments. Unsurprisingly, the highest profile innovations are also coming out of Nigeria and Kenya, some examples being the funding of Branch.co by Silicon Valley VC Andreessen Horowitz and the acceptance of Flutterwave, a Nigerian digital payment infrastructure startup, into Y Combinator’s Spring 2016 batch.
However, even in these two continent-leading startup ecosystems, there are few mass market fintech innovations that are ready for serious investment. Outside of Kenya and Nigeria, the numbers starkly drop off, although there is encouraging activity coming out of Ghana.
DFS Lab was founded to nurture the development of fintech entrepreneurs and accelerate fintech innovation in developing countries. We trust in a process that is entrepreneur first and places a priority on execution. The Lab is looking to fill a gap in the startup roadmap that exists at the very early-stages of a fintech startup.
In the typical trajectory of a startup, funding usually starts with the founders themselves, or with money from their friends and family. At this pre-seed stage, startups that find some traction might then secure funding from local angels investors to fill the gap before they are able to draw from larger sources for a seed round. In developing countries, we have found that there is a considerable gap of sophisticated investors after the period of initial bootstrapping. While wealthy individuals and impact-oriented donors might try to fill the need, contracts are not always fair, and there is a lack of mentorship at this stage which is arguably more critical than the funding itself. Unlike in Silicon Valley, startup ecosystems in developing countries have not yet seen a large enough “first generation” of experienced, monied entrepreneurs to fill the need for angel investors with first-hand technical and market expertise.
DFS Lab sits squarely at the stage between bootstrapped and seed funded. The program, a selection process that concludes in a one-week design sprint for finalists followed by a six-month fintech incubator accompanied with up to $100K USD in funding for selected startups is designed to fill the pre-seed execution gap that we have identified. The Lab closes the gap by supporting those on either side of it; the early-stage entrepreneurs on one side and seed-stage investors on the other.
For early-stage startups, we provide hands-on guidance as early as the final phase of our selection process. We subscribe to the design sprint methodology, a process created at Google Ventures to help teams go from concept, to prototype, to early customer validation in just one week. The one-week “bootcamp ”structure can accommodate entrepreneurs who are just starting to think about innovative concepts to those who are ready to put a more formed business model to the test.
For DFS Lab, the bootcamp also serves as a test of how startup teams would fare if we did take them into our official 6-month incubation process. We are able to assess team dynamics, the ability to deal with uncertainty, and how quickly new ideas are formed, debated, and executed upon. Working at such an early stage in the startup process comes with a stark lack of data around potential and a co-working week serves as an irreplaceable and informative measuring stick.
As a result, we’re closing the information gap from both ends — startups receive hands-on mentorship to help tackle their highest-need problems and the Lab and its network gains insight into the next wave of high-potential entrepreneurs and the trajectory of the market. An example of this dynamic is illustrated with SERV’D, one of DFS Lab’s current portfolio companies. The SERV’D team, looking to formalize the informal house-services market in India (housemaids, cooks, drivers, etc.) through contract management and financial services, came to us trying to understand how to navigate a two-sided market of informal service providers and consumers.
Paired with a facilitator with deep experience in the Indian market, the team spent a laser-focused week working on customer segmentation and market entry concepts. At the end of the day on Friday, not only did the team have a working prototype designed for their target customers, they had already tested it with positive feedback from users in India.
The DFS Lab team was able to take a deep-dive into the informal market in India and its readiness for digital financial services. We were able to reinforce a part of our own thesis that financial services can effectively ride on the data generated from platforms which provide clear value for previously under-served and data-light customers.
Everyday we tap into the groundswell of innovation coming from the developing market fintech community. Our bootcamp model is designed to distill this potential into startups ready for structured incubation, a role that is lacking in the current ecosystem. It guides entrepreneurs along at a “fail-fast” pace and roots our own incubator into the realities on the ground. This low-risk environment tempered with the pressure of execution is not only where innovation is nurtured, but also tested. Early results show that it is an effective approach and we hope to provide the first steps towards success for the next great fintech entrepreneur.
DFS Lab’s next fintech bootcamp will be in Sri Lanka in April 2017. Follow us on twitter @theDFSLab of Facebook to hear how to apply to the next one.