Funding, People, and a Plan: Takeaways for Fintech Founders from the Propel Summit
What do successful startup founders and VC investors have in common? They get out ahead of funding rounds and keep revisiting possible deals.
At the Propel Summit in April, experienced founders and our peers in venture capital talked about the same journey from their different vantage points, and offered similar advice about raises: start talking early and keep circling back.
“If you’re not raising — that’s the best time to talk,” was the succinct takeaway from the VC panel. During the following panel, Gary Beasley, founder of Roofstock, described the phenomenon of the pitch deck that gets passed around too much — how investors start to wonder what’s wrong with it. His strategy has been to “start funding conversations before you’re planning on funding.”
The other side of the same coin: VCs have their prep work cut out for them. Many desirable deals move very quickly. Thesis-driven investors who have done their research far in advance will be better positioned to make a decision when the moment comes.
Moderator Steve McLaughlin, of FT Partners, called Beasley “the Michael Jordan of Raising.” You could call his fellow panelist, Rob Frohwein of Kabbage, “the Damian Lillard of the Follow-up.” When encountering rejection, he recommends asking bluntly: “why is my baby ugly?” Reality check, “if you keep hearing the same thing, it’s probably true,” he said. He recounted how investors have said to him, “go fix that and talk to me again in six months.” While they may forget the conversation, he takes them at their word, addresses their concerns, then comes back and reminds them (“remember when you said…”). Shockingly, this has worked.
Actually, the investors don’t really forget. They’re watching, they’re tracking. They are rooting for companies they’ve passed on earlier. They’re revisiting entire categories (Could we do international? Is it a better time for underbanked financial services?) And they’re connecting. That’s why Frohwein asks them for introductions to other investors.
What do the investors see as the most promising areas for startups?
The short answer: “If it sounds really boring it’s actually really exciting.” For example bookkeeping, it’s “unsexy but has lots of room to go really upstream.” Likewise, workflow software and problems that can be solved with structured data technology hold potential. Categories that they avoided — e.g. the “crazy blockchain madness” — are now back on the table. How about the hype around insuretech? Yes, that is warranted.
The investors concurred that “infrastructure-in-a-box” type companies are making it easier to create neobanks, and we’ll see more and more of them for awhile. They also mentioned a related trend of every company trying to become a fintech company. Expect an eventual wave of consolidation.
Maybe you’re thinking: wow, did everyone agree? It makes for nice clear takeaways, but not as much onstage drama. OK, we did have a mini-debate around branding. One investor panelist posited that “brand matters less, especially to younger consumers,” while another countered that we’ll see “demographic winners defined by brand.”
Back to undisputed points. The investors see a downturn on the horizon, so they’re looking closely at how companies are preparing for winter and suggesting startups over-capitalize the balance sheet. They also have an eye out for the silver-lining opportunities, e.g. better software for servicing touchpoints to deal with an increase in loan defaults.
With everyone going after the same channels, how can fintechs rise above the noise? Investors want to see: a better product experience, a path they believe in — explained in great detail, and a stellar founding team. Money may make the world go round (that’s what we titled one of the panels), but the people are just as important, if not more so, in the startup journey. Frohwein described how he and his co-founder interviewed everyone early on and hired slowly and carefully in order to build a caring culture.
We at Propel appreciate the people — founders, investors, and other supporters — who joined us for the Summit and who are bringing similar values to the fintech space.