Much has been made of the UK’s growing fintech industry. Research published by Accenture in 2014 showed the UK and Ireland enjoyed a growth rate outstripping the rest of Europe and Silicon Valley over the past five years.
However, the more mature US technology sector and investment culture means UK businesses lag behind their US counterparts in attracting the investment to move them through the stages of growth. So what can early-stage, consumer-facing fintech companies do to make themselves more attractive to investment from private equity houses and venture capitalists?
The company must first have a functioning product on the market available for consumers to access.
Investors want to see a downloadable product rather than an idea. Secondly, investors will typically target those products which have traction and display the potential for viral growth; the larger the number of “eyeballs” the greater the opportunity for monetising the technology.
Revenue-generation is not critical at the pre-investment stage. Using free deals or freemium offerings is perfectly acceptable and helps enable that all important take-up by consumers. A company should not think that because it does not have £2m of revenue investors will not be interested in them.
The product must have appeal. What it does, rather than how it does it, is a primary concern for investors. Successful products will target, and excel at, frictionless delivery, particularly around products which solve a previously undescribed problem or simplify the consumer’s life.
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This means the emphasis need not be on the underlying intellectual property. Consumer fintech products do not need to have highly-sophisticated intellectual property at their core in the same way that big data products need advanced algorithms.
Readers will be aware of product aggregators allowing consumers to compare financial products. These are simple ideas with clean execution.
With that in mind, companies need not focus on creating bespoke intellectual property. Opensource technology, for example, provides a time and cost-saving tool in building the product.
However, the use of opensource technology needs to be carefully considered; the terms of opensource licences may mean that bespoke technology built on opensource code must be offered for free.
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Even if the intellectual property, as a whole, is not to be monetised by licensing, giving away your innovation and hard work cedes some advantage to would-be competitors.
The right platform will have a large influence on the attention the product attracts and the key platform for retail products is mobile applications.
Consumers are mobile and an internet-only offering will struggle to gain the visibility that it needs to become a compelling investment opportunity. A mobile product will help achieve the proof of concept that investors look for.
Early companies have to strike a balance when considering where to spend their cash and legal services are not high up the list. This is understandable; it is more important to spend money building the product and gaining visibility.
That does not mean that companies should ignore legal issues. Instead, companies should seek pragmatic, timely advice that will help retain the value in the offering and yet keep competitors and regulators from the door.
Companies need to weigh up the business decision and acceptable levels of risk against being legally watertight. The time and money to gold-plate the business can be spent once investment has been secured.