Staying Power in Fintech: Hard-Won Advice from Seasoned VCs
Originally a thread on X/Twitter:
VCs didn’t know what fintech was until giants emerged like Stripe, Credit Karma and NuBank. Then every VC wanted fintech exposure.
But these “fintech tourists” have exited the building.
What follows is advice 8 VCs who stayed the course are giving their fintech companies.
@mattcharris – Bain Capital
Have redundant bank infrastructure. If you are building on top of a bank or other FI, or have critical dependencies, you need backups and backups to your backups. The reverberations of SVB aren’t done yet and strange things are still afoot.
@mattcharris – Bain Capital
It’s OK to lose money! That’s why VCs exist. But you should have very good instrumentation around WHAT you are spending on, WHY, and HOW it’s going, as a detailed and thoughtful justification as well as a system for knowing WHEN and WHERE to pullback.
@wquist – Slow Ventures
In underwriting/spread based businesses, be very aware if you are building products to spot an arbitrage or to create one. Both can be great ways to make money but there is very little long term equity value in the former.
@wquist – Slow Ventures
If you are building infrastructure products, be prepared for the great customers to want to be the first to be third. Expect that your first customers will not be of the highest quality. Customers who trust a nascent startup have some issues.
@iamjakestream – BTV
Every Founder has decided that they need at least 24 months of runway to “ride out the storm”. I have to remind Founders that they still have to set ambitious goals and grow. They just have to figure out how to do it with less capital and headcount.
@iamjakestream – BTV
Venture capital and building startups is about small teams building real software that can scale quickly while also being capital efficient. The heydays of easy capital is over and many lessons the last decade taught us need to be unlearned.
@mbatny – Inspired Capital
Closely analyze and understand what initiatives are driving economic value creation to the enterprise. Prioritize those that are most crucial to the company.
@mbatny – Inspired Capital
Focus on innovations that truly have a chance of building enduring competitive advantages. Don’t get distracted with incremental features that won’t move the needle.
@dkimerling – Deciens
Make sure that there is a real moat around your business. This is what lets you raise prices year after year, defend your margins, and fight the deflationary nature of technology.
@dkimerling – Deciens
The goal is to have your ROIC>WACC for many many years. The # of periods is more important than anything else. So make sure you are building for the long term and you have capital partners who are aligned over an extended duration.
Logan Allin – Fin Capital
As humbling as it can be, embrace tortoise mode. Measure twice, cut once around burn with a focus on headcount, marketing, travel/offices and vendors. But protect your “head” (R&D: product/engineering talent) to be able to fight another day.
Logan Allin – Fin Capital
If you’re forced to re-capitalize or sell to salvage value, embrace the process and do everything you can to protect the investors and the team that joined you on this journey. Doing this well will protect your legacy and reputation forever.
@gw_roofstock – 1Sharpe
In these challenging times, ruthlessness is required when considering headcount and margins. Talent is ubiquitous, and your task is to scout the best individual for each role. Frequently, this implies making space on your team for emerging stars.
@gw_roofstock – 1Sharpe
Over recent years, many entrepreneurs mistook their journey for a sprint, fueled by easy money. Now they’re coming to understand it’s more of an ultra-marathon, where every bit of resource, especially financial, is invaluable.
@fintechjunkie – QED Investors
Darwin has returned from vacation, and as a result Investors have gone back to evaluating startups holistically. The days of valuations being a simple function of revenue are gone. And if Darwin doesn’t like you, extinction is around the corner.
@fintechjunkie – QED Investors
The unknown is scary. It’s what’s in the black that can kill you. Heading into the black without a plan might work but it might not. Listening to advisors who’ve spent significant time in the black and returned alive is a very wise move.