Startups and money.
It’s a secret for nobody that money is scarce when you’re launching your startup. Even if the Swiss Venture Capital Report shows an interesting growth in startup funding over the 3 last years, with almost a doubling of the funds invested in Swiss startups. About CHF 900M were invested in 2016. Which can be seen as a great sign for entrepreneurs, but which is in the same time…ridiculous. At least if we speak about digital startups (fintech included), which represent about 30% of this amount. This total includes massive funding rounds (80-100M) in the life sciences industry, which is a bit hiding the rest. But it’s ridiculous if we compare to London startups (mostly digital), which raised… EUR 1.32 billion in the first 6 months of 2016!
I was discussing with another startup founder the other day and he told me that his feelings and observations about the current startup hype (it’s cooler than ever to do a startup – like it or… not!): everybody seems to be looking for funding and if you cannot raise money, you’re failing. Of course, it’s all but not true. Fundraising is a mean for a goal. Not a goal in itself! And there is still this misconception about writing a 20 pages business plan to show that you actually have a plan. But this business plan is outdated as soon as you freeze it into a PDF (if not, that means you haven’t started executing!). If you spend one week (that’s more or less what it takes) to write a business plan, it should be for something. Something that should generate a real Return On Investment. Have you ever thought about how many potential customers you can meet or even simply contact during a full week? One week probably allows you to have 20-30 meetings. And reach out to about a hundred potential customers. What is your choice?
I’m not saying you shouldn’t try to raise money. But the effort is huge and the reality is… that you have very little chance to raise enough money to make a real difference. In my humble opinion, there are mainly two types of startups:
- the ones with deep technical innovation and/or IP (patents)
- the other, which have an interesting innovation, but not highly defendable
The first one requires generally a lot of money even early on. The second one can make progress with less money, but has to go ways faster to take over a market. If you’re in the second category, you’d rather invest your time in customers to get traction (and raise funding after, to fuel the growth). Otherwise, you’re just wasting your time with nice guys who will never invest.
You need to have a clear understanding of the type of startup you are managing.
An alternative way of funding
Have you thought about startup awards to fund your startup? Yes, it can be a viable solution, at least for some time. In Switzerland, we have seen the health tech company Abionic over-succeeding in this strategy some years ago. A great innovation with a lot of IP, a CEO able to deliver a great pitch and explaining simply what problems they were going to solve. That’s how they were able to get a lot of grants to survive to the early days post-university (remark: I do not know the details of their strategy and this time, I was (and still am) just an external observer). They were simply impressive. Startups fighting at the same startups awards had less chance to win, just because the “opponent” was too good.
Have you ever thought about awards to fundraise your startup, or at least to help you move forward?
If you’ve decided to follow this strategy, you need to realize that it’s not that easy, too. It’s the jungle out there and everybody is fighting to survive (and ultimately grow). Participating to startup awards takes also some time, as you need to have a great story to pitch (and to TRAIN*TRAIN*TRAIN) as well as the documentation (remember the Business Plan above…) ready. The good side of awards are that you can gain free press coverage, some credibility and fall under investors (and sometimes customers) radar. If you win (or at least are in the nominees), of course. What happens if you never win? It can also alter your image: if your startup is participating to every possible award and judges keep seing your application (and maybe with not that much progress over the months), they may flag you as a loser. And you’re just wasting time in applying everywhere.
There’s a good thing about the “startup hype”: there are more and more cash prizes available in awards. So if you spend a bit of time browsing the web, you’ll probably find an award corresponding to your startup!
If you read me for a while, you may know that I was in charge of launching the first fintech accelerator of Switzerland, Fintech FUSION. I remember quite well the rise of Fintech in Switzerland (read: The Waking Up of FinTech in Switzerland) and the trendiness of the topic, back in 2015. Fintech and then blockchain were hype at this time. Then, the term Insurtech popped out and that was the new trendy topic, coupled with the apparition of chatbots based on messenging platforms. Now I’ve seen that new terms are popping up, like Proptech (property-tech). I remember also quite well categorising the various Fintech sub-segments (we limited to… 15!). That’s a good thing for startups to find a suitable accelerator or award.
When we hear about Fintech, the most common cities we think about, at Fintech capital, are London, New York, Singapour, Zürich or Frankfurt… We hear less about Luxembourg. Rightly or wrongly. As well as it’s a small city, there is a vibrant financial activity out there. Nasir Zubairi says about Luxembourg:
“FinTech firms can’t overlook Luxembourg as a financial services powerhouse. Luxembourg is the largest finance centre in continental Europe, the largest fund management sector outside of the US and the global leader in cross-border funds. It is home to over 140 banks and is a leader in the insurance sector.”
And they have very interesting initiatives to foster everything digital and financial. KPMG and LHoFT (Luxembourg House of Financial Technology) have joined force for the second edition of the “Fintech Awards Luxembourg“. There is EUR 50’000.- for the winner, as well as some other cool prizes (like a one-week immersion into Silicon Valley) and the opportunity to pitch in front of potential high-qualified customers. 15 startups will be selected and invited to present on June 28th. Application deadline is really soon: 1st of May 2017 (so you’d better not wait to apply, even more than it takes literally 5 minutes to apply).
Last but not least, here is a quote from Tiphaine about Fintech Awards Luxembourg (who was one of the winner last year and that we selected for the 2nd batch of FUSION):
“FinTech Awards Luxembourg accelerated our growth and brought our name to the ears of several large banks.”