Fintech is the career du jour; the chance for frustrated bankers to escape the hamster wheel of a finance job and go it alone in a related but more dynamic vocation. But joining a start-up is not without its risks.
Last week, Bondcube – an ‘eBay’ for the bond markets set up by former Citigroup trader Paul Reynolds – announced that it was filing for liquidation after just three months in operation. Reynolds actually started building the firm with “two guys and a laptop” in 2012, so its closure is not without casualties – it had 34 employees across five offices when we spoke to Reynolds in February.
He seems to be taking it in his stride. Reynolds’ LinkedIn profile suggests a new project called Bondchain, launched this month, and in an interview with Markets Media said that the problem was not being able to match buyers and sellers, but actually getting them to trade. He did not respond to requests for comment.
Fintech hubs are now present in London, the US, Germany, France and Singapore. Banks, perhaps fearful of the threat posed by these nimble start-ups and keen to keep them on a tight rein, have launched incubators, fintech investment funds and ‘bootcamps’ for hopeful start-ups. It may be hot, but there’s a danger that the market could become saturated.
“You can't move but bump into a P2P, crowdfunding or money transfer company in East London these days,” says Andrew White, CEO of FundApps, a fintech firm that manages regulatory information for fund managers.
But the fintech landscape is diverse. On the one side you have the challengers looking to disrupt the retail banking model, providers of currency services or credit to firms that are struggling with traditional lenders. On the other, you have the so-called business-to-business products, which are attempting to sell to financial services organisations.
If you’re pitching to the man on the street, it’s arguably a harder sell where you have to build up both brand reputation and a solid customer base. If costs are small, it can be easier on the institutional side, says White.
“It only requires a single customer who is convinced that the service is of value to make it a viable proposition,” he says. “This was the case with FundApps - we built a MVP and demoed it to a couple of hedge funds, one signed up and literally overnight we were cashflow positive. As more clients signed up the more we were able to invest in the product.”
This is one part of the equation, though. Some, if not most, fintech firms are reliant on external funding to get off the ground. A report released earlier this year by Accenture said that investment in fintech firms tripled from $4.05bn in 2013 to $12.2bn in 2014. Bondcube, for instance, was backed by Deutsche Börse, which said last week that “sufficient business prospects failed to materialise” and declined to provide it with further funding.
“My main piece of advice to anyone starting their own business is to seek funding as late as possible,” said Stu Taylor, CEO of Algomi, a fintech start-up that acts as a ‘bond information network’ connecting the buyside and sellside, enabling them to access data to inform trading decisions.
“When we received VC backing, we had a product and we had clients. This puts you in a much stronger negotiating position – without it, it’s possible we could have sacrificed 60-70% of our business. As soon as you secure revenue, the dynamics of conversations with VC firms change entirely.”
Getting the right people on board early is key. Taylor says that he’s hired “former sales professionals and traders looking for a change of scene” as well as tech employees. Meanwhile Toby Triebel, CEO and founder of online lender Spotcap, says that hiring is consistently the biggest challenge.
“You can’t offer them much in the way of salary or stability, so you’re relying on people to buy into the vision and the idea,” he says.
“Finding tech talent is tricky these days,” says White. “I was at a recruitment event recently and a senior IT person from a large investment bank was lamenting that he hadn't managed to hire a single person in two months as Google was snapping up the best people.”
Maybe working fintech firm that fails isn’t so bad after all – there are always plenty of alternatives.