What are the best ways to identify investment opportunities in fintech?

The first thing to figure out is whether the Fintech is in a technology business or a traditional business with a tech layer. This is particularly important for the SaaS model. We will soon have AI with a budget making decisions to buy and integrate software to add a function or feature. Therefore, having clarity of core business proposition is essential to avoid disruption by another cheaper software.

Some critical points to look at Fintech opportunities from an investment perspective are: 1. Is the platform B2B or B2C 2. Cost of customer acquisition for the platform 3. Capital at Risk - ratio of capital at risk % allocation between Prop Vs Third Party integrations. 4. What is projected ROCE Vs Industry Peers these are some of the factors apart from the Tech and operational level factors.

Best way to start in Fintech would be to understand what fintech is all about. Term itself is big and covers various industry (and not just banking). To understand the TAM it is important to understand which specific area fintech solution is applied, and the impact of it, which is problem itself, how serious the issue is that is being solved/worked on. Other than reading/listening fintech specific podcast or newsletters etc it is a good idea to have some insight reading into industry specific publications.

Networking: Attend industry events and connect with other VCs, entrepreneurs, and experts. Accelerators/Incubators: Partner with programs hosting promising fintech startups. Market Research: Stay updated on emerging fintech trends and technologies. Data Analytics: Use tools to analyze market and startup performance data. Direct Outreach: Engage with startups and use platforms connecting investors and startups. Niche Focus: Specialize in specific fintech areas for deeper understanding. Global Scope: Keep an eye on global fintech developments, not just local. Community Engagement: Participate in online and offline fintech communities.

The fintech landscape is broad and fragmented. As a result, we are hyperfocused on specific verticals of fintech (banking/lending/insurtech) and like to co-invest with other investors that take the same approach at the pre-seed/seed stages. My advice to founders is to find domain experts for their first institutional rounds of financing, and then to broaden their approach (Seires A+) to generalist funds with brand names to help with scaling.

Some or all of these -- * can you understand the risks associated (e.g. recession/industry etc) * any legal implications that might hurt in long run * understanding of factors that will/will not trigger investment decisions * price/ratio is in scale you comfortable with (e.g. low return/high price) * are you comfortable in dealing with the associate partners (e.g. wrongly aggressive/hiding info etc) * define what balance investment means to you * is this investment helping in balancing my portfolio * is there an alternate to this opportunity with similar or better outcomes * how is market response (if in later stage) * assessment of opportunity cost * lastly gut feeling if that works for you, your assessment etc.

Once you've got a handle on the fintech landscape, the next move is defining your investment thesis. Think of it as your unique playbook, outlining your principles and criteria for making investment decisions. Align it with your vision, values, and expertise. Be specific about your target market, stage, sector, geography, and the returns you're after. This focused investment thesis becomes your compass, guiding you to the fintech startups that align with your goals and promise the most potential. Ready to shape your fintech investment journey? Start defining your playbook now.

100% - investment thesis should always be built around VC partners sector and geography market experience. Many times I’d seen VC’s extending their investment focus towards new trends. This is a mistake.

The idea that venture investors are high-rolling risk takers that drive the innovation economy . . . is a myth. The first thing a great investor needs to do is: authentically acknowledge that it's a ecosystem. Investors always need start-up, and start-ups sometimes need investors. The second thing is setting a "reasonable" thesis and the pool in which you want to play. I long for good ol' days when a seed was a seed, an A was an A. Today, all too many "seed" investors have bracketed up . . . require the seed to have a +$1M ARR before even having the conversation. A +$1M ARR company doesn't need your seed valuation. Realign to where a seed is a company with an MVP, some revenue, a pipeline, and a developing distribution network.

Sourcing is one of the key advantages that a VC firm has to attract not only investors but other startups as well. Building community around the investment thesis and always being on the lookout for great companies is important. Startups will know if you are there to genuinely help them and they will refer you to other startups that can help build your reputation.

Investors who wait for startups to contact them for capital are sunk! Venture investing is all about putting money the most desirable companies… and that’s also what competing investors are doing! Thus, if a company reaches out to you, it’s likely that the other investors have already said “no” (negative selection bias). Think of it think way- Houses in the most desirable neighborhoods often are sold before they are on the market! So if you want one of these houses, you have to network your way into knowing before the house goes on the market. In the same way, the hottest startups often close investors REALLY quickly. So as an investor, you have to network your way into knowing the company before it needs investment.

Once you've set your thesis to where you're making seed level investments into seed level companies (rather than seed level into basically series A companies) . . . your pipeline of available opportunities will expand exponentially. Further, investing seed into seed allows the investor to better control runaway valuations. Valuations get crazy when you invest with a seed level mentality into basically a series A round. Founders are generally reasonable, but will demand better valuations because they have done more and deserve more. So if investors want in . . .they have to pay the toll.

Now that your investment thesis is set, it's time to hit the ground scouting for those promising fintech gems. Tap into diverse sources – think referrals, online platforms, accelerators, and networking events. Keep your eyes peeled for potential startups aligning with your investment thesis. Utilize your existing network, portfolio, and reputation to draw in high-quality fintech prospects. Ready to uncover the next big thing in fintech? Cast a wide net and explore various channels to bring those hidden gems into view.

Due diligence is key. I believe in knowing the team. And the times that we failed was when there was key employees who wanted different goals than what the culture needed for the corporation to succeed. Pedigree matters a lot, but not at the cost of the team. Things that matter is culture, thesis, burn, having employees who want to be there.

More basic than all this other advice- diligence that the underlying technology- front end and back end are bulletproof. Than work on all the other good advice in this chain.

When I choose fintech startups to partner with, I like to see that they have a product that works, and that the CEO understands. It's even better when the CEO has technical skills and can work on the product. I find it concerning when you go to perform due diligence on a fintech, and it's hard to find someone who understands their "proprietary" software

You've spotted potential fintech stars, now it's time to put them under the microscope. Conduct a comprehensive due diligence tango, assessing everything from team dynamics to financials. Scrutinize their market presence, product viability, and growth potential. Verify legal and compliance standings, ensuring all boxes are checked. Dive into the numbers with a mix of qualitative and quantitative methods. This meticulous dance ensures you're making informed decisions in the dynamic world of fintech investments.

Team, Traction and scalability are the most important points for me. Management’s team background. Assess their commitment, dynamics as a team and understand how decisions are handled. Evaluation of technology stack, UX. Would I use the product. Potential future financial needs.

Think about how the terms of your investment might affect future fundraising and the startup's overall direction. Make sure to avoid terms that could limit its growth in the future.

Once you've identified promising fintech prospects, it's time to waltz into negotiations. Hash out the nitty-gritty details: valuation, equity stakes, board roles, and more. Strive for a harmonious agreement that aligns with both your investment goals and the startup's vision. Balance is key; consider the needs of founders, co-investors, and other players. Create a melody of terms that sets the stage for a mutually rewarding partnership in the fintech dance.

If you're in the Fintech/finance space then your investment in the company should also include meaningful introductions that can lead to sales and increased visibility for the startup. For example, if the fintech offers banking software connect them with your contacts in banking. Even if a deal isn't closed, the banking contacts can help refine the fintech product.

It is important to have a communication structure/process and expectations clearly defined and in place. Startup founders usually find themselves with so much to handle forgetting this crucial thing is very common. Sometimes providing calendar schedule, communication triggers based on criticality of event, frequency, and structure (what to cover in comm) helps. Once the communication is in place other things could be handled better e.g. need for connections, any problems where advise is needed or partnership is required etc. Better communication also helps in reducing the stress founders usually get into as time passes.

“Disrupting technology or Underserved markets are two ways of looking at investible options in fintech.” Fintech options may be comparable to #groww #policybazaar #neogrowthcredit #flexiloans #razorpay #moneytap #creditmantri etc etc. One of the open spaces is financial product sales since less than 6 percent of Indians invest in mutual funds as compared to canada where 66 percent plus are invested. (Underserved) The other is loans and credit. Micro finance types. (Disrupting tech leading to lower cost) The third is tech platforms which aim to remove middlemen and hence lower time money and energy to get loans / products. (Compete with distributors ;D2C. )

Some approaches to consider are : a. Immerse in or partner with fintech accelerators to access these emerging growth startups. VISA Accelerator is one such example b. Act in the role of mentor when invited to coach new promising startups who are under the radar. This can create a pipeline over time. c. Reach out to other markets beyond the traditional markets or financial hubs. Nordic and Baltic countries such as Estonia and Lithuania are producing some gems. d. Go beyond the traditional fintech clusters such as payments and wallets. Medical and Healthcare sectors are also opportunities for fintech to be created to facilitate medical processing. Medfin is one such category.

In my view, when investing in fintech startups, the paramount decision is to support founders who possess both profound technical expertise and a clear-growth oriented vision of their company.

Consistent growth in profits is an important indication of successful investment. We put money in with the expectation to get back more. If the company grows profits consistently, investor shall be happy owning such asset.

That’s a thoughtful perspective. Indeed, in the fintech industry, having founders with both deep technical knowledge and a strategic vision for growth is crucial. The technical expertise ensures that the startup can navigate the complex and often highly regulated financial landscape. Meanwhile, a growth-oriented vision is essential for scalability and long-term success in a competitive market. This combination can be a key determinant of a fintech startup’s potential to innovate and thrive.