Fintech Startups: Why They Struggle To Raise Funding

While the scope of the Forex market is getting larger in the last year, there are many investors who want to specialize in Forex technologies. Forex brokers prefer to jump onto the stage with limited resources and knowledge, so Fintech startups stand out as mentors and pathfinders. Some successful Fintech startups like Robinhood and Stripe make many people believe that there is still a place for them in the competition. However, most of the Fintech startups could not reach their goal and have failed to raise venture capital. Without enough funding, it becomes impossible to survive for those who seek new opportunities and revenue resources. 

If we look at the reasons why Fintech companies cannot achieve to raise a seed round, some of them look more clear than the others. 

  1. Limited Potential

Many Fintech company founders believe that their market opportunity cannot reach the level of $1 billion. With lower potential comes lower funding. What they study in the first place is to come up with a point solution like payment security, or remittance. They expect that the company will suddenly play in the top league with $100-200 million valuation, and that is usually not the case. The limited resources make VCs have second thoughts and they want to invest in the companies with a goal of $1 billion exit. Even though $200 million is a pretty high number, these founders are disappointed by the attitude of investors which can result in a fall of the company. 

  1. Lack of Knowledge and Experience

This problem is generally the problem of all startups regardless of the field. Many Fintech startup founders do not have a lot of experience in technology or financial markets. Once they got some amount of capital, they think that many VCs will be willing to help you with the capital. They immediately set up meetings with VCs and try to convince them with a good-looking PowerPoint presentation. In fact, only 1-2% of the founders can get a good result from meetings with VCs. What you have to do is to train hard to draw attention from VCs and build a well-organized business model.

  1.  Incompetency of VCs in the Fintech Industry

We have talked about the incompetency of founders, but this also applies to venture firms. Even the biggest venture firms do not have employees with Fintech industry experience. Therefore they only invest in Fintech companies only if they are at a later stage. Another difficulty that the founders have to deal with is the complexity of regulations. Many VCs cannot comprehend regulations around PCI compliance, international banking laws, AML/KYC, money transmitter licenses, etc.

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