“Evidence shows that fintechs face difficulties raising capital, especially those that are addressing the last-mile challenges that leave an estimated 3 billion people underserved by the financial sector.”
When we wrote these words just a few months ago, the world looked very different. Since then, the challenges facing fintech startups have increased exponentially as a result of the COVID-19 pandemic. In April, we spoke with fintechs and investors to understand how they were coping with the crisis. We found that fintechs are reconfiguring internal operations, refocusing on core products, and helping customers weather the storm – all while looking for the cash they need to prove their business model and scale. Investors have reported that, in the midst of the crisis, they are pausing investments or looking mainly to those startups whom they met in person before the pandemic. Some fintechs we spoke with reported a lead investor abandoning a Series A, for example, or they paused fundraising to focus their attention on managing through the crisis.
Those conversations happened a little over a month ago. Now, investors are telling us that as the immediate crisis subsides, they are looking to engage with fintechs – especially those that have proven resilient through the crisis. As they do, however, the traditional tools that investors and fintechs rely on to find each other – travel, conferences and meetings over coffee – may not return for months or even years. If the absence of these traditional tools prevents investors from discovery, the industry risks missing out on many emerging fintechs – particularly those who are developing ideas designed specifically for a post-COVID world.
To avoid missing out, investors will need a robust and creative set of tools to support remote discovery. There are already a wide range of data services available for investors and startups to find information on the current investment landscape and recent deals, ranging from Crunchbase to Pitchbook to Owler. Yet we’ve learned that investors and fintechs focused on emerging markets and inclusivity find that the existing data does not fully cover emerging markets or is focused primarily on later-stage companies.
Investors will need a robust and creative set of tools to support remote discovery.
In the wake of COVID-19, we are pleased to see an initiative, The Nest, take the lead in leveraging an innovative, low-cost way to support remote discovery. The Nest is a weekly Zoom “shark tank” designed to connect aspiring entrepreneurs in frontier markets with angel investors from around the world. It has raised more than $450,000 in the month since its inception. The company behind The Nest is Untapped, itself a fintech supporting innovation in frontier markets through asset financing.
The founder, Jim Chu, recently told us that the virtual forum makes it easier to create a “critical mass” of interest from both investors and early-stage startups to build the ecosystem in frontier markets. The critical and diverse mass of investors, he believes, has been the key ingredient for The Nest’s success, as it increases the risk appetite of those who have not invested in frontier markets before.
“If you have a whole group of investors coming together, there’s more trust and knowledge because there will be that one person who will have expertise in a given sector or market.” Interestingly, the Nest has seen more interest from those who typically don’t invest in frontier markets.
The online platform reduces barriers to entry for early-stage startups: they don’t necessarily need access to Silicon Valley networks or trips to meet potential investors. Moreover, investors can obtain key financial indicators during the virtual pitch and conduct due diligence remotely with support from locally based investors. The Nest currently is most active with African startups, but plans to decentralize further by partnering with local angel investor groups in Asia, Latin America and the Caribbean to ensure that global investors connect with regional investors and leverage the knowledge they bring and close the capital gap that many early-stage startups face.
We are developing a data solution for fintechs and investors to support remote discovery and address investors’ and fintechs’ needs in the post-COVID world.
Meanwhile, at MIX, a unit within CFI, we are developing a data solution for fintechs and investors to support remote discovery and address investors’ and fintechs’ needs in the post-COVID world. For fintechs, this solution will partner with Inclusive Fintech 50 – which launches on June 15 – to offer a new incentive to 2020 applicants: dynamic, targeted data on investors to help fintechs focus their fundraising efforts. We are also partnering with BFA’s Catalyst Fund to offer fintechs a survey and analysis to illuminate how their customers are being impacted by COVID-19 in terms of financial health, income generation, and product usage.
For investors, the solution will provide access to fintechs’ profiles as well as the ability to generate customized industry benchmarks based on a standard set of performance KPIs – thereby supporting remote discovery and industry research. The solution will also provide specific data and insights relevant to how fintechs have coped with the COVID-19 crisis, including data on how the crisis has impacted, for example, cash runway and customer growth rates. This data will help investors understand which fintechs are best placed to succeed as the crisis subsides and investors are ready to rebuild pipelines.
Are you a data provider interested in partnering with the MIX team to offer better data and insights on inclusive, early-stage, and emerging market fintechs? We’d love to hear from you.