A decade-long summer free money is over. According to Crunchbase data, in the third quarter of 2022, venture funding fell by $90 billion (53%) compared to the previous year and fell by $40 billion (33%) compared to the second quarter. This makes Q3 2022 the slowest VC funding quarter since the start of the pandemic.
But despite all the crazy stories this year, aspiring fintech startups stand a real chance of becoming the new heroes of the multi-trillion-dollar banking and embedded finance industry.
In particular, I hear that investors are reluctant to finance future potential unless it goes hand in hand with a specific customer pull. So if you are building a fintech idea and need funds today, it is very important that your product gets into the hands of customers quickly.
How will you do this? Collecting feedback, using it to sharpen focus and prioritize, and ultimately rewarding customers for their help.
Here are three tips to achieve these goals:
- Get feedback and insights from your customers with a working product.
- Aim high in the long term, but work on nothing but a minimum viable product (MVP) in the short term.
- Always remember the problems you are trying to solve for people and reward them for choosing you.
Gathering customer feedback and insights is crucial
All else being equal, embedded banking startups and new fintechs will live and die based on the user experience they provide.
In such an operating environment, startups are more likely to impress investors if they can show tangible results.
What does it actually look like? Be prepared with these frequently asked questions before heading to an investor meeting with your presenter:
- Who are your users?
- What problems are you trying to solve for them?
- What do they like and what do they want?
- Where will you meet them?
The only way to find these answers is to send something real – a working product that people can interact with and use. This means that everything you build now should be for MVP.
I’m not saying, “Build it and they’ll come.” Too many tech companies have shut down because they were creating solutions to problems. It’s really easy to slow down by thinking too far ahead when it comes to what you need to create.
For example, if you’re building a consumer fintech startup, do you really need to build your own payment processor? In my experience, it would take 10 to 20 engineers, about 18 months and millions of dollars, and they would probably build something that may never see the light of day.
Eighteen months is a long time in an environment where fintechs and embedded banking startups could go to market in three months, if not sooner, according to research by Bain & Co. Moreover, speed breeds opportunity: the study predicts that embedded financial transactions in the US will increase to $7 trillion over the next four years, up from $2.6 trillion today.