According to global accounting and business consultancy KPMG, investors poured $105 billion into fintech startups last year, the third-highest annual total ever recorded. This clearly demonstrates significant growth in the industry and interest in developing tech firms that are modernizing payment and financial infrastructure.
But not every fintech company is a good fit for venture capital, according to this week’s guest on the Fintech Growth Talk. An engineer by training, Uri Pomerantz is an experienced fintech entrepreneur and venture partner at Jackson Square Ventures, a venture capital firm in San Francisco. Pomerantz believes that entrepreneurs must have both a macro and micro view of their business and the market it serves.
In the macro view, entrepreneurs need to be sure they’re picking the right business to start with, one that has the potential to grow to a ten-figure business with a 30% – 40% annual growth rate. To do that, there needs to be a large total available market (TAM) coupled with an emerging trend that has significant growth potential.
In the micro view, entrepreneurs should focus on important details in order to appeal to VCs, including early measurements that indicate growing or improving unit economics, such as customer lifetime value (LTV), customer acquisition costs, and strong cohort performance.
The key to winning attention—and investment—from VCs is building relationships with investors early on in the process, says Pomerantz. It might seem like an inefficient use of time, especially for a busy entrepreneur who is focusing on other aspects of their business. However, having operated on both sides of the table, Pomerantz says that forming relationships with investors at least six months prior to being ready to raise funds can make a huge difference when it’s time for the big ask. That said, reaching out takes a light touch at first. No investor wants to be bombarded with requests.
Pomerantz believes the best way to proceed is to develop a process before fundraising that includes a number of best practices such as setting up a data room in advance and having financial and cohort data ready. What’s more, it’s important for startups to conduct due diligence on their investors, such as talking to CEOs of companies they’ve invested in. Taking all these steps will make fundraising go that much smoother when it’s go time.
But there’s another overlooked aspect to building relationships with investors. Even if they’re not ready to sign a terms sheet or plunk down some cash, investors can also be very helpful in other areas of building a fintech startup. This includes (but is not limited to) finding and hiring top-level executives, developing a board, and just giving gut-check level feedback on the business. They can help entrepreneurs avoid blind spots by providing a view that’s more removed from the day-to-day.
Ultimately, Pomerantz believes that the best startups out there have taken the time to develop both a vision and a strategy for achieving it. He compares it to a chess game, where entrepreneurs need to keep their eye on both the short-term objectives and long-term goals. By taking this approach, entrepreneurs put themselves in a much stronger position to not only succeed but to change the world.
About Uri Pomerantz
Uri Pomerantz is a Venture Partner at Jackson Square Ventures (jsv.com), investing in Series A software companies. He is an engineer by training and has founded multiple fintech startups, including a wealthtech company acquired by a Fortune 500 insurance company. Additionally, he has spent time working, venture investing, and running companies across the developing world.