Fintech or Financial Technology has bought in some major changes to how we bank today. At least 75% of the population have in one form or another come across Fintech. Investments in Fintech’s have gone off the roof over the last 10 years. Innovations in Fintech have helped many unbanked and underbanked get access to financial products and services. The story behind the success of Fintech could be adopted in a similar industry which is – venture capital. The important attributes that VCs can take cues from Fintech are:
Existing Products can be revisited with New Business Models, and Create New Products
In the past, well-established financial institutions were the only source that offered financial services with limited offerings. Venture capital started in pretty much the same fashion. What fintech did was that they offered new reinvented business models, and products. Many fintech firms that offered a loan, found access to capital beyond the usual bank customer deposits.
Capital sources and structures of ventures could change. Evergreen structures are better for long term growth. An evergreen structure on a long-term hold turned out to be the world’s best venture. It was Nasper’s $32m investment in Tencent that after over a decade, Tencent’s capitalization became more than $500 billion and Naspers stake became more than $100 billion from $1 billion.
Automate Decision Making
Great customer experience has been the core of fintech. The use of better and more data helped them make decisions faster. Automated underwriting based on wider data sets is being used by digital insurance to evaluate decisions. Fintech uses various data to target people and Venture capital needs to start doing things similarly.
Target the Underbanked
Fintech shot to prominence because they targeted a vastly untouched segment of the economy – the unbanked. Almost 1.5 billion global citizens are still underbanked, thus growth came when fintech addressed the challenges in this segment. This has helped the economy rise to new heights as businesses especially startups got access to new funds that helped them unlock their true potential.
A similar gap can be observed in venture capital funding.
Venture capital firms are finally comprehending that there is huge growth potential outside of Silicon Valley. Global startup ecosystems are now getting a lot of attention even though they aren’t the usual innovation zones.
VC model is more likely to benefit certain types of companies more so than others. But the fact remains that there is a huge market out there whose potential is yet to be touched, VC will have to find ways to adapt to these new markets.