When Prophis Technologies goes looking to raise a round of capital later this year, the sales pitch will focus not only on its product, but also the people behind it.
Prophis founder Charles Pardue, who has bootstrapped the business to date, believes both are major factors to help secure funding for its financial technology (fintech) startup.
The UK-based company’s software helps banks, regulators and asset managers quickly collect and aggregate and analyze data and risk. The product proposes to save institutions time, and money, which are both critical in today’s business environment.
No capital, big ideas
Elsen cofounder and CEO Zac Sheffer
“We can talk to clients and tell them, ‘This is way better than what you are doing’ – and solve all the problems they have, but they don’t want to change,” he says. “Even if we are able to demonstrate every problem that a client wants for less cost, they still have no interest in doing it.”
But, he says, “once someone understands the product … and the firms that we’re working with, then they’re usually ready to talk about next steps.”
But Pardue says his background in financial services, and that of his team, will also carry a lot of weight when they go cap-in-hand for funding from venture capitalists and other investors.
“Experience actually brings a lot of value,” especially in the fintech industry, says Pardue, whose has worked at JP Morgan and was founder and managing partner in a risk advisory and software development first called Prytania Investment Advisors. “Having that right core team of people is critical.”
It’s these advantages that offer a leg up for data-driven fintech startups in what’s considered a challenging business for raising capital. Data services aren’t as tangible as most business-to-consumer products landing big investments today.
That said, Pardue believes the fintech-funding arena is becoming more attractive as financial services looks increasingly to technology to solve its business challenges.
“There was a time when fintech was not as popular, simply because it wasn’t quite the same low-hanging fruit as some of the other more consumer-oriented, less enterprise applications out there,” says Pardue.
“But, as time has gone on, it’s been clear that large institutions have come to embrace startups and their products. It’s now possible to sell and get clients from material financial institutions.”
IT systems and issues also continue to grow, which means more problems for companies like Prophis to solve.
Global enterprise IT spending across all industry market segments is expected to reach $2.7 trillion this year, according to Garter. It says banking and securities will be among the fastest-growing segments, alongside retail and healthcare providers.
Three areas to focus on
Prophis founder Charles Pardue
The product: “Have you created something that is distinctly new and different and solves a problem that potential clients have in a way that is materially different and materially better> or you can do it at a materially lower price than someone else. Building the product is critical.”
People: “You rarely see a single person founder go off and raise money because he or she is a genius. The key is to build a collection of people that have complimentary backgrounds and skills.”
Build excitement: “If it’s a product that has potential applicability in a very wide market.. then I think you have a lot of people wondering: How can I get in on this?”
“It’s not like you can go into an institution – whether it’s a bank or asset manager – and solve the problem this afternoon and be done with it, and they’ll never be buying IT solutions again,” said Pardue. “The opportunity to sell into these institutions can be massive if you have the right product, the right team and the right sales process to get in.”
Pardue said startups today are also building better enterprise software that’s appealing to banks.
“I think that’s one of the reasons why we see more venture capital firms not only being open to fintech, but some groups seeming to be if not exclusively fintech, heavily focused on it.”
Global investment in fintech has tripled to nearly $3-billion (U.S.) since 2008, and it is set to increase to $8-billion by 2018, according to a report from management consultancy Accenture.
It says investment in fintech companies has grown four times faster in the past three years than overall venture investing.
David Unsworth, cofounder and general partner at Toronto-based, fintech-focused venture fund Information Venture Partners, says the sector’s ecosystem has exploded in recent years, including investors looking to fund startups.
Information Venture Partners is often attracted to startups with experienced founders. Some already have financing, but need more to scale the business.
Unsworth says his company is looking for a good fit with the fintech start-up founders and want both sides to gain from the relationship.
“It’s a two way exchange,” said Unsworth. “We don’t have the patent on all of the good ideas. It’s the entrepreneurs that do all of the hard work. We learn from them as well.”
DIVING INTO FINTECH - a series
How do you make money off of data?
How do you attract capital for a product that only exists digitally?
How can a data-driven startup set itself apart from the competition?
Numbers are step one. Capitalize applies context to data – helping professionals leverage powerful information to make confident decisions. For more information, go to www.thomsonreuters.ca
Thomson Reuters are proud supporters of the Fintech Sandbox program, providing FinTech startups with Thomson Reuters services including Thomson Reuters Eikon, our flagship financial trading platform which enables access to unparalleled content sets via APIs.
This content was produced by The Globe and Mail's advertising department, in consultation with Thomson Reuters. The Globe's editorial department was not involved in its creation.