The twenty-something founders of financial technology firm Elsen didn’t cut their teeth on the dot-com bubble or work in the banking trenches during the global financial crisis. Instead, these millennials grew up in a world of exponential growth in the technology space, where ideas must be proven quickly, or die instantly.
“The only things we know how to do are high-performance ones,” says Zac Sheffer, cofounder and CEO of Elsen, a Boston-based fintech that sells a risk-analysis computing platforms to financial institutions. “It allows us to create things that don’t already exist in the finance space.”
Making the effort
Elsen cofounder and CEO Zac Sheffer
“You have to differentiate yourself on almost every characteristic if you’re going to be seen as very attractive. If you use old technology, it’s going to make it easy for others to come and replicate what you’ve done.”
Prophis founder Charles Pardue
“We focus on the core technology, which enables our clients to literally do things they can’t do anywhere else … If you want to do proper risk-return analytics on your trading strategy, in a reasonable timeframe, then Elsen is the only platform that allows you to do that.”
It’s a solid pitch and one of the key ways Elsen differentiates itself from intensifying competition in the fintech space. It’s no longer enough to have a cool idea to gain attention today. Experts say startups need to stand out on several fronts to make their product a success. That includes having a truly unique product that solves a problem and shows some promise that its use or technology can grow.
The biggest competition for Elsen right now is in-house developers at financial institutions, says Sheffer. As a result, the startup is focusing a lot of its initial business development efforts on small, emerging hedge funds that don’t have yet have their own internal teams. They also pitch their fintech expertise to larger institutions, trying to get in first as consultants.
“You’ve got to prove something … and be able to articulate a vision that’s much bigger than the product that exists today,” says Alex Baker, a partner at Toronto-based venture capital firm Relay Ventures, which has invested in a number of fintech firms. “We like to see a pie that’s much bigger than the slice they’re presenting. Too often that’s the part that’s left out.”
Relay Ventures also looks at the experience and competency of the team behind the product being pitched.
“We do a significant amount of due diligence not only on the ideas, but also the people,” says Baker.
He likens the startup-investor relationship to one of siblings. “You’re growing up together and eventually either of you might move out. It’s not because you hate each other, but one of you gets married and moves on.”
Three requirements for data start-ups
Adam Nanjee, MaRS Discovery District
1. Solve a problem. This is particularly true in fintech. “You have to be solving a problem that enterprises or consumers are facing.”
2. Solid business model. “There are a lot of fantastic ideas around. The ones that really attract venture capital are the ones with a sustainable trajectory and growth model.”
3. Unique technology. “Is your technology an out-of-the-box technology that’s not already in place today?”
Adam Nanjee, head of the fintech cluster at the MaRS Discovery District, a Toronto-based innovation hub, says fintech startups can have the greatest data, but need to demonstrate how they can use it to help their targeted customers.
“It’s not necessarily always about traction,” for data-driven fintechs, says Nanjee. “Investors are looking to see whether there’s sustainable, long-term value in the data. If it can be monetized, then you’ve got a sustainable business … the key is extracting the data.”
Too many companies make the mistake of coming to market early, when they haven’t fully developed their platform.
“When you have a working platform, that changes the game,” says Nanjee. “A lot of ventures need to better understand when the right time is to pitch.”
Nanjee says one way data-driven fintech companies can set themselves apart is by focusing on other sectors, such as health care, for example, instead just financial services.
“Fintech companies have to have a lens and vision around solving fintech problems in other industries. There’s a financial services problem in every industry,” he says.
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.