Financial technology, or fintech, refers to the rapidly growing technology-based financial services industry. Fintech companies operate across the entire spectrum of the financial services sector, working with businesses and consumers.
Why Now May Be a Great Time to Start a Fintech Company
Beyond traditional financial services, fintech has evolved and includes technologies and businesses related to financial education, specialized investments, retail banking, and even cryptocurrencies such as bitcoin. With the increasing and widespread use of smartphones and other mobile devices along with consumers’ increased desire for convenience, speed, and efficiency, fintech is rapidly changing the finance industry. There has been significant growth in the amount of money invested in fintech from venture capitalists and angel investors. Some large deals and funding rounds occurred during 2016, such as JD finance raising $1 billion, Oscar Health Insurance raising $400 million, and Betterment raising $100 million. The number of fintech investment deals closed and the total amount of money raised per year has increased each year since 2011:
- 2011: 319 venture-backed deals totaling $2.2 billion
- 2012: 440 venture-backed deals totaling $2.5 billion
- 2013: 553 venture-backed deals totaling $3.0 billion
- 2014: 701 venture-backed deals totaling $7.3 billion
- 2015: 775 venture-backed deals totaling $14.4 billion
The data from 2016 is on track to be 36% higher than 2015. The fintech industry is growing faster than many people expected, and it’s likely that the trend will continue for many years. If you have a great fintech idea, there’s certainly funding available to get your company off the ground. Start building your business concept, and the funding will probably follow.
Raising Money for Your Fintech Company
Once you have an idea down on paper or an initial prototype built, raising money for a startup should be your next step. Some fintech companies fail within one year of operations due to lack of capital. If self-funding the startup is out of the question, there are many alternatives available. Crowdfunding may work, but it can be a difficult proposition, since you’ll probably need a large number of donors. Bank loans are possible, but depending on exactly what your startup wants to create, you may be seen as a direct competitor to the bank, so it may refuse to loan you money for your startup. Angel investors and venture capitalists may be your best option because of their deep pockets and current eagerness to invest in fintech companies. Specialized fintech accelerators and incubators do exist in many major cities, and they accept new fintech companies all the time, typically for a few months to a year. Fintech is definitely a hot area and will probably continue to be a growing trend for several years. Now may be the perfect time to start a company in this space; the industry is still relatively new, there’s an increasing demand for these products, and there’s an enormous amount of investor funding available to people with the right ideas.