Part II: Top 6 Things To Consider When Investing In Fintech Companies

Money Matters / Investing

Part II: Top 6 Things To Consider When Investing In Fintech Companies

Riding on the current fintech growth wave, private equity firm Golden Equator Capital launched its second Technology and Innovation Fund with a strong focus on ASEAN fintech companies. Managing Partner Daren Tan explains his key considerations when evaluating these growth-stage firms.

Written by WEALTH Team on 21 February 2017

Since 2010, more than a whopping $50 billion has been invested into fintech firms and the revolution – that is changing the way consumers obtain loans, conduct research and manage money – is showing no signs of slowing down, according to Accenture’s analysis of CB Insights data.

Fintech refers to financial technology or an industry comprising companies that utilise technology to provide financial services or drive technological innovation in provision of financial services.

Riding on this fintech growth wave, Golden Equator Capital launched its second Technology and Innovation Fund – which has a strong focus on ASEAN fintech companies. With a fund size of SGD100 million, it will focus primarily on growth-stage companies.

“They succeed when banks decide to acquire them and they start working together,” explains Managing Partner Daren Tan of Golden Equator Capital. “We see such acquisitions as a win-win process as the banks provide capital and pave the way for these companies to grow the businesses,” he adds. “As an investor, we will also make some commercial gains when these acquisitions take place,” he reveals.

With the rise of tech-savvy consumers in the region, banks will need to deploy more automation when it comes to providing financial services – therefore, they  have to turn to tech companies for solutions and collaborative opportunities.

It is no wonder then that the potential in fintech investment is huge. “We can expect to see a potential upside of 70-80% in fintech investment,” Tan shares.

Part II: Top 6 Things to Consider When Investing in Fintech Companies

Since 2010, more than a whopping $50 billion has been invested into fintech firms.

6 Key Considerations when Investing in the Fintech Sector

Evaluate and analyse

Conduct a thorough analysis of the macro- and microeconomic environment as well as the product to see if it will aid the economy or if it’s just a fad. Look for products that are going to be essential to the economy for at least the next five years. It is crucial to analyse the product’s impact on society and monitor how it performs through different cycles.

Separate the wheat from the chaff

Examine the competition and business model for the product. For every innovative solution, you could have 20 companies doing the same thing with slight product variations. Beyond product innovation – it is equally important to find capable founders who are far-sighted, quick around product pivots, inspiring to their teams and collaborative with other business partners.

Working with regulators

Fintech companies provide technology that are either regulated or unregulated. Unregulated technologies open up a whole new world of disruption and progress. Always ask founders about their business plan in the event that their technology becomes regulated. Look out for companies that are aware of potential regulations and have a clear plan on how to work with regulators. They should also be able to create a solution that allows the company to work successfully in a regulated environment.

Ability to expand

Look for fintech companies that are able to scale across different countries. Singapore is one of the best places to incorporate a company’s headquarters because it has good corporate governance and is one of the easiest places to conduct business. But the company also needs to demonstrate its capability in expanding to other key markets in Asia such as Indonesia, Malaysia, Vietnam, Thailand and the Philippines as the domestic market in Singapore is too small.

High user frequency

Consider fintech solutions that offer high frequency usage to users. Financial technology primarily deal with money – which is frequently managed in everyday life. Hence, monetary solutions generate a high level of interest.

Ability to change behavioural norms

New technology can look very appealing initially, but consumers may revert to their old behaviour after trying it several times. Look for fintech companies whose founders are capable of changing behavioural norms and sustaining new habits in the long term. Changing consumers’ behavioural norms also depends on how much they trust the platform and product as well as how the company works towards achieving such trust.

Daren Tan

Managing Partner, Golden Equator Capital

Adopt a hands-on approach

You need to ensure that the company you are planning to invest in is totally committed to growing and making the business work, understand how to work with regulators in their field and have a good sense around impacting behavioural change. We adopt a very hands-on-approach towards companies that we’ve invested in by meeting and advising them on a weekly basis. We also counsel them on legal issues and go-to-market strategies.

WHO ARE GOLDEN EQUATOR CAPITAL?

GEC are a boutique wealth and investment specialist. With wealth management advisors as well as fund and investment professionals under the same roof, they offer a flexible and comprehensive alternative to a private bank