The document provides an overview of the current FinTech market and opportunities for FinTech startups between 2015 and 2020. It discusses how a lack of innovation in traditional financial services and the financial crisis created problems that FinTech startups have addressed with new technology solutions. Examples of successful current FinTech companies like Pave, Second Market, and QuarterSpot illustrate different startup strategies. The document also discusses focusing a startup while staying open to new opportunities, the need for operational profitability and proper capital structure, and the potential for social impact FinTech startups focused on underserved markets like small business lending and financial needs of older populations.
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Wharton FinTech - Launching a FinTech Venture
1. Entrepreneurial Opportunities in FinTech
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
Wharton FinTech Industry Lunch & Learn Series
Philadelphia, PA
January 20, 2015
George A. King
3. 2
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
Tuesday, January 20/ 12PM/ JMMH TBD
Want to launch a FinTech Startup? Join us for a discussion with George King, Chairman of
Infrastructure Group, Inc., and a successful startup executive and investor. George will
provide insights into how to start a company in today's booming FinTech environment.
4. 3
How to Launch a FinTech Venture during 2015 to 2020
1
3
2
Wall Street Law and Finance
• Mudge Rose law firm
• Credit Suisse investment banking
• 300+ closings / $20B capital raised / $8B
advisory engagements
• Infrastructure Group, Inc. consulting to FinTech
• Investor in FinTech companies in US, UK & EU
• Assisting a leading pre-IPO FinTech company
FinTech
Entrepreneurship
• Co-Founder, regulated broker dealer
• Co-Founder, telecom that did $6B
Goldman Sachs IPO; second telecom
went public via reverse merger into a
public company
• Founder, Infrastructure Group, Inc.,
asset management & principal
investments
• Tech principal investments since 1997
5. 4
Table of Contents
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
1 2 3
FinTech origins Current FinTech market state FinTech 2015 to 2020
• Lack of innovation plus the financial
crisis created problem
• Software, technology and entrepreneurs
created solutions
• Companies in FinTech @ 2015 illustrate
strategy for FinTech founders to learn
and use
• Startup success principles
• Case for Social Impact FinTech
• Society trend opportunities
7. 6
FinTech is the response to problems in financial services and the economy
• Rise of FinTech rooted in several factors:
– Lack of innovation by incumbents left traditional players
vulnerable to new approaches that increased access,
reduced costs, and improved the customer experience
– Financial crisis dried up traditional sources of credit, leaving
individuals and businesses to turn to alternative sources
– Resurgence of technology, summarized by Marc Andreessen
in 2011: "software is eating the world")
• Stanford Social Innovation Review identified FinTech as a
growing concern to traditional financial institutions (1/13/15):
– “Boardroom conversations at the largest banks and financial
institutions are…increasingly concerned about
nontraditional competitors—Paypal, Venmo, Square.”
– Concerns are fueled by negative perceptions of banks:
“[A]ccording to the National Journal, ‘Seventy-one percent
of Millennials would rather go to the dentist than listen to
anything big banks have to say.’”
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
2004 2005 2006 2007 2009 2010 2011 2012 2014
Millions
U.S. Financial
Crisis1
1. Federal Reserve Board. Numbers not seasonally adjusted
2. The National Bureau of Economic Research, “US Business Cycle Expansions and Contractions “
Total Consumer Credit Owned and Securitized ($Tn)
8. 7
FinTech is about ten years in the making but was accelerated by the crisis
FinTech is at least 10 years
in the making
FinTech 2015 to 2020 is
history yet to be written
2005
2006
Prosper
On Deck
Mint founded
2008
IOU Central
Wealthfront
2010
Kabbage
Funding Circle UK
Betterment
2011
QuarterSpot
Sofi
GLIF (UK listed)
multi platform
2012
Pave
20152013
First Lend It Conf (NY)
GLIF adds Africa
platform to US & EU
Fundera
Lendio
2009
Mint sold to Intuit
2007
Lending Club
Biz2Credit
2014
Lending Club IPO
On Deck IPO
“We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You
shouldn’t need 100,000 people and prime Manhattan real estate…” –Marc Andreessen, October 2014 1
2007-2008: U.S.
financial crisis begins
1. http://www.bloomberg.com/news/2014-10-07/andreessen-on-finance-we-can-reinvent-the-entire-thing-.html
10. Current FinTech market state
Startup Strategy: How to Launch a FinTech Venture during 2015 to 20202
11. 10
Pave
Pave is a nine person FinTech lending platform focused on
“thin credit files” which tend to be millennials and ex-pats
working in the United States who do not have credit history in
the US system.
• Pave combines data analytics, algorithms,
big data credit inputs – but adds proprietary
credit underwriting additions related to
education, training, and job history factors
that are discounted or ignored by the
traditional credit scoring methods
• Pave has an efficient headcount team, and
every team member, including the two
founders, spends several hours each week in
customer service online or by phone
• The Pave cost of customer acquisition is
close to zero, which is radically better than
the same metric for Lending Club, Prosper
and other consumer focused FinTech firms
that tend to spend heavily on customer
acquisition
12. 11
Second Market
Second Market completed more than $1.4 billion of private
company secondary transactions in 2014, a 4x increase over
2013. All transactions were company controlled. Second
Market operates with a small team of approximately 50 and
includes a regulated broker dealer platform in its corporate
structure.
• Second Market was launched with a web
site interface in 2004
• The company has evolved from a focus on
pre-IPO shares to secondary trading of
assets that are not available to be traded on
a public exchange
• The heavy compliance focus of the Second
Market platform is a key to client
acquisition; the legal counsel can be a factor
in the choice to use Second Market
• Second Market has been one of the most
nimble and adaptable FinTech business
models; their embrace of the regulated
broker dealer has enabled Second Market
clients to access transactions that would
historically not be available to investors in
private and pre-IPO companies
SecondMarket facilitated over $1.4 billion in private company secondary transactions in 2014, 4x more than 2013.
Take an in-depth look at the types of transactions we facilitated, who we worked with, and more.
13. 12
QuarterSpot
Adam Cohen - Co-Founder, Chairman, Chief Executive Officer
Prior to QuarterSpot, Adam served as Chief Executive Officer of GotCoders, a
startup incubator that assists entrepreneurs from concept to
commercialization. From 2000 to 2004, Adam served as Chief Software
Developer for JetBlue Airways where he led the development of the world’s
first FAA approved Electronic Flight Bag, JetBlue.com and the TrueBlue
Loyalty Program.
Lance Emanuel - Co-Founder, Director, President & Chief Operating Officer
Prior to QuarterSpot, Lance served as General Counsel & Chief Operating
Officer of GotCoders. He holds a BBA with distinction from the University of
Michigan Ross School of Business and a J.D. from the Benjamin N. Cardozo
School of Law.
Eric Hexter - Chief Technology Officer
Prior to QuarterSpot, Eric was Chief Architect of Online Product Engineering
for Dell Computers, where he was responsible for the architecture of
dell.com, the 5th largest ecommerce site on the internet. Eric is recognized
by Microsoft as an influential thought leader in the field of web development
and sits on a number of product advisory boards. Eric earned a BSME
Mechanical Engineering from Ohio University and specialized in robotic
simulation and research.
Jim Chonko - Chief Analytics & Risk Officer
Prior to QuarterSpot, Jim served in the risk modeling and analytics group at
JPMorgan Chase, responsible for the pricing billions of dollars in auto loan
origination. Jim also served as Senior Vice President at Citibank, leading the
Small Business Lending portfolio risk analytics and modeling team. He
earned a B.S. in Mechanical Engineering from Cornell University and a Ph.D.
in Physics from Columbia University.
SecondMarket facilitated over $1.4 billion in private company secondary transactions in 2014, 4x more than 2013.
Take an in-depth look at the types of transactions we facilitated, who we worked with, and more.
14. 13
AltFi delivers unique insight into the very latest FinTech
developments through its news and analysis service, covering
every part of the Alt.Finance space including crowdfunding,
P2P finance, online invoice funding and online seed
investment.
• The team behind AltFi is hugely experienced and
includes David Stevenson, editor, who is
– Columnist for the Financial Times (the
Adventurous Investor), Investment Week and
Money Week
– Experienced media entrepreneur (he has set up
a number of online media companies focused on
online TV and viral videos)
– Knowledgeable investment expert and one of
the first journalists to write about the AltFi
sector in UK national papers
• The AltFi team is respected and trusted by all sides
of the Alternative Finance and FinTech sectors
– This ability to work with all sides of a transaction
needs to be carefully monetized
– Transparent disclosure appears to be one of the
key principles in the AltFi approach to being
trusted by the market
SecondMarket facilitated over $1.4 billion in private company secondary transactions in 2014, 4x more than 2013.
Take an in-depth look at the types of transactions we facilitated, who we worked with, and more.
AltFi
15. 14
GLIF
GLI Finance Limited (AIM:GLIF) is a loan business, quoted on
AIM. We originate and invest in loans, providing finance to
small and medium sized businesses in the US and UK.
GLI Finance Limited (AIM: GLIF) originates and
invests in loans, providing finance to small and
medium sized businesses in the US and UK.
The Company aims to produce a stable and
predictable dividend and a double digit ROE,
whilst at least preserving its capital value.
The Ordinary Shares have not been, and will
not be, registered under the United States
Securities Act of 1933, as amended (the
“Securities Act”), or under the securities
legislation of any state of the United States of
America. In addition, the Company has not
been, and will not be, registered under the
United States Investment Company Act of
1940, as amended (the “Investment Company
Act”) and investors will not be entitled to the
benefits of that Act.
SecondMarket facilitated over $1.4 billion in private company secondary transactions in 2014, 4x more than 2013.
Take an in-depth look at the types of transactions we facilitated, who we worked with, and more.
16. FinTech 2015 to 2020
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
3
17. 16
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
1
2
3
4
Know yourself and choose primary strategy - build to flip (sell) or operate
• In general, as innovations become mainstream, valuation multiples decline toward the “gravity factor” of discounted cash
flow valuations. Be proactive in the strategy implications of this framework
Act on requirements for a sustainable startup
• Not unique to FinTech: (1) operational profit (or you are living for your next capital raise); (2) right capital structure (or you
are not a founder / owner but rather an employee of capital per the legal terms you agreed to); (3) right corporate
governance (complex choices & fiduciary / legal); (4) right people (in adversity, team sticks together)
Business cycles for startups in transformative sectors are short
• When “innovative goes mainstream,” intense competition and “mass market” quickly follows
• Many examples: software, computers, email, internet, internet search, deregulated telecom setting loose fiber optic data
movement, mobile phones, tablets, cloud technology, telecom small cells enabling rapid mobility infrastructure, apps
Do not let virtue of focus become narrowing
• Focus must be balanced with out of the box thinking, reactiveness to new inputs, and making time for what matters
• You must get new inputs (people, places, knowledge) to think three steps ahead and anticipate change, opportunity, risk
18. 17
1,000
500
100
50
30
25
Qualify Leads Update Sales
Plan
Cultivate Ask CloseProcess begins
with Market
Survey 100%
90%
75%
25%
10%
5%
Prospects by number
Probability of close
Closing funnel of “process, prospects, probability” requires FinTech startup additions
• Closing sequence: Information mode (15%), cultivation mode (70%), close mode (15%)
• Project management: Design (Business plan and model), architect (math), project plan with 15% contingency, execution
• 5 W’s and 2 H’s: Who, what, when, where, why, how – and how much money
• Fast assessment: Who are you? What do you do? Why do you do it?
FinTech Startup Additions
19. 18
Social Impact FinTech is the new frontier opportunity for 2015 to 2020
“When the venture capital market exploded in the 1980s, it changed the face of entrepreneurship, the
global economy, and our society for the better. New products and services flooded the market. Fierce
competition drove affordability and quality up.
Impact investing is poised to change the trajectory of poverty, crime, homelessness, education, green
energy and much more. It just needs to be unleashed.”
Sir Ronald Cohen is Chairman, Big Society Capital and Chairman of the UK’s Taskforce on Social Impact Investment,
and Matt Bannick is Managing Partner, Omidyar Network and Co-Chair, U.S. National Advisory Board on
Impact Investing
Forbes Opinion
Capital Flows
September 20, 2014
20. 19
Social Impact FinTech exists today – case study of SME loans
• Small businesses are a large part of the U.S.
economy:
o Employ half of private sector workforce –
about 120 million people
o Have created two out of every three net new
jobs since 1995
• Banks have prioritized larger businesses since the
financial crisis:
o SME loans on the balance sheets of banks are
down about 20% since the financial crisis from
$700 billion in 2008 to less than $600 billion in
2012
o Loans to larger businesses have risen by about
4% over the same period.
• For banks, loans below $100,000 are costly, risky,
and carry heavy burdens of capital charges,
regulatory cost and ongoing compliance
requirements
Source : Harvard Business School, “The State of Small Business Lending: Credit Access during the
Recovery and How Technology May Change the Game” & Federal Reserve (New York), "Small
Business Credit Survey” (Fall 2013)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
<50K 50K-100K $100K-250K $250K-500K >$500K
Small Business Need Credit Access
Percentage of Applications from Small Businesses by Loan Size
21. 20
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
• Millennials have been the focus of FinTech companies, given their status as early adopters
• Older population has unmet financial needs for access to small business loans (for jobs via SME expansions and
SME startups ) and retirement tools – these present FinTech opportunities in 2015 to 2020
An increasing
proportion of those 55
and over want to work
Over 92 million Americans are not
part of the labor force, close to an
all-time high. This number has
spiked since he start of the
financial crisis
WSJ reports unemployment at 5.6%
and the broadest measure of
underemployment at 11.2%.
Average hourly earnings of private
employees are down 0.2% since
November 2014. Data as of
1/10/15.
22. 21
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
“The King of Calculus – A math teacher has become a global sensation”
“Jim Fowler is a 33 year old assistant math professor at Ohio State…after videotaping a batch of
calculus lectures over December 2012, Fowler won a go-ahead one month later to roll out his course
via Coursera, a leading provider of massive open online classes, or MOOCs…
Fowler’s first six-week course, Calculus One, attracted 35,000 active enrollees. Since then, 110,000
additional students have started the 23 hour course, putting it in the top 3% of Coursera’s
offerings…College age students make up only 25% of Fowler’s enrollment…
Ohio State originally parked him in a non-tenure track, but once his online calculus class became a hit,
university officials took a second look – and decided that Fowler ought to be on the tenure track after
all….”
Online courses disrupt
the expectation that all
education is brick-and-
mortar, just as FinTech
is altering the financial
landscape
The USC Marshall School of Business Advisory Board includes executives from General Electric, Co.,
Boeing, Co. and Walt Disney, Co., who say they need more hires with analytics talent, said James Ellis,
the school’s dean.
“We find it invaluable to have people who can synthesize data” and suggest changes based on those
insights, said Melissa Lora, president of Yum Brands Inc.’s Taco Bell International, who serves on the
school’s corporate advisory board.
In Fall 2014, USC’s Marshall School began its Master of Business Analytics program with 30 students
and will enroll 60 more in 2015. The cost is $47,000 tuition.
1. George Anders, “The King of Calculus – A math teacher has become a global sensation.” Forbes. September 29, 2014
2. Lindsay Gellman, “Big Data Gets Master Treatment.” The Wall Street Journal, November 6, 2014.
Large corporations are
making data a priority
but continue to focus
on traditional delivery
models
23. 22
• TECHNOLOGY: “Tech is the new finance” is by now cliché among insiders, who perhaps don’t realize all the ways that
is true. Finance, after all, is full of companies with powerful incentives to behave badly, regulated by equally powerful
government bodies designed to keep them in check.” (“Key Words” column by Christopher Mins in The Wall Street
Journal, November 25, 2014.)
• INNOVATION: “Reinventing Money” is the Bloomberg Markets cover story (page 30 to 72 inside) of Bloomberg
Markets, November 2014 issue. From the introduction:
• REGULATORY: Richard Farley, Esq. is a lawyer and author writing about the financial system – “The necessity or the
extent of an uneven regulatory playing field justified by a need to protect insured deposits and avoid bailouts is
something people of good faith can disagree about…” / Farley is of the view that “The federal government is making
the banks the gatekeepers for leverage in corporate America.” (“Opinion” column by Richard Farley in The Wall
Street Journal, November 25, 2014.)
Startup Strategy: How to Launch a FinTech Venture during 2015 to 2020
“It goes without saying that technology has always been essential to finance. What’s
happening now is of a different order. It isn’t playing out in the back office. It tends to be
consumer facing. Rather than using technology to support and enhance the efforts of
traditional institutions or to develop new products for them, fintech companies are
creating new financial infrastructure. Fintech entrepreneurs aren’t out to support
established players. Most of them, in fact, are committed to doing exactly the opposite.”
24. 23
Infrastructure Group, Inc.
445 Park Avenue, Suite 900
New York, New York 10022
gking@infrastructuregroup.net
www.infrastructuregroup.net
@whartonfintech
Wharton FinTech
Wharton FinTech
whartonfintech.org
George A. King Wharton FinTech
