Talking Blockchain Startup Investment and Fintech Innovation Trends with Natasha Jones at Octopus Ventures
The intersection of mainstream finance and the novel decentralized ledger technology (DLT) continues to expand as financial institutions accelerate their digital transformation plans. Fintech’s are enabling enterprises to improve customer experience, drive out legacy inefficiencies and create new revenue streams.
Already in 2021 we have seen both a greater adoption and venture capital investment into blockchain technology, and this trend is poised to continue.
The Enterprise Blockchain Report by LeadBlock Partners showed a funding need of over $400m in Europe alone over the next 12 to 18 months.
R3’s Venture Development program helps early stage Corda blockchain start-ups find product-market fit. The continuous program serves as a gateway into the R3 ecosystem, connecting startups to enterprise customers, corporate partners and a global network of mentors and investors.
We recently tapped into the expertise of one of our startup investors to get her insights into how blockchain startups can successfully fundraise and what are the key innovation trends Fintechs and enterprises should prepare for.
|Natasha Jones, Fintech Investor at Octopus Ventures, discusses how blockchain start-ups can better execute on their fundraising strategy, what key metrics Fintech investors look for and some predictions for future innovation trends.|
Natasha Jones, Fintech Investor at Octopus Ventures, discusses how blockchain start-ups can better execute on their fundraising strategy, what key metrics Fintech investors look for and some predictions for future innovation trends.
Hi, Natasha. Thank you so much for taking the time to talk to us. First off, could you tell us more about your background and current role at Octopus Ventures?
I joined the Octopus Ventures team in 2020 from a background in algorithmic trading at Credit Suisse and previous experience with two Fintech startups in London and Paris, as well as setting up a sustainable retail business whilst at university.
Octopus Ventures is one of the largest VCs in Europe with £1.3 billion under management. Since 2008 we have backed nearly 120 teams, some of whom have gone on to join forces with the world’s largest businesses including Google, Amazon, Microsoft and Twitter.
What advice would you give to Blockchain founders seeking new capital?
Be very clear on the monetization strategy and make sure the use case is well developed. We frequently see new companies innovating on blockchain that haven’t got a target customer or a clear use case mapped out.
Aside from this, having a blockchain specialist investor on the Cap table can bring a lot of expertise and familiarity with the ecosystem and the nuances of the applications.
Finally, be clear on whether you’re planning on issuing capital for tokens. Lots of traditional VCs won’t be able to invest for tokens, but specialists will be. So be clear if that’s going to be incorporated into your business plan to target appropriate funds.
How should B2B FinTech startups pitch to potential investors?
When pitching to investors, the first important point for B2B Fintechs is to clearly express the ‘buy vs build’ thesis. A lot of Fintechs have a great product but are less convincing as to why a financial institution would buy their solution rather than develop it in-house. Demonstrating how buying an external solution is preferable from a strategic, technical and economic perspective is essential. Equally, startups should highlight how this solution remains preferable over the long-term and is not just a short term plug.
Secondly, B2B Fintechs frequently go through large procurement cycles and talk to a large number of internal stakeholders. B2B Fintechs should have a clear idea of how long sales cycles are expected to be and how capital could help reduce those sales cycles to provide a compelling reason for capital injection.
What are some actionable tips for founders to extend their runway?
A top actionable tip for B2B Fintechs is to make POCs (proof of concepts) paid for.
This helps in 2 ways:
- It allows startups to extend their runway, so they can fulfill on the POC and have enough cash to go through the full implementation and conversion of the contract.
- This also helps sift speculative from serious potential clients. Many startups assume that offering POCs for free will help them win PoC contracts. They might be right, but it can over-stretch resources and it’s much more compelling and economically efficient to have a paid for POC. It also shows investors that customers have ‘skin in the game’ and are not simply experimenting with different tech solutions. This therefore provides a much more compelling proof point of traction.
Which areas of start-up innovation do you see the greatest growth potential?
Right now I’m really interested in back-office and middle-office automation solutions. Banks are still heavily reliant on legacy systems which are costly, consuming 90% of the IT budget to maintain annually (Capgemini). These outdated systems prevent banks from streamlining processes, reducing manual intervention, and lowering service costs. New software tools and systems present an exciting opportunity for financial institutions to streamline processes, reduce manual intervention and lower service costs as well as unlock a suite of new digital products that can compete with challenger players in the market. In capital markets, for example, trades with straight-through-processing (STP) and no manual intervention are up to 260 times cheaper than the alternative (McKinsey). This area is also ripe for blockchain.
Another area of interest for me is the democratization of crypto access. I like what Zihao (also on the Future of Money team here at Octopus Ventures) has to say about it here.
How can DLT startups best position their offering for the era of digital transformation ahead?
DLT has huge potential to improve enterprise efficiency, such as stream-lining business processes, tracking transactions and lowering the costs of creating new assets. However, it’s important that new DLT solutions offer immediate value to a small network of early adopter clients — and not just when a critical mass of hundreds of businesses are live. Otherwise, customer acquisition and retention will be a persistent challenge.
As well as your interest in the R3 Venture Development start-up community, you are active across the entire spectrum of startup innovation. What are some of the most common startup pitfalls you come across? What’s your best advice for startups facing these challenges?
A common challenge for B2B Fintechs remains sales cycles. Many financial institutions have strict policies around compliance and risk which make partnering with a relatively new company challenging. I turn to the retail market for inspiration on how to overcome this problem: you need the product that brings people through the front door — the dazzling 10x improvement tech solution — but also a product that is an easy purchase — be it a feature or POC trial- that financial institutions can easily adopt without immediately needing to overhaul IT systems. This enables banks and startups to start building a relationship from which you can up-sell a larger system replacement.
I’ll end by talking about focus. It is so important not to sacrifice short term execution for long term vision. A lot of startups want to do everything at once and quickly want to expand products into a number of verticals. However, it is much better to focus on one product, one vertical and do it really, really well. Then you can start developing new product lines later.
It’s a simple point this, but always worth repeating!
Thank you so much for your time and insights, Natasha. We look forward to continued collaboration between startups and financial enterprises, and blockchain continuing to play a pivotal role in digital transformation. We hope you found these recommendations insightful and applicable.
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