5 Key Learnings Growing a Fintech Startup
Invemo is an asset manager, broker and liquidity provider active in the digital assets market that targets professional and institutional clients. It has been established as a mining company in 2017 targeting mostly retail clients. While the digital assets market has not only quickly developed but also changed since its last peak in 2017, the company has dramatically changed its business model in order to continue growing and increasing its client base. During that journey Invemo has acquired valuable experience and would like to share the key learnings and considerations which each startup could find useful while scaling.
Leverage & Monetize Past Experience
Even those who are not closely following the cryptocurrency or digital assets market might have realized that after the market peak in 2017 a lot of startups in the industry did not manage to monetize their ideas and quickly burned funds that they have managed to raise through ICOs or other means of financing. While Invemo has managed to acquire clients in order to build the mining infrastructure, which was suppose to yield a stable income in comparison to riskier investments in certain ICO tokens, during the sharp market fall in 2018, it has noticed that the ROI of such investment is still extremely dependent on the market state. Hedging costs remained high and while the initial clients achieved the expected ROI it has become clear that the company needs to extend investment options in order to achieve a sustainable ROI and secure additional investments.
Taking a step back Invemo has focused on discovering other investment opportunities that could have a similar risk profile in comparison to mining while also focusing on achieving sustainable startup growth. In 2018 the company has started to explore arbitrage opportunities available in the crypto market and has hired as well as secured partnerships with experienced traders and trading teams to develop its own trading platform that would be capable of scalably running different trading strategies. Invemo has set the target of achieving a comparable ROI to the existing returns from investment in mining infrastructure while improving investment liquidity and scalability in terms of increasing the number of additional clients and respective AUM (assets under management). Even though the mining infrastructure is still up and running, Invemo has managed to convert the established clients into its asset management clients, while also acquiring new clients much faster due to time reduction required for client onboarding. In order to comply with Swiss regulations Invemo has also obtained a financial intermediary license in 2019 and is currently in the application process for a FINMA asset management license. The key takeaway from such experience is the agility in terms of reaction to the changing market conditions in terms of product or service development while also understanding and extracting the best aspects of an existing product or service and turning it creating a new product or service that manages to create more value for clients and the company. It is also important to understand the intrinsic value of the product or service that current clients are buying. Even though mining and asset management are too extremely different investment opportunities, they still have a similar target of providing a risk adjusted exposure to the cryptocurrency market instead of direct investments in certain projects.
Align Products with USPs
Certain USPs are easy to spot while a startup starts to create its offering. For example, there are a couple of USPs that the majority of Swiss startups including Invemo are trying to integrate in their offering such as quality or stability. Invemo has mainly learned that certain USPs Switzerland offers come with the cost of losing scalability, exponential growth rate and global presence. Considering a practical example here, it should be noted that once Invemo has launched its asset management service, it was willing to accept smaller clients that helped the company to acquire initial operational experience, but did not contribute significantly to the revenue growth. While it was clear that the asset management service is capable of generating value for smaller clients, it was also noticed that it needed to be restructured in order to fulfill the requirements of larger, more institutional clients. As a result, it was decided to develop various investment risk profiles that would suit different types of clients and significantly increase the minimum investment requirements for the product with the lower risk profile. Such approach has allowed to attract larger clients that were initially ready to learn the new asset class with lower risk. Moreover, professional and institutional clients were more interested in the product when the minimum investment has been increased since they wanted to understand the reasons such as the level of expertise and technology behind it. Along with that the marketing content was optimized to focus on stability, security and long-term growth rather than immediate large gains which is mostly affiliated with startups in the digital assets space.
Explore revenue streams
While Invemo has shifted its focus from crypto mining to crypto asset management it was clear that it needs to seek additional revenue streams in order to improve cash flow consistency as well as sales of its asset management services. Invemo has decided to add brokerage and liquidity services in addition to its asset management services which currently do not have a significant impact on the revenue stream consistency yet, while significantly contributing to the sales of the asset management services due to the fact that the majority of professional and institutional clients are seeking to get to know digital assets by simply buying and holding them, which allows Invemo to build the relationship with such kind of clients and when clients are comfortable with the asset class and ready for further development of their digital assets portfolio, provide them with additional service which would enable them to further improve the performance of their portfolio by adding an active management component to it. The key takeaway here is that the side effect of certain products and services is far more important than its main purpose for the overall revenue development of the startup. Another important learning here is that complex products require a suitable infrastructure and education around them before they can be successfully distributed to potential clients. The majority of startups stop realizing the complexity of products and services that they have developed due to the fact that they are working on them on daily basis and clients are sometimes shy or lazy to ask enough questions to understand the product or service. It is therefore essential to always remember the simplicity factor and if the offering is unique, coming up with use cases of its integration in the existing models.
Incentivize the team
Most of the time early team members of the startup will not only be passionate about contribution to its future success but also interested in profiting from the growing revenue or successful exit. Therefore, the management team should develop a flexible model which would either enable the team members to earn a higher fixed income or rather be more dependent on the long-term success of the startup. Such options won’t only enable to stronger incentivize the team to contribute to the startup’s growth but also help to identify team members that do not believe in the startup’s further growth or future. It could be then extremely beneficial to discuss with them the reasons for such choice and reasons why they are not confident that long-term success of the startup is far more significant than the immediate gains.