How Banks Can Survive in an Increasingly Competitive Financial Landscape

By Daniel Bahar

For quite a few years now, financial institutions considered fintech companies as the industry’s biggest potential disruptor, as confirmed by KMPG’s recent survey. As such, many financial institutions have been formulating their fintech strategies, opening innovation hubs and investing in fintech startups to some extent. However, collaboration levels have been limited to specific service acquisitions and initiatives and there is so far limited evidence of a significant enough change taking place in the traditional banking sector.

Being slow to embrace new technologies, highly sophisticated fintech startups have managed to flood the market, offering customers superior user experience as standard and enabling the strongest fintechs to gain significant share of the banking world’s core business. Over the past year we’ve seen a dramatic increase in the complexity of the competitive landscape both from early and later stage fintech startups. To add to this, competition has come from the new economies being created thanks to blockchain technology on the one hand, and the big tech giants strengthening their fintech capabilities on the other.

In this rapidly changing market, financial institutions are feeling the pressure and are tooling themselves up by adopting new technologies, breaking down the barriers between siloed internal systems and creating fintech strategies for adopting a more collaborative working framework with the wider industry. If they are to maintain their relevance moving forward, the banks know change needs to happen now.

In the past few years we have seen over 30 fintech unicorns and many equally significant companies start to rival the banks at their core activities including lending, investments, payments, personal finance and digital banking. 

Top 5 fintech companies by area of focus:

Unburdened by outdated legacy systems and heavy operational costs, the fintechs of tomorrow benefit from having strong artificial intelligence and machine learning capabilities and are able to offer highly personalized, timely, optimally designed financial products that are often perfectly tailored to a consumer’s behaviour.

Supported by regulators trying to level the playing field and open the market up for more competition, rulings such as the PSD2 regulation in Europe allows 3rd parties (mainly fintechs) to access consumer financial data, stripping the banks from one of their most valuable assets.

The blur between pure e-commerce and fintech as the worlds of offline and online shopping start to merge is creating a totally new dynamic and threat for traditional banks. An example of this was eBay’s acquisition of PayPal back in 2015. PayPal, a fintech company now valued at $90B, alongside other payment solution providers included in the image above, retailers’ growing credit card business, consumer loans and lending solutions are becoming more deeply rooted in the overall shopping experience.

In Asia, we’re seeing e-commerce platforms expand their remit by providing full stack financial service offerings. The most significant of which is Alibaba’s Ant Financials. Founded in 2014, it’s now the world’s largest online banking platform and is planning to IPO with an estimated valuation of $100B. Pure evidence of the potential power that can be created thanks to an alliance between a fintech and an online retailer.

2017 has also been a transformative year for blockchain technology and the crypto economy. A substantial financial services ecosystem has emerged in creating a $400B plus blockchain based economy in less than a year. Given the size of this new economy and its rate of growth, the threat posed to traditional banking is very real. Consumers and businesses are steadily being offered a totally alternative economic system, that has the potential to replace infrastructures, governance mechanisms and the value distribution between parties. The potential for blockchain to truly disrupt the traditional banking system as the technology continues to mature, is not far off.

Whereas blockchain promotes a decentralised economy, on the other end of the spectrum, highly centralised economies are starting to form within the tech giants (GAFAM – Google, Amazon, Facebook, Apple & Microsoft), as they start to build up their fintech capabilities. Their increasing global dominance, reach and technical superiority gives them the potential to overshadow the traditional bank’s relationship with consumers. Built on data collected from each interaction powered by the most advanced AI and machine learning technology, they are defining the standards for customer experience and control the most pervasive consumer social channels and experiences (Siri, Alexa, Google’s personal assistant etc).

To add to this, the increasing adoption of cloud based solutions by traditional banks is leading to a growing reliance on tech giants for their cloud based services. Consequently, this has the potential to erode another valuable asset of traditional banks – their legacy systems.

So far, the GAFAM giants have only displayed subtle attempts at competing directly with traditional banking. Amazon’s growing lending business, and the other giants’ initial attempts to enter the payments and transfers environment have been small in general. But nonetheless, these moves could certainly be seen as early signs of their desire to expand by leveraging the significant power stored in their balance sheets.

The Asian fintech ecosystem serves as an example of the potential dominance major platforms can have on the financial industry. Tencent managed to reach a $500B market cap, now offering full stack financial offering thanks to its WeChat payment solution. Together with Ant Financial, Tencent has managed to capture over 50% of the fintech market in Asia.

Competitive landscape of the financial industry:

It is clear that with so many competitive pressures placed on the traditional banking sector coming from multiple directions, banks should be rethinking their objective of trying to control the entire value chain. Instead, they have a huge opportunity to focus on leveraging what they have and working in a more collaborate way with the wider ecosystem.

The number one opportunity and also challenge, is for banks to leverage their consumer data and become powerful data driven organizations. Their ability to harness AI and and machine learning capabilities is critical to their survival. The challenge comes in organising existing data systems that often sit across multiple, siloed platforms where data is inhomogeneous and the appetite for change is often not aligned internally.

Nevertheless, instead of passing on financial data to industry newcomers, they should instead  use their extensive financial product portfolio and position of trust, to offer their consumers enhanced financial products via GAFAM channels by working in collaboration with tech giants. For example, imagine a time when consumers could openly interact with their e.g eToro account, or apply for a loan from Kabbage via their own bank thanks to a voice activated personal assistant of choice.

In addition, banks should be embracing blockchain technology both for internal system means, as well as for building stronger bridges in order to further strengthen their position of trust.

Despite many weaknesses, the current banking system still remains the backbone of the financial industry. Although outdated, their legacy systems are proven to be the most reliable at scale. They also benefit from having a significant equity cushion and are the ones to carry the inherent risk in every financial transaction. To add to this, their systems and equity position are highly supervised by regulators and government insurance schemes, which over time have given the banks their most valuable asset, trust. Trust, however, can erode quickly if the banking system is to continue to lag behind in terms of customer experience and poor financial product offering.

We have a significant way to go before we see a real transformation of the banking industry but it really is now or never if the banks are to preserve their position of strength. To accelerate this transformation, we’ve seen many interesting investment opportunities in Israeli startups focused on helping the traditional banking system to advance. They include startups focused on advanced data analytics capabilities, more personalised customer journey and interface platforms, process automation, data governance and security solutions. All of which are powerfully trying to close the innovation gap and help build a more collaborative financial ecosystem.

Why Brands, Retailers and Investors Should be Looking at Israeli E-Commerce

Two side-by-side acquisitions in the US in recent months — Xaxis’ purchase of Triad Retail Media, for a rumored $300m, and Criteo’s $250m buyout of close competitor HookLogic — point towards a clear trend in global e-commerce, with considerable lessons for entrepreneurs in Israel.

Both Triad and HookLogic help retailers sell ad space on their websites, opening up a valuable additional revenue stream for sellers, especially those transitioning from physical stores towards e-commerce.

Triad’s flagship client — Walmart — made a similar move in 2016, buying upstart online retailer Jet.com for $3.3 billion, ostensibly to get its hands on Jet co-founder Marc Lore. In essence, after years of stagnant e-commerce performance, Lore became Walmart’s now-or-never effort to challenge Amazon’s total dominance of online retail.

Analyzed together, the Triad, HookLogic and Jet deals offer a telling case study for investors also, highlighting the huge investment today in “catch-up” e-commerce. Macy’s displayed similar thinking in August, in announcing the closure of 100 stores in favor of investment in online and mobile. Sears has made parallel moves for several years, as have major retail brands far beyond the US.

New technology needed to capture changing buying patterns

The trend is clear. As iconic legacy retailers seek to adapt their operations for the changing retail preferences of consumers — and younger, urban consumers in particular — deep investment in both R&D and human capital is needed.

Ahead of the game as ever, the giants of e-commerce have already spotted the value brought by Israeli startups in this space. Through investments or acquisitions respectively in Annapurna Labs (Amazon), Corrigon, SalesPredict, Shopping.com, and The Gifts Project (eBay) and Twiggle and Visualead (Alibaba), each of those majors established a base in Israel, and continues to look closely at Israeli innovation. For that reason, exit strategies built on an acquisition by one of these giants remain a valid hope for early-stage investors.

However, the savvy investor today should be looking elsewhere also. Much like Walmart, across the globe there are huge legacy retailers fighting to adapt to modern, digitized consumer habits. Many of these brands have an aging consumer base, and minimal in-house tech capabilities. The choice facing these companies is both simple and urgent. Either they continue to swim against the tide of e-commerce, and unsuccessfully battle the Amazon juggernaut from a bricks-and-mortar setup, or they rapidly invest in easy-to-implement technology, in the hope of fighting strong in a digital age.

The same need for innovation spotted by Walmart exists higher up the value chain also, opening up a whole new category of exit strategy for forward thinking e-commerce solutions. Unilever’s billion-dollar acquisition of Dollar Shave Club in July, cutting retail suppliers out of the value chain entirely, gives an unmissable hint as to where the powerful conglomerate believes the future of retail lies.

E-Commerce in Israel — an overview

In Israel, while e-commerce continually struggles to take off on the ground, a string of local startups are aiming to add their names to the success stories listed above. Across multiple sub-segments of e-commerce — marketing, payments, supply chain management, data collection, analytics, advertising and more — investors have been backing Israeli companies in this space. In 2015 alone, Israel’s e-commerce sector saw $230m in investments, yielding $484m in exits (following $493m in exits in 2014).

Zeekit, which recently announced its $9m Series A, offers a virtual fitting room app, where users can see themselves in the clothing purchases they’re considering. MySizeID tackles a similar problem from a different route, by calculating a users’ precise measurements, to eliminate the perennial sizing issues that plague the online clothing industry. Brayola, which raised a $2.5 million Series A earlier this year, tackles a similar problem, allowing women to evaluate and validate their bra choices.

Additional promising names include Hexa, which lets retailers recreate dull 2D sales images as flexible 3D objects, and E-Global, which raised $20 million this year for its solution to enable retailers to sell more effectively to overseas markets.

Other names to look out for include Wiser (a dynamic price-matching engine), Shoppimon (a platform automation tool), Commerce Sciences (customization and micro-targeting solutions), Feedvisor (algorithmic repricing and revenue intelligence) and Aspectiva (a tool to curate and productize consumer reviews).

Finally, as is often the case, Israel’s e-commerce sector draws heavily on the deep tech capabilities honed within the military. To use a standout example, it’s far from coincidence that Israel, for thirty years the world’s largest exporter of military drones, is also home to more than thirty civilian drone companies, several of which are explicitly targeting the smart delivery of urban e-commerce goods.

The opportunity today (and what we look for)

Against this backdrop, e-commerce entrepreneurs should have a clear sense of the opportunity that awaits. Whether for acquisition-hungry e-retailers like Amazon or eBay, or investing-to-adapt legacy brands like Walmart, or even a giant like Unilever that’s playing with the transition from B2B to B2C, innovation will ultimately determine how each of them fares.

As the retail industry in general adapts to the changing way in which goods are purchased globally, exit strategies for companies active in this space are widening. While high-street retailers and corporate conglomerates were once off-piste options for e-commerce entrepreneurs, the lesson of 2016 so far is that they no longer should be. If an entrepreneur spots this, and starts targeting these strategic relationships and links early-on, that’s a tell-all sign of a company that’s headed in the right direction.

From the hundreds of companies we’ve assessed, we’ve spotted this on several occasions, backing four companies to date:

· Kwik, which offers branded smart buttons that connect retailers, brands and service providers to their customers

· Caja Systems, a robotic warehousing solution for the smart storage and distribution of goods

· WebyClip, which automatically matches and embeds video clips to strengthen e-commerce sales pages

· Zooz, a data-driven payments platform designed to help sellers customize and optimize their global payment costs

The shared thesis across the four investments, and our clear investment preference within e-commerce, is for ancillary technologies — specifically those driven by proprietary software — that retailers can quickly integrate in order to demonstrably improve some of aspect of their performance. In our assessment, investments that meet this criteria not only correspond with Israeli strengths, but typically command solid valuations — upwards of 3x in EV/Revenue.

According to August 2016 figures from research group eMarketer, the share of e-commerce as a percentage of total retail globally is set to almost double in the years ahead, from 7.4% in 2015 to a projected 14.6% by 2020. Looking to that target point and beyond, investors can expect to see further prominence for Israeli companies, provided they continue to develop the technical solutions needed to power this huge global change in consumer behavior.

This article was originally published on iangels.vc

How will Israeli innovation play into the global robotics industry?

This article was originally published on Techcrunch 

In the last few months, a Singaporean University hired Nadine as a secretary, a Boston Dynamics employee pushed over his colleague Atlas who was moving boxes at a factory and Tally, a San Francisco Target employee, began checking to make sure all the products in Aisle 3 are fully stocked.

Nadine, Atlas and Tally may live in different cities and industries, but they have several peculiarities in common. None of them need sleep, food or exercise to operate efficiently.

Imagine employing your own secretary who optimizes your schedule, plans your weekends, reminds you about deadlines and iteratively adapts to your preferences and behaviors at a fraction of the cost of a human. Imagine a factory with no humans, no downtime and no errors. Imagine a retail store without checkout lines or items out of stock.

Humanoid robots have entertained us on the big screen for years as “science fiction,” with films like “I, Robot,” “WALL-E” and Steven Spielberg’s “AI” capturing our collective imagination and spirit. In the last five years, however, the number of VC dollars (see chart below) invested into robotics technologies implies that tens of thousands of engineers, data scientists and management teams are now building robots and robotic technologies that will drastically alter our lives over the next few years.

Many of these advances will come from Israel. In healthcare, we see Mazor Robotics helping brain and spine surgeons, XACT Robotics empowering radiologists to improve accuracy and results and ReWalk enabling the disabled to walk again.

In industrial applications, we see Weldobot and SmartTCP enhancing welding capabilities,Dronomy developing autonomous drones and Caja using robotic technology to develop a sophisticated, self-aware warehouse for an industry expected to grow to $79 billion by 2022. NUA is the world’s first robotic luggage that can follow its owner around and avoid obstacles, and is part of a consumer robotics market that is estimated to ship 100 million units by 2020.

We also see applications for the government and military, such as Roboteam, which enables ground troops to minimize contact with targets by sending in robots that scout, report and eliminate threats. These examples only scratch the surface.

image

Just a few months ago, the Israeli Robotics Association signed a $20 million agreement with a coalition of Chinese investors and the city of Guangzhou, one of China’s biggest industrial centers, to develop robots to serve as workers in China. Israeli researchers will develop the technology, and the Chinese will mass-produce mechanical waiters, cleaners, security guards and construction workers. Likewise, robotics startups will need large capital investments to successfully bring their products and solutions to market.

Israel’s contribution to the global robotics industry need not be limited to the robots themselves. Mobileye, the world leader in advanced driver assistance systems has already started software development to power autonomous vehicles, while Argus provides them with state-of-the-art security. Deepsense, Augury, n-Join and Imubit all provide BI and predictive analytics for industrial robots and IoT, while companies like InTalTech provide their docking stations.

Unfortunately, other than Singulariteam’s $100 million fund, few Israeli VCs can afford the risks and timelines associated with financing the R&D of hardware companies. The deep pockets typically come from corporations whose operations and products benefit the most from robotic innovation, e.g. Toyota, Google, Amazon, Alibaba, Siemens and GE. Many of these corporate investors have R&D centers and/or accelerators in Israel, but often will require their investments to relocate and be geographically closer to their production partners.

VC dollars are coming from blue chip funds like Accel, DFJ, Bessemer, Andreessen Horowitz and Dmitry Grishin’s robotics-only funds. Although Israeli companies may share Intel’s vision of a domestic, “Blue-and-White” hardware production line, Israeli companies will need to partner with major players in the U.S., Japan, Korea, Germany and China in order to grow significantly and secure contracts as design partners before the companies are fully operational.

Intelligent robots are no longer science fiction. They are real. They are here. And powered by advances in Israeli technology, they are only getting smarter.

About iAngels
iAngels is a leading Israel-based angel investment network, leveraging best-in-class due diligence to enable accredited investors around the world to gain access to the most-exclusive early-stage technology deals in the market. In less than three years, iAngels has raised over $50m, invested in over 60 Israeli startups, and built a full-service in-house investment team, led by founders Shelly Hod Moyal and Mor Assia. 

How Israel Plans to Disrupt a $4.7 trillion Industry

The digitization of currency presents an incredible opportunity for the world’s incumbent financial institutions, from payment processing to credit and insurance products, wealth management, and currency transfer and exchange. Yet the regulatory, security, and risk management challenges faced by these institutions have paved the way for a flood of new entrants.  In 2015 alone, over $19B was invested in FinTech to disrupt the $4.7T financial services industry.

A successful bank robbery used to require careful planning, orchestration, weaponry, and a bit of luck.  Furthermore, the bank’s maximum loss was limited to its physical assets locked away in the vault. In 2013, Russian cybergang Cabarnak stole $1B from over 100 financial institutions, using nothing more than a few lines of malicious code.  How can today’s financial institutions, encumbered with bureaucracy, legacy systems, and regulatory burdens innovate ahead of tomorrow’s financial reality?

Enter Israel

With domain expertise ranging from enterprise software to information security, business intelligence, and the blockchain, Israel’s brightest engineers, technologists, and data scientists have started applying their knowledge to one of the hottest sectors in the world; FinTech.

Fintech, at its core, is the use of technology to eliminate market inefficiencies. To illustrate, let’s look at one of the biggest money markets in the world today; remittances. Remittances are expected to reach an estimated $610 billion in 2016, rising to $636 billion in 2017. As of the end of 2014, the global average cost of sending $200 was 8%. Let’s think about that for a second. Money is now data, sitting in the cloud, with virtually no cost to disassemble, redistribute, and reassemble. So why does sending $200 still cost $16? Due to the regulatory burdens combating money laundering and terrorism financing, international remittances sent via mobile technology accounted for less than 2% of remittance flows in 2013.  But as mobile phones reach critical mass in the developing world, this will change drastically, and Israeli technology will play a role.

Flavors of Fintech

Now let’s look at an emerging $6.5b market like bitcoin, which processes $110mm in daily transactions, but with pervasive fraud, wire/bank transfers have become the incumbent use case, leading to slow, cumbersome transactions that necessitate minimum purchase requirements. Imagine a system that uses sophisticated algorithms to enable bitcoin exchanges, brokers, and eWallets to accept credit cards with no risk of fraud. Enter Israeli Fintech company Simplex, which has already processed more than $4m in bitcoin purchases via credit card.

Next we have the marketplace lending industry, with a compound annual growth rate of 123% between 2010-2014, projected to grow to $490b globally by 2020. Companies like Lending Club, Zopa, and Prosper have led the charge, but the real innovation will come from inventing new methods of credit underwriting, rather than continuing to price risk using the decades old FICO score. Look at Backed which reverse engineered Lending Club’s underwriting model to discover a huge opportunity in mitigating risks for co-signers, thus reducing APRs for borrowers, or Cinch, which evaluates small business creditworthiness based on a reputation score, rather than the traditional credit score.

Take the $45B in pocket change carried by travelers each year, and turn it into digital currency with TravelersBox. Consider the global payments market expected to grow to $2T by 2020, and Zooz, the only agnostic technology layer that connects to any payment provider and provides business intelligence to benchmark and compare provider performance for enterprises. Finally, combine the global equity markets at an astounding $69 trillion and counting, and throw in eToro, which allows users to track the financial trading activity of top performing users and automatically copy their trades.

Investment Opportunities Abound

There are more than 400 fintech startups in Israel, covering more than a dozen business models, including crowdfunding, money management, financial advisory, banking, wallets, payments, point of sale, currency exchange, virtual currencies, small business funding, retirement, insurance, lending, security, blockchain, security, and investing. And at iAngels, we are seeing them all.

As more banks and financial service companies establish accelerators, R&D centers, and incubators in Israel, the number of investment opportunities will grow in parallel. In 2015, Israeli FinTech exit activity reached $1.3B, up from $700m in 2014, while 47 companies raised $241m. As your trusted partner in Israel, we continue to access and analyze Israel’s highest quality entrepreneurs, providing you with the best FinTech investment opportunities Israel has to offer. Take a deeper dive by browsing through our investment portfolio, here.

Max Marine
Max Marine is an iAngels Investment Analyst. Prior to iAngels, Max was a Junior Partner at Venture1st, providing marketing and communications support to Israeli start-ups. Max passed the three CFA exams consecutively, holds an MS in Investment Management, and a B.B.A. in Finance, Real Estate, and Risk Management and Insurance from Temple University’s Fox School of Business. Contact him at [email protected]

 

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Adtech is going native on steroids, hyper-personalization and consolidation

iAngels’ adviser Kfir Moyal reflects on 2015’s Adtech correction and the opportunities for investors in 2016

After years of VC exuberance, 2015 marked the end of an investment cycle for the adtech industry. Quite a few companies with high valuations stumbled, downsized, restructured and pivoted in order to achieve, or at least progress on a path toward, sustainable profitability.

Yet, despite the contraction in VC investments, the industry is growing dramatically, fueled by agencies and advertisers competing for digital real estate across billions of screens, with billions more forthcoming in the next few years. 2015’s correction sets the stage for adtech to “grow up” in 2016, especially in terms of ad quality and industry structure.

The first trend I expect in 2016 is a spike in contextually relevant ads (CRAs), like native advertising, that blend well with the user experience. Nearly 200 million ad blockers cost publishers $22 billion in 2015, an impact far from trivial. If consumers continue to face harassment from unwanted ads, this figure could double or triple in the upcoming years.

The antidote: CRAs. We’ve witnessed Google command significant premiums from advertisers for more than a decade by serving CRAs along the search dimension, while Facebook’s dominance derives from the wealth of personal data it collects on each user and its ability to seamlessly integrate relevant advertising in the newsfeed experience. In the last few years, Outbrain and Taboola have leveraged content consumption patterns to create an entirely new category of CRAs known as sponsored content/native advertising.

Even today, I find myself still clicking on sponsored content, thinking it’s native. It’s not that I’m being tricked, like with pop-up ads or clickbait; rather, the contextual relevance of the ad suits my interests. It’s nicely integrated in the page and is truly relevant. Contextual intelligence is a meaningful point of differentiation that leads to higher ROI for advertisers and publishers, and thus, the adtech companies that improve the marketer’s ability to provide the right message to the right person at the right time will attract substantial investment.

The second trend we will see is hyper-personalization, with a special focus on what I will call the “smart creative.” During the last few years adtech has focused on data collection and analysis in order to better target consumers, optimizing yields for both advertisers and publishers. Yes, we’ve improved on many different fronts, but the ad creative has remained flat and static. Thanks to the death of privacy, we now have an abundance of data that can be used to make each creative hyper-personalized and much more engaging for the consumer.

In 2016 we will see creatives that change on-the-fly based on each user’s unique characteristics rather than fixed images that are mass-distributed, and smart programmatic creative will become the standard.

The third trend to consider is consolidation. The artificial silo between adtech and martech is crumbling. Despite the pace of advertising innovation the past 15 years, the complexity of adtech as a technology stack inhibits brands, agencies and marketers from seamlessly integrating digital advertising into their full marketing stack.

In 2016, we’re going to see companies like Oracle, SAP, Salesforce, AOL, Google and Facebook beefing up their martech war chests. These incumbents will snap up new entrants to enhance and complete their martech stack in a way that they can really become a one-stop shop for marketing and adverting in a digital manner. This trend is buoyed by increasing demand for accountability from premium brands (after the 2015 AppNexus’ cleanup that shined a spotlight on the pervasive fraud affecting marketers’ ROI).

We’re going to see the CRM technology, the marketing automation technology integrated into the DMP and the DSP and the attribution solutions, the tracking vendors, all coming together into one platform that makes it much easier for the marketers to execute multi-channel, orchestrated campaigns that take advantage of data.

On the monetization side, we’ll see more and more consolidation. Adtech and martech is, in particular, an industry where size is a major advantage. We’re seeing it even with Israeli companies like Taboola and Outbrain that are discussing a merger among themselves. I bet we’re going to see it more. We’ve seen AOL buying Millennial Media, Vidible and Convertro to make it easy for brands and agencies to advertise across their destination properties like TechCrunch, Huffington Post and MapQuest.

We’re going to see that further into 2016, all across the board, either where the marketing players are going to buy the adtech players or the adtech players are going to buy the marketing players.

As an iAngels advisor and general partner at Cyhawk Ventures, I am evaluating companies in the context of the themes outlined above. In light of adtech’s 2015 correction, startups that “face the mirror” will grow fast in 2016, in a much cleaner and accountable environment. This means they will be well poised to attract investments from multiple funds, and the adtech financing environment will get back on track.

 

This article originally appeared on Techcrunch

5 of the Most Important Things When Founding a Startup

This article was written by Tomer Zussman, Co-Founder and CEO at TravelersBox, that allows travelers to convert leftover foreign currency at the end of their trip into usable digital currency (PayPal, iTunes, Skype, Pre Paid Visa, etc) through easy to use airport based kiosks.

Establishing a startup is tough and challenging, but there are a few principles, that no matter which field you’re working in, you must follow in order to start the company with the right foundations and chance to success.

1. Your first investor is the most important one – Choose well

We’ve all been there, you have this great idea, the presentation is ready, you practiced the pitch perfectly and the only thing left now is cash. From my experience, most of them are very nice and even if they do not invest, in most cases you can get great feedback for your next meeting. I know. It’s tricky and it depends on the momentum of your roadshow but the decision on the first investor will be one of the most important decisions you will make throughout the life of your start up.
Once the money is in, you start dealing with decisions that will affect your chances to succeed dramatically. Having the right person next to you to help you, advice, criticize, show you a different approach and help youngest more money is crucial.

What should you consider when choosing the investor:
• Industry related (You must get the best advisor)
• Previous investments (don’t be shy to ask and even get references)
• Chemistry (like any relationship, if you do not connect, it won’t work)
• Reputation (It is very important to your next investor who is the previous one)
• Personality – are they good people?

2. Don’t do it alone – Share the restless nights

When establishing my first start up, I did it all by myself. This isa great challenge but most certainly a big mistake. Start-ups involve stress, tough decisions, multi tasking and a lot of sleepless nights, endlessly wondering – about what I did todaywhat am I going to do tomorrow and how do I solve all of my R&D, Marketing, Operations and Finance challenges. Doing it by yourself makes it even harder, youfeel alone in the battlefield, and it is indeed a battlefield. Having someone else to help you carry the load is important, it really changes the weight you feel on your shoulders and helps to have a clear mind in order to be creative and motivated.

3. Don’t look back (or sideways), Focus!

Time is of the essence and in most cases you don’t have the amount of money you need in order to get to your next milestone (even when you are positive $1M will take you all the way).

You should run as fast as you can for your next milestone, don’t look back, never stop and don’t get distracted by anything. You will heara bunch of “No”s, “This won’t happen”, “You are crazy trying to achieve this” and more. Set your goal and go for it. Remember, momentum is very important at this point in so many levels.

4. Don’t save your way to Success

I’m not saying throw your money away. You should have a budget and you should try to stick to it.

But, if you discover a way to improve, get sales, bring users or anything else that will get you closer to your next goal – even if it is out of your planned budget – go for it. You received money in order to achieve specific goals.

You’re better off running out of money earlier than planned while you achieve important milestones, rather than presenting your next investors that you kept your budget plans and you are the best in controlling expenses, but have achieved no or few goals…

5. Find the best team possible – ‘A’ players only!

There’s never time to train employees, no time to deal with micro management, and you simply can’t afford hiring and firing at this stage. Every employee you hire must be a Touch Down. Your team will be the one who will help you achieve your goals, without them you are just an entrepreneur… Without your team – nothing will happen. Invest your time to find A players, don’t settle for less than AMAZING. They need to be independent, goal driven and self-motivated. Don’t expect less than you expect from yourself.

Fintech entrepreneur? Here’s a bonus tip for you –

Take your most difficult obstacle and use it as a barrier of entry

Fintech will always involve regulations. If you come up with a revolutionary idea, you will most likely be working in a gray area in regards to regulation and legislation.
As a start up with limited resources, it is always hard to overcome these challenges up to the point that you might be forced to stop your activity or pivot.

Another way to look at is, is to understand how the regulation can be a barrier of entry for your competitors while an open path for you.

It is only when you truly, deeply understand the market and the reasons for the limitations and regulation, that this could be achieved. Coming up with few sophisticated changes (and some brave, but not stupid decisions); you can create a tough barrier to your competitors while you achieve your goals.

 

This article originally appeared on finance Magnates

What To Know Before Co-Investing

One of my investors candidly asked me recently, “Shelly, if I have an opportunity to invest with people I’ve just met, how do I avoid getting screwed over?” This is a good question; for most investors interested in startups, co-investing is the de facto way to invest.

Just like you scrutinize the entrepreneur, the technology and the market opportunity before investing, you also need to assess the people with whom you’re investing. Why are they investing?  What is their track record?  What type of value do they bring to the startup? Why did they present the opportunity to you?

Here are 10 tips for successful co-investing.

Invest with people who are in it for the returns

This might sound like stating the obvious, but you’d be surprised. I see investors invest in companies for various reasons. Angels sometimes invest because they have a relationship with the founder or want to help. Corporates may invest because there is strategic value of the technology to the company, not the potential for a big exit.

If you are partnering with other investors, take the time to understand their motivation behind the investment, and always strive to co-invest with people who are in it for the financial potential of the opportunity.

Track the track record

Aim to co-invest with people who have a proven track record for identifying talent (a history of successful portfolio companies) and adding value (opening doors and securing investments). These types of investors see the most deals and attract the highest-caliber entrepreneurs. More importantly, their superior access and active involvement increases the likelihood that the investment will succeed.

Fear the infrequent

When an investor brings you deal flow on a regular basis, you should feel much more comfortable co-investing — as opposed to an investor who sends you a deal once in a blue moon. In the former case, you don’t have to ask why the deal is coming your way, especially if every deal is shared. In the sporadic case, the investor may be having trouble closing the round, and you should evaluate with caution.

Do due diligence

Although you can leverage the due diligence your co-investors have performed on the company (to save time and energy), reviewing the deal terms proposed by your co-investors is just as important.

Startup investing should be fun.

Notable investors who get involved in the company’s day-to-day often will demand preferential terms in the form of kickers (options or warrants), effectively reducing their entry valuation. Your job as the co-investor is to ask yourself whether this special treatment makes sense, and if your price points reflect the risk adequately.

Be mindful of adverse selection

When you see a company for the first time, assume others have seen it, as well. Try to understand on what grounds other angels and VCs passed. Some investors may have wanted to invest, but already invested in a competitor, have a past history of conflict with the founders or lack the industry connections necessary to add value.

See if you can identify insights that others likely missed (with respect to technology, team, market, etc.) to strengthen your case for investing, and avoid the notion of doing the deal that no one else wanted.

Beware of biases

It’s always great when investors from previous rounds follow-on their investments and continue to support the company. But be aware that these investors already have a working relationship with the founders, inside information on the company’s prospects and knowledge that new investors are watching carefully for a signal.

If they don’t believe in the company, this puts them in a catch-22… invest, and they risk more money in a losing bet; don’t invest, and the company may fail to raise a subsequent round, resulting in guaranteed losses. In contrast, investors seeing the deal for the first time lack an emotional and/or financial attachment to the company, and their investment conviction will come from a less biased position.

Be wary of co-investing with the co-investor

In venture capital, everyone is co-investing… accelerators, angels, VCs, corporate VCs, PE funds. Even most of the professional VCs that “lead” rounds co-invest 90 percent of the time.

To avoid this circularity, try to identify at least one smart person with a track record. It can be an angel, an industry expert, a partner in a good VC — someone who understands the industry and has conviction in the opportunity, regardless of anyone else’s opinion. This is a true lead.

Skin in the game from a portfolio perspective

You want to invest with someone who is truly vested. In dollar value, that means different things for different investors. For an angel investor, $200,000 could mean a lot of money and a real bet on the company. For a VC, it could mean just a foot in the door. To illustrate, when a $200 million VC fund invests $200,000, they are risking only 0.1 percent of their capital on the opportunity.

In such a case, you can guess that the amount of attention this company received is limited. Furthermore, if the company doesn’t evolve into being a huge opportunity, the VC might not be keen to make substantial investments down the road, which will hurt the company’s chances to raise from other investors.

Alignment of interest

Alignment is more natural when you invest with someone who has the same disposition as you. For example, if you have a net worth of $3 million, co-investing with a professional angel investor who has $20 million creates more alignment than co-investing with a $300 million VC fund.

Like individual investors, angels are usually sensitive to valuation, while VCs are sensitive to ownership — the reason being that angels typically won’t be able to follow-on on their investments indefinitely, while VCs have deeper pockets, prefer larger opportunities and allocate smaller amounts in the beginning to double down at later stages when the company does well and they want to maintain their position.

Consider each potential co-investor’s motivation when evaluating the deal.

Strategic investors (corporations) often do a lot of ground work and due diligence around their investments to ensure they create a viable exit strategy for the company, or to understand how the technology will integrate into one of their product lines or IT infrastructure. This can benefit the co-investor if the startup quadruples revenues by selling through the corporation’s distribution channels.

But if the company signs an exclusivity arrangement that prevents the startup from doing business with other companies, or a right of first refusal that discourages other strategics from bidding in an M&A situation, it can actually hurt the company a lot. Consider each potential co-investor’s motivation when evaluating the deal.

In trust we trust

Startup investing should be fun. Invest with good people you trust and build your reputation as a good, trustworthy co-investor that others want in their cap table. Each startup investment is a partnership with the entrepreneurs and co-investors. These are long and bumpy rides with much that can go wrong if you are doing it with the wrong people.

I have witnessed tense boards, investors putting down entrepreneurs, aggressive financing rounds… and other such instances that reduce your chances of success and, frankly, take out all the fun from the ride.

If you can check off the majority of these boxes, you’ve got yourself an interesting deal.

 

This article originally appeared on Techcrunch

Crowdfunding in the Context of Portfolio Management

iAngels’ Founding Partner, Shelly Hod Moyal, recently published a white paper that explains how crowdfunding fits into the context of portfolio management.  Below is the introduction of the piece.  You can download the full version here
 
With interest rates at zero and the introduction of crowdfunding-based financial innovations, investors are seeking both alpha and diversification in a new class of alternative assets: start-ups, consumer loans, private equities, and real estate projects.
While investors have deployed capital into venture capital and private equity funds, credit funds, and REITs for quite some time, “alternative alternatives” or “A2 “, represent the possibility of investing in specific securities within each of these alternative asset classes. Just like the public invests in and lends to public companies through individual stocks and bonds — not just mutual funds, the investing public can now invest in and lend to private companies and individuals through crowdfunding.
Yet, although start-up investments have a low correlation with traditional assets and can complement an investment portfolio, start-up investing is not suitable for all investors. Due to their small size, start-up investments are both illiquid and highly volatile. (For more on whether start-up investing is right for you click here).

This white paper discusses the risk/return profile of A2 with respect to diversification, a changing investment landscape, strategic asset allocation, and the prospects of A2 investing – specifically start-ups– as part of a broader investment strategy.

Startups, investors & how to decide who owns what: 5 steps to master your cap table

When accepting an investment, entrepreneurs must consider not only how far and how fast they can drive their business with the committed capital, but also how the capital structure of the company will look the day after. Ownership provides its founders with an inventive to push the company forward and ensure there isn’t a strong force pulling the company in another direction. Here are five steps to master your cap table.

Dilution per round

A round of finance usually dictates dilution of 20-25 percent to all shareholders, including founders. A good rule of thumb is that investors are looking to gain that share in the company in return for their investment. This implies the valuation of the company based on a supply demand matrix. When negotiating an investment deal, consider upping the valuation to a point where it still reflects the true value of the company, is something the investors can be happy with in terms of returns performance potential, and yet accommodates this amount of dilution.

Managing Oversubscription

It often happens that a company ends up raising more than it intended. It is probably for the best because when planning ahead, having a cushion is a very good thing.

However, if by the end of that round, the dilution amounts to almost 40 percent, it could be that the company was undervalued and the founders significantly diluted. It would be harder for them to stay incentivised through additional rounds of finance and if the board of directors decides to accept that investment, it needs to consider what it means for the founding team in the long run. If there is no willingness, don’t take the money.

Balance of Power

When considering whether to accept additional investment from existing investors versus adding new investors onto the cap table, the founders should examine how the cap table forces are going to behave post investment. It is critical to have current investors participate in the round as it is a signal for new investors that they continue to believe in the company and are maintaining their position.

New investors provide a seal of approval to the financing round, balance out the cap table and the board of directors and allow for additional exposure to new ideas, new markets and new business. As the company matures, this balance of power in the board of directors will be significant when making executive decisions. Many times a single investor in the company holds much more than each of the founders or all the founders combined. This situation has to be managed so the founders do not feel loss of control and loss of incentive.

Ambivalence between exit outcomes

Founders that hold ten percent in the company and face yet another financing round might find themselves ambivalent between remaining with ten percent ownership in a company worth $50m and raising more capital to hold five percent in a company worth $100m.

This jump in valuation would entail working very hard with a similar outcome for the founder. Investors might have other considerations and would like to build large companies. When this conflict appears, the founders must receive additional incentive to be able to sustain. Should the solution require a change of management, there would be significant effort and shift in focus for the whole company. Founders are not always happy to step aside and make room for a professional CEO who can take the company forward. Not to mention that a rockstar CEO with a track record would require a significant equity stake to take the job to begin with, a step that may as well dilute everyone even further.

Secondary room for air

Some investors feel strongly against providing liquidity to the founders before an exit because they feel they would not be as “hungry” to make the company succeed. Others feel that this room for air would allow them the runway they need to sustain longer, as they don’t have to worry about making ends meet or pay a huge mortgage while their company is worth millions on paper. These days, more and more companies are encouraging secondary offerings not only for the founders but even for employees, to keep them incentivised and for the full compensation package to remain competitive in a market where engineers are expensive and talent highly valued.

Taking ownership into account can definitely benefit the founding team. Second and third time entrepreneurs are able to position themselves better in light of their experiences and their cap tables look completely different than first timers, maintaining a control position in the company well into growth stages. Together with your investors, you can consider ownership as an important parameter of an equity investment offer. Make sure to calculate a few steps ahead into future rounds to make the most of the road ahead. Good luck.

 

This article originally appeared on TechWorld

 

Why Wall Street talent is moving to Silicon Valley

Less than a decade ago, top talent was flocking to Wall Street — not just for the high salaries and lucrative bonuses, but also for the opportunity to work in a dynamic and fast-growing environment.

But now the tech industry, with its double digit growth, is setting a new standard on what the ultimate dream job looks like, with its tales of young entrepreneurs-turned-millionaires overnight — and of game rooms and lounges alongside brainstorming corners and innovation workshops.

Tech companies have become the new desirable destination, not only for top programmers but for leading Wall Street executives, too. And with successful IPOs from the likes of Twitter, Facebook, and LinkedIn, Silicon Valley has created giant companies with the resources to pursue and retain top Wall Street talent.

Headline Hires in M&A Land

When Marissa Mayer became Yahoo’s chief executive in 2012, she hired Jacqueline D. Reses, a former Goldman banker, as the company’s chief development officer. Since then, the brain drain from finance has become apparent. Examples abound:

  • Ruth Porat, CFO at Morgan Stanley has recently been snatched by Google.
  • Former Goldman banker Anthony Noto moved to Twitter.
  • Credit Suisse lost tech banker Imram Khan to Snapchat.
  • Former Morgan Stanley securities analyst Mary Meeker is now an analyst at leading Silicon Valley venture capital firm Kleiner Perkins Caufield and Byers.
  • Laurence Tosi left Blackstone Group for Airbnb.
  • Goldman Sachs’ Sarah Friar moved to Salesforce.com, and then to Square.
  • David Wehner of Allen & Co joined Zynga, and then Facebook.

The investment in these hires makes sense from the tech giants’ perspective, since acquiring other companies and expanding into new geographies has become their core growth strategy. And we’re seeing an acqui-hire trend in tech, where giants acquire startups for the sake of raiding their talent. As these complex executions (along with post-merger integration and constant sourcing of deal flow for potential acquisitions) become inherent to their business, tech giants require the expertise of high caliber in-house financial professionals.

Since these companies are all public companies, and all eyes are on them, reporting and compliance become increasingly important — yet another reason to hire in-house bankers.

The active M&A scene in tech creates an ongoing appeal for financial sector professionals to take part in this ecosystem instead of working on deals in more traditional industries. As the tech giants branch out to other geographies such as Europe and Asia, establishing R&D centers in key locations, their visibility into other markets and opportunities expands significantly.

Additionally, the scale of acquisitions has been increasing to multibillion-dollar deals. Consider the $12.5 billion acquisition of Motorola Mobility by Google (which later kept the IP and sold the company to Lenovo for $2.91 billion), among other billion-dollar acquisitions of companies like Waze and Oculus. The famous $19 billion acquisition of WhatsApp by Facebook set another record in tech giant acquisition history. Since then we have seen the $19 billion acquisition of Sandisk by Western Digital and the largest merger in history when Dell acquired EMC for $67 billion. These deals feed into the infatuation with all things tech, creating the right content for talent to migrate from finance.

 

mba talent migration

MBAs Vote Tech

With Wall Street compensation shrinking, recent business school graduates are having difficulty justifying the intense 100-hour banking work week and lack of a work-life balance. Instead, they are choosing the casual work environment and flexibility of tech firms, trading in the Wall Street suit and tie for jeans and a tee shirt.

MBAs are fighting over internships at Google so they can breathe some innovation air as they stroll on campus among smart cars, in-office Segways, and dog-friendly work settings.

Companies like Amazon and Apple are highly ranked employers among MBAs. Last year, only 10 percent of MIT graduates went into finance, compared with the 31 percent in 2006. According to WSJ research, in 2011, 36 percent of Stanford graduates were recruited to finance jobs. This number is comparable to other top finance focused universities, including Harvard, Yale, University of Pennsylvania, and University of Chicago. By 2013, that number had shrunk to 26 percent (a decrease of almost 30 percent). During those years, the tech industry grew dramatically, and in 2013, 32 percent of Stanford graduates took tech jobs compared to only 13 percent in 2011. Although not all of the attrition in finance can be attributed to tech, research by The Economist shows that tech is quite the migration destination.

In the shift to tech companies, Stanford graduates are willing to accept a compensation composed of a lower salary and an equity component in return for a positive work culture and mission. A median tech salary for a Stanford MBA graduate averaged ~$160,000, including signing bonuses and other guaranteed compensation, compared to $285,000 in finance jobs. The delta between offerings is not dramatic, as it is offset by the equity or options component employees receive in the tech sector. Bonuses in the financial sector are nowhere near the millions of dollars pre-crisis, making it harder for MBAs to go for the banking lifestyle and culture for just another $100k a year before taxes. The upside of those tech equity options have the potential of becoming more lucrative and making the overall compensation package worth a whole lot more.

Tech giants are also increasing their East Coast presence, with Google and Facebook growing their New York offices and recruiting an increasing number of MBA graduates.

In 2011, only 5.5 percent of Columbia University graduates went for a job in tech. In 2013, that number grew by 112 percent to 11.7 percent. Giants like Amazon, AppNexus, Facebook, Spotify, eBay, ZocDoc, LinkedIn, and Yahoo have added the most New York City jobs in Q2 2014.

A Growing Trend

The migration of top executives and young talent to the tech scene is a worrying trend for Wall Street. It is possible that the demand for finance will rebound if compensation packages return to pre-2008 standards. However, the shift to tech is much more than just a monetary issue. It has become obvious that lifestyle, autonomy, and the opportunity to work in a high growth industry that is changing the world are important factors. Wall Street and other traditional industries will have to continuously adapt in order to compete with the ever-growing tech industry.

 

This article originally appeared on Venturebeat