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How to fundraise as a consumer fintech in the middle of the downturn

In 2021 we closed a £5m seed round just six months after starting Yonder and FOMO investments were rife — when we secured £62.5m in Series A funding earlier this year, those same investments had been replaced by a lot more scrutiny on profitability, unit economics and forecasts, and our milestones and progress were stringently put under a microscope. 

Gone are the days when businesses could move into Series A with no revenue or customers — especially in fintech, which was one of the hardest hit sectors for funding in Q1 this year. Venture investor Nnamdi Iregbulem puts this into perspective, showing just how interest rate changes are impacting the venture market.

So how should you go about raising as a fintech in the middle of this kind of downturn? 

Here’s how we did it. 

We made our investors our customers

As FOMO investments ground to a halt, we knew we had to focus on building the right relationships with the right people. This primarily meant looking for:

  • Investors with a track record of consumer fintech investment — it’s really unlikely that an investor will choose a sector they’ve never backed before.
  • Investors who had belief in the space and could give me insightful opinions. Even if our perspectives differed, I wanted to make sure they’d done some thinking — if they hadn’t, they weren’t the right investors for us.

It’s also worth remembering that investors will take calls and meetings but won’t necessarily do a deal as a result. I’ve seen founders mistake meetings for a sure-fire investment, but the likelihood of converting a meeting to an investment is much lower than it used to be. So it’s 10x more efficient to spend your time with investors who you know are into your product than with those who need persuading. Rather than thinking “what business do I need to build to be investible?”, ask yourself: “What kind of investors are right for the type of business I’m building?”

With that in mind, it’s an absolute gamechanger to get investors to start using your product. Every one of our Series A investors was a Yonder customer pre-raise; the fact they understood and loved the product made getting them to invest infinitely easier. We actively encouraged everyone to try it out and saturated VC networks with Yonder — I once had a VC reach out to me because they saw another VC use their Yonder card to pay for dinner.

Screenshot of an investor messaging Yonder CEO Tim Chong about seeing someone use their product

If you’re looking to do the same, my advice would be to ask your existing investors to work super hard for you. As soon as we knew an investor was using Yonder, we asked them to share it far and wide within their network, as we knew it would resonate. Your investors should be really helping you to get the word out. 

We chose the right people to front each raise

Debt and equity need each other to be in play for our credit business, so raising both (£50m debt, £12.5m equity) together set us up really well for conversations with both equity and debt investors. So if you have multiple channels of investment to raise, thinking about the right person in the business to front each is key. 

When you’re raising debt, it’s much more about the quantitative data. You need someone to lead this who’s conservative and hyper-focused on the numbers — that person will need to convince debt investors that we’re managing the downside risk and not just the growth potential. 

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On the equity side, you need to be the hype-person of your product and show investors this is something to get excited about. In our case I led the Series A equity raise, our head of finance ran the debt raise and the other cofounders stayed focused on building the business.

We prepared for nothing to go to plan

We found investor talks took much longer for Series A compared to seed; from starting conversations to closing investments our seed raise was done in two weeks, and for Series A it was more like three months. We were in 3-4x as many meetings, and investors wanted more time than we expected to make decisions. Remember as well that partners may be keen to invest, but investment committees can push back hard, which can take another toll on your timeline. 

And while your plans for growth may work on paper, there will always be challenges when making them a reality. Between seed and Series A, our risk models and customer support were stress-tested and we saw a lot more fraud attempts. There’s every chance you won’t be hitting milestones when you hit investors so be prepared for that — analysts and investors will build an £xcel model of your business that won’t take into account the reality of building a business day-to-day. Your timelines and runway have to be flexible to account for this. 

With all of this going on, you’re going to feel really stretched as a founder, when there are fires to fight in the business as well as funds to raise. I handled this in a couple of ways:

  • By totally protecting the team from fundraising so they could focus on execution;
  • And by making sure my own mental default was to never expect things to go as planned. 

Remember that fundraising is heavily linked to the market. You can build a great product but you can’t control the market, so you have to protect against market fluctuations. That means assuming the worst and planning for every eventuality. 

We valued our revenue streams based on quality

Today, investors are putting more focus on revenue, and not just customer numbers. That means understanding how your startup will be valued based on revenue multiples. We’re seeing fintech public market multiples collapse right now; but not all revenue is valued equally — some is more valued than others.

Therefore it’s worth understanding how your different revenue streams are valued in the public market. Our payments and subscription revenue, for example, is valued differently than our lending revenue. That means it’s worth articulating the quality of your revenue as well.  

Either way though, you need to adjust your expectations on valuation. As public market revenue multiples have depressed, this impacts growth stage investor valuations, which ultimately flows into early-stage valuations. This graph below from BCG’s Future of Finance report is a stark reminder of how public valuations have changed in the last few years.

Bar chart showing the average revenues for public fintechs

And if you want to read more around fintech valuations, investor Ansaf Kareem put together an extremely useful summary in his “Alchemy of Fintech Valuations” deepdive, which shows the metrics to pay attention to and where multiples are today for different subsectors, giving scaling entrepreneurs a benchmark to work from. 

A screenshot from the alchemy of fintech valuations for different fintech sectors
A screenshot from the alchemy of fintech valuations for different fintech sectors

We ignored all the VC market noise

Remember that new tech can fall out of investor favour as quickly as it fell in. Consumer fintech was the hottest thing a year ago, and now it’s a real challenge to get investors to feel excited about it. To build a great business takes time and we’re riding a two or three-decade wave of change in the sector. Have conviction in your product and don’t let investor sentiment sway you, because it’s guaranteed to swing in the short term. 

Fundraising is at least 5x harder now than it once was, and there’s far more scrutiny on the strength of your offering. But all that means is that really solid businesses are being built from the off, which is great for the market. 

Financial services is a huge industry — accounting for 8% of the UK’s GDP — and the very best companies have been patient about building towards the long term. Innovation can take a long time, but with solid metrics and a product you believe in, you’ve got everything you need to take on the market.